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: August 31, 2007
  
 |__|
              TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934
 
 
 Commission
        file number: *000-27225*
  
 DigitalTown,
        Inc.
 (formerly BDC Capital,
        Inc.)
 (Name
        of
        small business issuer in its charter)
 
 Minnesota
              
              41-1427445(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)11974
                  Portland Avenue, Burnsville, Minnesota
              
              55337(Address
                  of principal executive offices)
              
              (Zip
                  Code)Registrant's
                  telephone number: (952)
                  890-2362
 
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 Title
        of Each Class
 Common
        Stock
 Par
        Value
        $0.01 per share
 
 
 
 Check
        whether the issuer (1) has filed all reports required to be filed by Section
        13
        or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90 days.
  Yes  X     No ___
 
  
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.  See definitions of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.   (check one):
 
 Large
                  Accelerated Filer [  ]
              Accelerated
                  Filer [  ]
              Non-Accelerated
                  Filer [X]
 
 There
        were 25,723,750 shares of the registrant’s common stock outstanding as of
        October 10, 2007.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  ii
  TABLE
        OF
        CONTENTS
 
  PART
                  IItem
                  1.
              Financial
                  Statements
              1-13Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and results of
                  operations
              14-15Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              18Item
                  4.
              Controls
                  and Procedures
              18PART
                  IIItem
                  1.
              Legal
                  Proceedings
              19Item
                  1A
              Risk
                  Factors
              19Item
                  2.
              Unregistered
                  sales of Equity Securities and Use of Proceeds
              19Item
                  3.
              Defaults
                  Upon Senior Securities
              19Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              19Item
                  5.
              Other
                  Information
              19Item
                  6.
              Exhibits
              19-23
 
 
 
 
 
 
  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
              4-12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  DigitalTown,
        Inc.
 (formerly
        BDC Capital, Inc.)
 CONSOLIDATED
        BALANCE SHEETS
 
 **ASSETS**August
                  31,
                2007
              
              
              February
                  28,
                2007(unaudited)
              
              
              (audited)Current
                  assets:Cash
              
              $
              19,205
              
              
              $
              8,933Other
                  receivable
              
              
              28
              
              
              
              999Total
                  current assets
              
              
              19,233
              
              
              
              9,932Property
                  and equipment, net
              
              
              4,747
              
              
              
              1,579Intangible
                  assets – domain names/website development
              
              
              682,162
              
              
              
              441,558Total
                  assets
              
              $
              706,142
              
              
              $
              453,069**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              323,541
              
              
              $
              137,144Advances
                  from stockholders
              
              
              0
              
              
              
              16,354Accrued
                  expenses:Accrued
                  payroll
              
              
              24,796
              
              
              
              32,169Accrued
                  interest
              
              
              11,156
              
              
              
              9,476Deferred
                  officer compensation
              
              
              25,750
              
              
              
              18,865Notes
                  payable - stockholder
              
              
              0
              
              
              
              70,000Total
                  current liabilities
              
              
              385,243
              
              
              
              284,008Commitments
                  and contingenciesStockholders’
                  equity:Common
                  stock, $.01 par value, 2,000,000,000 shares authorized, 25,723,750
                  and
                  25,701,500 shares issued and outstanding at August 31, 2007
                  and  February 28, 2007, respectively
              
              
              257,233
              
              
              
              257,010Additional
                  paid-in-capital
              
              
              15,572,582
              
              
              
              14,521,673Subscription
                  receivable
              
              
              (2,379,470
              )
              
              
              (2,947,470
              )Accumulated
                  deficit
              
              
              (13,129,446
              )
              
              
              (11,662,152
              )Total
                  stockholders’ equity
              
              
              320,899
              
              
              
              169,061Total
                  liabilities and stockholders’ equity
              
              $
              706,142
              
              
              $
              453,069
 
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  1
  DigitalTown,
        Inc
 (formerly
        BDC Capital, Inc.)
 
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 
 Three
                  Months
              
              
              Six
                  MonthsEnded
              
              
              EndedAugust
                  31, 2007
                (unaudited)
              
              
              August
                  31, 2007 (unaudited)Operating
                  expenses:Selling,
                  general and administrative expenses
              
              $
              1,236,532
              
              
              $
              1,469,807Loss
                  from operations
              
              
              (1,236,532
              )
              
              
              (1,469,807
              )Other
                  income (expense)Interest
                  expense
              
              
              (280
              )
              
              
              (1,680
              )Other
                  income
              
              
              1,219
              
              
              
              4,193Total
                  other income (expense)
              
              
              939
              
              
              
              2,513Net
                  loss
              
              $
              (1,235,593
              )
              
              $
              (1,467,294
              )Loss
                  per common share – basic and diluted
              
              $
              (0.05
              )
              
              $
              (0.06
              )Weighted
                  average common shares outstanding – basic and diluted
              
              
              25,723,750
              
              
              
              25,717,704
 
 
 
 
 
 
 
 
 
  The
        accompanying notes are an integral part of these financial
        statements.
 
  2
  DigitalTown,
        Inc.
 (formerly
        BDC Capital, Inc.)
 
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 
 **Six
                  months ended**
                **August
                  31, 2007**(unaudited)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (1,467,294
              )Adjustments
                  to reconcile net loss to net cash flows used in operating
                  activities:Depreciation
              
              
              788Stock
                  based compensation expense
              
              
              1,001,069Non
                  cash stock payment
              
              
              50,063Changes
                  in operating assets and liabilities:Other
                  receivables
              
              
              971Prepaid
                  expenses
              
              
              -Accounts
                  payable
              
              
              43,677Accrued
                  expenses:Accrued
                  payroll
              
              
              (7,373
              )Accrued
                  interest
              
              
              1,680Deferred
                  officer compensation
              
              
              6,885Net
                  cash used in operating activities
              
              
              (369,534
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchases
                  of fixed assets
              
              
              (3,956
              )Purchase
                  of intangible asset-web site development
              
              
              (25,000
              )Purchases
                  and  renewal of  intangible assets – domain
                  names
              
              
              (72,884
              )Net
                  cash used in investing activities
              
              
              (101,840
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Advances
                  from officer/stockholder
              
              
              (16,354
              )Note
                  payable-shareholder
              
              
              (70,000
              )Payments
                  received on stockholder subscription receivables net of $20,000
                  in
                  transaction costs for the subscription offering initiated in fiscal
                  2006
              
              
              568,000Net
                  cash provided by financing activities
              
              
              481,646Net
                  change in cash and cash equivalents
              
              
              10,272Cash
                  and cash equivalents, beginning of period
              
              
              8,933Cash
                  and cash equivalents, end of period
              
              $
              19,205SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:Cash
                  payments for interest
              
              $
              -Non-cash
                  investing and financing activities:Intangible
                  assets-domain name renewals incurred with accounts payable
              
              $
              142,720
  
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
  3
  **DigitalTown,
        Inc.**
 (formerly
        BDC Capital, Inc.)
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 (unaudited)
 
 
 **Note
        1. Nature of Business and Summary of Significant Accounting
        Policies**:
 
 *Nature
        of Business*
 
 DigitalTown,
        Inc. (formerly known as BDC Capital, Inc.) (“The Company”) was formed as a
        Minnesota corporation on April 7, 1982. It was incorporated under the name
        Command Small Computer Learning Center, Inc., a computer training company.
        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 2000, the Company changed its name to
        eNetpc,
        Inc. In November 2004, the Company changed its name to BDC Capital, Inc.
        BDC
        Capital, Inc. has engaged in the sale of computer components, development
        of
        software and resell of major computer brands. The names "BDC Capital, Inc."
        "we", "our" and "us" used in this report refer to DigitalTown, Inc.
  On
        December 10, 2004, the Company’s Board of Directors elected to be regulated as a
        business development company (BDC) as outlined in the Investment Company
        Act of
        1940 by filing a Form NT-54A. As a BDC, the Company planned to focus on current
        opportunities available to this attractive business model in the somewhat
        uncertain economic times.
 
 On
        August
        31, 2006, the Company filed with the SEC to withdraw their “business development
        company” status. The Company has changed its business plan to become a
        multiple-site online social-networking community portal through the
        internet.  As part of that plan, the Company changed its name to
        DigitalTown, Inc. effective March 1, 2007.  The Company is currently
        developing the DigitalTown portal.  This portal, when complete, will
        include features such as email, alumni communication and reunion tools, chat,
        a
        wide range of high school activities such as music, drama and athletics,
        personal profiles, photo, video and music sharing and timely community
        news.  The Company is currently developing a revenue model associated
        with the use of the DigitalTown portal.
 
 The
        Company has retained a web site development company to create beta sites
        for its
        DigitalTown portal and has selected the Minnesota Lake Conference high schools
        for its initial test.  The eleven high schools in the Lake Conference,
        ringing Minneapolis and St. Paul, represent more than 22,000 students and
        hundreds of thousands of alumni and boosters.  The sites will offer a
        rich menu of free features, from reunion planning and booster organizing
        tools
        to video of school activities and athletics which will attract and connect
        alumni, boosters, students and administrators and deepen their relationships.
        The spirit sites will launch throughout the fall.
 
 The
        company has sustained losses and negative cash flows from operations and
        expects
        these conditions to continue into the foreseeable future.  At August
        31, 2007, the company had an accumulated deficit of
        $13,129,446.  Subsequent to August 31, 2007, the company has received
        cash proceeds totaling approximately $357,250 from its stock subscription
        receivable.  The company anticipates existing cash, proceeds received
        to-date as well as expected future proceeds from its stock subscription
        receivable 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 August 31,
        2008.
 
  4
  *Principles
        of Consolidation*
 
 As
        a
        result of the Company’s Business Development Company withdrawal, the Company now
        files consolidated financial statements that include its controlled
        Subsidiaries. All material intercompany accounts and transactions have been
        eliminated in consolidation.
 
 The
        election to withdraw the Company’s election as a Business Development Company
        under the 1940 Act has resulted in a significant change in the Company's
        required method of accounting.  Business Development Company financial
        statement presentation and accounting utilizes the fair value method of
        accounting used by investment companies, which allows Business Development
        Company’s to recognize income and value their investments at market value as
        opposed to historical cost.
 
 In
        addition, majority-owned subsidiaries are not consolidated and instead,
        investments in those subsidiaries are reflected on the balance sheet as an
        investment in and advances to affiliates, at fair value.  As an
        operating company, the required financial statement presentation and accounting
        for securities held by the Company utilize either fair value or historical
        cost
        methods of accounting, depending on the classification of the investment
        and the
        Company's intent with respect to the period of time it intends to hold the
        investment, and the Company and its subsidiaries are reflected for financial
        accounting purposes as a consolidated entity.  The change in
        accounting due to the conversion to an operating company from a Business
        Development Company is considered a change in accounting principle.
 
 Management
        has retroactively applied this change in accounting principle in accordance
        with
        Statement of Financial Accounting Standards No. 154, “Accounting for Changes and
        Error Corrections” for the Company’s balance sheet as of February 28,
        2006.  As a business development company, the Company’s investment in
        BDC Partners, Inc. was not previously audited prior to February 28,
        2006.  Management has determined that it is impractible and not cost
        effective to retroactively apply this change in accounting to the previously
        reported  interim financial statements of BDC Capital, Inc. for the
        three and six months ended August 31, 2006, per SFAS 154 par.
        11.  Therefore, the statements of operations for the three and six
        months ended August 31, 2006 and the statement of cash flows for the six
        months
        ended August 31, 2006 will not be comparative.  However, these prior
        period financial statements are included in Note 9 as originally filed for
        informational purposes.
 
 *Use
        of Estimates*
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and revenues and expenses during the reporting
        period.  Actual results could differ from those
        estimates.
 
 *Fair
        Value of Financial Instruments*
 
 The
        Company’s financial instruments consist of cash, other receivables, accounts
        payable, accrued expenses and notes payable.  Pursuant to SFAS No. 107
“Disclosures About Fair Value of Financial Instruments,” the Company is required
        to estimate the fair value of all financial instruments at the balance sheet
        date.  The company considers the carrying value of its financial
        instruments in the financial statements to approximate fair value.
 
  5
  *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/Web Site Development Costs*
 
 The
        Company is still in the development stage of its web site portal and
        accordingly, all costs including license renewals, associated with domain
        names
        expected to be utilized in its web site portal and web site development costs
        have been capitalized.  Since the Company is still in the development
        stage of its web site portal and the ownership of these domain names can
        be
        renewed at a nominal fee prior to their expiration date, the useful life
        of the
        domain names are deemed to be indefinite and no amortization will be
        recorded.  Since the Company is still in the development stage of its
        web site portal, no amortization has been recorded for the web site development
        costs.
 
 *Property
        and Equipment*
 
 Property
        and equipment are stated at cost and depreciated on a straight-line basis
        over
        their estimated useful lives, ranging from two to five years. Leasehold
        improvements are amortized over the shorter of the useful life or the term
        of
        the related lease. Repairs and maintenance costs are expensed as incurred;
        major
        renewals and improvements are capitalized.  As items of property or
        equipment are sold or retired, the related cost and accumulated depreciation
        are
        removed from the accounts and any gain or loss is included in operating
        income.
 
 *Impairment
        of Long-Lived Assets*
 
 Long-lived
        assets, such as property and equipment and intangible assets – domain names/web
        site development costs are reviewed for impairment whenever changes in
        circumstances indicate that the carrying amount of an asset may not be
        recoverable.  Recoverability of assets to be held and used is measured
        by comparison of the carrying amount of an asset to estimated undiscounted
        future cash flows expected to be generated by the asset. If the carrying
        amount
        of an asset exceeds its estimated future cash flows, an impairment charge
        is
        recognized in the amount by which the carrying amount of the asset exceeds
        the
        fair value of the asset.
 
 *Income
        Taxes*
 
 Deferred
        taxes are provided on a liability method whereby deferred tax assets are
        recognized for deductible temporary differences and operating losses and
        tax
        credit carryforwards and deferred tax liabilities are recognized for taxable
        temporary differences. Temporary differences are the differences between
        the
        reported amounts of assets and liabilities and their tax basis. Deferred
        tax
        assets are reduced by a valuation allowance when, in the opinion of management,
        it is more likely than not that some portion or all of the deferred tax assets
        will not be realized. Deferred tax assets and liabilities are adjusted for
        the
        effects of changes in tax laws and rates on the date of the
        enactment.
   6
  *Stock-Based
        Compensation*
 
 Effective
        March 1, 2006, the Company adopted Financial Accounting Standards Board (“FASB”)
        Statement No. 123(R), “Share-Based Payment,” applying the modified prospective
        method.  This standard requires the fair value of share-based
        payments, including grants of employee stock options and employee stock purchase
        plan shares, to be recognized in the income statement based on their grant
        date
        fair values unless a fair value is not reasonably estimable.  Prior to
        the Company’s adoption of SFAS No. 123(R), the company followed the intrinsic
        value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees”, and its related interpretations, as
        permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123,
“Accounting for Stock-Based Compensation.”  The fair value of the
        Company’s stock options issued prior to and after the adoption of SFAS No.
        123(R) has been estimated using a Black-Scholes pricing model, which assumes
        no
        expected dividends and estimates the option expected life, volatility and
        risk-free interest rate at the time of the grant.
 
 *Comprehensive
        Income (Loss)*
 
 Comprehensive
        income (loss) includes net income (loss) and items defined as other
        comprehensive income (loss). Items defined as other comprehensive income
        (loss)
        include such items as foreign currency translation adjustments and unrealized
        gains (losses) on certain marketable securities. For the three months ended
        August 31, 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 per share adjusted for the
        incremental shares attributed to outstanding stock options under the Company's
        stock option plans, convertible debt and convertible preferred
        stock.  Incremental shares attributable to the assumed exercise of
        stock options and conversion of debt and preferred stock for the three and
        six
        months ended August 31, 2007 and August 31, 2006 were excluded from the
        computation of diluted loss per share as their effect would be
        anti-dilutive.
 
 *Recently
        Issued Accounting Pronouncements*
 
 In
        September 2006, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS
        No.
        157"). This standard clarifies the principle that fair value should be based
        on
        the assumptions that market participants would use when pricing an asset
        or
        liability. Additionally, it establishes a fair value hierarchy that prioritizes
        the information used to develop those assumptions. This standard is effective
        for financial statements issued for fiscal years beginning after November
        15,
        2007. We are currently evaluating the impact of this statement. We believe
        the
        adoption of SFAS No. 157 will not have a material impact on our consolidated
        financial position or results of operations.
 
 *Cash
        Deposits in Excess of Federally Insured Limits*
 
 The
        Company maintains its cash in bank deposit accounts which, at times, may
        exceed
        federally insured limits. The balances are insured by the Federal Deposit
        Insurance Company up to $100,000.  Account balances in excess of
        federally insured limits were $0 at August 31, 2007 and February 28,
        2007.  The Company has not experienced any losses in such
        accounts.
 
  7
  **Note
        2. Property and Equipment**
 
 Property
        and equipment are as follows:
 
 **August
                  31,**
                **2007**
              
              
              **February
                  28,**
                **2007**Office
                  equipment and furniture
              
              $
              477,176
              
              
              $
              473,220Less
                  accumulated depreciation
              
              
              (457,791
              )
              
              
              (457,003Less
                  impairment of equipment
              
              
              (14,638
              )
              
              
              (14,638$
              4,747
              
              
              $
              1,579
 
 Depreciation
        expense for the three and six months ended August 31, 2007 was $407 and $788,
        respectively.
 
 
 **Note
        3. 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%.  Accrued interest at August 31, 2007 and February 28, 2007 totaled
        $11,156 and $9,476, respectively.
 
 **Note
        4. Stockholders Equity**
 
 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.
 
 On
        April
        20, 2007, the Company issued 22,250 restricted common shares, valued at $50,063,
        to a Minneapolis area high school for their assistance in initially developing
        the portal revenue model.
 
 **Note
        5. Stock Options**
 
 The
        Company has one stock option plan called The 2006 Employee Stock and Option
        Plan. As of August 31, 2007, an aggregate of 5,000,000 shares of common stock
        may be granted under these plans determined by the board of directors. The
        stock
        options may be granted to directors, officers, employees, consultants and
        advisors of the Company.  Options granted under this plan are
        non-qualified stock options and have exercise prices and vesting terms
        established by the Board of Directors at the time of each
        grant.  Vesting terms of outstanding options range from immediate to
        two years of employment anniversary.  All options expire five years
        from the date of grant.
 
 Effective
        March 1, 2006, the Company adopted Financial Accounting Standards Board (“FASB”)
        Statement No. 123(R), “Share-Based Payment,” which requires the fair value
        of share-based payments, including grants of employee stock options and employee
        stock purchase plan shares, to be recognized in the income statement based
        on
        their grant date fair values unless a fair value is not reasonably estimable.
        Prior to the Company’s adoption of SFAS No. 123(R), the Company followed
        the intrinsic value method prescribed in Accounting Principles Board (“APB”)
        Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related
        interpretations, as permitted by Statement of Financial Accounting Standards
        (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” The fair value
        of the Company’s stock options issued prior to and after the adoption of SFAS
        No. 123(R) has been estimated using a Black-Scholes pricing model, which
        assumes
        no expected dividends and estimates the option expected life, volatility
        and
        risk-free interest rate at the time of grant.
 
  8
  The
        Company elected to adopt the modified prospective transition method, under
        which
        prior periods have not been restated to reflect, and do not include, the
        impact
        of SFAS No. 123(R). The valuation provisions of SFAS No. 123(R) apply
        to new grants and to grants that were outstanding as of the effective date
        and
        are subsequently modified. The Company had no remaining estimated compensation
        for grants that were outstanding as of the effective date that would need
        to be
        recognized over the remaining service period using the compensation cost
        estimated for the SFAS No. 123 pro forma disclosures. The Company’s
        consolidated financial statements as of and for the three and six months
        ended
        August 31, 2007, reflect the impact of SFAS 123(R).  For the three
        months ended August 31, 2007, the Company granted 292,000 stock options with
        a
        calculated fair value of $1,069,400 and recorded related compensation expense
        of
        $993,107.  For the six months ended August 31, 2007, the Company had
        $1,001,069 in stock compensation expense.  This expense is included in
        selling, general and administrative expense. There was no tax benefit from
        recording this non-cash expense due to the Company having a full valuation
        allowance against its deferred tax assets. The compensation expense impacted
        the
        six months ended August 31, 2007 basic loss per common share by 0.04. There
        remains $131,090 of total unrecognized compensation expense, which is expected
        to be recognized over future periods.
 
 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 over
        the
        requisite service periods in the Company’s consolidated statements of
        operations. The Company uses the Black-Sholes-Merton (“Black Sholes”)
        option-pricing model as a method for determining the estimated fair market
        value
        for employee stock awards. Compensation expense for employee stock awards
        is
        recognized on a straight-line basis over the vesting period of the award.
        The
        adoption of SFAS 123 (R) also requires certain changes to the accounting
        for
        income taxes and the method used in determining diluted shares, as well as
        additional disclosure related to the cash flow effects resulting from
        share-based compensation. The relevant interpretive guidance of Staff Accounting
        Bulletin 107 was applied in connection with its implementation and adoption
        of
        SFAS 123 (R).
 
 The
        following table summarizes information about the Company’s stock
        options:
 
 Number
                  of
                Options
              
              
              Weighted
                  Average Exercise Price
              
              
              Weighted
                  Average Remaining
                Contract
                  Life
              
              
              Aggregate
                Intrinsic
                Value
                  (1)Options
                  outstanding February 28, 2007
              
              
              3,125,000
              
              
              $
              1.725
              
              
              
              4.50
              
              
              
              -Granted
              
              
              292,000
              
              
              $
              3.662
              
              
              
              5.00
              
              
              
              -Canceled
                  or expired
              
              
              (270,000
              )
              
              
              (1.725
              )
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Options
                  outstanding - August 31, 2007
              
              
              3,147,000
              
              
              $
              1.905
              
              
              
              4.00
              
              
              $
              4,232,715Exercisable
                  at August 31, 2007
              
              
              3,001,000
              
              
              $
              1.905
              
              
              
              4.00
              
              
              $
              4,036,345
 
 (1)
        The
        intrinsic value of an option is the amount by which the fair value of the
        underlying stock exceeds its exercise price.
 
  9
  **Note
        6. Related Party Transactions**
 
 The
        Company entered into a 5 year lease with a director of the Company for
        approximately 1,000 square feet of space used for offices and operations
        equipment storage at 11974 Portland Avenue, Burnsville,
        Minnesota.  The lease commenced on December 16, 2006 at a monthly rent
        of $2,650 for the 5 year term of the lease and contains an option to renew
        for
        an additional term of 1 year at a monthly rent of $3,650. The Company previously
        sub-leased from a director of the Company the same space at a monthly rent
        of
        $750 renewable monthly.  The Company incurred rent expense to the
        director for the three months ended August 31, 2007 totaling
        $7,950.  The Company currently owes $22,525 to the director for rent
        payments due through August 31, 2007.  This amount is included in
        accounts payable.
 
 Future
        payments for fiscal years ending:
 
 2008
              
              $
              31,8002009
              
              
              31,8002010
              
              
              31,8002011
              
              
              31,8002012
              
              
              25,175$
              152,375
 
 
 **Note
        7. 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
        8. Common Stock Subscriptions Receivable**
 
 During
        fiscal year ended February 28, 2006, the Company received subscriptions for
        4,811,709 restricted common shares at $0.75 per share.  Significant
        terms of the subscription agreement are as follows:
 ·
              Payment
                  is due in full in 60 months
 ·
              At
                  24 months, the Company can demand at its option, monthly 1/36 payments
                  on
                  the subscription agreement.
 ·
              The
                  Company has the option to charge simple annual interest of up to
                  4%.
 ·
              The
                  Company will provide downside protection of up to 30% of the stock
                  price
                  upon conversion.
 
 As
        of
        August 31, 2007 and February 28, 2007, the company has outstanding subscription
        receivables of $2,379,470 and $2,947,470 respectively.  For the three
        months ended August 31, 2007, the company collected $416,031 of outstanding
        subscription receivables.  No interest has been charged on these
        subscription agreements.  The Company has collected approximately
        $357,250 of additional outstanding subscription receivables subsequent to
        August
        31, 2007.
 
 
 
  10
  **Note
        9.  Prior Period Financial Statement
        Presentation**
 
 For
        informational purposes, the following financial statements prepared using
        the
        accounting principles for a “business development company”, have been
        provided:
 
 ·
              Statement
                  of Operations for the three and six months ended August 31,
                  2006
 ·
              Statement
                  of Cash Flows for the three months ended August 31,
                  2006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  11
  DigitalTown,
        Inc.
 (formerly
        BDC Capital, Inc.)
 STATEMENT
        OF OPERATIONS
 (unaudited)
 
 As
                  a Business Development
                Company
              
              
              As
                  a Business Development
                CompanyThree
                  months ended
                August
                  31,
                2006
              
              
              Six
                  months ended
                August
                  31,
                2006**Investment
                  income**
              
              $
              3
              
              
              $
              5**Operating
                  Expenses:**Professional
                  fees
              
              
              12,611
              
              
              
              39,386Administrative
                  expenses
              
              
              33,019
              
              
              
              80,038Rent
              
              
              1,125
              
              
              
              2,250Other
              
              
              1,664
              
              
              
              3,997Interest
                  expense
              
              
              1,400
              
              
              
              2,800Total
                  Operating expenses
              
              
              49,819
              
              
              
              128,471**Net
                  investment loss**
              
              
              (49,816
              )
              
              
              (128,466
              )**Net
                  change in unrealized appreciation on investment**
              
              
              -
              
              
              
              -**Net
                  decrease in net assets resulting from operation**
              
              $
              (49,816
              )
              
              $
              (128,466
              )Loss
                  per common share – basic and diluted
              
              $
              (0.00
              )
              
              $
              (0.02
              )Weighted
                  average shares outstanding – basic and diluted as restated for the 1 for
                  75 reverse stock split
              
              
              5,700,962
              
              
              
              5,700,962
 
 
 
 
  12
  DigitalTown,
        Inc.
 (formerly
        BDC Capital, Inc.)
 
 **STATEMENT
        OF CASH FLOWS**
 (Unaudited)
 
 **As
                  a Business Development Company****Six
                  months ended**
                **August
                  31, 2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  decrease in net assets resulting from operations
              
              $
              (128,466
              )Changes
                  in operating assets and liabilities:Prepaid
                  expenses
              
              
              (2,096
              )Accounts
                  payable
              
              
              (1,239
              )Accrued
                  liabilities
              
              
              2,800Investment
                  in BDC Partners, Inc.
              
              
              (257,000
              )Net
                  cash used in operating activities
              
              
              (386,001
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Net
                  advance to officer/stockholder
              
              
              (5,798
              )Payments
                  received on stockholder subscription receivable net
                of
                  $20,000 in transaction costs
              
              
              407,063Net
                  cash provided by financing activities
              
              
              401,265**Net
                  change in cash and cash equivalents for the
                  period**
              
              
              15,246**Cash
                  and cash equivalents at beginning of period**
              
              
              15,346**Cash
                  and cash equivalents at end of period**
              
              $
              30,610
 
 
 
 
 
 
  13
  ITEM
        2.
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS
 
 The
        following is a discussion of the financial condition and results of operations
        of the Company for the three months ended August 31, 2007, which should be
        read
        in conjunction with, and is qualified in its entirety by, the financial
        statements and notes thereto included elsewhere in this report.
 
 CAUTIONARY
        STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
 This
        Form
        10-Q for the quarter ended August 31, 2007 contains forward-looking statements
        within the meaning of Section 27A of Section 21E of the Securities Exchange
        Act
        of 1934, as amended (“Exchange Act”).  Forward-looking statements may
        be identified by the use of forward-looking terminology, such as “may,” “shall,”
“could,” “expect,” “estimate,” “anticipate,” “predict,” “probable,” “should,”
“continue,” or similar terms, variations of those terms or the negative of those
        terms.  The forward-looking statements specified in the following
        information have been compiled by our management and are considered by
        management to be reasonable.  Our future operating results, however,
        are impossible to predict and no representation, guaranty, or warranty is
        to be
        inferred from those forward-looking statements.
 
 **Withdrawal
        as a Business Development Company**
 
 The
        reader of this management discussion, the related financial statements and
        notes
        thereto, and other recent Company filings should understand that the portfolio
        company (BDC Partners), a company in which the Company invests, and the
        Company’s method of accounting upon its withdrawal of its election to be treated
        as a business development company (“BDC”) under the investment Company Act of
        1940 (“1940 Act”), have materially changed the Company’s financial
        reporting.
 
 REASONS
        FOR CEASING TO BE A BUSINESS DEVELOPMENT COMPANY
 We
        determined that many of the regulatory, financial reporting and other
        requirements imposed by the 1940 Act were too restrictive and prevented the
        Company from operating in the manner in which it desired. Among these
        restrictions are the following:
 
 ·
              BDCs
                  are subject to restrictions in the 1940 Act on the type and amount
                  of
                  securities, other than common stock, that they can issue.  We
                  believe that the Company would be better served by greater flexibility
                  in
                  our capital structure.
 ·
              The
                  closely regulated nature of BDCs causes them to be subject to greater
                  legal and accounting expenses.
 
 The
        Company’s Board of Directors agreed with our assessment and determined that it
        was no longer feasible for the Company to operate as a BDC. The appropriate
        course of action was to withdraw the Company’s election to be regulated as a BDC
        by filing a Form N-54C with the SEC. Following the withdrawal of the election,
        the Company continues to be a reporting company under the Exchange Act, but
        is
        managed so that it will not be subject to the provisions of the 1940
        Act.
 EFFECT
        ON
        FINANCIAL STATEMENTS AND TAX STATUS
 
 The
        election to withdraw the Company’s election as a Business Development Company
        under the 1940 Act has resulted in a significant change in the Company's
        required method of accounting.  Business Development Company financial
        statement presentation and accounting utilizes the fair value method of
        accounting used by investment companies, which allows Business Development
        Company’s to recognize income and value their investments at market value as
        opposed to historical cost.
 
  14
  In
        addition, majority-owned subsidiaries are not consolidated and instead,
        investments in those subsidiaries are reflected on the balance sheet as an
        investment in and advances to affiliates, at fair value.  As an
        operating company, the required financial statement presentation and accounting
        for securities held by the Company utilize either fair value or historical
        cost
        methods of accounting, depending on the classification of the investment
        and the
        Company's intent with respect to the period of time it intends to hold the
        investment, and the Company and its subsidiaries are reflected for financial
        accounting purposes as a consolidated entity.  The change in
        accounting due to the conversion to an operating company from a Business
        Development Company is considered a change in accounting principle.
 We
        do not
        believe that the withdrawal of the Company’s election to be treated as a BDC
        will have any impact on its federal income tax status, since we never elected
        to
        be treated as a regulated investment company under Subchapter M of the Internal
        Revenue Code. (Electing treatment as a regulated investment company under
        Subchapter M generally allows a qualified investment company to avoid paying
        corporate level federal income tax on income it distributes to its
        shareholders.) Instead, we have always been subject to corporate level federal
        income tax on our income (without regard to any distributions we make to
        our
        shareholders) as a “regular” corporation under Subchapter C of the Code.CHANGE
        IN ACCOUNTING PRINCIPLE
 Management
        has retroactively applied this change in accounting principle in accordance
        with
        Statement of Financial Accounting Standards No. 154, “Accounting for Changes and
        Error Corrections” for the Company’s balance sheet as of February 28,
        2006.  The net effect, as of February 28, 2006, of the Company’s
        election to withdrawl its business development company status pursuant to
        the
        Investment Company Act of 1940 was ($797,056) net loss.  As a business
        development company, the Company’s investment in BDC Partners was not previously
        audited prior to February 28, 2006.  Management has determined that it
        is impractical and not cost effective to retroactively apply this change
        in
        accounting to the financial statements of BDC Partners prior to February
        28,
        2006, or to the three interim quarterly financial statements ended May 31,
        2006,
        August 31, 2006 and November 30, 2006, respectively, as allowed per FAS 154
        par.
        11.  Therefore, the statements of operations and cash flows for the
        three months ended May 31, 2006 will not be comparative.  However,
        these prior period financial statements are included in Note 9 to the Company’s
        financial statements, as originally filed for informational
        purposes.
 
 **Company
        Overview**
 
 The
        Company has applied for membership with the American Stock Exchange and plans
        to
        be trading on the exchange by December 2007.  The Company also hired
        Integrated Corporate Relations (ICR), a leading investor relations and financial
        communications consultancy, to assist with all aspects of its investor relations
        program.
 
 On
        August
        1, 2007, Gary Hall joined the DigitalTown Board of Directors.  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, 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.
 
 
  15
  RESULTS
        OF OPERATIONS
 
 THREE
        MONTHS ENDED AUGUST 31, 2007
 
 For
        the three months ended August 31,
        2007, the Company incurred a net operating loss of $1,236,532.  The
        Company incurred $14,500 of administrative fees for the management of the
        Company and total salary and payroll expense of $78,713 of which $11,423
        was
        deferred salary expense and stock option expense of $993,107.  The
        Company also incurred $72,988 of professional fees which included $30,000
        paid
        to Stifel Nicolaus and $7,575 for the analysis and design of 10-12 Beta sites
        for the DigitalTown portal.  The Company also incurred $24,476 of
        investor relations expense of which $23,250 pertained to payments made to
        Integrated Corporate Relations (ICR), the Company’s new investor relations
        counsel.  The company’s overall net loss for the three months ended
        August 31, 2007 was $1,235,593.
 
 
 LIQUIDITY
        AND CAPITAL RESOURCES
 
 SIX
        MONTHS ENDED AUGUST 31, 2007
 
 The
        Company’s cash position at August 31, 2007 was $19,205, an increase of $10,272
        from $8,933 at February 28, 2007.  During the six months ended August
        31, 2007, net cash used in operating activities was $369,534 which was primarily
        due to losses from operations, offset by increases in accounts payable, a
        non
        cash stock payment, stock based compensation expense and deferred officer
        compensation.  Net cash used in investing activities for the six
        months ending August 31, 2007 was $101,840 of which $72,884 was used for
        the
        renewal of existing and the purchase of additional domain names, $25,000
        for web
        site development costs and $3,956 was used for fixed asset
        purchases.  Tiger Media, a wholly owned subsidiary of DigitalTown,
        Inc., entered into an installment agreement 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 six months ended August
        31, 2007, DigitalTown, Inc. made cash payments of $71,360 on the installment
        agreement. The remaining balance of $142,720 will be paid in 8 monthly payments
        of $17,840 for the period of September 2007 to April 2008 and is included
        in
        accounts payable on the consolidated balance sheet and non-cash investing
        and
        financing activities on the consolidated statement of cash flows. Net cash
        provided by financing activities was $481,646 which consisted of payments
        received on stockholder subscription receivables of $568,000 less the payoff
        of
        a $70,000 shareholder note payable and a decrease of $16,354 in advances
        from
        officer/stockholder.
 
 Our
        current monthly operating expenses for the three months ended August 31,
        2007,
        adjusted for non cash stock based compensation of $993,107, was approximately
        $81,000 per month. We believe our
        current cash reservesand amounts we expect to collect on our outstanding
        stock subscription receivable 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.
 
 
 
  16
  **Critical
        Accounting Policies**
 
 The
        discussion and analysis of DigitalTown, Inc.’s financial condition and results
        of operations are based on our financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the U.S. The
        preparation of these financial statements requires management to make estimates
        and judgments that affect the reported amounts of assets, liabilities and
        expenses and related disclosure of contingent assets and liabilities. Management
        reviews its estimates on an ongoing basis. Management bases its estimates
        on
        historical experience and on various other assumptions that it believes to
        be
        reasonable under the circumstances, the results of which form the basis for
        making judgments about the carrying values of assets and liabilities. Actual
        results may differ from these estimates under different assumptions or
        conditions. While DigitalTown Inc.’s significant accounting policies are
        described in more detail in Note 1 to its financial statements, 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/Web Site Development Costs**
 
 The
        Company is still in the development stage of its web site portal and
        accordingly, all costs, including license renewals, associated with domain
        names
        expected to be utilized in its web site portal and web site development costs
        have been capitalized.  Since the Company is still in the development
        stage of its web site portal and the ownership of these domain names can
        be
        renewed at a nominal fee prior to their expiration date, the useful life
        of the
        domain names are deemed to be indefinite and no amortization will be
        recorded.  Since the Company is still in the development stage of its
        web site portal, no amortization has been recorded for the web site development
        costs.
 
 **Impairment
        of Long-Lived Assets**
 
 Long-lived
        assets, such as property and equipment and intangible assets – domain names/web
        site 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.
 
 
 ***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.
 
 
 
  17
  FORWARD-LOOKING
        INFORMATION
 
 Any
        statements contained herein related to future events are forward-looking
        statements and are made pursuant to the safe harbor provisions of the Private
        Securities Litigation Reform Act of 1995. Readers are cautioned not to place
        undue reliance on forward-looking statements. BDC Capital, 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
        August 31, 2007, the Company did not have any off-balance sheet investments
        or
        hedging investments.
 
 
 ITEM
        4.
        CONTROLS AND PROCEDURES
 
 (a)
        Evaluation of Disclosure Controls and Procedures.
 
 An
        evaluation made at the end of the period covered by this report was performed
        under the supervision and with the participation of the Company's president,
        chief executive officer ("CEO") and the chief financial officer ("CFO") of
        the
        effectiveness of the design and operation of the Company's disclosure controls
        and procedures to insure that the Company records, processes, summarizes
        and
        reports in a timely and effective manner the information required to be
        disclosed in reports filed with or submitted to the Securities and Exchange
        Commission. Based on that evaluation and in taking into account the limited
        number of employees noted in the following paragraph, the Company's management,
        including the CEO and CFO, concluded that the Company's disclosure controls
        and
        procedures were effective in timely bringing to their attention material
        information related to the Company required to be included in the Company's
        periodic Securities and Exchange Commission filings. Since the date of this
        evaluation, there have been no significant changes in the Company's internal
        controls or in other factors that could significantly affect those
        controls.
 
 Due
        to
        the limited number of Company employees engaged in the authorization, recording,
        processing and reporting of transactions, there is inherently a lack of
        segregation of duties. The Company periodically assesses the cost versus
        benefit
        of adding the resources that would remedy or mitigate this situation, and
        currently does not consider the benefits to outweigh the costs of adding
        additional staff in light of the limited number of transactions related to
        the
        Company's operations.
 
 (b)
        Changes in Internal Controls over Financial Reporting.
 
 There
        have been no significant changes in internal control over financial reporting
        that occurred during the fiscal period covered by this report that have
        materially affected or are reasonably likely to materially affect the Company’s
        internal control over financial reporting.
 
 
 
  18
  **PART
        II**
 
 ITEM
        1.
 LEGAL PROCEEDINGS
 
 DigitalTown,
        Inc. is, from time to time, a party to litigation arising in the normal course
        of its business.  The Company believes that none of these actions will
        have a material adverse effect on its financial condition or results of
        operations.
 
 
 ITEM
        1A.  RISK FACTORS
 
 We
        are
        subject to various risks that may materially harm our business, financial
        condition and results of operations.  You should carefully consider
        the risks and uncertainties described below and the other information in
        this
        filing before deciding to purchase our common stock.  If any of these
        risks or uncertainties actually occurs, our business, financial condition
        or
        operating results could be materially harmed.  In that case, the
        trading price of our common stock could decline and you could lose all or
        part
        of your investment.
 
 
 ITEM
        2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS
 
 None.
 
 
 ITEM
        3.  DEFAULTS UPON SENIOR SECURITIES
 
 None.
 
 
 ITEM
        4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
 
 
 ITEM
        5.  OTHER INFORMATION
 
 (a)
              All
                  information required to be disclosed on a report on Form 8-K during
                  the
                  period ended August 31, 2007 has previously been
                  reported.
 (b)
              There
                  have been no material changes to the procedures by which security
                  holders
                  may recommend nominees to the registrant’s board of
                  directors.
 
 
 ITEM
        6.  EXHIBITS AND REPORTS ON FORM 8-K
  3.1
              Articles
                  of Incorporation, as amended (1)
              
              Previously
                  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).
   19
  
 SIGNATURES
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 DigitalTown,
                  INC.(formerly
                  BDC Capitl, Inc.)Date:
                October 15, 2007
              /s/
                  Richard A.
                  PomijeRichard
                  A. Pomije, CEO and CFO
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 20