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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 March 31, 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
(State or Other Jurisdiction of 
incorporation or organization)
    
    26-1408538
(I.R.S. Employer Identification No.)
 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
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4T. Controls and Procedures
    
    
    16PART IIItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits and Reports on Form 8-K
    
    
    20SIGNATURES
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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Item 1.
    
    Financial Statements.
 DIGITILITI, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 March 31, 2009
    
    
    December 31, 2008RestatedASSETSCURRENT ASSETSCash
    
    $
    58,769
    
    
    $
    36,317Accounts receivable
    
    
    572,176
    
    
    
    549,127Prepaid and other current assets
    
    
    286,953
    
    
    
    201,488TOTAL CURRENT ASSETS
    
    
    917,898
    
    
    
    786,932PROPERTY AND EQUIPMENT
    
    
    940,260
    
    
    
    1,105,113SOFTWARE LICENSE
    
    
    1,309,250
    
    
    
    1,302,158DEFERRED FINANCING COSTS
    
    
    114,286
    
    
    
    202,484OTHER ASSETS
    
    
    6,322
    
    
    
    6,322TOTAL ASSETS
    
    $
    3,288,016
    
    
    $
    3,403,009LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    313,510
    
    
    $
    234,957Accounts payable  related parties
    
    
    104,869
    
    
    
    104,869Accrued expenses
    
    
    887,568
    
    
    
    1,136,408Due to related parties
    
    
    88,936
    
    
    
    87,622Current maturities of note payable
    
    
    1,104,100
    
    
    
    875,365Current maturities of capital lease obligations
    
    
    368,900
    
    
    
    439,318Current maturities of notes payable  related parties
    
    
    231,540
    
    
    
    156,540Current maturities of convertible debt
    
    
    721,859
    
    
    
    2,435,466TOTAL CURRENT LIABILITIES
    
    
    3,821,282
    
    
    
    5,470,545CAPITAL LEASE OBLIGATIONS
    
    
    59,150
    
    
    
    65,037CONVERTIBLE DEBT
    
    
    1,726,532
    
    
    
    1,758,252CONVERTIBLE DEBT  related parties
    
    
    466,203
    
    
    
    342,532DEFERRED RENT
    
    
    16,418
    
    
    
    18,130OTHER LIABILITIES
    
    
    3,607
    
    
    
    3,607TOTAL LIABILITIES
    
    
    6,093,192
    
    
    
    7,658,103STOCKHOLDERS DEFICITCommon
stock, $.001 par value; 100,000,000 shares authorized, 33,552,845 and 26,665,020 shares issued
and outstanding
    
    
    33,553
    
    
    
    26,665Additional paid-in capital
    
    
    13,897,529
    
    
    
    10,092,294Accumulated deficit
    
    
    (16,736,258
    )
    
    
    (14,374,053
    )TOTAL STOCKHOLDERS DEFICIT
    
    
    (2,805,176
    )
    
    
    (4,255,094
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    3,288,016
    
    
    $
    3,403,009
 See accompanying notes to consolidated financial statements.
  3




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DIGITILITI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months EndedMarch 31,2009
    
    
    2008RestatedREVENUES
    
    $
    860,279
    
    
    $
    563,206COST OF REVENUES
    
    
    462,405
    
    
    
    427,621GROSS MARGIN
    
    
    397,874
    
    
    
    135,585OPERATING EXPENSESSelling and marketing
    
    
    86,751
    
    
    
    161,690General and administrative
    
    
    592,574
    
    
    
    769,864Research and development
    
    
    90,507
    
    
    
    670,079Total Operating Expenses
    
    
    769,832
    
    
    
    1,601,633LOSS FROM OPERATIONS
    
    
    (371,958
    )
    
    
    (1,466,048
    )INTEREST EXPENSE
    
    
    1,990,247
    
    
    
    331,833NET LOSS
    
    $
    (2,362,205
    )
    
    $
    (1,797,881
    )NET LOSS PER SHARE  BASIC AND DILUTED
    
    $
    (0.07
    )
    
    $
    (0.07
    )WEIGHTED-AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED
    
    
    32,175,280
    
    
    
    25,149,884
 See accompanying notes to consolidated financial statements.
  4




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DIGITILITI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months EndedMarch 31,2009
    
    
    2008RestatedOPERATING ACTIVITIESNet loss
    
    $
    (2,362,205
    )
    
    $
    (1,797,881
    )Adjustments to reconcile net loss to net cash used by
operating activities:Depreciation and amortization
    
    
    271,435
    
    
    
    254,032Common stock issued for services 
    
    
    
    
    
    
    124,312Amortization of deferred financing costs
    
    
    88,198
    
    
    
    49,220Amortization of discount on convertible debt
    
    
    651,803
    
    
    
    112,459Employee stock option expense
    
    
    63,241
    
    
    
    21,412Common stock issued for purchase of R & D
    
    
    
    
    
    
    375,000Beneficial conversion feature on converted notes
    
    
    979,809
    
    
    
    Warrant expense
    
    
    172,660
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (30,264
    )
    
    
    (90,064
    )Prepaid and other current assets
    
    
    (78,250
    )
    
    
    (62,632
    )Accounts payable
    
    
    78,553
    
    
    
    505,821Accrued expenses
    
    
    88,112
    
    
    
    Due to related parties
    
    
    1,314
    
    
    
    Deferred rent
    
    
    (1,712
    )
    
    
    2,979Net cash used in operating activities
    
    
    (77,306
    )
    
    
    (505,342
    )INVESTING ACTIVITIESPurchases of property and equipment
    
    
    
    
    
    
    (276,357
    )Purchases of software licenses
    
    
    (1,419
    )
    
    
    Net cash used in investing activities
    
    
    (1,419
    )
    
    
    (276,357
    )FINANCING ACTIVITIESProceeds from notes payable
    
    
    165,197
    
    
    
    Payments on notes payable
    
    
    (54,485
    )
    
    
    Proceeds from issuance of convertible debt
    
    
    
    
    
    
    808,500Financing costs
    
    
    
    
    
    
    (80,850
    )Payments on capital lease obligations
    
    
    (84,535
    )
    
    
    (156,207
    )Proceeds from bank note
    
    
    
    
    
    
    18,965Proceeds from note payable  related party
    
    
    75,000
    
    
    
    14,000Payments on notes payable  related party
    
    
    
    
    
    
    (10,000
    )Net cash provided by financing activities
    
    
    101,177
    
    
    
    594,408NET INCREASE (DECREASE) IN CASH
    
    
    22,452
    
    
    
    (187,291
    )CASHBeginning of period
    
    
    36,317
    
    
    
    241,333End of period
    
    $
    58,769
    
    
    $
    54,042
  5




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Three Months EndedMarch 31,2009
    
    
    2008RestatedSupplemental Cash Flow InformationCash paid for interest
    
    $
    21,509
    
    
    $
    18,875Cash paid for income tax
    
    
    
    
    
    
    Non-Cash Financing and Investing ActivitiesIssuance of warrants in connection with convertible debt
    
    $
    
    
    
    $
    371,950Stock rescission payable
    
    
    
    
    
    
    105,000Equipment acquired under capital lease
    
    
    8,230
    
    
    
    Shares issued for accrued interest on convertible debt
    
    
    307,954
    
    
    
    Shares issued for convertible debt
    
    
    2,262,700
    
    
    
    Notes payable issued to acquire software
    
    
    104,025
    
    
    
    
 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 three months ended March 31, 2009:
 As previouslyReported
    
    
    Adjustments
    
    
    RestatedInterest expense
    
    $
    1,218,794
    
    
    $
    771,453
    
    
    $
    1,990,247Net loss
    
    $
    1,590,752
    
    
    $
    771,453
    
    
    
    2,362,205Loss per share  Basic and diluted
    
    
    0.05
    
    
    
    0.02
    
    
    
    0.07
  New Accounting Pronouncements
     7




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2. Going Concern
    3. Convertible Debt
  1 2
 1 2
 Debtors Accounting for a Modification or Exchange of Debt Instruments
  8




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Induced Conversions of Convertible Debt
    2009
    
    
    2008Gross proceeds from the debts
    
    $
    5,500,000
    
    
    $
    5,500,000Less: discount on the warrants
    
    
    (2,116,131
    )
    
    
    (2,116,131
    )Less: principal converted to common stock
    
    
    (2,532,700
    )
    
    
    (270,000
    )Add: amortization of discount
    
    
    1,597,222
    
    
    
    1,079,849Subtotal
    
    $
    2,448,391
    
    
    $
    4,193,718Less: current maturities
    
    
    (721,859
    )
    
    
    (2,435,466
    )Long-term portion of convertible debt
    
    $
    1,726,532
    
    
    $
    1,758,252
  9




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4. Stockholders Equity
      Weighted-AverageOptions
    
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    4,116,806
    
    
    $
    0.37Granted
    
    
    650,000
    
    
    
    0.39Outstanding at March 31, 2009
    
    
    4,766,806
    
    
    
    0.37
     10




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Weighted-AverageWarrants
    
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    6,200,348
    
    
    $
    1.59Granted
    
    
    100,000
    
    
    
    0.35Outstanding at March 31, 2009
    
    
    6,300,348
    
    
    
    1.57
   11




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Item 2.
    
    Managements Discussions and Analysis of Financial Condition and Results of Operations.
 Forward-looking Statements
    Plan of Operation
      12




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th
  13




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Results of Operations
 For the three month periods ended March 31, 2009, and 2008
    14




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Liquidity
  For the three month periods ended March 31, 2009, and 2008
   
    
    Net loss of ($2,362,205).
 
    
    Depreciation and amortization of $271,435.
 
    
    Amortization of discount on convertible debt issued of $651,803.
 
    
    Increase in accounts receivable of $30,264.
 
    
    Increase in accounts payable and accrued expenses of $166,665.
 
    
    Beneficial conversion feature on converted debt of $979,809.
  
    
    Net loss of ($1,797,881).
 
    
    Depreciation and amortization of $254,032
 
    
    Increase in trade accounts payable and accrued expenses of $505,821.
    15




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Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4T.
    
    Controls and Procedures.
 Evaluation of disclosure controls and procedures
       16




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Changes in internal control over financial reporting
  
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings.
  
 Item 1A.
    
    Risk Factors.
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
       17




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Item 3.
    
    Defaults Upon Senior Securities.
  Due DatePrincipal &
    
    
    ForPrincipal
    
    
    Acc. Interest
    
    
    Accrued
    
    
    Principal &Original
    
    
    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
    
    
    5/15/2009
    
    
    5/15/2009
    
    
    5/15/2009
    
    
    5/15/20091st Qtr 2007
    
    $
    401,050
    
    
    $
    60,000
    
    
    $
    15,760
    
    
    $
    75,760
    
    
    Sep-082nd Qtr 2007
    
    $
    707,500
    
    
    $
    225,000
    
    
    $
    53,498
    
    
    $
    278,498
    
    
    Dec-083rd Qtr 2007
    
    $
    1,165,000
    
    
    $
    130,000
    
    
    $
    26,173
    
    
    $
    156,173
    
    
    Mar-094th Qtr 2007
    
    $
    926,000
    
    
    $
    140,000
    
    
    $
    25,985
    
    
    $
    165,985
    
    
    Jun-091st Qtr 2008
    
    $
    808,500
    
    
    $
    15,000
    
    
    $
    2,095
    
    
    $
    17,095
    
    
    Sep-092nd Qtr 2008
    
    $
    945,500
    
    
    $
    98,000
    
    
    $
    11,771
    
    
    $
    109,771
    
    
    Dec-093rd Qtr 2008
    
    $
    546,450
    
    
    $
    65,000
    
    
    $
    5,981
    
    
    $
    70,981
    
    
    Mar-10$
    5,500,000
    
    
    $
    733,000
    
    
    $
    141,263
    
    
    $
    874,263
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  
 Item 5.
    
    Other Information.
   Karen Gilles Larson.
  18




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Kedar R. Belhe.
     19




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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 2007.
    
    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
  20




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SIGNATURES
  Digitiliti, Inc.Date:      September 24, 2010
    By:

/s/ Roy A. BauerRoy A. Bauer, President, CEO and DirectorDate:       September 24, 2010
    By:

/s/ William McDonaldWilliam McDonald, CFO  21