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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 AMENDMENT NO. 1
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission File No. 000-53235
 DIGITILITI, INC.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    26-1408538(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 th th   (Address of Principal Executive Offices)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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Explanatory Note




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##### 



PART I
 PART IItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4T. Controls and Procedures
    
    
    20PART IIItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits and Reports on Form 8-K
    
    
    23SIGNATURES
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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Item 1. Financial Statements.
 DIGITILITI, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30, 2009
    
    
    December 31, 2008RestatedASSETSCURRENT ASSETSCash
    
    $
    31,735
    
    
    $
    36,317Accounts receivable
    
    
    635,827
    
    
    
    549,127Prepaid and other current assets
    
    
    200,493
    
    
    
    201,488TOTAL CURRENT ASSETS
    
    
    868,055
    
    
    
    786,932PROPERTY AND EQUIPMENT
    
    
    742,888
    
    
    
    1,105,113SOFTWARE LICENSE
    
    
    1,212,317
    
    
    
    1,302,158DEFERRED FINANCING COSTS
    
    
    96,605
    
    
    
    202,484OTHER ASSETS
    
    
    6,322
    
    
    
    6,322TOTAL ASSETS
    
    $
    2,926,187
    
    
    $
    3,403,009LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    357,592
    
    
    $
    234,957Accounts payable  related parties
    
    
    104,869
    
    
    
    104,869Accrued expenses
    
    
    1,017,697
    
    
    
    1,136,408Due to related parties
    
    
    91,290
    
    
    
    87,622Current maturities of note payable
    
    
    1,036,883
    
    
    
    875,365Current maturities of capital lease obligations
    
    
    239,132
    
    
    
    439,318Current maturities of notes payable  related parties
    
    
    231,540
    
    
    
    156,540Current maturities of convertible debt
    
    
    694,134
    
    
    
    2,435,466TOTAL CURRENT LIABILITIES
    
    
    3,773,137
    
    
    
    5,470,545CAPITAL LEASE OBLIGATIONS
    
    
    47,798
    
    
    
    65,037CONVERTIBLE DEBT
    
    
    1,864,524
    
    
    
    1,758,252CONVERTIBLE DEBT  related parties
    
    
    538,973
    
    
    
    342,532DEFERRED RENT
    
    
    14,796
    
    
    
    18,130OTHER LIABILITIES
    
    
    3,607
    
    
    
    3,607TOTAL LIABILITIES
    
    
    6,242,835
    
    
    
    7,658,103STOCKHOLDERS DEFICITCommon stock, $.001 par value; 100,000,000 shares
authorized, 34,231,316 and 26,665,020 shares issued and
outstanding
    
    
    34,231
    
    
    
    26,665Additional paid-in capital
    
    
    14,342,604
    
    
    
    10,092,294Accumulated deficit
    
    
    (17,693,483
    )
    
    
    (14,374,053
    )TOTAL STOCKHOLDERS DEFICIT
    
    
    (3,316,648
    )
    
    
    (4,255,094
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    2,926,187
    
    
    $
    3,403,009
 See accompanying notes to consolidated financial statements.
  3




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DIGITILITI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008RestatedREVENUES
    
    $
    859,669
    
    
    $
    768,203
    
    
    $
    1,719,948
    
    
    $
    1,331,409COST OF REVENUES
    
    
    544,118
    
    
    
    460,835
    
    
    
    1,006,523
    
    
    
    888,955GROSS PROFIT
    
    
    315,551
    
    
    
    307,368
    
    
    
    713,425
    
    
    
    442,454OPERATING EXPENSESSelling and marketing
    
    
    118,578
    
    
    
    175,933
    
    
    
    205,329
    
    
    
    325,123General and administrative
    
    
    621,349
    
    
    
    1,175,814
    
    
    
    1,213,923
    
    
    
    1,775,709Research and development
    
    
    242,372
    
    
    
    641,792
    
    
    
    332,879
    
    
    
    936,871TOTAL OPERATING EXPENSES
    
    
    982,299
    
    
    
    1,993,539
    
    
    
    1,752,131
    
    
    
    3,037,703LOSS FROM OPERATIONS
    
    
    (666,748
    )
    
    
    (1,686,171
    )
    
    
    (1,038,706
    )
    
    
    (2,595,249
    )INTEREST EXPENSE
    
    
    290,477
    
    
    
    526,646
    
    
    
    2,280,724
    
    
    
    862,724NET LOSS
    
    $
    (957,225
    )
    
    $
    (2,212,817
    )
    
    $
    (3,319,430
    )
    
    $
    (3,457,973
    )NET LOSS PER SHARE  BASIC AND DILUTED
    
    $
    (0.03
    )
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.14
    )WEIGHTED-AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED
    
    
    34,231,316
    
    
    
    25,476,751
    
    
    
    33,437,064
    
    
    
    25,313,318
 See accompanying notes to consolidated financial statements.
  4




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DIGITILITI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months EndedJune 30,2009
    
    
    2008RestatedOPERATING ACTIVITIESNet loss
    
    $
    (3,319,430
    )
    
    $
    (3,457,973
    )Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation and amortization
    
    
    570,201
    
    
    
    522,318Amortization of deferred financing costs
    
    
    140,879
    
    
    
    118,309Amortization of discount on convertible debt
    
    
    751,058
    
    
    
    347,942Bad debt expense
    
    
    20,692
    
    
    
    Common stock issued for services
    
    
    
    
    
    
    249,486Common stock issued for purchase of R & D
    
    
    
    
    
    
    375,000Employee stock option expense
    
    
    108,784
    
    
    
    467,894Beneficial conversion feature on converted notes
    
    
    977,029
    
    
    
    Warrants expense
    
    
    266,717
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (107,392
    )
    
    
    (237,744
    )Prepaid and other current assets
    
    
    995
    
    
    
    (64,699
    )Accounts payable
    
    
    122,635
    
    
    
    71,149Accrued expenses
    
    
    278,826
    
    
    
    416,141Due to related parties
    
    
    3,668
    
    
    
    Deferred rent
    
    
    (3,334
    )
    
    
    1,494Net cash used in operating activities
    
    
    (188,672
    )
    
    
    (1,190,683
    )INVESTING ACTIVITIESPurchase of property and equipment
    
    
    
    
    
    
    (471,728
    )Purchase of software licenses
    
    
    (5,880
    )
    
    
    Net cash used by investing activities
    
    
    (5,880
    )
    
    
    (471,728
    )FINANCING ACTIVITIESProceeds from issuance of convertible debt
    
    
    350,000
    
    
    
    2,044,637Financing costs
    
    
    (35,000
    )
    
    
    (175,400
    )Payments on capital lease obligations
    
    
    (225,655
    )
    
    
    (333,206
    )Proceeds from capital lease obligations
    
    
    
    
    
    
    18,833Proceeds from note payable  related party
    
    
    75,000
    
    
    
    7,072Proceeds from notes payable
    
    
    165,197
    
    
    
    Payments on notes payable
    
    
    (139,572
    )
    
    
    Net cash provided by financing
activities
    
    
    189,970
    
    
    
    1,561,936
  5




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DIGITILITI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
 Six Months EndedJune 30,2009
    
    
    2008RestatedNET INCREASE (DECREASE) IN CASH
    
    
    (4,582
    )
    
    
    (100,475
    )CASHBeginning of year
    
    
    36,317
    
    
    
    241,333End of year
    
    $
    31,735
    
    
    $
    140,858Supplemental Cash Flow InformationCash paid for interest
    
    $
    44,307
    
    
    $
    18,875Cash paid for taxes
    
    
    
    
    
    
    Non-Cash Financing and Investing ActivitiesEquipment acquired under capital lease
    
    $
    8,230
    
    
    $
    Notes payable issued to acquire software
    
    
    104,025
    
    
    
    Shares issued for convertible debt and accrued interest
    
    
    2,648,203
    
    
    
    Discount on convertible debt
    
    
    212,852
    
    
    
    
 See accompanying notes to consolidated financial statements.
  6




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DIGITILITI, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Organization, Basis of Presentation and Significant Accounting Policies
  Restatement
   The six months ended June 30, 2009:
 As previouslyReported
    
    
    Adjustments
    
    
    RestatedInterest expense
    
    $
    1,509,271
    
    
    $
    771,453
    
    
    $
    2,280,724Net loss
    
    $
    2,547,977
    
    
    $
    771,453
    
    
    
    3,319,430Loss per share  Basic and diluted
    
    
    0.08
    
    
    
    0.02
    
    
    
    0.10
  Reclassification
  New Accounting Pronouncements
     7




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2. Going Concern
    3. Convertible Debt
 12% Convertible Debt  $5.5 million Private Offering
  1 2
  8




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1 2
    12% Convertible Debt  $750,000 Private Offering
       9




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June 30,
    
    
    December 31,2009
    
    
    2008Gross proceeds from the debts
    
    $
    5,850,000
    
    
    $
    5,500,000Less: discount on the warrants
    
    
    (3,408,753
    )
    
    
    (3,369,874
    )Less: beneficial conversion feature
    
    
    (173,973
    )
    
    
    Less: principal converted to common stock
    
    
    (2,582,700
    )
    
    
    (270,000
    )Add: accumulated amortization of discount
    
    
    2,874,084
    
    
    
    2,333,592Subtotal
    
    
    2,558,658
    
    
    
    4,193,718Less: current maturities
    
    
    (694,134
    )
    
    
    (2,435,466
    )Long-term portion of convertible debt
    
    $
    1,864,524
    
    
    $
    1,758,252
  4. Related Party Transactions
        10




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June 30,
    
    
    December 31,2009
    
    
    2008Gross proceeds from the debts
    
    $
    500,000
    
    
    $
    500,000Less: discount on the warrants
    
    
    (120,844
    )
    
    
    (120,844
    )Less: beneficial conversion feature
    
    
    (90,130
    )
    
    
    (90,130
    )Add: accumulated amortization of discount
    
    
    210,974
    
    
    
    44,699Add: accrued interest
    
    
    38,973
    
    
    
    8,807Total carrying amount
    
    $
    538,973
    
    
    $
    342,532
  5. Stockholders Equity
 Common Stock:
  Stock Options:
      11




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Weighted-AverageOptions
    
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    4,116,806
    
    
    $
    0.37Granted
    
    
    1,250,000
    
    
    
    0.38Forfeited
    
    
    (1,398,806
    )
    
    
    0.36Outstanding at June 30, 2009
    
    
    3,968,000
    
    
    
    0.37
  Stock Warrants:
       12




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Weighted-AverageWarrants
    
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    6,200,348
    
    
    $
    1.59Granted
    
    
    925,000
    
    
    
    0.44Outstanding at June 30, 2009
    
    
    7,125,348
    
    
    
    1.44
  6. Subsequent Events
    13




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Item 2. Managements Discussions and Analysis of Financial Condition and Results of Operations.
 Forward-looking Statements
    Plan of Operation
     14




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15




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16




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Results of Operations
 For the three months period ended June 30, 2009, and 2008
      17




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st
 For the six months period ended June 30, 2009, and 2008
       18




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Liquidity
  For the six months period ended June 30, 2009, and 2008
   
    
    Net loss of ($3,319,430).
 
    
    Depreciation and amortization of $570,201.
 
    
    Amortization of discount on convertible debt issued of $751,058.
 
    
    Warrants expenses of $266,717
 
    
    Increase in accounts receivable of $107,392.
 
    
    Increase in accounts payable and accrued expenses of $401,461.
 
    
    Beneficial conversion feature on converted debt of $977,029.
  
    
    Net loss of ($3,457,973).
 
    
    Depreciation and amortization of $522,318.
 
    
    Amortization of discount on convertible debt issued of $347,942.
 
    
    Common stock issued for services and purchase of R & D of $624,486
 
    
    Employee stock option expense of $467, 894.
 
    
    Increase in accounts receivable of $237,744.
 
    
    Increase in trade accounts payable and accrued expenses of $487,290.
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
   19




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Item 4T. Controls and Procedures.
 Evaluation of disclosure controls and procedures
        20




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Quarterly Period Ended June 30, 2009
    Subsequent to June 20, 2009
    21




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Item 3. Defaults Upon Senior Securities.
  Total
    
    
    Due DateTotal
    
    
    Total
    
    
    Principal &
    
    
    ForPrincipal
    
    
    Acc. Interest
    
    
    Accrued
    
    
    Principal &Balance of
    
    
    on
    
    
    Interest on
    
    
    AccruedTotal of
    
    
    Conv. Notes
    
    
    Conv. Notes
    
    
    Conv. Notes
    
    
    Interest onConvertible
    
    
    Outstanding
    
    
    Outstanding
    
    
    Outstanding
    
    
    ConvertibleNotes Sold at
    
    
    as of
    
    
    as of
    
    
    as of
    
    
    Notes at12/31/2008
    
    
    8/14/2009
    
    
    8/14/2009
    
    
    8/14/2009
    
    
    8/14/20091st Qtr 2007
    
    $
    401,050
    
    
    $
    60,000
    
    
    $
    17,580
    
    
    $
    77,580
    
    
    Sep-082nd Qtr 2007
    
    $
    707,500
    
    
    $
    225,000
    
    
    $
    60,323
    
    
    $
    285,323
    
    
    Dec-083rd Qtr 2007
    
    $
    1,165,000
    
    
    $
    130,000
    
    
    $
    30,117
    
    
    $
    160,117
    
    
    Mar-094th Qtr 2007
    
    $
    926,000
    
    
    $
    140,000
    
    
    $
    30,232
    
    
    $
    170,232
    
    
    Jun-091st Qtr 2008
    
    $
    808,500
    
    
    $
    15,000
    
    
    $
    2,550
    
    
    $
    17,550
    
    
    Sep-092nd Qtr 2008
    
    $
    945,500
    
    
    $
    98,000
    
    
    $
    14,324
    
    
    $
    112,324
    
    
    Dec-093rd Qtr 2008
    
    $
    546,450
    
    
    $
    65,000
    
    
    $
    7,953
    
    
    $
    72,953
    
    
    Mar-10$
    5,500,000
    
    
    $
    733,000
    
    
    $
    163,079
    
    
    $
    896,079
   
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
     22




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Item 6. Exhibits.
 Exhibit No.
    
    Identification of Exhibit3.1
    
    
    Initial Certificate of Incorporation filed March 31, 2006.
    
    Exhibit to our Form 103.2
    
    
    Bylaws.
    
    Exhibit to our Form 103.3
    
    
    Certificate of Amendment regarding the name change to Digitiliti, inc. and the Recapitalization.
    
    Exhibit to our Form 103.4
    
    
    Certificate Correction regarding the name change to Digitiliti, Inc.
    
    Exhibit to our Form 103.5
    
    
    Amended and Restated Certificate of Incorporation filed May 13, 2008.
    
    Exhibit to our Form 1010.1
    
    
    Stock Purchase Agreement between Storage and our former principal shareholders under which Storage
acquired a controlling interest in us.
    
    Exhibit to our Form 1010.2
    
    
    Agreement and Plan of Merger between us, Themescapes and Bulldog under which we became a holding company.
    
    Exhibit to our Form 1010.3
    
    
    Agreement and Plan of Merger, as amended, between us, Cyclone Acquisition and Storage under which
Storage became our wholly-owned subsidiary.
    
    Exhibit to our Form 1010.4
    
    
    XO Communications Contract.
    
    Exhibit to our Form 1010.5
    
    
    FRM Associates Lease, as amended.
    
    Exhibit to our Form 1010.6
    
    
    EBC Minneapolis, Inc. Sublease Agreement.
    
    Exhibit to our Form 1010.7
    
    
    Upper Corner Venture, LLC Lease Agreement.
    
    Exhibit to our Form 1010.8
    
    
    M2 Consulting Agreement of May 2006, with Addendums.
    
    Exhibit to our Form 1010.9
    
    
    M2 Consulting Agreement of April 2008.
    
    Exhibit to our Form 1010.10
    
    
    5X Partners Corporate Development Services Agreement with Addendums.
    
    Exhibit to our Form 1010.11
    
    
    StorageSwitch Consulting Services Agreement.
    
    Exhibit to our Form 1010.12
    
    
    StorageSwitch Non-Compete Agreement.
    
    Exhibit to our Form 1010.13
    
    
    StorageSwitch Technology Purchase Agreement.
    
    Exhibit to our Form 1010.14
    
    
    Vision to Practice, Inc. Development Services Agreement.
    
    Exhibit to our Form 1010.15
    
    
    Form of 12% Convertible Note.
    
    Exhibit to our Form 10/A-210.16
    
    
    Form of A Warrant for 12% Convertible Note Offering.
    
    Exhibit to our Form 10/A-210.17
    
    
    Form of B Warrant for 12% Convertible Note Offering.
    
    Exhibit to our Form 10/A-210.18
    
    
    Letter Agreement with M2 of June, 2008.
    
    Exhibit to our Form 10/A-216.1
    
    
    Letter of Auditors regarding termination.
    
    Exhibit to our Form 10/A-221
    
    
    Subsidiaries.
    
    Exhibit to our Form 1031.1
    
    
    302 Certification of CEO, Roy A. Bauer31.2
    
    
    302 Certification of CFO, William McDonald32.1
    
    
    906 Certification99.1
    
    
    Digitiliti, Inc. Stock Option Plan.
    
    Exhibit to our Form 10
  23




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SIGNATURES
  Digitiliti, Inc.Date: September 24, 2010
    
    By:
    
    /s/ Roy A. Bauer

Roy A. Bauer, President, CEO and
DirectorDate: September 24, 2010
    
    By:
    
    /s/ William McDonaldWilliam McDonald, CFO
  24