DigitalTown, Inc. - Quarter Report: 2007 November (Form 10-Q)

digitaltown10q113007.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

| X |

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: November 30, 2007

\|__\|	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-27225

DigitalTown, Inc.

(formerly BDC Capital, Inc.)

(Name of small business issuer in its charter)

Minnesota	41-1427445
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11974 Portland Avenue, Burnsville, Minnesota	55337
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number: (952) 890-2362

Securities registered under Section 12(g) of the Exchange Act:

Title of Each Class

Common Stock

Par Value $0.01 per share

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer [ ]

Accelerated Filer [ ]

Non-Accelerated Filer [X]

There were 27,062,000 shares of the registrant’s common stock outstanding as of January 7, 2008.

TABLE OF CONTENTS

PART I

Item 1.	Financial Statements	1-11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II

Item 1.	Legal Proceedings	16

Item 1A	Risk Factors	16

Item 2.	Unregistered sales of Equity Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	16

Item 4.	Submission of Matters to a Vote of Security Holders	16

Item 5.	Other Information	16

Item 6.	Exhibits	17

iii

PART I

ITEM 1. FINANCIAL STATEMENTS

	Page
Financial Statements:
Consolidated Balance Sheets	1
Consolidated Statements of Operations	2
Consolidated Statements of Cash Flows	3
Notes to Financial Statements	4-11

DigitalTown, Inc.

(formerly BDC Capital, Inc.)

CONSOLIDATED BALANCE SHEETS

ASSETS
	November 30, 2007			February 28, 2007
	(unaudited)			(audited)
Current assets:
Cash	$	153,456		$	8,933
Other receivable		28			999
Total current assets		153,484			9,932
Property and equipment, net		4,340			1,579
Intangible assets – domain names/website development		730,756			441,558
Total assets	$	888,580		$	453,069

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	266,274		$	137,144
Advances from stockholders		0			16,354
Accrued expenses:
Accrued payroll		18,731			32,169
Accrued interest		11,156			9,476
Deferred officer compensation		0			18,865
Notes payable – stockholder		0			70,000
Total current liabilities		296,161			284,008

Commitments and contingencies

Stockholders’ equity:
Common stock, $.01 par value, 2,000,000,000 shares authorized, 27,037,000 and 25,701,500 shares issued and outstanding at November 30, 2007 and February 28, 2007, respectively		270,365			257,010
Additional paid-in-capital		19,486,546			14,521,673
Subscription receivable		(5,130,220	)		(2,947,470	)
Accumulated deficit		(14,034,272	)		(11,662,152	)
Total stockholders’ equity		592,419			169,061
Total liabilities and stockholders’ equity	$	888,580		$	453,069

The accompanying notes are an integral part of these consolidated financial statements.

DigitalTown, Inc

(formerly BDC Capital, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended						For the Nine Months Ended
	November 30,						November 30,
	2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating expenses:
Selling, general and administrative expenses	$	598,182		$	5,348,597		$	2,375,648		$	5,563,900

Loss from operations		(598,182	)		(5,348,597	)		(2,375,648	)		(5,563,900	)

Other income (expense)
Interest expense		0			(1,400	)		(1,680	)		(4,200	)
Other income		1,014			398			5,208			1,253
Total other income (expense)		1,014			(1,002	)		3,528			(2,947	)

Net loss	$	(597,168	)	$	(5,349,599	)	$	(2,372,120	)	$	(5,566,847	)



Loss per common share – basic and diluted	$	(0.02	)	$	(0.31	)	$	(0.09	)	$	(0.59	)

Weighted average common shares outstanding – basic and diluted		26,546,335			17,129,533			25,992,965			9,500,517

The accompanying notes are an integral part of these consolidated financial statements.

DigitalTown, Inc.

(formerly BDC Capital, Inc.)

CONSOLIDATED STATEMENT OF CASH FLOWS

	Nine months ended November 30, 2007			Nine months ended November 30, 2006
	(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,372,120	)	$	(5,566,847	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation		1,195			889
Stock based compensation expense		1,645,040			5,149,484
Non cash stock payments for services		50,063			-
Changes in operating assets and liabilities:
Other receivables		971			-
Prepaid expenses		-			2,019
Accounts payable		90,895			26,379
Accrued expenses:
Accrued payroll		(13,438	)		4,136
Accrued interest		1,680			4,200
Deferred officer compensation		(18,865	)		33,000

Net cash used in operating activities		(614,579	)		(346,740	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets		(3,956	)		-
Purchase of intangible asset-website development		(72,540	)		-
Purchases and renewal of intangible assets – domain names		(145,298	)		(220,666	)

Net cash used in investing activities		(221,794	)		(220,666	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from officer/stockholder		(16,354	)		15,556
Note payable-shareholder		(70,000	)		-
Payments received on stockholder subscription receivables		1,067,250			545,280

Net cash provided by financing activities		980,896			560,836

Net change in cash and cash equivalents		144,523			(6,570	)

Cash and cash equivalents, beginning of period		8,933			17,765

Cash and cash equivalents, end of period	$	153,456		$	11,195

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash flow information:
Intangible assets-domain name renewals incurred with accounts payable	$	71,360		$	-
Common stock issued in lieu of rent payments owed a director of the Company included in Accounts Payable	$	(33,125	)	$	-

The accompanying notes are an integral part of these consolidated financial statements.

DigitalTown, Inc.

(formerly BDC Capital, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Nature of Business and Summary of Significant Accounting Policies:

Nature of Business

The Company currently is developing the DigitalTown social-networking portal which will connect approximately 27,000 local online spirit sites formed around a town and its high school. The Company owns the domains associated with all of these communities. This portal, when complete, will include easy-to-use and free features such as email, alumni communication and reunion tools, calendar and organizing tools for boosters, personal profiles, photo, video and music sharing and timely community news. The Company currently is developing a service-and-product revenue model associated with the use of the DigitalTown portal.

The Company is working with website development and hosting companies and proven application service providers to create beta sites for its DigitalTown portal. These viral sites will offer a rich menu of free features, from reunion planning and booster organizing tools, notification systems, and applications to create information about school and community activities which will attract and connect alumni, boosters, students and administrators and deepen their relationships.

The Company has sustained losses and negative cash flows from operations and expects these conditions to continue into the foreseeable future. At November 30, 2007, the Company had an accumulated deficit of $14,034,272. Subsequent to November 30, 2007, the Company has received cash proceeds totaling approximately $50,000 from its stock subscription receivable. The Company anticipates that existing cash, stock subscription proceeds received to date, expected future proceeds from its stock subscription receivables and any additional financing needed through the sale of its common stock or other equity-based securities will be sufficient to meet its working capital and capital expenditures needs through at least November 30, 2008. In the event that we are unable to obtain additional capital in the future, we would be forced to reduce operating expenses and/or cease operations altogether.

Principles of Consolidation

The Company files consolidated financial statements that include its controlled Subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, other receivables, accounts payable, accrued expenses and notes payable. Pursuant to SFAS No. 107 “Disclosures About Fair Value of Financial Instruments,” the Company is required to estimate the fair value of all financial instruments at the balance sheet date. The Company considers the carrying value of its financial instruments in the financial statements to approximate fair value.

Revenue Recognition

The Company does not currently generate revenue from its operations.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturity of three months or less when purchased to be cash equivalents.

Intangible Assets – Domain Names/WebSite Development Costs

The Company is still in the development stage of its website portal, and accordingly, all costs including license renewals, associated with domain names expected to be utilized in its website portal and website development costs have been capitalized. Since the Company is still in the development stage of its website portal and the ownership of these domain names can be renewed at a nominal fee prior to their expiration date, the useful life of the domain names are deemed to be indefinite and no amortization will be recorded. Additionally, since the Company is still in the development stage of its website portal, no amortization has been recorded for the website development costs.

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives, ranging from two to five years. Leasehold improvements are amortized over the shorter of the useful life or the term of the related lease. Repairs and maintenance costs are expensed as incurred; major renewals and improvements are capitalized. As items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment and intangible assets – domain names/website development costs are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Income Taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating losses and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment.

Stock-Based Compensation

Effective March 1, 2006, the Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment,” applying the modified prospective method. This standard requires the fair value of share-based payments, including grants of employee stock options and employee stock purchase plan shares, to be recognized in the income statement based on their grant date fair values unless a fair value is not reasonably estimable. Prior to the Company’s adoption of SFAS No. 123(R), the Company followed the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related interpretations, as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” The fair value of the Company’s stock options issued prior to and after the adoption of SFAS No. 123(R) has been estimated using a Black-Scholes pricing model, which assumes no expected dividends and estimates the option expected life, volatility and risk-free interest rate at the time of the grant.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss). Items defined as other comprehensive income (loss) include such items as foreign currency translation adjustments and unrealized gains (losses) on certain marketable securities. For the three and nine months ended November 30, 2007 and 2006, the Company had no items defined as other comprehensive income (loss).

Net Loss Per Common Share

Basic loss per share is computed using the weighted average number of shares outstanding for the period. Diluted loss per share is computed using the weighted average number of shares outstanding per share adjusted for the incremental shares attributed to outstanding stock options under the Company's stock option plans and convertible debt. Incremental shares attributable to the assumed exercise of stock options and conversion of debt for the three and nine months ended November 30, 2007 and November 30, 2006 were excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"). This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this statement. We believe the adoption of SFAS No. 157 will not have a material impact on our consolidated financial position or results of operations.

Cash Deposits in Excess of Federally Insured Limits

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The balances are insured by the Federal Deposit Insurance Company up to $100,000. Account balances in excess of federally insured limits were $30,061 at November 30, 2007 and $0 at February 28, 2007. The Company has not experienced any losses in such accounts.

Note 2. Property and Equipment

Property and equipment are as follows:

	November 30, 2007			February 28, 2007
Office equipment and furniture	$	477,176		$	473,220
Less accumulated depreciation		(458,198	)		(457,003	)
Less impairment of equipment		(14,638	)		(14,638	)
	$	4,340		$	1,579

Depreciation expense for the three and nine months ended November 30, 2007 was $407 and $1,195, respectively.

Note 3. Intangible Assets

Intangible assets are as follows:

	November 30, 2007		February 28, 2007
Domain names	$	658,216	$	441,558
Website development		72,540		-
Less accumulated amortization		-		-
	$	730,756	$	441,558

Since the Company is still in the development stage of its website portal and the useful life of the domain names are deemed to be indefinite, no amortization has been recorded.

Note 4. Notes Payable – Stockholder

On June 18, 2007, the Company paid all interest bearing advances from a stockholder in the amount of $70,000. The unsecured notes were due at various dates from June 21, 2007 to August 1, 2007 with an interest rate of 8%. Outstanding accrued interest owed on these advances was not paid on June 18, 2007 and remains a debt of the Company. Accrued interest at November 30, 2007 and February 28, 2007 totaled $11,156 and $9,476, respectively.

Note 5. Stockholders Equity

During the period from May 2007 to September 2007, holders of previously subscribed shares sold a portion of their shares to other subscription holders of the Company in order to pay the Company the balance due on their subscription agreements. As of November 30, 2007, a total of 827,092 shares had been sold and transferred to the new purchaser and the proceeds of $1,842,108 was due to the original subscription holder. The underlying original subscription receivable due the Company for these transferred shares totaled $620,319. As of November 30, 2007, the entire $620,319 has been paid to the Company and has reduced their stock subscription receivable. Additionally, due to these shares being re-sold at prices in excess of the original face amount of the shares purchased, a portion of the proceeds is due back to the Company. Per the 2005 stock subscription agreements, the seller of the subscribed shares is entitled to up to 200% of the face amount of each share sold and the Company is entitled to 50% of any additional proceeds of the stock in excess of that 200%. Therefore, the Company is owed $300,735 for their share of the additional proceeds for sales that occurred through November 30, 2007. As of January 14, 2008, no payments have been received and the Company has not recorded the $300,735 in the stock subscription receivable at November 30, 2007. The Company will record those future cash receipts to Additional Paid in Capital when received.

On October 5, 2007, the Company issued 13,250 restricted common shares at a price of $2.50 per share, valued at $33,125, to a director of the Company, for payment of outstanding rent charges included in accounts payable for the period of December 16, 2006 through December 31, 2007.

On October 5, 2007, the Company issued 1,300,000 restricted common shares at a price of $2.50 per share, valued at $3,250,000 in exchange for stock subscription agreements (see further details in note 9).

On April 20, 2007, the Company issued 22,250 restricted common shares, valued at $50,063, to a Minneapolis area high school for their assistance in initially developing the portal revenue model.

On October 4, 2006, the Company initiated a reverse stock split of 75 to 1. Accordingly, all per share amounts reported in the financial statements for all periods have been retroactively restated to reflect the reverse stock split.

Note 6. Stock Options

The Company has one stock option plan called The 2006 Employee Stock and Option Plan. As of August 31, 2007, an aggregate of 5,000,000 shares of common stock may be granted under these plans determined by the Board of Directors. The stock options may be granted to directors, officers, employees, consultants and advisors of the Company. Options granted under this plan are non-qualified stock options and have exercise prices and vesting terms established by the Board of Directors at the time of each grant. Vesting terms of outstanding options range from immediate to two years of employment anniversary. All options expire either two or five years from the date of grant.

Effective March 1, 2006, the Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment,” which requires the fair value of share-based payments, including grants of employee stock options and employee stock purchase plan shares, to be recognized in the income statement based on their grant date fair values unless a fair value is not reasonably estimable. Prior to the Company’s adoption of SFAS No. 123(R), the Company followed the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related interpretations, as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” The fair value of the Company’s stock options issued prior to and after the adoption of SFAS No. 123(R) has been estimated using a Black-Scholes Merton option pricing model, which assumes no expected dividends and estimates the option expected life, volatility and risk-free interest rate at the time of grant.

The Company elected to adopt the modified prospective transition method, under which prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). SFAS 123 (R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite vesting periods in the Company’s consolidated statements of operations. The adoption of SFAS 123 (R) also requires certain changes to the accounting for income taxes and the method used in determining diluted shares, as well as additional disclosure related to the cash flow effects resulting from share-based compensation. The relevant interpretive guidance of Staff Accounting Bulletin 107 was applied in connection with its implementation and adoption of SFAS 123 (R). The valuation provisions of SFAS No. 123(R) apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified. The Company had no remaining estimated compensation for grants that were outstanding as of the effective date that would need to be recognized over the remaining service period using the compensation cost estimated for the SFAS No. 123 pro forma disclosures.

The Company’s consolidated financial statements as of and for the three and nine months ended November 30, 2007, reflect the impact of SFAS 123(R). For the three months ended November 30, 2007, the Company granted 130,000 stock options with an average per option fair value of $2.27 and recorded related compensation expense of $336,314. For the nine months ended November 30, 2007, the Company has recorded $1,645,040 in stock compensation expense. This expense is included in selling, general and administrative expense. There was no tax benefit from recording this non-cash expense due to the Company having a full valuation allowance against its deferred tax assets. The compensation expense impacted the nine months ended November 30, 2007 basic loss per common share by $0.06. There remains $73,955 of total unrecognized compensation expense, which is expected to be recognized over future periods through November 30, 2008.

The following table summarizes information about the Company’s stock options:

	Number of Options			Weighted Average Exercise Price			Weighted Average Remaining Contract Life		Aggregate Intrinsic Value (1)
Options outstanding February 28, 2007		3,125,000		$	1.725			3.75		-
Granted		572,000		$	2.912			4.50		-
Canceled or expired		(270,000	)	$	(1.725	)		3.75		-
Exercised		-			-			-		-
Options outstanding - November 30, 2007		3,427,000		$	1.944			4.00	$	3,961,530
Exercisable at November 30, 2007		3,303,872		$	1.923			4.00	$	3,889,038

(1) The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.

Note 7. Related Party Transactions

The Company entered into a 5 year lease with a director of the Company for approximately 2,650 square feet of space used for offices and operations equipment storage at 11974 Portland Avenue, Burnsville, Minnesota. The lease commenced on December 16, 2006 at a monthly rent of $2,650 for the 5 year term of the lease and contains an option to renew for an additional term of 1 year at a monthly rent of $3,650. The Company previously sub-leased from a director of the Company the 1,000 square feet of space at the same location at a monthly rent of $750 renewable monthly. The Company incurred rent expense to the director for the three and nine months ended November 30, 2007 totaling $7,950 and $23,850, respectively. On October 5, 2007, the Company issued 13,250 restricted common shares, valued at $33,125, to the director for rent payments due for the period of December 16, 2006 through December 31, 2007.

Future payments for fiscal years ending:

2008-remaining	$	7,950
2009		31,800
2010		31,800
2011		31,800
2012		25,175
	$	128,525

Note 8. Commitments and Contingencies

The Company is exposed to asserted and unasserted claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations.

Note 9. Common Stock Subscriptions Receivable

During fiscal year ended February 28, 2006, the Company received subscriptions for 4,811,709 restricted common shares at $0.75 per share. Significant terms of the subscription agreement are as follows:

Payment is due in full in 60 months

At 24 months, the Company can demand at its option, monthly 1/36 payments on the subscription agreement.

The Company has the option to charge simple annual interest of up to 4%.

The Company will provide downside protection of up to 30% of the stock price upon conversion.

On October 5, 2007, the Company received subscriptions for 1,300,000 restricted common shares at $2.50 per share. Significant terms of the subscription agreement are as follows:

The price per share of $2.50 was based on the closing price on October 4, 2007.

At 24 months, 1/36 payments are due monthly.

The Company, at its option, may call up to 1/12 of the gross receivable per month if the preceding 30 day average trading price is at or above $7.00 a share with minimum trading volume of 5,000 shares per day.

If the purchaser sells these common shares, the purchaser shall be entitled to an amount equal to 200% of the original purchase price of each share and the Company shall be entitled to 50% of any additional net sales proceeds of the stock.

As of November 30, 2007 and February 28, 2007, the Company has outstanding subscription receivables of $5,130,220 and $2,947,470 respectively. For the three months ended November 30, 2007, the Company collected $499,250 of outstanding subscription receivables. No interest has been charged on these subscription agreements. The Company has collected approximately $45,000 of additional outstanding subscription receivables subsequent to November 30, 2007.

The following table summarizes information about the stock subscription receivable:

Receivable balance at February 28, 2007	$	2,947,470
Cash collected from March 1, 2007 to November 30, 2007		(1,067,250	)
New subscriptions received October 5, 2007		3,250,000
Receivable balance at November 30, 2007	$	5,130,220

2006 subscriptions	$	1,880,220
October 5, 2007 subscriptions		3,250,000
	$	5,130,220

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of operations of the Company for the three and nine months ended November 30, 2007, which should be read in conjunction with, and is qualified in its entirety by, the financial statements and notes thereto included elsewhere in this report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Form 10-Q for the quarter ended November 30, 2007, contains forward-looking statements within the meaning of Section 27A of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements may be identified by the use of forward-looking terminology, such as “may,” “shall,” “could,” “expect,” “estimate,” “anticipate,” “predict,” “probable,” “should,” “continue,” or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management and are considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

Company Overview

The Company has applied for membership with the American Stock Exchange.

RESULTS OF OPERATIONS

THREE MONTHS ENDED NOVEMBER 30, 2007 and 2006

Selling, general and administrative expenses for the current three months decreased by $4,750,415 to $598,182 and this was primarily due to a $4,813,170 reduction of stock option expense. Excluding stock compensation expense for the two comparable quarters, selling, general, and administrative expenses were $261,868 for the three months ended November 30, 2007 compared to $199,113 for the three months ended November 30, 2006. The increase in selling, general, and administrative expenses of $62,755 for the two comparable quarters was primarily due to increases in investor relations expense and filing fees related to the Company’s application for membership with the American Stock Exchange. The Company’s overall net loss for the current three months decreased by $4,752,431 to $597,168.

NINE MONTHS ENDED NOVEMBER 30, 2007 and 2006

Selling, general and administrative expenses for the current nine months decreased by $3,188,252 to $2,375,648 and this was primarily due to a $3,504,444 reduction of stock option expense. Excluding stock compensation expense for the two comparable periods, selling, general, and administrative expenses were $730,608 for the nine months ended November 30, 2007 compared to $414,416 for the nine months ended November 30, 2006. The increase in selling, general, and administrative expenses of $316,192 for the two comparable periods was primarily due to increases in investor relations expense, filing fees related to the Company’s application for membership with the American Stock Exchange, payroll expense and professional fees. The Company’s overall net loss for the current nine months decreased by $3,194,727 to $2,372,120.

LIQUIDITY AND CAPITAL RESOURCES

NINE MONTHS ENDED NOVEMBER 30, 2007

The Company’s cash position at November 30, 2007 was $153,456, an increase of $144,523 from $8,933 at February 28, 2007. During the nine months ended November 30, 2007, net cash used in operating activities was $614,579 which was primarily due to losses from operations, offset by non cash stock payments and stock based compensation expense along with an increase in accounts payable. Net cash used in investing activities for the nine months ended November 30, 2007 was $221,794 of which $145,298 was used for the renewal of existing and the purchase of additional domain names, $72,540 for website development costs and $3,956 was used for fixed asset purchases. Tiger Media, a wholly owned subsidiary of DigitalTown, Inc., entered into an installment agreement in May 2007 with an online services vendor for the renewal of existing domain names and assistance in purchasing additional domain names. The total amount of the non-interest bearing installment agreement was $214,080. For the nine months ended November 30, 2007, DigitalTown, Inc. made cash payments of $142,720 on the installment agreement. The remaining balance of $71,360 will be paid in 4 monthly payments of $17,840 for the period of December 2007 to April 2008 and is included in accounts payable on the consolidated balance sheet and non-cash investing and financing activities on the consolidated statement of cash flows. Net cash provided by financing activities for the nine months ended November 30, 2007 was $980,896 which consisted of payments received on stockholder subscription receivables of $1,067,250 less the payoff of a $70,000 shareholder note payable and $16,354 of advances to officer/stockholder.

Our current monthly operating expenses for the three months ended November 30, 2007, adjusted for non cash stock based compensation of $336,314, was approximately $87,000 per month. We believe our current cash reserves and amounts we expect to collect on our outstanding stock subscription receivables should be sufficient to enable us to operate for the next 12 months. We anticipate that any additional financing would be through the sale of our common stock or other equity-based securities. In the event that we are unable to obtain additional capital in the future, we would be forced to reduce operating expenses and/or cease operations altogether.

Critical Accounting Policies

The discussion and analysis of DigitalTown, Inc.’s financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management reviews its estimates on an ongoing basis.

Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. While DigitalTown Inc.’s significant accounting policies are described in more detail in Note 1 to its financial statements and year-end 10-K filed for February 28, 2007, management believes the following accounting policies to be critical to the judgments and estimates used in the preparation of its financial statements:

Intangible Assets- Domain Names/Website Development Costs

The Company is still in the development stage of its website portal, and accordingly, all costs, including license renewals, associated with domain names expected to be utilized in its website portal and website development costs have been capitalized. Since the Company is still in the development stage of its website portal and the ownership of these domain names can be renewed at a nominal fee prior to their expiration date, the useful life of the domain names are deemed to be indefinite and no amortization will be recorded. Additionally, since the Company is still in the development stage of its website portal, no amortization has been recorded for the website development costs.

Impairment of Long-Lived Assets

Recently issued accounting pronouncements:

FORWARD-LOOKING INFORMATION

Any statements contained herein related to future events are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on forward-looking statements. DigitalTown, Inc. undertakes no obligation to update any such statements to reflect actual events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risk for the effect of interest rate changes. Information relating to quantitative and qualitative disclosure about market risk is set forth below and in Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.

As of November 30, 2007, the Company did not have any off-balance sheet investments or hedging investments.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

An evaluation made at the end of the period covered by this report was performed under the supervision and with the participation of the Company's president, chief executive officer ("CEO") and the chief financial officer ("CFO") of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”))to insure that the Company records, processes, summarizes and reports in a timely and effective manner the information required to be disclosed in reports filed with or submitted to the Securities and Exchange Commission. Based on that evaluation and in taking into account the limited number of employees noted in the following paragraph, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective in timely bringing to their attention material information related to the Company required to be included in the Company's periodic Securities and Exchange Commission filings. Since the date of this evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect those controls.

Due to the limited number of Company employees engaged in the authorization, recording, processing and reporting of transactions, there is inherently a lack of segregation of duties. The Company periodically assesses the cost versus benefit of adding the resources that would remedy or mitigate this situation, and currently does not consider the benefits to outweigh the costs of adding additional staff in light of the limited number of transactions related to the Company's operations.

(b) Changes in Internal Controls over Financial Reporting.

There have been no significant changes in internal control over financial reporting that occurred during the fiscal period covered by this report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II

ITEM 1.

LEGAL PROCEEDINGS

DigitalTown, Inc. is, from time to time, a party to litigation arising in the normal course of its business. The Company believes that none of these actions will have a material adverse effect on its financial condition or results of operations.

ITEM 1A. RISK FACTORS

We are subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On October 5, 2007, the Company issued 13,250 restricted common shares at a price of $2.50 per share, valued at $33,125, to a director of the Company, for payment of outstanding rent charges for the period of December 16, 2006 through December 31, 2007.

On October 5, 2007, the Company issued 1,300,000 restricted common shares at a price of $2.50 per share, valued at $3,250,000 in exchange for stock subscription agreements.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

(a)

All information required to be disclosed on a report on Form 8-K during the period ended November 30, 2007 has previously been reported.

(b)

There have been no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

3.1	Articles of Incorporation, as amended (1)	Previously Filed
3.2	Bylaws (1)	Previously Filed
31.1	Certification of Chief Executive Officer under Rule 13a-14(a)/15d-14(a)	Included
31.2	Certification of Chief Financial Officer under Rule 13a-14(a)/15d-14(a)	Included
32.1	Certification of Chief Executive Officer under Section 1350	Included
32.2	Certification of Chief Financial Officer under Section 1350	Included

(1) Incorporated by reference to exhibit filed as a part of Registration Statement on Form 10-SB (Commission File No. 000-27225).

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DigitalTown, INC.
	(formerly BDC Capitl, Inc.)

	Dated: January 14, 2008


	/s/ Richard A. Pomije
	Richard A. Pomije, CEO


	/s/ Paul R. Gramstad
	Paul R. Gramstad, CFO