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, 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  [X]  No
 (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 27,370,808
shares of the registrants common stock outstanding as of October 15, 2009.  ii      TABLE OF
CONTENTS   PART IItem 1.
Financial
Statements
1-13Item 2.
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
14-20Item 3.
Quantitative
and Qualitative Disclosures About Market Risk
21Item 4.
Controls and
Procedures
21PART IIItem 1.
Legal
Proceedings
22Item 1A
Risk
Factors
22Item 2.
Unregistered
sales of Equity Securities and Use of Proceeds
22Item 3.
Defaults Upon
Senior Securities
22Item 4.
Submission of
Matters to a Vote of Security Holders
22Item 5.
Other
Information
23Item 6.
Exhibits
23-30    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
4-13


DigitalTown, Inc. CONSOLIDATED BALANCE SHEETS  ASSETSAugust 31,2009

February 28,2009(unaudited)

(audited)Current
assets:Cash

$      20,603

$      43,914Prepaid
domain name renewal fees

99,926

-Total
current assets

120,529

43,914Property and
equipment, net

2,870

4,022Intangible
assets, net

843,747

810,267Total
assets

$
  967,146

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

$
       27,500

$
      27,565Loan
from director/stockholder

140,108

102,767Accrued
expenses:Accrued
payroll

11,549

12,473Total
current liabilities

179,157

142,805Commitments
and contingenciesStockholders
equity:Common
stock, $.01 par value, 2,000,000,000 shares authorized, 27,370,808 and
27,166,862 shares issued and outstanding at August 31, 2009 and
 February 28, 2009, respectively

273,703

271,665Additional
paid-in-capital

22,623,417

22,271,789Subscription
receivable

(4,371,463)

(4,506,963)Accumulated
deficit

(17,737,668)

(17,321,093)Total
stockholders equity

787,989

715,398Total
liabilities and stockholders equity

$
   967,146

$
   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 Six Months EndedAugust 31,

August 31,2009

2008

2009

2008(unaudited)

(unaudited)

(unaudited)

(unaudited)Revenues
$
          1,951

$
               -

$
          1,951

$
               -Cost of revenues
44,142

-

44,142

-Gross profit
(42,191)

-

(42,191)

-Operating expenses:Selling, general and
administrative expenses
(48,079)

619,085

371,634

1,522,396Income (loss) from operations
5,888

(619,085)

(413,825)

(1,522,396)Other
income (expense):Interest
expense
(2,509)

(3,326)

(4,565)

(5,082)Other
income
-

285

1,815

349Total
other income (expense)
(2,509)

(3,041)

(2,750)

(4,733)Net
income (loss) before income taxes
3,379

(622,126)

(416,575)

(1,527,129)Income
tax provision
-

-

-

-Net
income (loss)
$
     3,379

$   (622,126)

$   (416,575)

$   (1,527,129)Income (loss) per common share  basic
$
       0.00

$
        (0.02)

$
       (0.02)

$
          (0.06)Weighted
average common shares outstanding  basic
27,362,885

27,104,077

27,296,799

27,093,684Income (loss) per common share  diluted
$
       0.00

$
        (0.02)

$
       (0.02)

$
          (0.06)Weighted average common shares outstanding 
diluted
27,362,885

27,104,077

27,296,799

27,093,684  The accompanying notes are an integral part of these
consolidated financial statements.      2    DigitalTown, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS  Six months
   ended
August 31, 2009

Six months
   ended
August 31, 2008(unaudited)

(unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
$  (416,575)

$  (1,527,129)Adjustments to reconcile net loss to net cash flows
used in operating activities:Depreciation
1,152

1,338Amortization of website
development cost
1,317

-Stock-based compensation
expense
47,166

1,171,740Non-cash stock
issued for director fees
12,000

10,000Gain on sale of
asset
-

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

70,528Prepaid
domain name registration fees
(99,926)

-Accounts
payable
(65)

(39,844)Accrued
expenses:Accrued payroll
(924)

(4,919)Accrued interest
-

(11,156)Net
cash used in operating activities
(455,855)

(329,497)CASH FLOWS FROM INVESTING
ACTIVITIES:Proceeds from
sale of asset
-

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

-Purchases and
 renewal of  intangible assets  domain names
(11,448)

(149,181)Net
cash used in investing activities
(34,797)

(148,781)CASH FLOWS FROM FINANCING
ACTIVITIES:Proceeds from loan  director/stockholder
39,482

145,000Payments on loan  director/stockholder
(2,141)

-Payments
received on stockholder subscription receivables
135,500

322,233Proceeds from
issuance of stock
294,500

63,540Proceeds from
exercise of stock options
-

101,387Net cash provided by financing
activities
467,341

632,160Net change in cash and cash equivalents
(23,311)

153,882Cash and cash equivalents,
beginning of period
43,914

67,161Cash and cash equivalents,
end of period
$       20,603

$    221,043SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:Non-cash flow information:Cash payments for
interest
$
            4,565

$
       16,238Accounts 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 August 31,
2009, the Company had an accumulated deficit of $17,737,668.  Subsequent to
August 31, 2009, the Company has received cash proceeds totaling approximately
$14,000 from its stock subscription receivable.  The Company anticipates
that existing cash, stock subscription proceeds received to date, expected
future proceeds from its stock subscription receivables and any additional
financing needed through the sale of its common stock or other equity-based
securities will be sufficient to meet its working capital and capital
expenditures needs through at least August 31, 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 registration 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
registration fees. Since the ownership of each domain name can be renewed for a
nominal registration 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.    **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 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.  Earnings(
Loss) Per Common Share  Earnings (loss) per share is computed using the weighted average
number of shares outstanding for the period. Diluted loss per share is computed
using the weighted average number of shares outstanding adjusted for the
incremental shares attributed to outstanding stock options and warrants. There
were no common stock equivalents that would be considered dilutive (based on
treasury stock method) for the outstanding stock options and warrants.  The
total number of potentially anti-dilutive shares at August 31, 2009 and 2008
were 4,099,334 and 4,118,000, respectively, and they were excluded from the six
month computation of diluted earnings (loss) per share as their effect would be
anti-dilutive.  **DigitalTown, Inc.** **** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **(unaudited)**   Recently
Issued Accounting Pronouncements  In
May 2009, the FASB issued SFAS No. 165, Subsequent Events. This
Statement sets forth: (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements; and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This
Statement is effective for interim and annual periods ending after June 15,
2009. The Company adopted this Statement during the three month period
ended August 31, 2009. The adoption of SFAS No. 165 did not have a
material impact on the companys consolidated results of operations, financial
condition or cash flows. In accordance with SFAS No. 165, the Company has
evaluated subsequent events through the date and time the financial statements
were issued on October 15, 2009.  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.  In
June 2009, the FASB issued SFAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162. SFAS 168 establishes a
two-level GAAP hierarchy for nongovernmental entities: authoritative guidance
and non-authoritative guidance. The FASB will no longer issue new standards in
the form of Statements, FASB Staff Positions, and EITF Abstracts; instead, the
Board will issue new guidance as Accounting Standards Updates, which will
include revisions to the codification, as well as background information and the
Boards basis for conclusions for new guidance. SFAS No. 168 is effective
for interim and annual reporting periods ending after September 15, 2009.
The adoption of SFAS No. 168 will not have an impact on the companys
consolidated results of operations, financial condition or cash flows.       **DigitalTown, Inc.** **** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **(unaudited)**       Note 3. Intangible
Assets  Intangible assets are
as follows:  August 31,     2009
February 28,     2009Domain
names
$
      821,715
$
        810,267Website
development and portal costs
23,349
-Less
accumulated amortization on the website
    development costs
(1,317)
-$
      843,747
$
       810,267  During
the six months ended August 31, 2009, the Company capitalized $11,448 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 six months
ended August 31, 2009, the Company incurred $142,752 for prepaid domain name
registration fees and will amortize them on a straight line basis over 10 months
beginning in June 2009.  During the three months ended August 31, 2009, the
Company expensed $42,826 of the prepaid annual domain name registration
fees.  During
the six months ended August 31, 2009, the Company capitalized $23,349 of website
development costs.  The Company has determined that $15,799 of these costs
pertain to an individual module or component of the overall internal-use
software that was ready for its intended use in June 2009 with an estimated
useful life of three years.  During the three months ended August 31, 2009,
the Company recorded $1,317 of website development amortization expense
pertaining to this module or component.  Note 4.
Stockholders Equity  Stock Transactions  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.    **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 October 15,
2009, no payments have been received and the Company has not recorded the
$300,735 in the stock subscription receivable balance at August 31, 2009.
 The Company will record those future cash receipts to Additional Paid in
Capital when received.  Note 5. Stock
Options  The
Company has one stock option plan called The 2006 Employee Stock and Option
Plan. As of August 31, 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 six
months ended August 31, 2009 and 2008, reflect the impact of their stock-based
compensation.  For the three months ended August 31, 2009, the Company
granted no stock options. Total stock compensation expense for all option grants
was $(183,139) and $449,927 for the three months ended August 31, 2009 and 2008,
respectively.  Due to two stock option arrangements that were canceled
during the quarter and because a portion of the options were unvested at the
time, the Company had a reversal of previously recognized expense totaling
$277,311.  For the six months ended August 31, 2009 and 2008, the Company
has recorded $47,166 and $1,171,740 in stock compensation expense, respectively.
 This expense is included in selling, general and administrative expense.
As of August 31, 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 months ended
August 31, 2009 basic income per common share and the six months ended August
31, 2009 basic (loss) per common share by $0.007 and $(0.002), respectively.
There remains $240,843 of total unrecognized compensation expense, which is
expected to be recognized over future periods through April 30, 2011.    **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
(735,000)
5.633
-
-Exercised
-
-
-
-Options outstanding  August 31, 2009
3,903,000
$  2.465
2.50
$   -Exercisable at August 31, 2009
3,631,000
$  2.427
2.38
$   -  (1) The
intrinsic value of an option is the amount by which the fair value of the
underlying stock exceeds its exercise price.  Note 6. 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 August 31, 2009
and 2008 totaled $7,950 and $7,950, respectively. For the six months ended
August 31, 2009 and 2008, the Company recorded $15,900 in lease payments to the
director for each period.  Minimum lease
payments at August 31, 2009 are as follows:FY
2010-remainder
15,900FY 2011
31,800FY 2012
25,175$
  72,875  Loan from
Director/Stockholder  As of
August 31, 2009 the Company had an outstanding working capital loan of $140,108,
from Jeff Mills, a director/stockholder of the Company.  The loan is due on
demand and the interest rate on the loan increased from 6.5 % to 7.0% in May
2009.  Interest expense incurred on this loan for the three and six months
ended August 31, 2009 and 2008 was $2,509 and $4,565 and $1,756 and $3,326,
respectively.    DigitalTown, Inc.   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)  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  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.     **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
(135,500)Receivable
balance at August 31, 2009
$
   4,371,463Summary of
outstanding subscriptions:2006
subscriptions
$
  1,121,463October 5, 2007
subscriptions
3,250,000$
  4,371,463  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 six month period ending August 31, 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, the
closing price of the shares of the Companys stock are less than $.75, the
shareholder would be entitled to up to 30% additional shares, depending on the
trading share price.  The
Company has collected approximately $14,000 of additional outstanding
subscription receivables for the period from September 1, 2009 to October 15,
2009.  Note 9. Subsequent
Events  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.  **DigitalTown, Inc.** **** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **(unaudited)**  The
agreement stipulates that each party will have the right to sell ad and
sponsorship positions on the DigitalTown websites and the net ad sales revenue
will be shared on an equal basis between the Parties.  The
initial term of the Agreement commenced on September 29, 2009 and will continue
for a period of one year and automatically renew for successive one year terms
unless either party gives proper notice of its desire not to renew.





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 August 31, 2009, and its results of operations for the three and
six months ended August 31, 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 August 31, 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) launched on-line content and
news hubs for over 14,000 of their approximately 27,000 high school websites on
June 9, 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 web 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.  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.  The
Company also 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 online.
 The high school contestants will compete for prizes aimed at furthering
their musical careers as well as benefiting the school.  The project will
commence later in the 2009/2010 school year.          RESULTS OF
OPERATIONS  THREE MONTHS ENDED
AUGUST 31, 2009 and 2008  During the three months ended August 31, 2009, the Company moved
into the operating stage of its business and recorded revenue of $1,951 and cost
of revenue of $44,142 for a negative gross profit of $(42,191) compared to no
revenue operations in 2008.  The revenue consisted of commissions generated
from advertising on their websites and the cost of revenue consisted of
amortization of prepaid annual domain name registration fees of $42,826 and
amortization of website development fees of $1,317.  Selling, general and administrative expenses for the
most current three months decreased by $667,164 to $(48,079) compared to a year
ago due to a non-cash decrease in stock compensation expense of $633,066 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 and
reversal of $277,311 of previously recorded stock compensation expense for the
three months ended August 31, 2009 due to employee terminations.  The
$277,311 of previously recorded stock compensation expense consisted of stock
options that were previously expensed, but not fully vested on the termination
date of two employees.  Excluding non-cash stock compensation expense for
the two comparable periods, selling, general, and administrative expenses were
$135,060 for the three months ended August 31, 2009, compared to $169,158 for
the three months ended August 31, 2008.  The decrease in selling, general,
and administrative expenses of $34,098 for the two comparable quarters was
primarily due to decreases in professional fees of $43,996 and investor
relations expense of $7,836 offset by increases in salary expense of $12,514 and
real estate taxes of $6,196. The Companys overall income (loss) for the current
three months increased by $625,505 to $3,379 which again was due to the expense
reversal of unvested stock options.   SIX MONTHS ENDED
AUGUST 31, 2009 and 2008  During the six months ended August 31, 2009, the Company moved
into the operating stage of its business and recorded revenue of $1,951 and cost
of revenue of $44,142 for a negative gross profit of $(42,191) compared to no
revenue operations in 2008.  The revenue consisted of commission generated
from advertising on their websites and the cost of revenue consisted of
amortization of prepaid annual domain name registration fees of $42,825 and
amortization of website development fees of $1,317.  Selling, general and administrative expenses for the
most current six months decreased by $1,150,762 to $371,634 compared to a year
ago due to a decrease in non-cash stock compensation expense of $1,124,574 for
the most current six 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
six months ended August 31, 2009.  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 $324,468
for the six months ended August 31, 2009, compared to $350,656 for the six
months ended August 31, 2008.  The decrease in selling, general, and
administrative expenses of $26,189 for the two comparable periods was primarily
due to decreases in professional fees of $26,009, travel and entertainment of
$12,116, investor relations expense of $7,534 and benefits expense of $4,485
offset by an increase in salary expense of $23,734. The Companys overall net
loss for the current six months decreased by $1,110,554 to $416,575.   LIQUIDITY AND CAPITAL
RESOURCES  SIX MONTHS ENDED
AUGUST 31, 2009  The
Companys cash position at August 31, 2009, was $20,603, a decrease of $23,311
from $43,914 at February 28, 2009.  During the six months ended August 31,
2009, net cash used in operating activities was $455,855 compared to cash used
of $329,497 for the comparable period.  The difference between the two
comparable periods was due mainly to an increase of $99,926 of prepaid expense
pertaining to annual domain name registration fees for the six months ended
August 31, 2009 and a reduction of other receivables pertaining to the
collection of a $70,000 deposit and the reduction of $39,844 in accounts payable
for the six months ended August 31, 2008. Net cash used in investing activities
for the six months ended August 31, 2009, was $34,797 of which $11,448 was used
for the purchase of additional domain names and $23,349 for website development
costs as compared to net cash used of $148,781 of which $147,544 was used for
annual domain name registration fees and $1,637 for the purchase of additional
domain names 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 registration fees which are now treated as an operating
expense vs. a capitalized cost while under the development stage.  Net cash
provided by financing activities for the six months ended August 31, 2009, was
$467,341, which consisted of $294,500 of proceeds from the issuance of stock,
proceeds from director/stockholder loan of $39,482 less principal payments on
the loan of $2,141 and payments received on stockholder subscription receivables
of $135,500. For the comparable period of the six months ended August 31, 2008,
the Company received net cash provided by financing activities of $632,160 which
consisted of payments received on stockholder subscription receivables of
$322,233, proceeds from director/stockholder loan of $145,000, proceeds from the
exercise of stock options of $101,387 and $63,540 of proceeds from issuance of
stock.  Monthly cash operating expenses for the six months ended August
31, 2009, were approximately $59,000 per month. Based on current expense levels,
the Companys monthly cash operating expenses going forward will 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 $62,500 for
the renewal of existing and purchase of additional domain names.  The
promissory note has a balance due of $140,108 at August 31, 2009 and is payable
upon demand.  The Company intends to pay the balance of the 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. · 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 October 15, 2009, no payments have been received for those excess
proceeds.  As of
August 31, 2009, the Company had stock subscription receivables of $4,371,463
and for the six months ended August 31, 2009, the Company received stock
subscription payments of $135,500.  The following table summarizes the
stock subscription receivable, by quarter, since February 29, 2008:  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
4,919,162
$
     111,632
-
-August 31, 2008
4,708,562
210,600
-
-November 30, 2008
4,616,963
91,620
-
-February 28, 2009
4,506,963
110,000
-
-May 31, 2009
4,476,963
30,000
-
-August 31, 2009
4,371,463
105,500
-
-  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, the closing price of
the shares of the Companys stock are less than $.75, the shareholder would be
entitled to up to 30% additional shares, depending on the trading share
price.  We
believe our current cash reserves and amounts we expect to collect on our
outstanding stock subscription receivables should be sufficient to enable us to
operate for the next 12 months. 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:  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
registration 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 registration fees. Since the ownership of each domain name
can be renewed for a nominal registration 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
May 2009, the FASB issued SFAS No. 165, Subsequent Events. This
Statement sets forth: (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements; and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This
Statement is effective for interim and annual periods ending after June 15,
2009. The Company adopted this Statement during the three month period
ended August 31, 2009. The adoption of SFAS No. 165 did not have a
material impact on the companys consolidated results of operations, financial
condition or cash flows. In accordance with SFAS No. 165, the Company has
evaluated subsequent events through the date and time the financial statements
were issued on October 15, 2009.  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.  In
June 2009, the FASB issued SFAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162. SFAS 168 establishes a
two-level GAAP hierarchy for nongovernmental entities: authoritative guidance
and non-authoritative guidance. The FASB will no longer issue new standards in
the form of Statements, FASB Staff Positions, and EITF Abstracts; instead, the
Board will issue new guidance as Accounting Standards Updates, which will
include revisions to the codification, as well as background information and the
Boards basis for conclusions for new guidance. SFAS No. 168 is effective
for interim and annual reporting periods ending after September 15, 2009.
The adoption of SFAS No. 168 will not have an impact on the companys
consolidated results of operations, financial condition or cash flows.  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 August 31, 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 August 31, 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 August 31, 2009, and as a result our disclosures controls and procedures were
not effective.  Notwithstanding the material weaknesses that existed as of
August 31, 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).  (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 August 31, 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.





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
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.  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, 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).





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:
October 15, 2009  /s/
Richard A. Pomije___________ Richard
A. Pomije, CEO  /s/
Paul R. Gramstad__________ Paul
R. Gramstad, CFO