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: May 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 July
          12, 2007.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  ii
  
 TABLE
          OF
          CONTENTS
 
  PART
                    IItem
                    1.
                Financial
                    Statements
                1-12Item
                    2.
                Management’s
                    Discussion and Analysis and Plan of Operation
                13-16Item
                    3.
                Quantitative
                    and Qualitative Disclosures About Market Risk
                17Item4.
                Controls
                    and Procedures
                17PART
                    IIItem
                    1.
                Legal
                    Proceedings
                18Item
                    1A
                Risk
                    Factors
                18Item
                    2.
                Unregistered
                    sales of Equity Securities and Use of Proceeds
                18Item
                    3.
                Defaults
                    Upon Senior Securities
                18Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                18Item
                    5.
                Other
                    Information
                18Item
                    6.
                Exhibits
                18
 
 
 
  iii
  
 
 PART
          I
 
 ITEM
          1.  FINANCIAL STATEMENTS
 
 PageFinancial
                    Statements:Balance
                    Sheets
                1Statements
                    of Operations
                2Statements
                    of Cash Flows
                3Notes
                    to Financial Statements
                4-12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  DigitalTown,
          Inc.
 (formerly
          BDC Capital, Inc.)
 CONSOLIDATED
          BALANCE SHEETS
 
 **ASSETS**May
                    31,
                
                
                February
                    28,2007
                
                
                2007(unaudited)
                
                
                (audited)Current
                    assets:Cash
                
                $
                15,390
                
                
                $
                8,933Other
                    receivable
                
                
                28
                
                
                
                999Total
                    current assets
                
                
                15,418
                
                
                
                9,932Property
                    and equipment, net
                
                
                5,154
                
                
                
                1,579Intangible
                    assets – domain names
                
                
                656,727
                
                
                
                441,558Total
                    assets
                
                $
                677,299
                
                
                $
                453,069**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Current
                    liabilities:Accounts
                    payable
                
                $
                392,406
                
                
                $
                137,144Advances
                    from stockholders
                
                
                5,704
                
                
                
                16,354Accrued
                    expenses:Accrued
                    payroll
                
                
                20,152
                
                
                
                32,169Accrued
                    interest
                
                
                10,876
                
                
                
                9,476Deferred
                    officer compensation
                
                
                30,807
                
                
                
                18,865Notes
                    payable - stockholder
                
                
                70,000
                
                
                
                70,000Total
                    current liabilities
                
                
                529,945
                
                
                
                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 May 31, 2007
                    and  February 28, 2007, respectively
                
                
                257,233
                
                
                
                257,010Additional
                    paid-in-capital
                
                
                14,579,475
                
                
                
                14,521,673Subscription
                    receivable
                
                
                (2,795,501
                )
                
                
                (2,947,470
                )Accumulated
                    deficit
                
                
                (11,893,853
                )
                
                
                (11,662,152
                )Total
                    stockholders’ equity
                
                
                147,354
                
                
                
                169,061Total
                    liabilities and stockholders’ equity
                
                $
                677,299
                
                
                $
                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
                    MonthsEndedMay
                    31, 2007
                  (unaudited)Operating
                    expenses:Selling,
                    general and administrative expenses
                
                $
                233,275Loss
                    from operations
                
                
                (233,275
                )Other
                    income (expense)Interest
                    expense
                
                
                (1,400
                )Other
                    income
                
                
                2,974Total
                    other income (expense)
                
                
                1,574Net
                    loss
                
                $
                (231,701
                )Loss
                    per common share – basic and diluted
                
                $
                (0.01
                )Weighted
                    average common shares outstanding – basic and diluted
                
                
                25,711,658
 
 
 
 
 
 
 
 
 
 
  The
          accompanying notes are an integral part of these financial
          statements.
 
 
  2
  DigitalTown,
          Inc.
 (formerly
          BDC Capital, Inc.)
 
 **CONSOLIDATED
          STATEMENT OF CASH FLOWS**
 
 **Three
                    months**
                  **ended**
                  **May
                    31, 2007**(unaudited)CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (231,701
                )Adjustments
                    to reconcile net loss to net cash flows used in operating
                    activities:Depreciation
                
                
                381Stock
                    based compensation expense
                
                
                7,962Non
                    cash stock payment
                
                
                50,063Changes
                    in operating assets and liabilities:Other
                    receivables
                
                
                971Prepaid
                    expenses
                
                
                -Accounts
                    payable
                
                
                59,022Accrued
                    expenses:Accrued
                    payroll
                
                
                (12,017
                )Accrued
                    interest
                
                
                1,400Deferred
                    officer compensation
                
                
                11,942Net
                    cash used in operating activities
                
                
                (111,977
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchases
                    of fixed assets
                
                
                (3,956
                )Purchases
                    and  renewal of  intangible assets – domain
                    names
                
                
                (18,929
                )Net
                    cash used in investing activities
                
                
                (22,885
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Advances
                    to officer/stockholder
                
                
                (10,650
                )Payments
                    received on stockholder subscription receivables net of $20,000
                    in
                    transaction costs for the subscription offering initiated in
                    fiscal
                    2006
                
                
                151,969Net
                    cash provided by financing activities
                
                
                141,319Net
                    change in cash and cash equivalents
                
                
                6,457Cash
                    and cash equivalents, beginning of period
                
                
                8,933Cash
                    and cash equivalents, end of period
                
                $
                15,390SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATION:Cash
                    payments for interest
                
                $
                -Non-cash
                    investing and financing activities:Intangible
                    assets-domain name renewals incurred with accounts payable
                
                $
                196,240
  
  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 BDC Capital, 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 sustained losses and negative cash flows from operations and
          expects
          these conditions to continue into the foreseeable future.  At May 31,
          2007, the company had an accumulated deficit of
          $11,893,853.  Subsequent to May 31, 2007, the company has received
          cash proceeds totaling approximately $255,000 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 May 31,
          2008.
 
 *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.
 
  4
  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 months ended May 31, 2006, per SFAS 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 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.
 
 *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.
 
  5
  
 *Intangible
          Assets – Domain Names*
 
 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 website portal 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.
  *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 are
          reviewed for impairment whenever changes in circumstances indicate that
          the
          carrying amount of an asset may not be recoverable.  Recoverability of
          assets to be held and used is measured by comparison of the carrying amount
          of
          an asset to estimated undiscounted future cash flows expected to be generated
          by
          the asset. If the carrying amount of an asset exceeds its estimated future
          cash
          flows, an impairment charge is recognized in the amount by which the carrying
          amount of the asset exceeds the fair value of the asset.
 
 *Income
          Taxes*
 
 Deferred
          taxes are provided on a liability method whereby deferred tax assets are
          recognized for deductible temporary differences and operating losses and
          tax
          credit carryforwards and deferred tax liabilities are recognized for taxable
          temporary differences. Temporary differences are the differences between
          the
          reported amounts of assets and liabilities and their tax basis. Deferred
          tax
          assets are reduced by a valuation allowance when, in the opinion of management,
          it is more likely than not that some portion or all of the deferred tax
          assets
          will not be realized. Deferred tax assets and liabilities are adjusted
          for the
          effects of changes in tax laws and rates on the date of the
          enactment.
  *Stock-Based
          Compensation*
 
 Effective
          March 1, 2006, the Company adopted Financial Accounting Standards Board
          (“FASB”)
          Statement No. 123(R), “Share-Based Payment,” applying the modified prospective
          method.  This standard requires the fair value of share-based
          payments, including grants of employee stock options and employee stock
          purchase
          plan shares, to be recognized in the income statement based on their grant
          date
          fair values unless a fair value is not reasonably estimable.  Prior to
          the Company’s adoption of SFAS No. 123(R), the company followed the intrinsic
          value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees”, and its related interpretations, as
          permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123,
“Accounting for Stock-Based Compensation.”  The fair value of the
          Company’s stock options issued prior to and after the adoption of SFAS No.
          123(R) has been estimated using a Black-Scholes pricing model, which assumes
          no
          expected dividends and estimates the option expected life, volatility and
          risk-free interest rate at the time of the grant.
 
 
  6
  *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
          May
          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
          months
          ended May 31, 2007 and May 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 May 31, 2007 and February 28,
          2007.  The Company has not experienced any losses in such
          accounts.
 
 
 **Note
          2. Property and Equipment**
 
 Property
          and equipment are as follows:
 
 **May
                    31,**
                  **2007**
                
                
                **February
                    28,**
                  **2007**Office
                    equipment and furniture
                
                $
                477,176
                
                
                $
                473,220Less
                    accumulated depreciation
                
                
                (457,384
                )
                
                
                (457,003
                )Less
                    impairment of equipment
                
                
                (14,638
                )
                
                
                (14,638
                )$
                5,154
                
                
                $
                1,579
 
 Depreciation
          expense for the three months ended May 31, 2007 was $ 381.
 
 
  7
  **Note
          3. Notes Payable – Stockholder**
 
 As
          of May
          31, 2007, the Company had interest bearing advances from a stockholder
          in the
          amount of $70,000.  The unsecured notes are due at various dates from
          June 21, 2007 to August 1, 2007 with an interest rate of 8%.  Accrued
          interest at May 31, 2007 and February 28, 2007 totaled $10,876 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 May 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.
 
 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 months ended
          May 31,
          2007, reflect the impact of SFAS 123(R). No options were granted for the
          three
          month periods ended May 31, 2007 and 2006.  For the three months ended
          May 31, 2007, the Company recorded related compensation expense of $7,962.
          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 May 31, 2007 basic loss per common share by 0.00.
          There
          remains $208,990 of total unrecognized compensation expense, which is expected
          to be recognized over future periods.
 
  8
  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
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Canceled
                    or expired
                
                
                (270,000
                )
                
                
                (1.725
                )
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Options
                    outstanding - May 31, 2007
                
                
                2,855,000
                
                
                $
                1.725
                
                
                
                4.25
                
                
                $
                1,070,625Exercisable
                    at May 31, 2007
                
                
                2,730,000
                
                
                $
                1.725
                
                
                
                4.25
                
                
                $
                1,023,750
 
 (1)
          The
          intrinsic 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 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 $2,650. 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 May 31, 2007 totaling $7,950.  The
          Company currently owes $14,575 to the director for rent payments due through
          May
          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
 
 
  9
  **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 May
          31, 2007 and February 28, 2007, the company has outstanding subscription
          receivables of $2,795,501 and $2,947,470 respectively.  For the three
          months ended May 31, 2007, the company collected $151,969 of outstanding
          subscription receivables.  No interest has been charged on these
          subscription agreements.  The Company has collected approximately
          $255,000 of additional outstanding subscription receivables subsequent
          to May
          31, 2007.
 
 **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 months ended May 31,
                    2006
 ·
                Statement
                    of Cash Flows for the three months ended May 31,
                    2006
 
 
 
 
 
 
 
 
 
  10
  DigitalTown,
          Inc.
 (formerly
          BDC Capital, Inc.)
 STATEMENT
          OF OPERATIONS
 (unaudited)
 
 As
                    a Business Development
                  CompanyThree
                    months ended
                  May
                    31,
                  2006**Investment
                    income**
                
                $
                2**Operating
                    Expenses:**Professional
                    fees
                
                
                26,775Administrative
                    expenses
                
                
                47,019Rent
                
                
                1,125Other
                
                
                2,333Interest
                    expense
                
                
                1,400Total
                    Operating expenses
                
                
                78,652**Net
                    investment loss**
                
                
                (78,650
                )**Net
                    change in unrealized appreciation on investment**
                
                
                -**Net
                    decrease in net assets resulting from operation**
                
                $
                (78,650
                )Loss
                    per common share – basic and diluted
                
                $
                (0.01
                )Weighted
                    average shares outstanding – basic and diluted as restated for the 1 for
                    75 reverse stock split on October 4, 2006
                
                
                5,700,962
 
 
  11
 
 DigitalTown,
          Inc.
 (formerly
          BDC Capital, Inc.)
 
 **STATEMENT
          OF CASH FLOWS**
 (Unaudited)
 **As
                    a Business Development Company****Three
                    months ended**
                  **May
                    31, 2006****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    decrease in net assets resulting from operations as a Business
                    development company
                
                $
                (78,650
                )Adjustments
                    to reconcile net assets resulting from operations and net loss
                    to net cash
                    used by operating activities:Prepaid
                    expenses
                
                
                759Accounts
                    payable
                
                
                12,448Accrued
                    liabilities
                
                
                1,400Investment
                    in BDC Partners, Inc.
                
                
                (217,000
                )Net
                    cash used in operating and investing activities
                
                
                (281,043
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Net
                    advance from stockholder
                
                
                5,202Payments
                    received on stockholder subscription receivable net
                  of
                    $20,000 in transaction costs
                
                
                381,063Net
                    cash provided by financing activities
                
                
                386,265**Net
                    change in cash and cash equivalents for the
                    period**
                
                
                105,222**Cash
                    and cash equivalents at beginning of period**
                
                
                15,346**Cash
                    and cash equivalents at end of period**
                
                $
                120,568
 
 
 
  12
  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 May 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 May 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.
 
  13
  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.
 
 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 legally dissolved BDC Partners, Inc., a wholly owned subsidiary
          of
          DigitalTown, Inc.  and all remaining assets were transferred to and
          liabilities assumed by DigitalTown, Inc.  Additionally, the Company
          formed Tiger Media, a new wholly owned subsidiary of DigitalTown, Inc.
          for the
          sole purpose of registering all future renewals and purchases of domain
          names.  For the three months ended May 31, 2007, there was limited
          activity in this subsidiary.
 
 
 
 
  14
  RESULTS
          OF OPERATIONS
 
 THREE
          MONTHS ENDED MAY 31, 2007
 
 For
          the three months ended May 31,
          2007, the Company incurred a net operating loss of $233,275.  The
          Company incurred $33,500 of administrative fees for the management of the
          Company and total salary and payroll expense of $59,729 of which $11,942
          was
          deferred salary expense and stock option expense of $7,962.  The
          Company also incurred $41,507 of professional fees which included $20,000
          paid
          for April and May retainer fees as part of an agreement signed with Stifel
          Nicolaus to act as the Company’s financial advisor and exclusive financing
          agent.  The Company also made a non-cash stock payment of
          $50,063.  The company’s overall net loss for the three months ended
          May 31, 2007 was $231,701.
 
 
 LIQUIDITY
          AND CAPITAL RESOURCES
 
 The
          Company’s cash position at May 31, 2007 was $15,390, an increase of $6,457 from
          $8,933 at February 28, 2007.  During the three months ended May 31,
          2007, net cash used in operating activities was $111,977 which was primarily
          due
          to losses from operations, offset by increases in accounts payable, a non
          cash
          stock payment and deferred officer compensation.  Net cash used in
          investing activities was $22,885 of which $18,929 was used for the renewal
          of
          existing and the purchase of additional domain names and $3,956 was used
          for
          fixed asset purchases.  The Company 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 three months ended May 31, 2007, the Company made
          cash payments of $17,840 on the installment agreement. The balance of $196,240
          will be paid in 11 monthly payments of $17,840 for the period of June 2007
          to
          March 2008 and is included in accounts payable on the balance sheet. Net
          cash
          provided by financing activities was $141,319 which consisted primarily
          of
          payments received on stockholder subscription receivables of $151,969 less
          $10,650 of advances paid to officer/stockholder.
 
 Our
          current monthly operating expenses
          are approximately $60,000 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.  The
          Company signed an agreement with Stifel Nicolaus on April 1, 2007 to act
          as the
          Company’s financial advisor and exclusive financing agent for a 12 month
          period.  The payment terms of the agreement include a monthly fee of
          $10,000 per month (the “Monthly Fee”),  a contingent placement fee
          (the “Placement Fee”) equal to 7.0% (700 basis points) of the amount of the
          equity committed as part of the proposed Financing, plus 5.5% (550 basis
          points)
          of the subordinated debt committed as part of the proposed Financing, plus
          2.0%
          (200 basis points) of the senior debt committed as part of the proposed
          Financing, provided that the Placement Fee will not be less than
          $700,000.  In addition, warrants to purchase a number of shares of the
          same security of the Company as is issued in the Financing (or a security
          with
          substantially identical terms) such that the aggregate fair market value,
          as
          determined in the Financing, of the securities purchasable under the warrants
          equals 50% of the Placement Fee (the “Warrants”).  The Warrants shall
          be earned as of, and shall be issued to Stifel Nicolaus or its designated
          affiliates on, the date of the first closing of the Financing and shall
          be
          exercisable at a price of 100% of the price per share as established in
          the
          Financing.  We anticipate that any additional financing would be
          through the sale of our common stock or other equity-based
          securities.
 
 
 
  15
  **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**
 
 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 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.
 
 **Impairment
          of Long-Lived Assets**
 
 Long-lived
          assets, such as property and equipment, and intangibles are reviewed for
          impairment whenever events or changes in circumstances indicate that the
          carrying amount of an asset may not be recoverable.  Recoverability of
          assets to be held and used is measured by a comparison of the carrying
          amount of
          an asset to estimated undiscounted future cash flows expected to be generated
          by
          the asset.  If the carrying amount of an asset exceeds its estimated
          future cash flows, an impairment charge is recognized by 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.
 
 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.
 
  16
 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 May
            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.
 
 
 
 
 
 
  17
  **PART
          II**
 
 ITEM
          1.
 LEGAL PROCEEDINGS
 
 DigitalTown,
          Inc. is, from time to time, a party to litigation arising in the normal
          course
          of its business.  The Company believes that none of these actions will
          have a material adverse effect on its financial condition or results of
          operations.
 
 ITEM
          1A.  RISK FACTORS
 
 We
          are
          subject to various risks that may materially harm our business, financial
          condition and results of operations.  You should carefully consider
          the risks and uncertainties described below and the other information in
          this
          filing before deciding to purchase our common stock.  If any of these
          risks or uncertainties actually occurs, our business, financial condition
          or
          operating results could be materially harmed.  In that case, the
          trading price of our common stock could decline and you could lose all
          or part
          of your investment.
 
 ITEM
          2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
          PROCEEDS
 
 On
          April
          20, 2007, the Company issued 22,250 restricted common shares, valued at
          $50,063,
          to a Minneapolis based high school for their assistance in initially developing
          the portal revenue model.
 
 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 May 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).
 
 
  18
  
 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.)/s/
                      Richard A.
                      PomijeRichard
                      A. Pomije, CEO and CFO
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 19