U.S.
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  AMENDMENT NO.1 Form
10-K/A  (Mark
One)  | X |
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934   For the
fiscal year ended: February 29, 2008   |__|
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  Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.    [  ] Yes
     [X] No  Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act.      [  ] Yes
     [X] No  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
X

No Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |___|  Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a smaller reporting company.  See definitions of
accelerated filer, large accelerated filer, and smaller reporting company in
Rule 12b-2 of the Exchange Act.   (check one):  Large
Accelerated Filer [  ] Accelerated
Filer [  ] Non-Accelerated
Filer [  ] Smaller reporting
company [X]  Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).  [  ] Yes    [X] No  The aggregate value
of the Companys common stock held by non-affiliates of the Company was
approximately $ 22,782,541as of the last day of the Companys most recently
completed fourth fiscal quarter, when the last reported sales price was $ 2.30.  There were 27,083,290
shares of the registrants common stock outstanding as of May 22, 2008.  DOCUMENTS INCORPORATED BY REFERENCE  There
are incorporated by reference in this report on Form 10-K certain previously
filed exhibits identified in Part III, Item 13 hereof.  [f10k22908finalamendedver2002.gif] PURPOSE OF AMENDMENT NO. 1  This Amendment No. 1
to the Companys Form 10-K for the fiscal year ended February 29, 2008, which
amends the Companys Form 10-K originally filed on May 27, 2008, is being filed
to disclose Jeff Mills as the related party that the Company leases office space
from in PART III, Item 13 and in Note 8  Related Party Transactions, in the
notes to Consolidated Financial Statements and to correct the Beneficial
Ownership Table in PART III, Item 12 to include all individuals (including any
group) that are beneficial owners of more than 5% of any class of the
Companys voting securities and to include shares that the beneficial owner has
the right to acquire in the next 60 days.  Also, Exhibit 10.1-Lease
Agreement with Jeff Mills, Exhibit 10.3 Stock Subscription Agreements, Exhibit
21  List of Wholly Owned Subsidiaries, and Exhibit 23.1-Consent of Independent
Registered Public Accounting Firm have been filed with this amendment and listed
in PART IV, Item 15(b) of the amendment.  The amendment also amends the
signatures included on the original Form 10-K to include the Chairman/Director
(Principal Executive Officer),  Chief Financial Officer (Principal
Financial Officer), Controller (Principal Accounting Officer) and a majority of
the Directors.  As
a result of this Amendment No.1, the certifications pursuant to Section 302 and
Section 906 of the Sarbanes-Oxley Act of 2002, as filed as exhibits 31 and 32 to
the original filing have been re-executed and re-filed as of the date of this
Amendment No. 1 on Form 10-K.     TABLE OF CONTENTS  PART I

1Item 1.
Business
1Item 1A.
Risk
Factors
2Item 2.
Properties
4Item 3.
Legal
Proceedings
4Item 4.
Submission of
Matters to a Vote of Security Holders
4PART II

5Item 5.
Market for the
Registrants Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
5Item 6.
Selected
Financial Data
6Item 7.
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
6Item 7A.
Quantitative
and Qualitative Disclosures About Market Risk
10Item 8.
Financial
Statements and Supplementary Data
10Item 9.
Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
10Item 9A.
Controls and
Procedures
11Item 9B.
Other
Information
13PART III

14Item 10.
Directors and
Executive Officers of the Registrant
14Item 11.
Executive
Compensation
16Item 12.
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
18Item 13.
Certain
Relationships and Related Transactions
19Item 14.
Principle
Accountants and Fees and Services
19PART IV
21Item 15.
Exhibits,
Financial Statement Schedules
21SIGNATURES
21       PART
I  ITEM 1.
  BUSINESS  GENERAL  The Company plans to
form an Interactive Media Group Advisory Board made up of proven industry
leaders along with representation from the Companys current board.  The
Interactive Media Group Advisory Board, once formed, will actively seek a west
coast management company to oversee the design and development of its
DigitalTown social-networking portal.  This portal, when complete, will
connect approximately 27,000 local online spirit sites formed around a town and
its high school and 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 owns the domains associated with all of these
communities. The Company was founded in 1982 under the laws of the State of
Minnesota as Command Small Computer Learning Center, Inc., a computer training
company. Over a period of years, the Company became involved in the sale of
computer components and, eventually, became a value added reseller (VAR) of
major computer brands. In 1987, the Company changed its name to Command
Electronics, Inc. In February 1995, the Company acquired CyberStar Computer
Systems, a manufacturer and marketer of microcomputers and servers, and in 1997
changed its name to CyberStar Computer Corporation. In August 2000, the Company
changed its name to eNetpc, Inc. In December 2004, the Company elected to be
regulated as a business development company under the Investment Company Act of
1940 and changed its name to BDC Capital Inc. On August 31, 2006, the Company
filed with the SEC to withdraw their business development company status. As
part of that plan, the Company changed its name to DigitalTown, Inc. on March 1,
2007.   The Companys headquarters are located at 11974 Portland
Avenue, Burnsville, MN 55337, and its telephone and facsimile numbers are (952)
890-2362 and (952) 890-7451, respectively. The Company's Internet addresses are
www.bdccapital.com, www.bdcpartners.com and www.digitaltown.com.   The
company is traded in the over-the- counter market under the ticker DGTW.  Current
Intellectual Property of DigitalTown, Inc.  PC Related domains:  BuildtoOrderPc series, including
Laptopcomputers.com and Notebookcomputers.com.  GoSchools.com domains:Specializing
in High School domain names.  EMPLOYEES  As of
May 5, 2008, DigitalTown, Inc. has three employees.  The Companys
employees are not represented by a union.  The Company considers its
relations with its employees to be outstanding.   1 Page   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.  RISKS
RELATED TO OUR BUSINESS  We
Have Historically Lost Money and Losses May Continue in the Future  We
have historically lost money.  The loss for the years ended February 29,
2008 and February 28, 2007 was $2,694,879 and $5,741,747 respectively and future
losses are likely to occur.  Our accumulated deficit at February 29, 2008
is $14,357,031. As of February 29, 2008, there exists positive working capital
of $11,549. We have negative cash flows from operations of $803,252.Accordingly, we may experience liquidity and
cash flow problems if we are not able to collect on our stock subscription
receivables as needed or raise additional capital on acceptable terms.  No
assurances can be given that we will be successful in reaching or maintaining
profitable operations.  Our current monthly cash operating expenses are
approximately $73,000 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
May Need to Raise Additional Capital to Finance Operations  Our
operations have relied almost entirely on external financing through collections
on outstanding subscription receivables to fund our operations.  Such
financing has historically come from a combination of borrowings and from the
sale of common stock.  We will need to raise additional capital to fund our
anticipated operating expenses and future development, design and launching of
portals for each school website.  We cannot assure you that financing,
whether from external sources or related parties, will be available if needed or
on favorable terms.  The sale of our common stock to raise capital may
cause dilution to our existing stockholders.  Our inability to obtain
adequate financing will result in the need to curtail business operations.
 Any of these events would be materially harmful to our business and may
result in a lower stock price.  Our
Common Stock May Be Affected By Limited Trading Volume and May Fluctuate
Significantly  There
has been a limited public market for our common stock and there can be no
assurance that an active trading market for our common stock will develop.
 As a result, this could adversely affect our stockholders' ability to sell
our common stock in short time periods, or possibly at all.  Our common
stock has experienced, and is likely to experience in the future, significant
price and volume fluctuations that could adversely affect the market price of
our common stock without regard to our operating performance.  In addition,
we believe that factors such as quarterly fluctuations in our financial results
and changes in the overall economy or the condition of the financial markets
could cause the price of our common stock to fluctuate substantially.   2 Page   Our Common Stock is Traded on the "Over-the-Counter Bulletin
Board," Which May Make it More Difficult For Investors to Resell Their Shares
Due to Suitability Requirements  Our
common stock is currently traded on the Over the Counter Bulletin Board (OTCBB
Broker-dealers often decline to trade in OTCBB stocks given that the market for
such securities is often limited, the stocks are more volatile, and the risks to
investors are greater).  These factors may reduce the potential market for
our common stock by reducing the number of potential investors.  This may
make it more difficult for investors in our common stock to sell shares to third
parties or to otherwise dispose of them.  This could cause our stock price
to decline.  It is the Companys desire to have its common stock traded on
a national exchange.  We
Could Fail to Retain or Attract Key Personnel  Our
future success depends, in significant part, on the continued services of
Richard Pomije, our Chairman, President, Chief Executive Officer and
Secretary/Treasurer.  We cannot assure you that we would be able to find an
appropriate replacement for him or any other key personnel.  Any loss or
interruption of our key personnel's services could adversely affect our ability
to develop our business plan.  We do not have an employment agreement with
Mr. Pomije, nor do we presently maintain key-man life insurance policies on him.  Minnesota Law and Our Charter May Inhibit a Takeover of Our
Company That Stockholders May Consider Favorable  Provisions of Minnesota law, such as its business combination
statute, may have the effect of delaying, deferring or preventing a change in
control of our Company.  As a result, these provisions could limit the
price some investors might be willing to pay in the future for shares of our
common stock.  Our
Officers and Directors Have the Ability to Exercise Significant Influence Over
Matters Submitted for Stockholder Approval and Their Interests May Differ From
Other Stockholders  Our
executive officers and directors, in the aggregate, will have the ability to
nominate two (2) members to the Board of Directors.  Accordingly, our
directors and executive officers, whether acting alone or together, may have
significant influence in determining the outcome of any corporate transaction or
other matter submitted to our Board for approval, including issuing common and
preferred stock, and appointing officers, which could have a material impact on
mergers, acquisitions, consolidations and the sale of all or substantially all
of our assets, and also the power to prevent or cause a change in control.
 The interests of these board members may differ from the interests of the
other stockholders.  Our Common Stock
Price May be Volatile  The
trading price of our common stock may fluctuate substantially.  The price
of the common stock may be higher or lower than the price you pay for your
shares, depending on many factors, some of which are beyond our control and may
not be directly related to our operating performance.  These factors
include the following:  - Price and volume fluctuations in the overall stock market from
time to time;  3 Page   - Volatility resulting from trading in derivative securities related
to our common stock including puts, calls, long-term equity anticipation
securities, or Leaps, or short trading positions; - Actual or anticipated changes in our earnings or fluctuations in
our operating results or changes in the expectations of securities analysts; - General economic conditions and trends; - Loss of a major funding source; or - Departures
of key personnel  ITEM 2. 
PROPERTIES  DigitalTown, Inc. leases from a director of the Company
approximately 2,650 square feet of space used for offices and operations
equipment storage at 11974 Portland Avenue, Burnsville, Minnesota at a monthly
rent of $2,650 for a five year term which commenced on December 16, 2006.
 The future rent obligations of this lease as of February 29, 2008 totaled
$120,575.  ITEM 3.  LEGAL
PROCEEDINGS  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.  ITEM 4. 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  None PART
II  ITEM 5.  MARKET
FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  DigitalTown, Inc.s common stock has been traded on the OTC
Bulletin Board ("OTCBB") since June 12, 1998. The following table sets forth the
quarterly high and low sales prices as reported during the last two fiscal years
ended February 29, 2008 and February 28, 2007.  Fiscal Year
2008


Low


HighFirst
Quarter

$
1.70

$
3.05Second
Quarter


2.35


5.35Third
Quarter


2.25


3.50Fourth
Quarter


2.00


3.50  Fiscal Year
2007

Low

HighFirst
Quarter

$
1.18

$
2.53Second
Quarter


1.12


2.25Third
Quarter


7.00


1.50Fourth
Quarter


1.50


2.70  These
quotations represent inter dealer prices, without retail markup, markdown, or
commission, and may not reflect actual transactions. Additionally, the per share
lows and  4 Page   highs included in this table have been retroactively restated to
reflect the reverse stock split of 75 to 1 on October 4, 2006.  As of May
22, 2008, there were approximately 106 record holders of the Company's common
stock.  DIVIDEND POLICY  The
Company has never paid cash dividends on any of its securities. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future. Future dividend
policy will be determined by the Company's Board of Directors based upon the
Company's earnings, if any, its capital needs and other relevant factors.  ITEM 6.
 SELECTED FINANCIAL DATA  The following table sets forth selected
consolidated financial information for DigitalTown, Inc.  as of February
29, 2008 and February 28, 2007 and for the years then ended, which have been
derived from our audited consolidated financial statements.  February 29,
February 28,Balance Sheet
Data
2008
2007Total Assets
$  746,620
$  453,069Total Liabilities
126,140
284,008Stockholders Equity
620,480
169,061  Operating Statement
Data
For the year endedFebruary
29,2008
For the year endedFebruary
28,2007Operating expenses
$      2,696,010
$      5,740,928Loss from operations
(2,696,010)
(5,740,928)Other income
(expense), net
1,131
(819)Net
loss
$  ( 2,694,879)
$  ( 5,741,747)Loss per
common share-basic and diluted
$(0.10)
$(0.42)Weighted average shares outstanding-basic and
diluted
26,035,952
13,537,116   The data set forth below should be read in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and our Consolidated Financial Statements and related
notes.  ITEM 7.
 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 years ended February 29, 2008 and February 28, 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.   5 Page     CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING INFORMATION  This
Form 10-K for the year ended February 29, 2008 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 plans to
form an Interactive Media Group Advisory Board made up of proven industry
leaders along with representation from the Companys current board.  The
Interactive Media Group Advisory Board, once formed, will actively seek a west
coast management company to oversee the design and development of its
DigitalTown social-networking portal.  This portal, when complete, will
connect approximately 27,000 local online spirit sites formed around a town and
its high school and 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 owns the domains associated with all of these
communities.  Due to
extenuating circumstances, the Company has withdrawn its application, which was
applied for during the second quarter, for membership with the American Stock
Exchange. RESULTS OF
OPERATIONS  YEARS ENDED FEBRUARY
29, 2008 AND FEBRUARY 28, 2007  Selling, general and administrative expenses for the year ended
February 29, 2008 decreased by $3,044,918 to $2,696,010 and this was primarily
due to a $3,372,762 reduction of stock option expense compared to the year ended
February 28, 2007.  Excluding stock compensation expense for the two
comparable periods, selling, general, and administrative expenses were $895,199
for the year ended February 29, 2008 compared to $567,355 for the year ended
February 28, 2007.  The increase in selling, general, and administrative
expenses of $327,844 for the two comparable periods was primarily due to
increases in professional fees, payroll expense, investor relations expense and
occupancy expense.  The Companys overall net loss for the year ended
February 29, 2008 decreased by $3,046,868 to $2,694,879 compared to the year
ended February 28, 2007.  LIQUIDITY AND CAPITAL
RESOURCES  The
Companys cash position at February 29, 2008 was $67,161, an increase of $58,228
from $8,933 at February 28, 2007.  During the year ended February 29, 2008,
net cash used in operating activities was $803,252 which was primarily due to
losses from operations, an increase in other receivables and a decrease of
deferred officer compensation and accrued payroll, offset by intangible asset
impairment charge, stock based compensation expense and  6 Page   non-cash stock expense along with an increase in accounts payable.
 Net cash used in investing activities for the year ended February 29, 2008
was $261,966 of which $181,653 was used for the renewal of existing and the
purchase of additional domain names, $72,540 for website development costs and
$7,773 was used for property and equipment 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 year ended February 29, 2008, DigitalTown, Inc. made cash payments
of $178,400 on the installment agreement. The remaining balance of $31,122 will
be paid in March and 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 year ended February 29, 2008 was $1,123,446 which consisted
of payments received on stockholder subscription receivables of $1,166,675 and
exercise of stock options of $43,125 less the payoff of a $70,000 shareholder
note payable and $16,354 of advances from officer/stockholder.  Monthly cash operating expenses for the year ended February 29,
2008, was approximately $73,000 per month. We
believe our current cash reservesand 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.  Off
Balance Sheet Arrangements  We do
not have any off balance sheet arrangements.  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 on going 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, 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 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 ownership of these domain names can be renewed
at a nominal fee each year  7 Page   prior to their expiration date, the useful lives of the domain
names are deemed to be indefinite and no amortization of the capitalized costs
for the domain names will be recorded.  Amortization for any capitalized
website development costs will start once a revenue generating site is in
service.  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.  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.
 The fair value of the Companys stock options issued under the
requirements of SFAS No. 123(R) have 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.   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.  In February 2008, the
FASB issued FASB Staff Position FAS 157-2 (FSP FAS 157-2)  Effective Date of
FASB Statement No. 157 which delays the effective date of SFAS No.
157 for non-financial assets and non-financial liabilities that are recognized
or disclosed in the financial statements on a nonrecurring basis to fiscal years
beginning after November 15, 2008.  These non-financial items include
assets and liabilities such as reporting units measured at fair value in a
goodwill impairment test and non-financial assets acquired and non-financial
liabilities assumed in a business combination. The Company has not applied the
provisions of SFAS No. 157 to its non-financial assets and non-financial
liabilities in accordance with FSP FAS 157-2.   8 Page    In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115, which permits entities to elect to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. This election is irrevocable.
The Company adopted SFAS No. 159 effective January 1, 2008 and has not
elected the permitted fair value measurement provisions of SFAS No. 159 for any
additional items as of March 31, 2008.  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) retains the fundamental
requirements in Statement 141 that the acquisition method of accounting (which
Statement 141 called the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. In general,
the statement 1) broadens the guidance of SFAS No. 141, extending its
applicability to all events where one entity obtains control over one or more
other businesses, 2) broadens the use of fair value measurements used to
recognize the assets acquired and liabilities assumed, 3) changes the accounting
for acquisition related fees and restructuring costs incurred in connection with
an acquisition, and 4) increases required disclosures. We are required to apply
SFAS No. 141(R) prospectively to business combinations for which the acquisition
date is on or after January 1, 2009. Earlier application is not permitted.  In December 2007, the
FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin No. 51 (SFAS No.
160).  SFAS No. 160 will change the accounting and reporting for minority
interests, which will be re-characterized as non-controlling interests and
classified as a component of equity. This new consolidation method will
significantly change the accounting for transactions with minority interest
holders. SFAS No. 160 is effective for fiscal years beginning after December 15,
2008, and will be adopted by us in the first quarter 2009.  SFAS No. 160 is
currently not expected to have a material effect on the Companys results of
operations, cash flows or financial position.  ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  The
market risk inherent in the Companys financial statements and in its financial
position represents the potential loss arising from adverse changes in interest
rates.  This risk is low as the Company has very limited debt and has no
third-party debt.  ITEM 8. 
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA  PageReport of
Independent Registered Public Accounting Firm
24Consolidated
Financial Statements:Consolidated
Balance Sheets
25Consolidated
Statements of Operations
26Consolidated
Statements of Stockholders' Equity
27Consolidated
Statements of Cash Flows
28Consolidated
Notes to Financial Statements
29-39  9 Page      ITEM 9.  CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  None.  ITEM 9A. CONTROLS AND
PROCEDURES The
Company maintains disclosure controls and procedures designed to provide
reasonable assurance that information required to be disclosed in its reports
filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), are recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. Such
information is accumulated by management, including our Chief Executive Officer
and contract Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance the
objectives of the control system are met. As
of February 29, 2008, our management, with the participation of our Chief
Executive Officer and contract Chief Financial Officer, carried out an
evaluation of the effectiveness of our disclosure controls and procedures as
such term is defined in Rule 13a-15(e) under the Exchange Act. Based on this
evaluation, the Chief Executive Officer and contract Chief Financial Officer
concluded that the Company's disclosure controls and procedures were not
effective as of February 29, 2008, because of the identification of the material
weaknesses in internal control over financial reporting described below.
Notwithstanding the material weaknesses that existed as of February 29, 2008,
our Chief Executive Officer and contract Chief Financial Officer have concluded
that the financial statements included in this Annual Report on Form 10-K
present fairly, in all material respects, the financial position, results of
operations and cash flows of the Company in conformity with accounting
principles generally accepted in the United States of America ("GAAP").  Report
of Management on Internal Control over Financial Reporting The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Internal control over
financial reporting is a set of processes designed by, or under the supervision
of, the Company's CEO and contract CFO, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that: Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of our assets; Provide
reasonable assurance our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and  10 Page   Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statement. Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system of internal
control, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system will be met. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate. Under
the supervision and with the participation of the Company's management,
including the Company's CEO and contract CFO, the Company conducted an
assessment of the effectiveness of its internal control over financial reporting
based on criteria established in "Internal Control-Integrated Framework" issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
as of February 29, 2008. A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be prevented or
detected. In connection with the assessment described above, management
identified the following control deficiencies that represent material weaknesses
at February 29, 2008: Managements internal control system, like many small start-up
companies, was dependant entirely on the founders. As such it had the inherent
flaws of lack of segregation of duties and being subject to time constraints of
an ever expanding set of demands that are part of growing a business.
Consequently, management did not maintain effective control relating to the
quarter end closing and financial reporting process in adequately preparing
account reconciliations (stock option activity). Additionally, the Company had
insufficient internal personnel resources and technical accounting and reporting
expertise within the Company's financial closing and reporting functions. Due to our small size, the Company did not maintain effective
control to assure segregation as the same employee was responsible for
initiating and recording of transactions, thereby creating the segregation of
duties weakness. As
a result of the material weaknesses described above, management has concluded
that, as of February 29, 2008, the Company's internal control over financial
reporting was not effective based on the criteria in "Internal
Control-Integrated Framework" issued by COSO. This annual filing does not
include an attestation report of the Company's independent registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's independent
 registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this annual filing. The
Company intends to, and has already begun to initiate measures to remediate the
identified material weaknesses through various means including, but not
necessarily limited to, the following:  11 Page   Applying
a more rigorous review of the quarterly close processes by the contract CFO to
ensure that the performance of the control is evidenced through appropriate
documentation which is consistently maintained. During
the fiscal quarter ended February 29, 2008, there was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.   ITEM 9B. OTHER
INFORMATION  None.  PART III  ITEM 10.
DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT  Set
forth below is certain information concerning each of the directors and
executive officers of DigitalTown, Inc.  Name
Age

PositionRichard A.
Pomije
53

Chairman,
President, CEO & Secretary/TreasurerPaul R.
Gramstad (1)
47

CFOMike W. Davis
    (2)


CTOJeff
Mills
46

DirectorPierce
McNally


DirectorGary
Hall


Director  (1)-Mr Gramstad is a
contract CFO and not an employee of the Company (2)-Mr Davis is a
contract CTO and not an employee of the Company  RICHARD A. POMIJE has been with DigitalTown, Inc. since 1982 and
has served as President, Secretary, Treasurer, and a director since 1996. He had
previously served in such positions from 1983 through 1992. Mr. Pomije's primary
responsibilities include overall strategic planning. Mr. Pomije holds a degree
in Communication Technology, Audio Technology and Technical Services from Brown
Institute. Mr. Pomije also received a First Class FCC license with radar
endorsement.  PAUL R. GRAMSTAD was appointed Chief Financial Officer on October
5, 2007.  Prior to his appointment as CFO, Mr. Gramstad was responsible for
the Companys financial reporting and accounting function as a contract
consultant and has continued in that role as a contract CFO.  Mr. Gramstad
is a 1983 graduate of Gustavus Adolphus College and a Certified Public
Accountant.  MIKE W. DAVIS was appointed Chief Technology Officer on December
1, 2007.  Mr. Davis is responsible for the initial system design and
architecture of a platform.  JEFF MILLS became a director in December 2003. Mr. Mills has
worked for Xerox Corporation for the past 17 years in various operation and
sales positions. He has also served  12 Page   as director for one private company and has served as president,
owner and operator of various business ventures. Mr. Mills is a 1984 graduate of
the University of Northern Iowa and has held several security licenses.  PIERCE MCNALLY became a director in March 2007.  Mr. McNally
has extensive experience with small-cap, publicly traded companies and private
startup and emerging companies.  An attorney and experienced investment and
merchant banker, Mr. McNally has been active with start-up and small-cap growth
companies in a variety of industries as a banker, investor, adviser, officer and
director.  Currently, he serves as a director of several NASDAQ-listed and
privately held companies throughout the United States and as a director of Rainy
River Resources, Inc., a Minneapolis based private investment company.  Mr.
McNally is a 1971 graduate of Stanford University and a 1978 graduate of the
University of Wisconsin Law School.  GARY HALL became a director on August 1, 2007.  Mr. Hall
currently serves as President of Pringo Networks, a prominent Los Angeles based
company fusing social networking and media sharing platforms into cohesive
online communities.  Before joining Pringo, Mr. Hall was critical in
developing Reunion.com into a top ten interface, building broad outreaches in
both partnerships and users (currently 26 million) since the Companys
inception.  He led all of the Companys online marketing and overall
strategic development.  Mr. Hall is still an active owner in
Reunion.com.  Directors are elected at the annual meeting of the stockholders
and serve until their successors are elected and qualified. Officers are elected
by the Board of Directors and serve at the discretion of the Board of Directors
or until their earlier resignation or removal.  Audit
Committee  Mr.
Mills and Mr. McNally currently serve as members of the Audit Committee. This
committee met twice during the last fiscal year. The Audit Committee is
responsible for assisting the Board of Directors with respect to its oversight
of corporate accounting, reporting practices of the Company and the quality and
integrity of the financial reports of the Company. The Board has named Jeff
Mills as the "audit committee financial expert" as defined by Item 401(h)(2) of
Regulation S-K under the Securities Act of 1933. The Company acknowledges that
the designation of Mr. Mills as the audit committee financial expert does not
impose on Mr. Mills any duties, obligations or liability that are greater than
the duties, obligations and liability imposed on Mr. Mills as a member of the
Audit Committee and the Board of Directors in the absence of such designation or
identification.  ITEM 11. 
EXECUTIVE COMPENSATION  The following table sets forth the compensation paid for services
rendered during the fiscal years ended February 29, 2008 and February 28, 2007
to the Chairman and Chief Executive Officer and the Chief Technolgy Officer. No
other officers earned cash compensation in excess of $100,000 in fiscal
2007.   13 Page   Summary Compensation Table  Name and Principle
Position
Fiscal year
Salary
Stock Option Awards (1)
Other Annual Compensation (2), (3),
(4)
Total CompensationRichard Pomije, Chairman & CEO
2008
$180,192
$
             0
$     45,544
$
    225,7362007
$185,000
$4,312,420
$     12,952
$  4,510,372David Pomije, former CEO
2007
$
          0
$   431,242
$
             0
$
    431,242Mike Davis, CTO
2008
$
          0
$   151,051
$
             0
$
    151,051   (1)
Option awards
reflect the Black-Sholes values used for expensing options in the
Companys income statement.  For additional information, see Note 7
of the Companys financial statements.  The value of the portion of
the award that is ultimately expected to vest is recognized as expense
over the requisite service periods(2)
Automobile
expenses.(3)
Board member
fees(4)
Health
insurance.  PTIONS GRANTED IN
THE LAST FISCAL YEAR  The
following table sets forth information regarding options granted to the named
executive officers and directors during the year ended February 29, 2008.    Name
Grant Date
Number of shares - Underlying options granted
Exercise Price
($/share)
Grant Date Fair Value
Expiration dateGary
Hall
7/26/2007
150,000
$4.500
$4.415
7/26/2012Paul R.
Gramstad
9/11/2007
20,000
$3.300
$3.222
9/11/2012Mike W.
Davis
12/1/2007
50,000
$3.100
$3.021
12/1/2012  OUTSTANDING
OPTIONS AT FISCAL YEAR-END  The
following table provides information relating to the value of shares of common
stock subject to options held by the named executive officers and directors as
of February 29, 2008.  14 Page    Name
Number of Unexercised Options Exercisable
Number of Unexercised Options Unexercisable
Option Exercise Price ($/share)
Option Expiration DateRichard A.
Pomije
2,500,000
0
$1.725
11/6/2011Jeff
Mills
40,000
0
$1.725
11/6/2011Pierce
McNally
100,000
0
$1.725
11/6/2011Mike W.
Davis
10,000
0
$1.725
11/6/2011Gary
Hall
150,000
0
$4.500
7/26/2012Paul R.
Gramstad
20,000
0
$3.300
9/11/2012Mike W.
Davis
50,000
0
$3.100
12/1/2012  OPTIONS
EXERCISES IN THE LAST FISCAL YEAR None  DIRECTORS'
COMPENSATION  The Company currently
pays its directors a $500.00 monthly fee.  On
January 1, 2008, the Company issued 6,200 restricted common shares at a price of
$2.50 per share, valued at $15,500, to the four directors of the Company for
payment of director fees ($500.00 per month).  On
February 15, 2008, the Company issued 2,860 restricted common shares at $2.10
per share, valued at $6,000 to the four directors of the Company for payment of
director fees ($500.00 per month).  The following table
summarizes cash payments and stock awards for the year ended February 29,
2008:  Name
Cash
Earned
Stock
Awards
Total
PeriodRichard
Pomije
$
 1,000
$
 5,500
$
 6,500
March 2007-
March 2008Jeff
Mills
$
         -
$
 7,500
$
 7,500
January
2007-March 2008Pierce
McNally
$
         -
$
 5,000
$
 5,000
June 2007-March
2008Gary
Hall
$
         -
$
 3,500
$
 3,500
September
2007-March 2008  ITEM 12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS  The following table sets forth certain information as of February
29, 2008 with respect to the number of shares of Common Stock beneficially owned
by (i) each shareholder known by DigitalTown, Inc. to own beneficially 10% or
more of the Common Stock; (ii) each director; (iii) the Chief Executive Officer,
and (iv) all directors and executive officers as a group. Unless otherwise
noted, each person listed below has sole voting and investment power with
respect to his shares. The address for each individual set forth below is 11974
Portland, Burnsville, MN 55337.     15 Page    Name of
Beneficial Owner (1)
Number of shares
Percentage of
Outstanding SharesRichard A.
Pomije (CEO,director)
19,239,566(2)
65.05(2)Jeff Mills
(director)
419,033
1.55%Pierce McNally
(director)
15,503
.06%Gary Hall
(director)
1,515
.01%Paul R.
Gramstad (contract CFO)
680
-Thomas B.
Pomije
2,141,844
7.95%All directors
and executive officers as a group (5)
17,176,297
63.43%  Common shares issued
and outstanding as of 2/29/2008 were 27,081,750  (1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Commission and, accordingly, may include securities owned by
or for, among others, the spouse, children or certain other relatives of such
person as well as other securities as to which the person has or shares voting
or investment power or has the right to acquire within 60 days. (2) Mr. Pomije has the right to acquire 2,500,000 shares through the
exercise of stock options within 60 days.  Per Rule 13d-3(d)(1) under the
Securities and Exchange Act of 1934, these shares have been included in Mr.
Pomijes beneficial shares.  Section 16 Beneficial
Ownership Reporting Compliance  Section
16 of the Securities Exchange Act of 1934, as amended, and the rules promulgated
there under require the Company's officers, directors, and holders of 10% or
more of its outstanding common stock to file certain reports with the Securities
and Exchange Commission (the "Commission"). To the Company's best knowledge,
based solely on information provided by the reporting individuals, all of the
reports required to be filed by these individuals were filed.  ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  DigitalTown, Inc. leases from Jeff Mills, a director of the
Company, approximately 2,650 square feet of space used for offices and
operations equipment storage at 11974 Portland Avenue, Burnsville, Minnesota at
a monthly rent of $2,650 for a five year term which commenced on December 16,
2006.  The future rent obligations of this lease as of February 29, 2008
totaled $120,575.  ITEM 14. 
Independent Registered Public Accounting Firm Fees.  Carver
Moquist & OConnor, LLC (CMO) served as the Companys independent registered
public accounting firm during fiscal 2008 and 2007.  The Companys audit
committee has engaged CMO to perform three quarterly reviews in fiscal 2008.  During the fiscal
years ended February 29, 2008 and 2007, the following was paid to CMO:  16 Page    2008
2007Audit fees
(1)
$
41,599
$
36,732Total other
fees (2)

$
 1,215  (1) Total fees
include the annual audit and quarterly review fees.  Billing for
out-of-pocket costs are not included.  (2) Fees in
connection with the Companys S-8 filing  During the fiscal
years ended February 29, 2008 and 2007, the following was paid to Micheal G.
Kissell, LTD:  2008
2007Tax fees
$
 120
$
 1,810  Audit Committee
Policies and Procedures:  The
primary responsibility of the Audit Committee is to oversee the Companys
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Companys financial statements, and the independent auditors are responsible for
auditing those financial statements. The Committee in carrying out its
responsibilities believes its policies and procedures should remain flexible in
order to best react to changing conditions and circumstances.  The
following shall be the principal recurring processes of the Audit Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate.  ·
The Committee shall have a clear understanding with
management and the independent auditors that the independent auditors are
ultimately accountable to the board and the Audit Committee, as
representatives of the Companys stockholders. The Committee shall have
the ultimate authority for and responsibility to evaluate and annually
recommend the selection, retention, and, where appropriate, the
replacement of the independent auditors. The Committee shall review and
approve the performance by the independent auditors of any
non-audit-related service if the fees for such service are projected to
exceed 15% of the most recently completed fiscal years combined audit
fees and audit-related service fees. The Committee shall review and
discuss with the auditors their independence from management and the
Company and the matters included in the written disclosures required by
professional independence standards applicable to the independent
auditors. Annually, the Committee shall review and assess whether the
independent auditors performance of non-audit services is compatible with
the auditors independence. In addition, the Audit Committee shall review
any candidate for the senior accounting and/or financial executive
position prior to his or her appointment by the
Company.   17 Page    ·
The Committee shall review and discuss with the independent
auditors and with the head of the Companys finance department the overall
scope and plans for the audits. Also, the Committee shall discuss with
management and the independent auditors the adequacy and effectiveness of
the accounting and financial controls, including the Companys system to
monitor and manage business risk, and legal and ethical compliance
programs. Further, the Committee shall meet separately with the
independent auditors, without management present, to discuss the results
of their respective audit procedures.  ·
The Committee shall review and discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the Committee may represent the entire Committee
for the purpose of this review.  ·
The Committee shall review and discuss with management and
the independent auditors the financial statements to be included in the
Companys annual report on Form 10-K, including their judgment about the
quality, not just the acceptability, of accounting principles, the
reasonableness of significant judgments, the basis and appropriateness of
any change in significant accounting policies and the clarity of the
disclosures in the financial statements. Also, the Committee shall review
and discuss the results of the annual audit and any other matters required
to be communicated to the Committee by the independent auditors under
generally accepted auditing standards.  ·
The Committee shall review and discuss with management and
the independent auditors any material financial or non-financial
arrangements of the Company which do not appear on the financial
statements of the Company and any transactions or courses of dealing with
parties related to the Company which transactions are significant in size
or involve terms or other aspects that differ from those that would likely
be negotiated with independent parties, in each case where such
arrangements or transactions are relevant to an understanding of the
Companys financial statements.  PART
IV ITEM 15.
 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES  (a) Consolidated
Financial Statements Audited
Consolidated Financial Statements for the year ended February 29, 2008 and
February 28, 2007  (b) Exhibits. 3.1
Articles of
Incorporation, as amended (1)3.2
Bylaws
(1)10.1
Lease agreement
with Jeff Mills10.2
1996 Employee
Stock Option Plan, as amended to date (1)10.3
Stock
Subscription Agreements22.1
List
of wholly owned subsidiaries23.1
Consent of
Independent Registered Public Accounting Firm31
Certifications
of Chief Executive Officer and Chief Financial Officer under Rule
13a-14(a)/15d-14(a)32
Certifications
under Section 1350   18 Page   (1)
Incorporated by reference to exhibit filed as a part of Registration Statement
on Form 10-SB (Commission File No. 000-27225).   SIGNATURES   Pursuant
to the requirements of Section13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.    DigitalTown,
INC.Dated: February
13, 2009
By: /s/
Richard A.
PomijeRichard A.
Pomije, Chairman, Director(Principal
Executive Officer)   Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.   Dated: February
13, 2009
By:
/s/ Richard A. PomijeRichard A.
Pomije, Chairman, Director
(Principal
Executive Officer)Dated: February
13, 2009
By:/s/
Jan K. AndersenJan K.
Andersen, Chief Executive Officer, DirectorDated: February
13, 2009
By:/s/
John A. WithamJohn A. Witham,
Chief Financial Officer,
(Principal
Financial Officer)Dated: February
13, 2009
By:/s/
Paul R. GramstadPaul R.
Gramstad, Controller
(Principal
Accounting Officer)Dated: February
13, 2009
By:
/s/Jeff MillsJeff Mills,
Director  19 Page    Dated: February
13, 2009
By: /s/
Pierce McNallyPierce McNally,
Director              DigitalTown, Inc. (formerly BDC Capital, Inc.)   CONSOLIDATED FINANCIAL STATEMENTS  FEBRUARY 29, 2008 AND FEBRUARY 28, 2007              20 Page    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the
Board of Directors and Stockholders DigitalTown, Inc.  We have
audited the accompanying consolidated balance sheets of DigitalTown, Inc.
(formerly BDC Capital, Inc.) as of February 29, 2008 and February 28, 2007, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.  We
conducted our audits in accordance with the standards of the Public Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control over financial
reporting. Accordingly, we express no such opinion.  An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of DigitalTown, Inc. (formerly
BDC Capital, Inc.) as of February 29, 2008 and February 28, 2007, and the
results of its operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.   /s/ Carver Moquist
& OConnor, LLC  Bloomington,
Minnesota May 22, 2008    21 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.) CONSOLIDATED BALANCE SHEETS ASSETSFebruary 29,2008

February 28,2007Current
assets:Cash

$      67,161

$         8,933Other
receivables

70,528

999Total
current assets

137,689

9,932Property and
equipment, net

6,737

1,579Intangible
assets, net

602,194

441,558Total
assets

$
   746,620

$
   453,069LIABILITIES AND STOCKHOLDERS' EQUITYCurrent
liabilities:Accounts
payable

$
      100,683

$
      137,144Advances
from stockholders

-

16,354Accrued
expenses:Accrued
payroll

14,301

32,169Accrued
interest

11,156

9,476Deferred
officer compensation

-

18,865Notes
payable  stockholder

-

70,000Total
current liabilities

126,140

284,008Commitments
and contingenciesStockholders
equity:Common
stock, $.01 par value, 2,000,000,000 shares authorized, 27,081,750 and
25,701,500 shares issued and outstanding at February 29, 2008 and
 February 28, 2007, respectively

270,812

257,010Additional
paid-in-capital

19,737,494

14,521,673Subscription
receivable

(5,030,795)

(2,947,470)Accumulated
deficit

(14,357,031)

(11,662,152)Total
stockholders equity

620,480

169,061Total
liabilities and stockholders equity

$
   746,620

$
   453,069   The
accompanying notes are an integral part of these consolidated financial
statements.


22 Page


DigitalTown, Inc (formerly BDC Capital, Inc.)  CONSOLIDATED STATEMENTS OF OPERATIONS  Year ended
February 29, 2008

Year ended
February 28, 2007Operating
expenses:Selling,
general and administrative expenses
$     2,696,010

$     5,740,928Loss from
operations
(2,696,010)

(5,740,928)Other income
(expense)Interest
expense
(1,680)

(5,600)Other
income
2,811

4,781Total
other income (expense)
1,131

(819)Net loss before
income taxes
(2,694,879)

(5,741,747)Income tax
provision
-

-Net loss
$
  (2,694,879)

$
 (5,741,747)Loss per common
share  basic and diluted
$
           (0.10)

$
         (0.42)Weighted
average common shares outstanding  basic and diluted
26,035,952

13,537,116  The
accompanying notes are an integral part of these consolidated financial
statements.


23 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years
Ended February 29, 2008 and February 28, 2007 Preferred Stock
Common Stock
AdditionalSeries A



Paid-In
Subscription
AccumulatedShares
Amount
Shares
Amount
Capital
Receivable
Deficit
TotalBalance February
28, 2006-(1)
20,000,000
$
 200,000
5,701,500
$
 57,010
$
 9,368,100
$
 (3,550,000)
$
 (5,920,405)
$
 154,705Payments
received on subscription agreements
-
-
-
-
-
602,530
-
602,530Pay
finders fee on common stock issued
-
-
-
-
(20,000)
-
-
(20,000)Preferred
stock converted to common stock on a 1 for 1 share basis, both common and
preferred par value stated at $.01 per share
(20,000,000)
(200,000)
20,000,000
200,000
-
-
-
-Stock
based compensation
-
-
-
-
5,173,573
-
-
5,173,573Net
loss
-
-
-
-
-
-
(5,741,747)
(5,741,747)Balance February
28, 2007
-
-
25,701,500
257,010
14,521,673
(2,947,470)
(11,662,152)
169,061Stock
issued in subscription agreements
-
-
1,300,000
13,000
3,237,000
(3,250,000)
-
-Payments
received on      subscription agreements
-
-
-
-
-
1,166,675
-
1,166,675Stock
based compensation
-
-
-
-
1,800,811
-
-
1,800,811Common
stock issued for payment of  accounts payable and services
-
-
46,190
461
113,726
-
-
114,187Common
stock issued for director fees
-
-
9,060
91
21,409
-
-
21,500Stock
options exercised
-
-
25,000
250
42,875
-
-
43,125Net
loss
-
-
-
-
-
-
(2,694,879)
(2,694,879)Balance February
29, 2008
-
-
27,081,750
$
270,812
$19,737,494
$(5,030,795)
$(14,357,031)
$ 620,480   (1)
The beginning balances as of February 28, 2006 were retrospectively adjusted for
 the 1 for 75 reverse  stock split which occurred on October 4,
2006.  The
accompanying notes are an integral part of these consolidated financial
statements.


24 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  CONSOLIDATED STATEMENT OF CASH FLOWS  Year ended February 29,
2008

Year ended February 28,
2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
$  (2,694,879)

$  (5,741,747)Adjustments to reconcile net loss to net cash flows
used in operating activities:Depreciation
2,615

1,185Intangible asset impairment
charges
124,679

-Stock based compensation
expense
1,800,811

5,173,573Non-cash stock
issued for services
81,062

-Non-cash stock
issued for rent
26,500

-Non-cash stock
issued for director fees
21,500

-Changes in
operating assets and liabilities:Other
receivables
(69,529)

(999)Prepaid
expenses
-

2,019Accounts
payable
(60,958)

126,480Accrued
expenses:Accrued payroll
(17,868)

32,169Accrued interest
1,680

5,600Deferred officer
compensation
(18,865)

18,865Net
cash used in operating activities
(803,252)

(382,855)CASH FLOWS FROM INVESTING
ACTIVITIES:Purchases of
property and equipment
(7,773)

-Purchases and
 renewal of  intangible assets  domain names
(181,653)

(224,063)Purchase of
intangible asset  website development
(72,540)

-Net
cash used in investing activities
(261,966)

(224,063)CASH FLOWS FROM FINANCING
ACTIVITIES:Advances from officer/stockholder
(16,354)

15,556Note payable-shareholder
(70,000)

-Payments
received on stockholder subscription receivables
1,166,675

582,530Payments
received from exercise of stock options
43,125Net cash provided by financing
activities
1,123,446

598,086Net change in cash and cash equivalents
58,228

(8,832)Cash and cash equivalents,
beginning of period
8,933

17,765Cash and cash equivalents,
end of period
$       67,161

$       8,933SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:Non-cash flow information:Intangible assets-domain
name renewals incurred with accounts payable
$      31,122

$ 
               -Common stock issued in lieu
of rent payments owed a director of the Company
included
in accounts payable
$      (6,625)

$ 
               -Common stock issued with
subscription agreements
$  3,250,000

$
                -Cash paid for
interest
$
                -

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





25 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   Note 1. Nature of
Business and Summary of Significant Accounting Policies:  Nature of
Business  The Company plans to
form an Interactive Media Group Advisory Board made up of proven industry
leaders along with representation from the Companys current board.  The
Interactive Media Group Advisory Board, once formed, will actively seek a west
coast management company to oversee the design and development of its
DigitalTown social-networking portal.  This portal, when complete, will
connect approximately 27,000 local online spirit sites formed around a town and
its high school and 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 owns the domains associated with all of these
communities.  The
Company has sustained losses and negative cash flows from operations and expects
these conditions to continue into the foreseeable future.  At February 29,
2008, the Company had an accumulated deficit of $14,357,031.  Subsequent to
February 29, 2008, the Company has received cash proceeds totaling approximately
$65,000 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 February 28, 2009.  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 consists 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.


26 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   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 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 ownership of these domain names can be renewed at a
nominal fee each year prior to their expiration date, the useful lives of the
domain names are deemed to be indefinite and no amortization of the capitalized
costs for the domain names will be recorded.  Amortization for any
capitalized website development costs will start once a revenue generating site
is in service.  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


27 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   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.
 The fair value of the Companys stock options issued under the
requirements of SFAS No. 123(R) have 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 years ended February 29, 2008 and February 28, 2007, 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 adjusted for the incremental
shares attributed to outstanding stock options. Incremental shares attributable
to the assumed exercise of stock options for the years ended February 29, 2008
and February 28, 2007 were excluded from the computation of diluted loss per
share as their effect would be anti-dilutive.  As of
February 29, 2008 and February 28, 2007, the Company had stock options
outstanding of 3,422,500 and 3,125,000, respectively.  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.


28 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   In
February 2008, the FASB issued FASB Staff Position FAS 157-2 (FSP FAS 157-2) 
Effective Date of FASB Statement No. 157 which delays the effective date
of SFAS No. 157 for non-financial assets and non-financial liabilities that
are recognized or disclosed in the financial statements on a nonrecurring basis
to fiscal years beginning after November 15, 2008.  These
non-financial items include assets and liabilities such as reporting units
measured at fair value in a goodwill impairment test and non-financial assets
acquired and non-financial liabilities assumed in a business combination. The
Company has not applied the provisions of SFAS No. 157 to its non-financial
assets and non-financial liabilities in accordance with FSP FAS 157-2.  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115, which permits entities to elect to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. This election is irrevocable.
The Company adopted SFAS No. 159 effective January 1, 2008 and has not
elected the permitted fair value measurement provisions of SFAS No. 159 for any
additional items as of March 31, 2008.  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) retains the fundamental
requirements in Statement 141 that the acquisition method of accounting (which
Statement 141 called the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. In general,
the statement 1) broadens the guidance of SFAS No. 141, extending its
applicability to all events where one entity obtains control over one or more
other businesses, 2) broadens the use of fair value measurements used to
recognize the assets acquired and liabilities assumed, 3) changes the accounting
for acquisition related fees and restructuring costs incurred in connection with
an acquisition, and 4) increases required disclosures. We are required to apply
SFAS No. 141(R) prospectively to business combinations for which the acquisition
date is on or after January 1, 2009. Earlier application is not permitted.  In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements  an amendment of Accounting Research Bulletin
No. 51 (SFAS No. 160).  SFAS No. 160 will change the accounting and
reporting for minority interests, which will be re-characterized as
non-controlling interests and classified as a component of equity. This new
consolidation method will significantly change the accounting for transactions
with minority interest holders. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008, and will be adopted by us in the first
quarter 2009.  SFAS No. 160 is currently not expected to have a material
effect on the Companys results of operations, cash flows or financial
position.  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 $0 at February 29, 2008 and February 28, 2007.  The
Company has not experienced any losses in such accounts.


29 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   Advertising Advertising costs are charged to operations when incurred.
 The Company did not incur any advertising expense during the years ended
February 29, 2008 and February 28, 2007.  Note 2. Property
and Equipment  Property and
equipment are as follows:  February 29, 2008

February 28,
2007Office
equipment and furniture
$
480,993
$

473,220Less
accumulated depreciation

(459,618)


(457,003)Less impairment
of equipment

(14,638)


(14,638)$
6,737
$

1,579  Depreciation expense for the years ended February 29, 2008 and
February 28, 2007 was $2,615 and $1,185, respectively.  Note 3. Intangible
Assets  Intangible assets are
as follows:  February 29, 2008

February 28,
2007Domain
names
$
654,333
$

441,558Website
development costs

72,540


-Less
accumulated amortization

-


-Less impairment
of domain names

(52,139)


-Less impairment
of website development costs

(72,540)


-$
602,194
$

441,558  Since
the useful life of the domain names are deemed to be indefinite, no amortization
has been recorded.  At
February 29, 2008, due to legal constraints on the use of our college domain
names, the Company concluded that the carrying amount of their college domain
names would not be recoverable and the Company recorded an impairment loss of
$52,139.  During
the year ended February 29, 2008, the Company capitalized $72,540 of website
development costs.  As of February 29, 2008, due to changes in the
Companys website development plan, the Company concluded that the carrying
amount of their website development costs would not be recoverable and the
Company recorded an impairment loss of $72,540 for the entire website
development costs incurred during the year.


30 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   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 paid on April 3, 2008.  Accrued
interest at February 29, 2008 and February 28, 2007 totaled $11,156 and $9,476,
respectively.  Total
interest expense incurred for the years ended February 29, 2008 and February 28,
2007 was $1,680 and $5,600, respectively.  Note 5. Income
Taxes  At
February 29, 2008, the Company had net operating loss carryforwards of
approximately $6,052,000. The net operating loss carryforwards are available to
offset future taxable income through 2028 and may be subject to the limitations
under Section 382 of the Internal Revenue Code if significant changes in the
equity ownership of the Company have occurred. If not used, net operating loss
carryforwards will expire in varying amounts through fiscal year 2028.  The
Company has recorded a full valuation allowance against its net deferred tax
asset due to the uncertainty of realizing the related net benefits as
follows:  2008

2007Deferred tax
assets:Net
operating loss carryforwards

$
    2,260,000

$
    1,939,000Stock
compensation

2,634,000

1,966,000Total deferred
tax assets

4,894,000

3,905,000Valuation
allowance

(4,894,000)

(3,905,000)Net deferred
tax assets

$
                 -

$
                 -  Reconciliation
between the federal statutory rate and the effective tax rate for the years
ended February 29, 2008 and February 28, 2007 is as follows:  2008
2007Federal
statutory tax rate

34.0%

34.0%State taxes,
net of federal benefit

4.0%

4.0%Non-deductible
items

(1.0)%

-Change in
valuation allowance

(37.0)%

(38.0)%Effective tax
rate

0.0%

0.0%


31 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   Note 6.
Stockholders Equity  Stock Transactions  On
February 22, 2008, the Company issued 10,690 restricted common shares at $2.90
per share, valued at $31,000, to a vendor of the Company, for payment of
outstanding invoices due for consulting services incurred during the year.  On
February 15, 2008, the Company issued 2,860 restricted common shares at $2.10
per share, valued at $6,000, to four directors of the Company for payment of
director fees.  On
January 1, 2008, the Company issued 6,200 restricted common shares at a price of
$2.50 per share, valued at $15,500, to four directors of the Company for payment
of director fees.  On
December 20, 2007, the Company issued 25,000 restricted common shares at a price
of $1.725 per share for the exercise of stock options and received cash proceeds
of $43,125.  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 as of February 28, 2007
totaling $6,625 and for rent charges during the year ended February 29, 2008
totaling $26,500.  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 10).  On
April 20, 2007, the Company issued 22,250 restricted common shares at a price of
$2.25 per share, valued at $50,062, to a Minneapolis area high school, for their
assistance in initially developing the portal revenue model.  Other  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 February 29, 2008, a total of 827,092 shares had been
sold and transferred to the new purchaser for a total purchase price of
$1,842,108 which is due to the original subscription holder. The underlying
original subscription receivable due the Company for these transferred shares
totaled $620,319.  As of February 29, 2008, the entire $620,319 has been
paid to the Company and has reduced their stock subscription receivable
accordingly.  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 2006 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 February 29, 2008.  As of May 7, 2008, no payments
have been received and the Company has not recorded the


32 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   $300,735 in the stock subscription receivable balance at February
29, 2008.  The Company will record those future cash receipts to Additional
Paid in Capital when received.  Stock Split 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 7. Stock
Options  The
Company has one stock option plan called The 2006 Employee Stock and Option
Plan. As of February 29, 2008, an aggregate of 5,000,000 shares of common stock
may be granted under this plan 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 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. The fair value of the
Companys stock options issued after the adoption of SFAS No. 123(R) has been
estimated using the Black-Scholes Merton (Black-Sholes) option-pricing model.  The
Black-Scholes valuation model incorporates a range of assumptions that are
disclosed in the table below. The risk-free interest rate is based on the United
States Treasury yield curve at the time of grant with a remaining term equal to
the expected life of the awards.  Due to a lack of historical data, the
expected life assumption was calculated based on the contractual term of the
options.  Expected volatility was computed based on fluctuations in the
daily price of the Companys common stock.  For
stock options granted during the years ended February 29, 2008 and February 28,
2007, we utilized the following key assumptions in computing fair value using
the Black-Scholes option-pricing model:  Year ended
February 29, 2008
Year ended
February 28, 2007Weighted-average
Volatility
202%
380%Expected
dividends
None
NoneExpected term
(in years)
5
5Weighted-average
risk-free interest rate
4.62%
4.75%  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


33 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   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
Companys consolidated financial statements for the years ended February 29,
2008 and February 28, 2007, reflect the impact of SFAS 123(R).  For the
year ended February 29, 2008, the Company granted stock options to eleven
employees and consultants allowing for the purchase of up to an aggregate of
622,000 shares of common stock, with a weighted-average-grant-date fair value of
$2.935 per share.  The Company recorded related compensation expense of
$1,800,811.  For the year ended February 28, 2007, the Company recorded
related compensation expense of $5,173,573.  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 asset. The compensation expense impacted the
basic loss per common share for the years ended February 29, 2008 and February
28, 2007 by $0.07 and $0.38 respectfully. As of February 29, 2008, there remains
$28,170 of total unrecognized compensation expense, which is expected to be
recognized over future periods through October 31, 2009.  The
following table summarizes information about the Companys stock options as of
February 29, 2008 and changes during the year ended February 29, 2008:    Number of Options
Weighted Average Exercise Price
Weighted Average Remaining Contract Life
Aggregate Intrinsic Value (1)Options outstanding February 28, 2006
422,200
$    1.04
-
-Granted
3,125,000
1.725
-
-Canceled or expired
(422,200)
(1.04)
-
-Exercised
-
-
-
-Options outstanding - February 28, 2007
3,125,000
$  1.725
-
-Granted
622,000
3.019
-
-Canceled or expired
(299,500)
(1.936)
-
-Exercised
(25,000)
(1.725)
-
-Options outstanding - February 29, 2008
3,422,500
$  1.942
3.74
$ 1,226,238Exercisable at February 29, 2008
3,313,109
$  1.964
3.64
$ 1,113,771  (1) The
intrinsic value of an option is the amount by which the fair value of the
underlying stock exceeds its exercise price.  Note 8. Related
Party Transactions  The
Company entered into a 5 year lease with Jeff Mills, 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


34 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   of
$3,650. The Company previously sub-leased from Jeff Mills, a director of the
Company, 1,000 square feet of space at the same location at a monthly rent of
$750 renewable monthly.  The Companys lease payments made to the director
for the years ended February 29, 2008 and February 28, 2007 totaled $31,800 and
$12,827, 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.  Minimum lease
payments at February 29, 2008 are as follows:2009
$ 31,8002010
31,8002011
31,8002012
25,175$
120,575  Note 9.
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 10. Common
Stock Subscriptions Receivable  During
the 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. · 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 from the
stock sale.  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.


35 Page


DigitalTown, Inc. (formerly BDC Capital, Inc.)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS Years
Ended February 29, 2008 and February 28, 2007   · 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 from the
stock sale.  The following tables
summarize information about the stock subscription receivable:  Receivable
balance at February 28, 2006
$
   3,550,000Cash
collected
(602,530)Receivable
balance at February 28, 2007
2,947,470Cash collected
(1,166,675)New
subscriptions received October 5, 2007
3,250,000Receivable
balance at February 29, 2008
$
   5,030,795Summary of
outstanding subscriptions:2006
subscriptions
$
  1,780,795October 5, 2007
subscriptions
3,250,000$
  5,030,795  No
interest has been charged on these subscription agreements.  The Company
has collected approximately $65,000 of additional outstanding subscription
receivables for the period from March 1, 2008 to May 20, 2008.


36 Page