U.S.
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  Form
10-Q  (Mark
One)  | X |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934   For the
quarterly period ended: November 30, 2009   |__|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934   Commission file number: 000-27225   DigitalTown, Inc. (Name of
registrant 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:   Indicate by check
mark whether the registrant (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  Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
       [  ]  Yes  [  ] No
   [ X] (Not required)      Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definitions of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act.   (check one):  Large
Accelerated Filer [  ] Accelerated
Filer [  ] Non-Accelerated
Filer [  ] Smaller reporting
company [X]  Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).      [  ]  Yes  [X]
 No  There were 27,403,725
shares of the registrants common stock outstanding as of January 11, 2010.  ii      TABLE OF
CONTENTS   PART IItem 1.
Financial
Statements
1-14Item 2.
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
15-21Item 3.
Quantitative
and Qualitative Disclosures About Market Risk
21Item
4.
Controls and
Procedures
21-22PART IIItem 1.
Legal
Proceedings
23Item 1A
Risk
Factors
23Item 2.
Unregistered
sales of Equity Securities and Use of Proceeds
23Item 3.
Defaults Upon
Senior Securities
23Item 4.
Submission of
Matters to a Vote of Security Holders
24Item 5.
Other
Information
24Item 6.
Exhibits
24-31    iii        PART I  ITEM 1. 
FINANCIAL STATEMENTS  PageFinancial
Statements:Consolidated
Balance Sheets
1Consolidated
Statements of Operations
2Consolidated
Statements of Cash Flows
3Notes to
Financial Statements
4-14


DigitalTown, Inc. CONSOLIDATED BALANCE SHEETS  ASSETSNovember 30,2009

February 28,2009(unaudited)

(audited)Current
assets:Cash

$      8,426

$      43,914Prepaid
domain name renewal fees

106,326

-Total
current assets

114,752

43,914Property and
equipment, net

2,293

4,022Intangible
assets, net

844,225

810,267Total
assets

$
  961,270

$
   858,203LIABILITIES AND STOCKHOLDERS' EQUITYCurrent
liabilities:Accounts
payable

$
       58,186

$
      27,565Advance
from officer

14,350

-Loan
from director/stockholder

139,014

102,767Accrued
expenses:Accrued
payroll

1,400

12,473Deferred
officer compensation

60,500

-Total
current liabilities

273,450

142,805Commitments
and contingenciesStockholders
equity:Common
stock, $.01 par value, 2,000,000,000 shares authorized, 27,403,725 and
27,166,862 shares issued and outstanding at November 30, 2009 and
 February 28, 2009, respectively

274,032

271,665Additional
paid-in-capital

22,753,231

22,271,789Subscription
receivables

(4,312,963)

(4,506,963)Accumulated
deficit

(18,026,480)

(17,321,093)Total
stockholders equity

687,820

715,398Total
liabilities and stockholders equity

$
   961,270

$
   858,203   The
accompanying notes are an integral part of these consolidated financial
statements.  1      DigitalTown, Inc.  CONSOLIDATED STATEMENTS OF OPERATIONS  For the Three Months Ended

For the Nine Months EndedNovember 30,

November 30,2009

2008

2009

2008(unaudited)

(unaudited)

(unaudited)

(unaudited)Revenues
$
          2,937

$
               -

$
          4,888

$
               -Cost of revenues
54,618

-

98,760

-Gross profit
(51,681)

-

(93,872)

-Operating expenses:Selling, general and
administrative expenses
234,686

688,833

606,320

2,211,229Income (loss) from operations
(286,367)

(688,833)

(700,192)

(2,211,229)Other
income (expense):Interest
expense
(2,445)

(2,783)

(7,010)

(7,865)Other
income
-

54

1,815

403Total
other income (expense)
(2,445)

(2,729)

(5,195)

(7,462)Net
income (loss) before income taxes
(288,812)

(691,562)

(705,387)

(2,218,691)Income
tax provision
-

-

-

-Net
income (loss)
$
     (288,812)

$   (691,562)

$   (705,387)

$   (2,218,691)Income (loss) per common share  basic and
diluted
$
       (0.01)

$
        (0.03)

$
       (0.03)

$
          (0.08)Weighted
average common shares outstanding  basic and dilutive
27,380,231

27,158,196

27,323,546

27,114,973  The accompanying notes are an integral part of these
consolidated financial statements.      2    DigitalTown, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS  Nine months
   ended
November 30, 2009

Nine months
   ended
November 30, 2008(unaudited)

(unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
$  
    (705,387)

$ 
  (2,218,691)Adjustments to reconcile net loss to net cash flows
used in operating activities:Depreciation
1,729

1,916Amortization of website
development cost
2,633

-Stock-based compensation
expense
129,809

1,679,066Non-cash stock
issued for director fees
19,500

16,000Gain on sale of
asset
-

(55)Changes in
operating assets and liabilities:Other
receivables
-

70,528Prepaid
domain name renewal fees
(106,326)

-Accounts
payable
30,621

(53,249)Accrued
expenses:Accrued payroll
(11,073)

(9,603)Accrued interest
-

(11,156)Deferred
officer compensation
60,500

-Net
cash used in operating activities
(577,994)

(525,244)CASH FLOWS FROM INVESTING
ACTIVITIES:Purchase of
fixed assets
-

(123)Proceeds from
sale of asset
-

400Purchase of
intangible asset-website development
(23,349)

-Purchases and
 renewal of  intangible assets  domain names
(13,242)

(207,122)Net
cash used in investing activities
(36,591)

(206,845)CASH FLOWS FROM FINANCING
ACTIVITIES:Net advance from officer
14,350

-Proceeds from loan  director/stockholder
39,482

145,000Payments on loan  director/stockholder
(3,235)

(39,537)Payments
received on stockholder subscription receivables
194,000

413,832Proceeds from
issuance of common stock
334,500

107,141Proceeds from
exercise of stock options
-

114,072Net cash provided by financing
activities
579,097

740,508Net change in cash and cash equivalents
(35,488)

8,419Cash and cash equivalents,
beginning of period
43,914

67,161Cash and cash equivalents,
end of period
$  
          8,426

$  
     75,580SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:Non-cash flow information:Cash payments for
interest
$
            7,010

$
       19,021Accounts payable
added back that were previously paid with stock and
subsequently
cancelled


$
       31,000 The accompanying notes are an integral part of these consolidated
financial statements.





3


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   Note 1. Basis of
Presentation  The
accompanying unaudited consolidated financial information has been prepared
by DigitalTown, Inc. (the Company) in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission
(SEC).  Accordingly, it does not include all of the information and
notes required by accounting principles generally accepted in the United States
of America for complete financial statements.  In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement of this financial information have
been included.  Financial results for the interim period presented are
not necessarily indicative of the results that may be expected for the fiscal
year as a whole or any other interim period.  This financial
information should be read in conjunction with the audited consolidated
financial statements and notes included in the Companys Annual Report on Form
10K for the year ended February 28, 2009.   Note 2. Nature of
Business and Summary of Significant Accounting Policies:  Nature of
Business  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 and focused their
efforts on developing a plan to integrate their nearly 27,000 high school domain
names into a social civic and school spirit network serving students, alumni,
schools, local towns and their citizens.  As part of that plan, the Company
changed its name to DigitalTown, Inc. on March 1, 2007.  The
Company has sustained losses and negative cash flows from operations and expects
these conditions to continue into the foreseeable future.  At November 30,
2009, the Company had an accumulated deficit of $18,026,480.  Subsequent to
November 30, 2009, the Company has received cash proceeds totaling approximately
$83,500 from its stock subscription receivables.  The Company anticipates
that existing cash, stock subscription proceeds received to date, expected
future proceeds from its stock subscription receivables and any additional
financing needed through the sale of its common stock or other equity-based
securities will be sufficient to meet its working capital and capital
expenditures needs through at least November 30, 2010.  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.


4


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)    Principles
of Consolidation  The
Company files consolidated financial statements that include its wholly-owned
subsidiary Tiger Media. 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.  Revenue
Recognition  The
Company recognizes revenue when it is realized or realizable and has been
earned.  Revenue is generated from commerce based transactions generated
from our websites and display of graphical advertisements (display
advertising).  Intangible
Assets  Domain Names/Website Development Costs  Domain
name cost is accounted for in accordance with the FASB Accounting Standards
Codification guidance pertaining to Intangibles-Goodwill and Other, Website
Development Costs.  Certain modules and components of the Companys overall
website development are ready for their intended use and the websites  are
currently operational. Accordingly, the annual domain name renewal fees are
currently being expensed and the purchase of any new domain names are
capitalized.  Previously, during the infrastructure development stage of
its websites, the Company capitalized the purchase of new domain names and the
annual domain name renewal fees. Since the ownership of each domain name can be
renewed for a nominal renewal 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.  Website
development costs are accounted for in accordance with the FASB Accounting
Standards Codification guidance pertaining to Intangibles-Goodwill and Other,
Internal-Use Software which requires that all internal and external costs
incurred to develop the internal-use software necessary to operate the websites
are capitalized.  Amortization will begin when an individual module or
component of the overall internal-use software is ready for its intended use.
 The cost of such module or component will be amortized on a straight-line
basis over its estimated useful life, as determined by the Company, after taking
into account the effects of obsolescence, technology, competition and other
economic factors.  The Company has components of its website development
that are operational and are being amortized over a three year life.


5


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)    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 a 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  The
Company accounts for income taxes by following an asset and liability approach
to financial accounting and reporting for income taxes. Accordingly, deferred
tax assets and liabilities arise from the difference between the tax basis of an
asset or liability and its reported amount in the financial statements. Deferred
tax amounts are determined using the tax rates expected to be in effect when the
taxes will actually be paid or refunds received, as provided under currently
enacted tax law. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense or
benefit is the tax payable or refundable, respectively, for the period plus or
minus the change in deferred tax assets and liabilities during the period.   The
Company follows the recognition of a financial statement benefit of a tax
position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized in the
consolidated financial statements is the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement with the
relevant tax authority.  Stock-Based
Compensation  The
Company records its stock-based compensation arrangements calculating 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 have been estimated using the 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
August 2009, the FASB issued an amendment to the accounting standards related to
the measurement of liabilities that are recognized or disclosed at fair value on
a recurring basis. This standard clarifies how a company should measure the fair
value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard.  The Company adopted this guidance
during the three month period ended November 30, 2009.


6


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   The
adoption of this guidance did not have a material impact on the Companys
consolidated results of operations, financial condition or cash flows.  In
June 2009, the FASB issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R), (SFAS 167) and SFAS
No. 166, Accounting for Transfers of Financial Assets  an amendment
of FASB Statement No. 140 (SFAS 166) effective for fiscal years
beginning after November 15, 2009. SFAS 167 amends FASB Interpretation 46(R) to
eliminate the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity and requires ongoing
qualitative reassessments of whether an enterprise is the primary beneficiary of
a variable interest entity. The Company does not expect the adoption of this
standard to have any current impact on the consolidated financial
statements.   Note 3. Intangible
Assets  Intangible assets are
as follows:  November 30,     2009
February 28,     2009Domain
names
$
      823,509
$
        810,267Website
development and portal costs
23,349
-Less
accumulated amortization on the website
    development costs
(2,633)
-$
      844,225
$
       810,267  During
the nine months ended November 30, 2009, the Company capitalized $13,242 in
additional domain name purchases.  Since the useful life of the domain
names are deemed to be indefinite, no amortization has been recorded.  During the nine
months ended November 30, 2009, the Company incurred $200,452 of annual domain
name renewal fees and has amortized $94,126 on a straight line basis and has
recorded the remaining $106,326 as prepaid expense as of November 30, 2009.
During the three and nine months ended November 30, 2009, the Company expensed
$51,301 and $94,126, respectively, of prepaid annual domain name renewal fees
and is classified in Cost of revenues in the Companys Statement of
operations.  During
the nine months ended November 30, 2009, the Company capitalized $23,349 of
website development costs.  The Company has determined that these costs
have an estimated useful life of three years.  During the three and nine
months ended November 30, 2009, the Company recorded $1,317 and $2,633,
respectively, of website development amortization expense pertaining to this
module or component and is classified in Cost of Revenues in the Companys
statement of operations.


7


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   Note 4. Deferred
Officer Compensation  Richard Pomije, the
CEO and Chairman of the Company, has elected to forego a portion of his salary
due to limited operating funds over the past five months.  These amounts do
not accrue interest and are due and payable as funds become available in the
future.  The total balance owed as of November 30, 2009 is $60,500.   Note 5.
Stockholders Equity  Stock Transactions  On
November 25, 2009, the Company issued 6,250 restricted common shares at $1.20
per share, valued at $7,500, to five directors of the Company for payment of
director fees.  During
the quarter ended November 30, 2009, the Company entered into stock purchase
agreements and issued 26,667 units (each unit consisting of one share of common
stock and a two-year warrant to purchase one share of common stock at an
exercise price of $4.00 per share) at a unit price of $1.50 per share, for total
cash proceeds of $40,000.  On
August 20, 2009, the Company issued 4,612 restricted common shares at $1.30 per
share, valued at $6,000, to four directors of the Company for payment of
director fees.  During
the quarter ended August 31, 2009, the Company entered into stock purchase
agreements and issued 8,000 units (each unit consisting of one share of common
stock and a two-year warrant to purchase one share of common stock at an
exercise price of $4.00 per share) at a price of $1.50 per share, for total cash
proceeds of $12,000.  On May
20, 2009, the Company issued 3,000 restricted common shares at $2.00 per share,
valued at $6,000, to four directors of the Company for payment of director
fees.  During
the quarter ended May 31, 2009, the Company entered into stock purchase
agreements and issued 188,334 units (each unit consisting of one share of common
stock and a two-year warrant to purchase one share of common stock at an
exercise price of $4.00 per share) at a price of $1.50 per share, for total cash
proceeds of $282,500.  Stock Warrants  As of
November 30, 2009, the Company has a total of 233,001 stock purchase warrants
outstanding with an exercise price of $4.00.


8


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   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 remaining balance due on their
subscription agreements.  A total of 827,092 shares had been sold and
transferred to the new purchasers 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.  The entire $620,319 has been paid to the Company and has reduced
the original investors 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 those sales. As of January 14,
2010, no payments have been received regarding the additional proceeds due the
Company and the Company has not recorded the $300,735 in the stock subscription
receivable balance at November 30, 2009.  The Company will record those
future cash receipts to Additional Paid in Capital if and when received.
 The Company is not actively pursuing collection at this time.   Note 6. Stock
Options  The
Company has one stock option plan called The 2006 Employee Stock and Option
Plan. As of November 30, 2009, 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 from the grant date anniversary.
 The terms of the options vary from one year to five years from the date of
grant.  The
Companys consolidated financial statements as of and for the three and nine
months ended November 30, 2009 and 2008, reflect the impact of their stock-based
compensation.  For the three months ended November 30, 2009, the Company
granted no stock options. Total stock compensation expense for all option grants
was $82,643 and $507,326 for the three months ended November 30, 2009 and 2008,
respectively.  For the nine months ended November 30, 2009 and 2008, the
Company has recorded $129,809 and $1,679,066 in stock compensation expense,
respectively.  This expense is included in selling, general and
administrative expense. As of November 30, 2009, there was no tax benefit from
recording this non-cash expense due to the Company having a full valuation
allowance against its deferred tax assets. The compensation expense impacted the
three and nine months ended November 30, 2009 basic loss per common share by
$0.003 and $0.005, respectively. There remains $158,200 of total unrecognized
compensation expense, which is expected to be recognized over future periods
through April 30, 2011.


9


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   The
following table summarizes information about the Companys stock options:   Number of Options
Weighted Average Exercise Price
Weighted Average Remaining Contract Life
Aggregate Intrinsic Value (1)Options outstanding - February 29, 2009
4,478,000
$  2.979
-
-Granted
160,000
2.625
-
-Canceled or expired
(845,000)
5.290
-
-Exercised
-
-
-
-Options outstanding  November 30, 2009
3,793,000
$  2.449
2.20
$   -Exercisable at November 30, 2009
3,521,000
$  2.410
2.08
$   -  (1) The
intrinsic value of an option is the amount by which the fair value of the
underlying stock exceeds its exercise price.   Note 7. Related
Party Transactions  The
Company entered into a five year lease with Jeff Mills, a director/stockholder
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 five year term of the lease and contains an option to renew for
an additional term of one year at a monthly rent of $3,650.  The Companys
lease payments made to the director for the three months ended November 30, 2009
and 2008 totaled $7,950 each period. For the nine months ended November 30, 2009
and 2008, the Company recorded $23,850 in lease payments to the director for
each period.  Future minimum
lease payments at November 30, 2009 are as follows:FY
2010-remainder
$
    7,950FY 2011
31,800FY 2012
25,175$
  64,925  Loan from
Director/Stockholder  As of
November 30, 2009, the Company had an outstanding working capital loan of
$139,014, from Jeff Mills, a director/stockholder of the Company.  The loan
is due on demand and bears annual interest at 7.0%.  Interest expense
incurred on this loan for the three and nine months ended November 30, 2009 and
2008 was $2,445 and $7,010 and $2,783 and $7,865, respectively.


10


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   Advance from officer  As of
November 30, 2009, the Company had an outstanding advance of $14,350, from
Richard Pomije, the CEO and Chairman of the Company.  During the nine
months ended November 30, 2009, the officer advanced the Company $194,350 and
the Company has paid back $180,000.  The remaining balance of $14,350 was
paid back on December 8, 2009 without interest.   Note 8.
Commitments and Contingencies  The
Company is exposed to asserted and unasserted claims encountered in the normal
course of business.  While the outcome of these matters cannot be
predicted,  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, with certainty, or cash flows.   Note 9. Common
Stock Subscriptions Receivable  Material terms of the subscription agreements received by the
Company on August 31, 2005, for 78,376 restricted common shares and on December
30, 2005 for 4,733,333 restricted common shares at $0.75 per share (total value
of $3,608,782) 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. · 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.


11


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   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
5,030,795Cash
collected
(523,832)Receivable
balance at February 28, 2009
4,506,963Cash
collected
(194,000)Receivable
balance at November 30, 2009
$
   4,312,963Summary of
outstanding subscriptions:2006
subscriptions
$
  1,062,963October 5, 2007
subscriptions
3,250,000$
  4,312,963  The
Company has not exercised its rights to charge up to 4% interest on the
subscription amounts outstanding and the Company has provided no downside
protection to the subscribers.  The downside protection in the terms for
the subscription agreements received on August 31, 2005 and December 30, 2005
requires the Company to reimburse the subscription holder up to 30% of the $.75
purchase price, or $.225, if the market price of the stock is below $.75, when
converted.  The protection may be provided in additional shares if
necessary.  For the nine month period ended November 30, 2009, there was no
downside protection provided because the stock price did not go below $.75 when
converted.  The subscription agreements do not define the term when
converted.  The Company has taken the position that if at the time that a
purchaser pays in full for the shares under a subscription agreement and the
closing price of the shares of the Companys stock is less than $.75, the
shareholder would be entitled to up to 30% additional shares, depending on the
trading share price.  Once the subscription shares have been paid for in
their entirety, the downside protection ceases.  Due to
the recent economic downturn and the market value of the Companys stock, which
is currently trading at below $2.50 per share, the Company continues to evaluate
the collectability of its subscription receivable pertaining to 1,300,000 shares
at $2.50 per share.  The
Company has collected approximately $83,500 of additional outstanding
subscription receivables for the period from December 1, 2009 to January 14,
2010.  Note
10. Earnings (Loss) Per Share  The
Company computes earnings per share using two different methods, basic and
diluted, and presents per share data for all periods in which statements of
operations are presented. Basic earnings per share are computed by dividing net
income (loss) by the weighted average number of shares of common stock


12


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)   outstanding. Diluted earnings per share are computed by dividing
net income (loss) by the weighted average number of common stock and common
stock equivalents outstanding.  The
following tables provide a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings (loss) per share for the three
and nine month periods ended November 30, 2009 and 2008:  Three months endedNovember 30,2009

2008Basic
earnings (loss) per share calculation:Net income
(loss) to common shareholders
$
            (288,812)

$
            (691,562)Weighted
average of common shares outstanding
27,380,231

27,158,196Basic net
earnings (loss) per share
$
                  (0.01)

$
                  (0.03)Diluted
earnings (loss) per share calculation:Net income
(loss) to common shareholders
$
            (288,812)

$
            (691,562)Weighted
average of common shares outstanding
27,380,231

27,158,196Stock options
(1)
-

-Warrants
(2)
-

-Diluted
weighted average common shares outstanding
27,380,231

27,158,196Diluted net
income (loss) per share
$
                 (0.01)

$
                  (0.03)  Nine months endedNovember 30,2009

2008Basic
earnings (loss) per share calculation:Net income
(loss) to common shareholders
$
            (705,387)

$
         (2,218,691)Weighted
average of common shares outstanding
27,323,546

27,114,973Basic net
earnings (loss) per share
$
                  (0.03)

$
                  (0.08)Diluted
earnings (loss) per share calculation:Net income
(loss) to common shareholders
$
            (705,387)

$
         (2,218,691)Weighted
average of common shares outstanding
27,323,546

27,114,973Stock options
(1)
-

-Warrants
(2)
-

-Diluted
weighted average common shares outstanding
27,323,546

27,114,973Diluted net
income (loss) per share
$
                  (0.03)

$
                 (0.08)


13


DigitalTown, Inc.  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)    (1)
At November 30,
2009 and 2008, there were outstanding stock options equivalent to
3,793,000 and 4,088,000 common shares, respectively.  The stock
options are anti-dilutive at November 30, 2009 and 2008 and therefore have
been excluded from diluted earnings per share.(2)
At November 30,
2009 and 2008, there were outstanding warrants equivalent to 223,001 and 0
common shares, respectively.  The warrants expire 2 years from
their 2009 date of issuance and have an exercise price of $4.00 per share.
The warrants are anti-dilutive at November 30, 2009 and therefore have
been excluded from diluted earnings per share.  Note 11.
Subsequent Events  The Company evaluated
subsequent events to disclose through January 14, 2010, the date the financial
statements were available to be issued.


14


ITEM 2.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS  The following is a discussion of the financial condition of the
Company as of November 30, 2009, and its results of operations for the three and
nine months ended November 30, 2009 and 2008, which should be read in
conjunction with, and is qualified in its entirety by, the financial statements
and notes thereto included elsewhere in this report.  CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING INFORMATION  This
Form 10-Q for the quarter ended November 30, 2009, contains forward-looking
statements.  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  DigitalTown, Inc. (the Company) completed its nationwide rollout
of nearly 27,000 high school spirit content websites in December 2009, which
represents the first phase of the Companys plans to develop powerful, user
generated and interactive sites that will serve all the constituents of local
high schools, and by extension, their local communities. This phase aggregates
existing content from across the Internet that is relevant to each high school.
Each school site is customized to reflect each schools colors, with links to
their official high school web page.  This phase will allow us to
aggressively engage with partners to add functionality and features unique to
each domain.  Phase two of the design roll out is expected to start in
January 2010. This design phase will start interacting with our content partners
with user profiles and professional website templates for sport teams, school
clubs, booster clubs, alumni groups and more and will provide hyper-local
information down to the demographics of every school district in the United
States.  On
September 29, 2009, the Company signed a Strategic Alliance Agreement with The
Active Network Inc. covering a range of content, technology and business
services.  The companies intend to leverage Actives extensive data and
applications suite to leverage DigitalTowns unique portfolio of 27,000 URLs in
the market for hyper-local content.  Through the strategic alliance, the
companies will initially focus on integrating Active.com content, including an
extensive directory of events and facilities, school schedules, scores and
rankings, with DigitalTowns websites.  The companies will also collaborate
on a number of technology solutions including event registration and
organization, team and organizational websites, and localized online
communities.  The companies intend to monetize the sites through online
advertising and a variety of subscription and transaction services that are
being contemplated.  In June
2009, the Company announced www.AmericasProdigy.com, a premier talent
discovery website for high school students which will focus on promoting musical
contestants who will be able to post their songs and videos on the DigitalTown
websites. The high school contestants will compete for prizes aimed at
furthering their musical careers as well as benefiting the school.  The
project is scheduled to commence in the 2010/2011 school year and is expected to
drive additional internet traffic to the DigitalTown websites.


15


RESULTS OF
OPERATIONS  THREE MONTHS ENDED
NOVEMBER 30, 2009 and 2008  During the three months ended November 30, 2009, the Company
recorded revenue of $2,937 and cost of revenue of $54,618 for a negative gross
profit of $(51,681) compared to no revenue operations in 2008.  The revenue
consisted of minimal commissions generated from advertising on our websites and
the cost of revenue consisted of amortization of prepaid annual domain name
renewal fees of $51,300, server/bandwidth expense of $2,001 and amortization of
website development fees of $1,317.  Selling, general and administrative expenses for the
most current three months decreased by $454,147 to $234,686 compared to a year
ago due to a non-cash decrease in stock compensation expense of $424,683 for the
most current three months.  The decrease in stock compensation expense was
primarily due to the Company not granting any new stock option agreements.
 Excluding non-cash stock compensation expense for the two comparable
periods, selling, general, and administrative expenses were $152,043 for the
three months ended November 30, 2009, compared to $181,507 for the three months
ended November 30, 2008.  The decrease in selling, general, and
administrative expenses of $29,464 for the two comparable quarters was primarily
due to a decrease in professional fees of $59,982 partially offset by increases
in salary expense of $19,337 and investor relations of $10,174. The Companys
overall loss for the current three months decreased by $402,750 to $288,812.  NINE MONTHS ENDED
NOVEMBER 30, 2009 and 2008  During the nine months ended November 30, 2009, the Company
recorded revenue of $4,888 and cost of revenue of $98,760 for a negative gross
profit of $(93,872) compared to no revenue operations in 2008.  The revenue
consisted of commission generated from advertising on our websites and the cost
of revenue consisted of amortization of prepaid annual domain name renewal fees
of $94,126, server/bandwidth expense of $2,001 and amortization of website
development fees of $2,633.  Selling, general and administrative expenses for the
most current nine months decreased by $1,604,909 to $606,320 compared to a year
ago due to a decrease in non-cash stock compensation expense of $1,549,257 for
the most current nine months.  The decrease in stock compensation expense
was primarily due to the Company granting fewer new stock option agreements and
reversal of $408,634 of previously recorded stock compensation expense for the
nine months ended November 30, 2009 due to forfeitures.  The $408,634 of
previously recorded stock compensation expense consisted of stock options that
were previously expensed, but not fully vested on the termination date of
various employees and advisors.  Excluding non-cash stock compensation
expense for the two comparable periods, selling, general, and administrative
expenses were $476,512 for the nine months ended November 30, 2009, compared to
$532,163 for the nine months ended November 30, 2008.  The decrease in
selling, general, and administrative expenses of $55,651 for the two comparable
periods was primarily due to decreases in professional fees of $95,946, travel
and entertainment of $10,290 partially offset by an increase in salary expense
of $43,071 and legal fees of $8,749. The Companys overall net loss for the
current nine months decreased by $1,513,304 to $705,387.


16


LIQUIDITY AND CAPITAL
RESOURCES  NINE MONTHS ENDED
NOVEMBER 30, 2009  The
Companys cash position at November 30, 2009, was $8,426, a decrease of $35,488
from $43,914 at February 28, 2009.  During the nine months ended November
30, 2009, net cash used in operating activities was $577,994 compared to cash
used of $525,244 for the comparable period.  When comparing the two
periods, the increase in cash used in operating activities of $52,750 for the
nine months ended November 30, 2009 was due to an increase of $106,326 in
prepaid expense pertaining to annual domain name renewal fees, an increase of
$70,528 in accounts receivable and a $29,952 increase in cash operating expenses
offset by an increase of $83,870 in accounts payable, an increase of $60,500 in
deferred officer compensation and a $9,686 increase in accrued expense.  Net
cash used in investing activities for the nine months ended November 30, 2009,
was $36,591 of which $13,242 was used for the purchase of additional domain
names and $23,349 for website development costs as compared to net cash used of
$206,845 of which $203,344 was used for annual domain name renewal fees, $3,778
for the purchase of additional domain names and $123 used for purchase of fixed
assets along with $400 of proceeds from the sale of asset for the comparable
period.  The change in the current period was due mainly to the annual
domain name renewal fees which are now treated as an operating expense vs. a
capitalized cost for the nine months ended November 30, 2008.  Net
cash provided by financing activities for the nine months ended November 30,
2009 was $579,097 which consisted of $334,500 of proceeds from the issuance of
stock, proceeds from director/stockholder loan of $39,482 less principal
payments on the loan of $3,235, payments received on stockholder subscription
receivables of $194,000 and cash advances from an officer of $14,350. For the
comparable period of the nine months ended November 30, 2008, the Company
received net cash provided by financing activities of $740,508 which consisted
of payments received on stockholder subscription receivables of $413,832,
proceeds from director/stockholder loan of $145,000 less principal payments on
the loan of $39,537, proceeds from the exercise of stock options of $114,072 and
$107,141 of proceeds from issuances of stock.  Monthly cash operating expenses for the nine months ended November
30, 2009, were approximately $62,000 per month. Based on current expense levels,
the Companys monthly cash operating expenses going forward will continue to be
approximately $62,000 per month.  In addition to the normal monthly
operating expenses, the Companys committed cash requirements for the twelve
months ending February 28, 2010, include $3,775 of additional web site
development cost, monthly interest of $820 on its promissory note with Jeff
Mills, a director and stockholder of the Company and approximately $4,800 for
the renewal of existing and purchase of additional domain names.  The
promissory note has a balance due of $139,014 at November 30, 2009 and is
payable upon demand.  The Company intends to pay the balance of this note
during our current fiscal year ending February 28, 2010.  The Company
currently relies on collection of its stock subscription receivables to fund its
operations.  Material terms of the outstanding subscription agreements
received by the Company on August 31, 2005, for 78,376 restricted common shares
and on December 30, 2005, for 4,733,333 restricted common shares at $0.75 per
share (total value of $3,608,782) 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.


17


· 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.  Material terms of the subscription agreements received by the
Company on October 5, 2007, for 1,300,000 restricted common shares at $2.50 per
share (total value of $3,250,000) are as follows:  · The
price per share of $2.50 was based on the closing price on October 4, 2007. · At
24 months, 1/36 payments are due monthly. · The
Company, at its option, may call up to 1/12 of the gross receivable per month if
the preceding 30 day average trading price is at or above $7.00 a share with
minimum trading volume of 5,000 shares per day. · If
the purchaser sells these common shares, the purchaser shall be entitled to an
amount equal to 200% of the original purchase price of each share and the
Company shall be entitled to 50% of any additional net sales proceeds from the
stock sale.  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 remaining balance due on their
subscription agreements.  A total of 827,092 shares had been sold and
transferred to the new purchasers for a total purchase price of $1,842,108,
which is due to the original subscription holders. The underlying original
subscription receivable due the Company for these transferred shares totaled
$620,319.  As of August 31, 2009, the entire $620,319 has been paid to the
Company and has reduced the original investors 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 those
sales. As of January 14, 2010, no payments have been received for those excess
proceeds.  Due to
the recent economic downturn and the market value of the Companys stock, which
is currently trading at below $2.50 per share, the Company continues to evaluate
the collectability of its subscription receivable pertaining to 1,300,000 shares
at $2.50 per share.  As of
November 30, 2009, the Company had stock subscription receivables of $4,312,963
and for the nine months ended November 30, 2009, the Company received stock
subscription payments of $194,000.  The
following table summarizes the stock subscription receivable, by quarter, since
February 29, 2008:


18


Quarter Ended
Total Balance Due
Total Amount Collected
Participatory Rights in the Proceeds of the Resales
Collected
Amount of Downside Protection ProvidedFebruary 29, 2008
$
     5,030,795May 31, 2008
4,919,163
$
     111,632
-
-August 31, 2008
4,708,563
210,600
-
-November 30, 2008
4,616,963
91,600
-
-February 28, 2009
4,506,963
110,000
-
-May 31, 2009
4,476,963
30,000
-
-August 31, 2009
4,371,463
105,500
-
-November 30, 2009
4,312,963
58,500  The
Company has not exercised its rights to charge up to 4% interest on the
subscription amounts outstanding and the Company has provided no downside
protection to the subscribers.  The downside protection in the terms for
the subscription agreements received on August 31, 2005, and December 30, 2005,
requires the Company to reimburse the subscription holder up to 30% of the $.75
purchase price, or $.225, if the market price of the stock is below $.75, when
converted.  The protection may be provided in additional shares, if
necessary.  The subscription agreements do not define the term when
converted.  The Company has taken the position that if at the time that a
purchaser pays in full for the shares under a subscription agreement and the
closing price of the shares of the Companys stock is less than $.75, the
shareholder would be entitled to up to 30% additional shares, depending on the
trading share price.  Once the subscription shares have been paid for in
their entirety, the downside protection ceases.  We
believe our current cash reserves and amounts we expect to collect on our
outstanding stock subscription receivables and selling new common stock should
be sufficient to enable us to operate for the next 12 months. In the event that
we are unable to collect our future stock subscription receivables as needed, we
would look to raise other types of capital or potentially be forced to reduce
operating expenses and/or cease operations altogether.  Critical
Accounting Policies  The discussion and analysis of DigitalTown, Inc.s financial
condition and results of operations are based on our financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the U.S. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities and expenses and related disclosure of contingent assets and
liabilities. Management reviews its estimates on an 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 2 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:


19


Intangible Assets- Domain Names/Website Development Costs  Domain name cost is accounted for in accordance with the FASB
Accounting Standards Codification guidance pertaining to Intangibles-Goodwill
and Other, Website Development Costs.  Certain modules and components of
the Companys overall website development are ready for their intended use and
have made the websites operational. Accordingly, the annual domain name renewal
fees are expensed and the purchase of new domain names are capitalized.
 Previously, during the infrastructure development stage of its websites,
the Company capitalized the purchase of new domain names and the annual domain
name renewal fees. Since the ownership of each domain name can be renewed for a
nominal renewal 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.  Website development costs are accounted for in accordance with the
FASB Accounting Standards Codification guidance pertaining to
Intangibles-Goodwill and Other, Internal-Use Software which requires that all
internal and external costs incurred to develop the internal-use software
necessary to operate the websites are capitalized.  Amortization will begin
when an individual module or component of the overall internal-use software is
ready for its intended use.  The cost of such module or component will be
amortized on a straight-line basis over its estimated useful life, as determined
by the Company, after taking into account the effects of obsolescence,
technology, competition and other economic factors.   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  The Company records its stock-based compensation arrangements by
calculating 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 have been estimated using the 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
August 2009, the FASB issued an amendment to the accounting standards related to
the measurement of liabilities that are recognized or disclosed at fair value on
a recurring basis. This standard clarifies how a company should measure the fair
value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard.  The Company adopted this guidance
during the three month period ended November 30, 2009.


20


The
adoption of this guidance did not have a material impact on the Companys
consolidated results of operations, financial condition or cash flows.  In
June 2009, the FASB issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R), (SFAS 167) and SFAS
No. 166, Accounting for Transfers of Financial Assets  an amendment
of FASB Statement No. 140 (SFAS 166) effective for fiscal years
beginning after November 15, 2009. SFAS 167 amends FASB Interpretation 46(R) to
eliminate the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity and requires ongoing
qualitative reassessments of whether an enterprise is the primary beneficiary of
a variable interest entity. The Company does not expect the adoption of this
standard to have any current impact on the consolidated financial
statements.   FORWARD-LOOKING
INFORMATION  Any statements contained herein related to future events are
forward-looking statements.  Readers are cautioned not to place undue
reliance on forward-looking statements. DigitalTown, Inc. undertakes no
obligation to update any such statements to reflect actual events.  ITEM 3.
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  We are
exposed to market risk for the effect of interest rate changes.
 Information relating to quantitative and qualitative disclosure about
market risk is set forth below and in Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital Resources.
 As of November 30, 2009, the Company did not have any off-balance sheet
investments or hedging investments.  ITEM 4. CONTROLS
AND PROCEDURES  (a) Evaluation of
Disclosure Controls and Procedures.  Under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer,
we conducted an evaluation of the effectiveness, as of November 30, 2009, of our
disclosure controls and procedures, as defined in Rules 13(a)-13(e) and
15(d)-15(e) under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. The purpose of this evaluation was to determine whether as of the
evaluation date our disclosure controls and procedures were effective to provide
reasonable assurance that the information we are required to disclose in our
filings with the Securities and Exchange Commission, or SEC, under the Exchange
Act (i) is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms and (ii) accumulated and communicated to
our management, including our chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation, our management has concluded, as previously discussed
in Item 9A(T) of our Form 10-K for the fiscal year ended February 28, 2009, that
material weaknesses existed in our internal control over financial reporting as
of November 30, 2009, and as a result our disclosures controls and procedures
were not effective.  Notwithstanding the material weaknesses that existed
as of November 30, 2009, our chief executive officer and chief financial officer
have concluded that the financial statements included in this Quarterly Report
on Form 10-Q present fairly, in all material aspects, 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).


21


(b) Changes in
Internal Controls over Financial Reporting.  Management continues to
evaluate the Companys Internal Controls over Financial Reporting to insure that
the design and implementation of corrective procedures are adequate to remediate
the previously identified material weaknesses.   Management also
continues to analyze the cost effectiveness of adding additional corrective
procedures to remediate their existing material weaknesses.  During
the fiscal quarter ended November 30, 2009, 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.


22


PART II  ITEM 1.
 LEGAL PROCEEDINGS  DigitalTown, Inc. is, from time to time, a party to litigation
arising in the normal course of its business.  The Company believes that
none of these actions will have a material adverse effect on its financial
condition or results of operations.  ITEM 1A.
 RISK FACTORS  The most significant risk factors applicable to the Company are
described in Part I, Item 1A Risk Factors of our Annual Report on Form 10-K
for the year ended February 28, 2009.  There have been no material changes
from the risk factors previously disclosed in our Annual Report on Form
10-K.  ITEM 2.
 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  On
November 25, 2009, the Company issued 6,250 restricted common shares at $1.20
per share, valued at $7,500, to five directors of the Company for payment of
director fees.  During
the quarter ended November 30, 2009, the Company entered into stock purchase
agreements and issued 26,667 units (each unit consisting of one share of common
stock and a two-year warrant to purchase one share of common stock at an
exercise price of $4.00 per share) at a price of $1.50 per share, for total cash
proceeds of $40,000.  On
August 20, 2009, the Company issued 4,612 restricted common shares at $1.30 per
share, valued at $6,000, to four directors of the Company for payment of
director fees.  During
the quarter ended August 31, 2009, the Company entered into stock purchase
agreements and issued 8,000 units (each unit consisting of one share of common
stock and a two-year warrant to purchase one share of common stock at an
exercise price of $4.00 per share) at a price of $1.50 per share, for total cash
proceeds of $12,000.  The cash proceeds will be used for working
capital.  On May
20, 2009, the Company issued 3,000 restricted common shares at $2.00 per share,
valued at $6,000, to four directors of the Company for payment of director
fees.  During
the quarter ended May 31, 2009, the Company entered into stock purchase
agreements and issued 188,334 units (each unit consisting of one share of common
stock and a two-year warrant to purchase one share of common stock at an
exercise price of $4.00 per share) at a price of $1.50 per share, for total cash
proceeds of $282,500.  The cash proceeds will be used for working capital.  These shares are
unregistered with no underwriter used for the sale of common stock.  The
shares of stock were sold pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D
promulgated thereunder.  ITEM 3.
 DEFAULTS UPON SENIOR SECURITIES  None.


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ITEM 4. 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  None.  ITEM 5. OTHER
INFORMATION  (a) All
information required to be disclosed on a report on Form 8-K during the period
ended November 30, 2009, has previously been reported. (b) There
have been no material changes to the procedures by which security holders may
recommend nominees to the registrants board of directors.   ITEM 6.
 EXHIBITS  3.1
Articles of
Incorporation, as amended (1)
Previously
Filed3.2
Bylaws
(1)
Previously
Filed31
Certifications
of Chief Executive Officer and Chief Financial Officer under Rule
13a-14(a)/15d-14(a)
Included32
Certifications
under Section 1350
Included  (1) Incorporated by
reference to exhibit filed as a part of Registration Statement on Form 10-SB
(Commission File No. 000-27225).


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SIGNATURES  In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.  DigitalTown,
Inc.  Dated:
January 14, 2010  /s/
Richard A. Pomije____________ Richard
A. Pomije, CEO  /s/
Richard A. Pomije____________ Paul
R. Gramstad, CFO


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