Section 4 Matters Related to Accountants and Financial Statements
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review.
Digitiliti, Inc. previously disclosed in the consolidated financial statements and the notes to the
consolidated financial statements that appear in its Quarterly Report on Form 10-Q for the period
ended March 31, 2010, filed May 17, 2010, the discovery of prior misstatements during the year-end
close procedures associated with the Companys Annual Report on Form 10-K for the year ended
December 31, 2009, filed April 14, 2010, that occurred during the first quarter of 2009.
Based on this discovery and the conclusion made by the audit committee on May 21, 2010, as
described below, the Quarterly Reports for the periods ended March 31, 2009, June 30, 2009 and
September 30, 2009 should not be relied upon and should be restated.
The purpose of this filing is to disclose the restatements of the affected periods (quarterly
periods ended March 31, 2009, June 30, 2009 and September 30, 2009) under Item 4.02 of Form 8-K,
and no further restatement of the Companys financials is anticipated. No changes are being made to
the Companys financial statements as they appear in the Companys Annual Report on Form 10-K,
filed April 14, 2010, as this filing is correct.
Decision to Restate and Effect of the Restatement
On March 20, 2010, during the Companys year-end close procedures conducted during the audit of its
2009 financial statements, MaloneBailey LLP, the Companys registered independent public accounting
firm, discovered and informed the Company of a misstatement that occurred in the preparation of the
Quarterly Report on Form 10-Q for the period ended March 31, 2009, where an understatement occurred
in the expense of a beneficial conversion feature when certain note holders converted their notes
during the three months ended March 31, 2009. This misstatement then flowed through the Quarterly
Reports for the periods ended June 30, 2009 and September 30, 2009. At such time, it was determined
that the misstatements were not material, and the Company recorded a noncash adjustment for the
three months ended March 31, 2009 of $771,453, which served to increase interest expense and
Additional Paid-in Capital, in its Annual Report on Form 10-K for the year ended December 31, 2009.
On May 17, 2010, the audit committee of the Companys board of directors discussed the
misstatements with MaloneBailey again in connection with the Quarterly Report for the period ended
March 31, 2010. The audit committee reached the conclusion on May 21, 2010 that, as a result of
such misstatements, the Companys previous financial statements for the quarterly periods ended
March 31, 2009, June 30, 2009 and September 30, 2009 should be restated. Following such discussion
and determination, the Company is restating its Interest expense, Net loss and Loss per share
Basic and diluted for the quarterly periods ended March 31, 2009, June 30, 2009 and September 30,
2009.
The following tables illustrate the impact of this error on the Companys quarterly consolidated
statements of operations for the respective periods:
The three months ended March 31, 2009:
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As previously
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Reported
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Adjustments
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Adjusted
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Interest expense
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$
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1,218,794
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$
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771,453
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$
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1,990,247
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Net loss
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$
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1,590,752
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$
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771,453
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2,362,205
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Loss per share Basic and diluted
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0.05
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0.02
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|
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0.07
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The six months ended June 30, 2009:
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As previously
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Reported
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Adjustments
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Adjusted
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Interest expense
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$
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1,509,271
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$
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771,453
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$
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2,280,724
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Net loss
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$
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2,547,977
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$
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771,453
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|
|
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3,319,430
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Loss per share Basic and diluted
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0.08
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0.02
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0.10
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The nine months ended September 30, 2009:
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As previously
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Reported
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|
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Adjustments
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|
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Adjusted
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Interest expense
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$
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1,735,488
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$
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771,453
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$
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2,506,941
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Net loss
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$
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3,203,817
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$
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771,453
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3,975,270
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Loss per share Basic and diluted
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0.09
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0.02
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0.12
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Section 9 Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
99.1 Letter from MaloneBailey, LLC dated May 21, 2010