SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM
10-Q   [X] QUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended March 31,
2009  [ ] 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)  266 East 7th Street,
4th Floor St. Paul, Minnesota 55101 (Address of Principal Executive Offices)  (651) 925-3200 (Registrants telephone number, including
area code)  N/A (Former name, former address and former
fiscal year, if changed since last report)  Indicate by check mark whether the
Registrant has (1) filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 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 [ ]  Yes [ ] No [X]  Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):  Large accelerated filer [ ]   Accelerated filer
[ ]   Non-accelerated filer [ ]   Smaller reporting company
[X]  Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]  As of May 12, 2009, the Registrant had 34,123,313 shares
of common stock issued and outstanding.   1    PART I Table of
Contents    PART
I   Item 1. Financial
Statements Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Item 3. Quantitative and Qualitative Disclosures About Market
Risk Item 4T. Controls
and Procedures  PART
II   Item 1. Legal
Proceedings Item 1A. Risk
Factors Item 2. Unregistered Sale of Equity Securities and Use of
Proceeds Item 3. Defaults
Upon Senior Securities Item 4. Submission
of Matters to a Vote of Security Holders Item 5. Other
Information Item 6. Exhibits
and Reports on Form 8-K SIGNATURES  EX-31.1
(Certifications required under Section 302 of the Sarbanes-Oxley Act of
2002)  EX-31.2
(Certifications required under Section 302 of the Sarbanes-Oxley Act of
2002)  EX-32.1
(Certifications required under Section 906 of the Sarbanes-Oxley Act of
2002)  EX-32.2 (Certifications required under Section 906 of the
Sarbanes-Oxley Act of 2002)  2    Item 1.
Financial Statements  DIGITILITI, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)


|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - |  | ----------------- | - | ----------- | -
|                                                                                                                       |  |                |            
|ASSETS                                                                                                                 |  | March 31, 2009 |             |   |  | December 31,
2008 |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|CURRENT ASSETS                                                                                                         |  |                |             |   |  |                   |   |             |  
|Cash                                                                                                                   |  | $              | 58,769      |   |  |                   | $ | 36,317      |  
|Accounts receivable                                                                                                    |  |                | 572,176     |   |  |                   |   | 549,127     |  
|Prepaid and other current
assets                                                                                       |  |                | 286,953     |   |  |                   |   | 201,488     |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|TOTAL CURRENT ASSETS                                                                                                   |  |                | 917,898     |   |  |                   |   | 786,932     |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|PROPERTY AND EQUIPMENT                                                                                                 |  |                | 940,260     |   |  |                   |   | 1,105,113   |  
|SOFTWARE LICENSE                                                                                                       |  |                | 1,309,250   |   |  |                   |   | 1,302,158   |  
|DEFERRED FINANCING COSTS                                                                                               |  |                | 114,286     |   |  |                   |   | 202,484     |  
|Other assets                                                                                                           |  |                | 6,322       |   |  |                   |   | 6,322       |  
|TOTAL ASSETS                                                                                                           |  | $              | 3,288,016   |   |  |                   | $ | 3,403,009   |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|LIABILITIES AND STOCKHOLDERS
DEFICIT                                                                                  |  |                |             |   |  |                   |   |             |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|CURRENT LIABILITIES                                                                                                    |  |                |             |   |  |                   |   |             |  
|Accounts payable                                                                                                       |  | $              | 313,510     |   |  |                   | $ | 234,957     |  
|Accounts
payable  related parties                                                                                     |  |                | 104,869     |   |  |                   |   | 104,869     |  
|Accrued expenses                                                                                                       |  |                | 887,568     |   |  |                   |   | 1,136,408   |  
|Due to related
parties                                                                                                 |  |                | 88,936      |   |  |                   |   | 87,622      |  
|Current
maturities of note payable                                                                                     |  |                | 1,104,100   |   |  |                   |   | 875,365     |  
|Current maturities of capital
lease obligations                                                                        |  |                | 368,900     |   |  |                   |   | 439,318     |  
|Current maturities of notes
payable  related parties                                                                  |  |                | 231,540     |   |  |                   |   | 156,540     |  
|Current maturities of
convertible debt                                                                                 |  |                | 721,859     |   |  |                   |   | 2,435,466   |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|TOTAL CURRENT LIABILITIES                                                                                              |  |                | 3,821,282   |   |  |                   |   | 5,470,545   |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|CAPITAL LEASE OBLIGATIONS                                                                                              |  |                | 59,150      |   |  |                   |   | 65,037      |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|CONVERTIBLE DEBT                                                                                                       |  |                | 1,726,532   |   |  |                   |   | 1,758,252   |  
|CONVERTIBLE DEBT  related parties                                                                                     |  |                | 466,203     |   |  |                   |   | 342,532     |  
|DEFERRED RENT                                                                                                          |  |                | 16,418      |   |  |                   |   | 18,130      |  
|Other liabilities                                                                                                      |  |                | 3,607       |   |  |                   |   | 3,607       |  
|TOTAL LIABILITIES                                                                                                      |  |                | 6,093,192   |   |  |                   |   | 7,658,103   |  
|                                                                                                                       |  |                |             |   |  |                   |   |             |  
|STOCKHOLDERS DEFICIT                                                                                                  |  |                |             |   |  |                   |   |             |  
|Common stock, $.001 par value;
100,000,000 shares authorized,
33,552,845
 and 26,665,020 shares issued and outstanding |  |                | 33,553      |   |  |                   |   | 26,665      |  
|Additional paid-in
capital                                                                                             |  |                | 13,126,076  |   |  |                   |   | 10,092,294  |  
|Accumulated deficit                                                                                                    |  |                | (15,964,805 | ) |  |                   |   | (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    DIGITILITI,
INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED)


|                                                      |   |                              |       |            |  
|----------------------------------------------------- | - | ---------------------------- | ----- | ---------- | -
|                                                      |   | Three Months
Ended
March 31, |      
|                                                      |   | 2009                         |       | 2008       |  
|                                                      |   |                              |       |            |  
|                                                      |   |                              |       |            |  
|REVENUES                                              | $ | 860,279                      | $     | 563,206    |  
|                                                      |   |                              |       |            |  
|COST OF REVENUES                                      |   | 462,405                      |       | 427,621    |  
|                                                      |   |                              |       |            |  
|GROSS MARGIN                                          |   | 397,874                      |       | 135,585    |  
|                                                      |   |                              |       |            |  
|OPERATING EXPENSES                                    |   |                              |       |            |  
|Selling and marketing                                 |   | 86,751                       |       | 161,690    |  
|General and
administrative                            |   | 592,574                      |       | 769,864    |  
|Research and development                              |   | 90,507                       |       | 670,079    |  
|Total Operating Expenses                              |   | 769,832                      |       | 1,601,633  |  
|                                                      |   |                              |       |            |  
|LOSS FROM OPERATIONS                                  |   | (371,958                     | )     | (1,466,048 | )
|                                                      |   |                              |       |            |  
|INTEREST EXPENSE                                      |   | 1,281,794                    |       | 331,833    |  
|                                                      |   |                              |       |            |  
|NET LOSS                                              | $ | (1,590,752                   | )   $ | (1,797,881 | )
|                                                      |   |                              |       |            |  
|NET LOSS PER SHARE  BASIC AND DILUTED                | $ | (0.05)                       | $     | (0.07)     |  
|                                                      |   |                              |       |            |  
|WEIGHTED-AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED |   | 32,175,280                   |       | 25,149,884 |  
|                                                      |   |                              |       |            |  

See accompanying notes to consolidated
financial statements.  4    DIGITILITI,
INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED) Three Months Ended
March 31,2009


2008OPERATING ACTIVITIESNet loss

$
(1,590,752
)

$
(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


670,335



112,459Stock
issued for professional services


-



-Employee stock option
expense


63,241



21,412Common
stock issued for purchase of R & D


-



375,000Incremental compensation cost of
warrants with converted notes


116,377



-Incremental
compensation cost of warrants with extended notes


84,730



-Beneficial
Conversion Features on converted notes


161,377



-Stock
issued for professional services






-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 provided by 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 used in financing
activities


101,177



594,408NET DECREASE IN CASH


22,452



(187,291
)CASHBeginning of period


36,317



241,333End of period

$
58,769


$
54,042Cash paid for interest


21,509



18,875Cash paid for income tax


-



-  5      Non-Cash
Financing and Investing Activities Issuance 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    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  1. Organization, Basis of Presentation and Significant Accounting
Policies  The accompanying unaudited interim
financial statements of Digitiliti, Inc. have been prepared in accordance with
accounting principles generally accepted in the United States of America and
rules of the Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto contained in
Digitilitis audited financial statements for the year ended December 31, 2008.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
consolidated financial statements, which would substantially duplicate the
disclosure contained in the audited financial statements, included in
Digitilitis Form 10-K, have been omitted.  New Accounting
Pronouncements  In April 2009, the FASB issued FASB Staff
Position (FSP) No. FAS 107-1 and Accounting Principles Board (APB) 28-1, Interim
Disclosures about Fair Value of Financial Instruments, (FAS 107-1) to amend SFAS
No. 107, Disclosures about Fair Value of Financial Instruments and APB 28,
Interim Financial Reporting. FAS 107-1 changes the reporting requirements on
certain fair value disclosures of financial instruments to include interim
reporting periods. FAS 107-1 is effective for interim reporting periods ending
after June 15, 2009, with early adoption encouraged. We are currently assessing
the impact, if any, that the adoption of this pronouncement will have on our
disclosures.  In April 2009, the FASB issued FSP No. FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly, (FAS 157-4) to amend SFAS No. 157, Fair Value
Measurements, (SFAS 157). FAS 157-4 provides additional guidance for estimating
fair value in accordance with SFAS 157 when the volume and level of activity for
an asset or liability has significantly decreased. In addition, FAS 157-4
includes guidance on identifying circumstances that indicate a transaction is
not orderly. FAS 157-4 is effective for interim and annual reporting periods
ending after June 15, 2009. We are currently assessing the impact, if any, that
the adoption of this pronouncement will have on our operating results, financial
position or cash flows.  In May 2008, the FASB issued Staff
Position No. APB 14-1, Accounting for Convertible Debt Instruments That
May be Settled in Cash upon Conversion (Including Partial Cash Settlement)
(FSP APB 14-1). FSP APB 14-1 states that convertible debt instruments that may
be settled in cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of Accounting Principles Board Opinion No. 14 and
that issuers of such instruments should account separately for the liability and
equity components of the instruments in a manner that will reflect the entitys
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB 14-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and must be applied
retrospectively to all periods presented. Adoption of this statement did not
have a material effect on our financial statements.  In June 2008, the FASB ratified EITF
Issue 07-5, Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 Accounting for Derivatives and Hedging
Activities (SFAS 133) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Companys own stock
and (b) classified in stockholders equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuers own stock and thus able to qualify for the SFAS 133
paragraph 11(a) scope exception. EITF 07-5 is effective for the first annual
reporting period beginning after December 15, 2008, and early adoption is
prohibited. On January 1, 2009, we adopted EITF 07-5 and the adoption of this statement had
no material effect on our financial statements.  In June 2008, the Emerging Issues Task
Force (EITF) reached final consensuses on EITF Issue 08-4, Transition Guidance
for Conforming Changes to Issue No. 98-5. Certain conclusions reached in EITF
Issue No. 98-5, Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios, were
nullified in EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments. Moreover, some of the conclusions in Issue No. 98-5
and Issue No. 00-27 were superseded by SFAS No. 150 , Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
While the conclusions reached in Issue No. 98-5 were subsequently updated to
reflect the issuance of Issue No. 00-27 and SFAS No. 150, the transition
guidance in Issue No. 98-  7    5 was not
revised. On January 1, 2009, we adopted EITF 08-4. The adoption of this standard
did not have a material impact on our financial condition, results of
operations, or cash flows.  2. Going Concern  The accompanying condensed consolidated
financial statements for the three months ended March 31, 2009, have been
prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business.  As shown in the accompanying financial
statements, we have incurred a net loss of $1,590,752 and an accumulated deficit
of $15,964,805 for the three months ended March 31, 2009. These conditions raise
substantial doubt as to our ability to continue as a going concern.  We continue to be dependent on our ability
to generate future revenues, positive cash flows and additional financing.
Management acknowledges that its ability to continue executing its current
business plan, even on a short-term basis, is dependent on its ability to obtain
additional debt or equity financing. There can be no guarantee that the Company
will be successful in generating future revenues, in obtaining additional debt
of equity financing or that such additional debt or equity financing will be
available on terms acceptable to the Company.  3. Convertible
Debt  In November 2008, we initiated a request to all of our
12% convertible debt holders to either extend their respective convertible debt
for another 18 months or to convert their principal and accrued interest into
common stock.  During the first quarter of 2009, $2,262,700 of the
convertible debt was converted into 6,887,825 shares and $1,614,300 of
convertible debt was extended for an additional 18 months. The total extended as
of March 31, 2009 was $2,184,300, with $927,800 due in the next 12 months;
$1,380,000 due in the next 24 months; and $659,500 are due in next 29 months. In
addition, $465,000 of the debt is in default as of March 31, 2009.  In exchange for extending their convertible
debt for an additional 18 months, we agreed to reduce the exercise price of the
associated warrants from $1.50 and $2.25 per share to $1.00 per share,
respectively for the A and B warrants. In addition, we agreed to extend the term
of both the A and B warrants from 5 years to 6 1⁄2 years. Furthermore, the
requirement of an effective registration was not removed in the case of
extending the note.  In exchange for converting their
convertible debt into common stock, we agreed to reduce the exercise price from
$0.50 to $0.35 per share. We also agreed to reduce the exercise price of the
associated warrants from the $1.50 and $2.25 per share to $1.00 per share,
respectively for the A and B warrants. In addition, we agreed to extend the term
of both the A and B warrants from 5 years to 6 1⁄2 years. Furthermore, the
requirement of an effective registration was removed to allow conversion.  We evaluated the extension event in late
December under FAS No. 15, EITF 02-4 and EITF 96-19. Because the investors did
not grant concession on these outstanding loans, the transactions were not
accounted for as troubled debt restructuring. Consequently, we evaluated these
transactions under EITF 96-19 Debtors Accounting for a Modification or
Exchange of Debt Instruments to determine if the modification was
substantial. As a result, no gain or loss was recorded on the date of the
extension since the modification in terms is not considered significant. The
Company recognized $84,730 warrant expense associated with the extended debt
under FAS 84 and charged the unamortized warrant discount to interest expense
over the remaining life of the convertible debt under the new terms.  We accounted for the conversion event
during the quarter ended March 31, 2009, under the provisions of Financial
Accounting Standard (FAS) No. 84 Induced Conversions of Convertible Debtand recognized expense totaling $201,017, which is equal to the fair value
of the incremental compensation cost created by the modification of the exercise
price of the warrants. The remaining unamortized warrant discount of $16,377 was
recognized through Additional Paid in Capital under the guidance of Emerging
Issues Task Force (EITF) 98-5.  In addition, the contingency related to the
contingent beneficial conversion feature was resolved on the date of conversion.
The beneficial conversion feature calculated on the commitment date was fully
recognized through interest expense and Additional Paid in Capital according to
EITF 00-27. During the quarter ended March 31, 2009, $2,262,700 of debt was
converted and $161,377 of the contingent beneficial conversion feature was
recognized into interest expense.  8     The Company is in default on $465,000
convertible debt net of discount of $12,965 as of March 31, 2009.   9    A summary of the convertible
debt as of March 31, 2009, and December 31, 2008, is as follows:  2009 2008 ------------------------ ------------------------ Gross
proceeds from the debts $
            5,500,000 $
             5,500,000 Less:
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 1,079,849 ------------------------ ------------------------ Subtotal $
             2,448,391 $
             4,193,718 Less:
current maturities (721,859) (2,435,466) ------------------------ ------------------------ Long-term
portion of convertible debt $
            1,726,532 $
             1,758,252 ============== ===============  4.
         Stockholders
Equity  Common Stock:  During the quarter ended March 31, 2009,
several convertible debt holders converted their investment in Convertible Debt
in the amount of $2,262,700, net of discount of $373,732, in principal and
accrued interest, to common stock. Total shares issued in exchange for the debt
were 6,887,825.  Stock Options:  During the first quarter of 2009, options
to purchase 650,000 shares of common stock were granted by the Company to four
employees at an exercise price of $0.385. These options have a contractual term
of 5 years, and have a vesting term of 3 years. Fair value of $74,637 was
calculated using the Black-Scholes option-pricing model. Variables used in the
Black-Scholes option-pricing model for options issued during the quarter ended
March 31, 2009 include (1) discount rate of 1.44%, (2) expected life of 3.5
years (3) expected volatility of 152.07% and (4) zero expected dividends.  A summary of option activities for the
quarter ended March 31, 2009 was as follows:  Options


Weighted-Average Exercise
PriceOutstanding at December 31, 2008


4,116,806


$
0.37Granted


650,000



0.39Outstanding at March 31, 2009


4,766,806



0.37  Stock option expense for the quarter ended
March 31, 2009, was $46,971.  Stock Warrants:  During the first quarter of 2009, warrants
to purchase 100,000 shares of common stock were granted by the Company to one of
its former employee at an exercise price of $0.35. These warrants have a term of
5 years and they vest immediately. Fair value of $16,270 was calculated using
the Black-Scholes option-pricing model. Variables used in the Black-Scholes
option-pricing model for warrants issued during the quarter ended March 31, 2009
include (1) discount rate of 1.79%, (2) warrant life of 5 years (3) expected
volatility of 142.26% and (4) zero expected dividends.   10    A summary of
warrant activities for the quarter ended March 31, 2009 was as follows:  Warrants


Weighted-Average Exercise
PriceOutstanding at December 31, 2008


6,200,348


$
1.59Granted


100,000



0.35Outstanding at March 31, 2009


6,300,348



1.57  Stock warrant expense for the quarter ended
March 31, 2009. was $16,270.    11    Item 2. Managements
Discussions and Analysis of Financial Condition and Results of Operations.  Forward-looking Statements  Statements made in this Quarterly Report which are not
purely historical are forward-looking statements with respect to the goals, plan
objectives, intentions, expectations, financial condition, results of
operations, future performance and our business, including, without limitation,
(i) our ability to raise capital, and (ii) statements preceded by, followed by
or that include the words may, would, could, should, expects,
projects, anticipates, believes, estimates, plans, intends,
targets or similar expressions.  Forward-looking statements involve inherent risks and
uncertainties, and important factors (many of which are beyond our control) that
could cause actual results to differ materially from those set forth in the
forward-looking statements, including the following: general economic or
industry conditions, nationally and/or in the communities in which we may
conduct business, changes in the interest rate environment, legislation or
regulatory requirements, conditions of the securities markets, general and
specific economic conditions, our ability to raise capital, changes in
accounting principles, policies or guidelines, financial or political
instability, acts of war or terrorism, other economic, competitive,
governmental, regulatory and technical factors affecting our current or
potential business and related matters.  Accordingly, results actually achieved may differ
materially from expected results in these statements. Forward-looking statements
speak only as of the date they are made. We do not undertake, and specifically
disclaim, any obligation to update any forward-looking statements to reflect
events or circumstances occurring after the date of such statements.  Plan of Operation  We presently focus on providing a cost effective data
protection solution to the small to medium business (SMB) and small to medium
enterprise (SME) markets through our remote Pharoah Business Fortress Storage
Center.  This data protection solution is geared specifically to help
organizations properly manage and protect their entire network from one
centralized location, with offsite redundancy.  Our solution can backup and
restore data on every machine in a network, including desktops, laptops, file
and print servers. We are dedicated to developing and delivering superior
storage technologies and methodologies that will enable our customers to manage
and protect massive data growth with ease.  Through our Pharaoh Business Fortress Storage Center, we
combine a powerful, agent-less backup software with our remote to deliver to our
customers a powerful and effective online-offsite data backup and restore
solution.  We provide storage from a utility based computing philosophy,
whereby customers pay only for the gigabytes of data they store in our Fortress
Storage Center.  Our facilities allow us to provide offsite disaster
recovery with an emphasis on intraday protection and restore for all of our
customer primary data centers and geographically dispersed offices or campus
settings.  Our Fortress Storage Center is located in the base of the former
Minneapolis Federal Reserve Bank.  It is a one of a kind facility that
provides our web based on-demand backup/restore service (digitiliti) with all
the benefits of direct fiber access to a Level 5 data center. The Fortress
Storage Center has 24/7 onsite physical security, including security guards,
motion detectors, security cameras, card-key access, separate cages with
individual locking cabinets and ladder racking.  It also has battery
generator back up power, temperature and humidity controls and fire suppression
systems.  Geographically, we are located at the center point of the
Metropolitan area network.  Being centrally located at the focal point of
the Twin Cities Fiber Channel and Gig loop, the pipeline for data and load
capabilities are immense.  This allows us to send data back and forth in
real time.  The Fortress Storage Center houses all of the hardware
and software needed for our digitiliti solution to work.  At the customer
site, digitiliti administrator software is loaded on as many or as few
workstations as desired and will require a valid logon code, ensuring no
unauthorized access.  At the customer site, the administrator software
console acts as the interface with digitiliti in the Fortress Storage Center
and enables the configuration of all backups and restores.  The
digitiliti backup software is totally agent-less, requiring no additional
software to be installed on any machines.  From the customer administration
console, the customer sets retention policies, schedules automatic backups and
initiates restores. The customer decides what files to backup: emails, Windows,
Linux, Mac, Lotus, AS400 or many more.  Customers typically start backing
up one system and then add more systems to their backup sets as they continue to
see how easily our digitiliti works.   12    For large data volumes, the
initial data backup may be downloaded to a portable disk unit at the customer
site.  When the full backup of data is complete, the disks are transported
to the Fortress Storage Center where the data is loaded onto the equipment in
the Fortress Storage Center.  From then on, all data is backed up in
incremental changes over the Internet.  All data is encrypted at all times
 before it leaves the customer site and when stored offsite.  The
encryption key is known only to the customer.  The data can be unencrypted
only by the customer, who would do so upon the need of a restore.  If a
customer loses data, the customer simply enters the commands to restore it via
the administration console.  At that time, the data would flow from the
Fortress Storage Center back to the customer site.  If the customer loses
all data, digitiliti can restore the latest data to a location of the
customers choosing using a portable disk unit.  In addition to being
encrypted, the data is also highly compressed, making it extremely safe and
impenetrable from viruses.  We maintain two copies of the customer data at
all times.  We have contracted with XO Communications for our data
center and communications.  We lease our Fortress Storage Center space from
them, and they own the Internet lines we use.  This relationship helps keep
capital expenditures at a minimum, while maintaining the flexibility to set up a
new data center in any one of 80 geographically dispersed locations throughout
the world, thereby reducing any geographic concerns about our digitiliti.
 XO Communications provides voice, data and IP services to businesses and
other telecommunications companies in 75 metropolitan markets across the United
States.  As a result of our sales and marketing efforts of our
existing product, Pharoah, our customer base has expanded from approximately 20
in fiscal 2005; to approximately 100 in fiscal 2006; to 508 in 2007; to 731 in
2008; and now stands at 722 as of Mach 31, 2009. Correspondingly, our annual
sales have increased from $402,638 in 2006; to $1,329,386 in 2007; and to
$3,075,308 in 2008. This reflects an average monthly revenue exceeding $300,000.
 Despite the significantly improved cash flows provided by the increased
sales, we are experiencing and anticipate cash flow shortages resulting from new
product development, product launch and potential convertible debt repayment
requirements.  Our primary focus in 2009 is to evaluate our long term
strategic direction.  In doing so, we will evaluate a number of
alternatives for our future.  Under consideration is a considered shift out
of our current Pharaoh Vault Business Service and into our new product area,
Pyramid.  Our reasons for evaluating this strategic alternative are (i) to
solve a major industry and customer problem of managing their continually
growing information volume and associated cost of storage and retrieval, (ii) to
be able to access a larger share of opportunity in the information management
storage business; (iii) our Pyramid technology is believed to have significant
technological advantages to our Pharaoh Vault Business Service; and (iii) our
need to expand our storage capacity for additional growth.  This will
require a significant capital investment of approximately $ 2M - $3M dollars in
2009.  Our present financial situation does not currently enable us to
invest funds in both of these technologies at the same time.  We require
approximately $1M - $2M to rollout Pyramid and begin generating sales. We expect
to have a determination and decision as to what strategic options we will pursue
in our second quarter of 2009.  We have determined that our new product, Pyramid, is
positioned to achieve significantly more market opportunity potential that our
current Pharaoh Vault Business Service operations .  This is because we
will offer a solution to fix an industry-wide problem of data proliferation,
volume growth, and the associated problems that causes, and, we will do this at
significantly better cost performance and simplicity. Therefore, we are
currently evaluating the sale of our Pharaoh Business Fortress Storage Center in
order to more sufficiently fund our planned business operations. It is
anticipated that any sale of our Pharaoh Business Fortress Storage Center that
may be negotiated will be submitted to our stockholders for approval in
accordance with the Delaware Business Corporation Act.  We invested significant resources in our new product,
Pyramid, in 2008, in an attempt to expand our digitiliti product offering by
developing a new generation of leading edge software.  This development
activity will continue at a greater pace in 2009.  Pyramid represents a
significant step toward our goal to become a technology leader in the data
information management marketplace.  We are behind schedule on our
development and launch of Pyramid by six to nine months, but since February,
2009, we have implemented a rigorous product development approach, established a
concrete architectural framework and a very specific product development plan,
with automated test and integration system.  We have restructured the
product development team, and we are currently on schedule to introduce Pyramid
in the third quarter of 2009 and begin generating sales at that time.  We
have three key milestones in our development plan, the first being a May
15th date to have the reference platform completed.  This
means that the basic technology and performance capabilities of Pyramid are
operational and meeting requirements.  This reference platform is the
basic capability that Pyramid will introduce to the market in the third quarter.
 We have completed this first milestone.  With the reference
platform being completed, we can now begin to integrate value-added resellers
(business partners) into our development plan to Beta test and gain valuable
insight and feedback for refinements.  We are very encouraged by the strong
feedback from our  13    customers and industry
analysts who have seen Pyramid product presentations.  The process of
refining our digitiliti products, our sales and marketing systems, our product
packaging, our infrastructure scaling methods and revenue generation offerings
are well underway.  From industry feedback, we believe our Pyramid
technology will establish a new standard for how companies will manage their
information in the future.  We believe, despite the delay in our schedule,
that we will introduce new, industry-changing capability to the storage
solutions market and that we will accomplish this goal well ahead of any other
potential competitor. Presently, we believe there are no competitors in this new
market arena.  We have high confidence in our development plan and our
development team and believe our schedule and capability are attainable in
accordance with our goals.  We are presently experiencing cash flow problems;
however, we have been aggressively taking steps to reduce overall operating
costs as we conserve cash.  Since 2008, we have reduced our annual salaries
and wages by over 20%, while increasing operational efficiencies and lowering
overall costs of goods sold.  In the first quarter of 2009, we made
additional cost improvements to our infrastructure.  As we determine our
strategic alternatives, we will act swiftly to continue to deploy and prioritize
resources to manage expenses. In addition, we are raising more capital to assure
we have the financial resources to achieve our strategy.  Our increase in customer count and
overall sales have been funded, in large part, through our $5.5 million offering
of 12% convertible notes initiated in March 2007. Prior to implementation of the
Modification Proposal (discussed below), these convertible notes reflected a
$0.50 per share conversion rate upon expiration of an 18-month maturity date,
currently resulting in principal and accrued interest due of  $1,334,770,
estimated  as of December 31, 2008. In addition, for every dollar invested,
these convertible notes allowed each investor to receive one-half warrant to
acquire one-half of a share of our common stock with a five year term at $1.50
per share and $2.25 per share, respectively. No warrant could have been
exercised during the first  six months and one day following issuance,
unless there was an effective registration statement covering the underlying
common stock that has been filed covering the shares underlying these warrants
with the Securities and Exchange Commission.  We directly contacted our convertible note holders to
seek to restructure this debt by asking the holders to extend the due dates of
their respective convertible notes or to encourage them to convert their
respective convertible notes (the Modification Proposal).  On November
13, 2008, as a demonstration of confidence in our current plan, and as an act of
good faith, our Board of Directors unilaterally approved a reduction in the
$1.50 and $2.25 exercise prices of the convertible note holders warrants to
$1.00 for both classes of warrants. In addition, our Board of Directors approved
an overall reduction in the conversion price of all convertible notes from $0.50
per share to $0.35 per share; the resolutions provided that the reduced
conversion price would be retroactive to include any convertible note holders
who had already elected to convert their respective convertible notes.
  $35,000.00 in convertible notes had already been converted at the
time of these resolutions; accordingly, we were obligated to issue a total of
109,000 shares of our common stock for division among these holders. The table
under Part II, Item 3, below, presents information about our convertible notes
that are still outstanding following conversions and extensions of convertible
notes under our Modification Proposal.  Please see Part II, Item 3.  Results of Operations  For the three month periods ended March 31, 2009, and
2008  Our sales for the March 31, 2009, quarter increased
$297,073 to $860,279 compared to $563,206for the quarter ended March 31, 2008.
The increase in revenue is a direct result of an increase in customers under
contract and the resulting terabytes of data added to our Fortress Storage
Center, combined with the growth in existing customer data. Consistent with this
pattern of growth, our customer base grew from 594 as of March 31, 2008 to 722
as of March 31, 2009. The growth of customer contracts is a direct result of the
heavy emphasis we have placed on marketing our digitilitiservice.
Our efforts included attending industry tradeshows throughout the country, as
well as revamping our website. We also concentrated significant resources
refining our product presentation, product positioning and pricing models.
Finally, we continued to enhance our network of resellers throughout the country
by providing strong dealer support services and offering a compelling pricing
program.  Our quarterly gross margin reflects an increase of
$244,289 with a gross margin of $379,874 through March 31, 2009, versus $135,585
through March 31, 2008. Factors contributing to this increase in our gross
margin are our deliberate targeting of a larger profile customer, which resulted
in (i) more efficient customer pricing; (ii) a significant increase or growth in
customer base; and (iii) an increase in organic growth of our customers data.
In short, we have learned that our sales and marketing efforts are better
expended targeting larger customers in the SMB and SME markets. We have learned  14    how to sell our digitiliti
service to this larger profile customer, which has increased our revenue,
proportionately reduced our costs of revenue and has allowed us to leverage our
infrastructure and efficiently bill for our customers data growth in our
Fortress Storage Center vault.  Research and development expenses decreased from $670,079
to $90,507 during the quarterly periods ended March 31, 2008, and 2009,
respectively. This significant decrease primarily reflects the up-front costs of
acquiring the software technology from StorageSwitch LLC consisting of an
initial cash outlay of $200,000 and the issuance of certain shares of our common
stock valued at $375,000.  Selling and marketing expenses decreased to $76,751 from
$161,690 for the quarterly periods ended March 31, 2009, and 2008, respectively,
reflecting a decrease of $84,939. This decrease principally reflects our success
in learning to market our digitiliti service to resellers that have the
requisite expertise to produce immediate results. Again, we have not only
learned to market our digitiliti service to larger profile customers, but also
to larger profile and more technically proficient resellers, thereby resulting
in increased sales with fewer (or more efficient) marketing expenditures.  General and administrative expenses decreased by
$177,290 to $592,574 compared to $769,864 during the quarterly periods ended
March 31, 2009, and 2008, respectively. This decrease is generally attributable
to the reduced reliance on outside consultants (and corresponding consultants
fees) and reduced legal and accounting expenses. Interest expense during the
quarter ended March 31, 2009, increased by $468,938 to $800,771 compared to
$331,833 for the quarter ended March 31, 2008. This decrease is related to the
significant reduction in amortization of the discount associated with our
convertible debt that resulted from those convertible note holders who chose to
convert their convertible notes pursuant to our Modification Proposal discussed
above.  Liquidity  Our liquidity is dependent, in the short term, on
proceeds from newly issued debt and the sale of our common stock for cash. In
the long term, we need to continue expanding our capacity of the Fortress
Storage Center by investing in property and equipment and software licenses.  For the three month periods ended March 31, 2009, and
2008  During the three months ended March 31, 2009, we received
proceeds of $165,197 from the issuance of notes payable and $75,000 from related
party, which helped to fund cash used in operations and investment in property
and equipment.  Net cash used by operating activities during the first
three months of 2009 was $77,306 compared to $505,342 during the first quarter
of 2008. Net cash used by operating activities during the three months ended
March 31, 2009, was primarily impacted by:  · Net loss of ($1,590,752). · Depreciation and amortization of
$271,435. · Amortization of discount on
convertible debt issued of $670,335. · Increase in accounts receivable of
$30,264. · Increase in accounts payable and
accrued expenses of $166,665.  Net cash used by operating activities during the three
months ended March 31, 2008, was primarily impacted by:  · Net loss of ($1,797,881). · Depreciation and amortization of
$254,032 · Increase in trade accounts payable
and accrued expenses of $505,821.  Net cash used by investing activities during the first
three months of 2009 was $1,419, primarily related to the purchase of software
licenses. Net cash used by investing activities during the first three months of
2008 was comprised of equipment and software licenses of $276,357.  Net cash provided by financing activities during the
first three months of 2009 was ($101,177), primarily consisting of $84,535 in
principal payments on capital leases; $165,197 from the issuance of notes
payable; $75,000 from the issuance of related party debt. Net cash provided by
financing activities during the first three months of 2008 was $594,408  15    $808,500 from the sale of
convertible debt securities.  Offsetting these items were $156,207 in
principal payments on capital leases and $80,850 in payments of financing costs.  At March 31, 2009, our cash balance was $58,769 compared
to $36,317 at December 31, 2008.  An aggregate of $465,000 of our convertible notes was due
at March 31, 2009; Although we are continuing to discuss payment and/or
conversion or extension of these notes with note holders, these outstanding
obligations pose a risk to our ongoing operations.  Item 3. Quantitative and Qualitative
Disclosures About Market Risk.  As a smaller reporting company, we are not
required to provide disclosure under this Item 3.   Item 4T. Controls and Procedures.  Evaluation of disclosure controls and procedures  Our management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our internal
control system is intended to provide reasonable assurance to our management and
Board of Directors regarding the preparation and fair presentation of published
financial statements and that we have controls and procedures designed to ensure
that the information required to be disclosed by us in our reports that we will
be required to file under the Exchange Act is accumulated and communicated to
our management, including our principal executive and our principal financial
officers or persons performing similar functions, as appropriate to allow timely
decisions regarding financial disclosure. Managements current assessment of the
effectiveness of our internal controls is based principally on our financial
reporting as of December 31, 2008, and 2007, and the quarterly periods ended
September 30, 2008, June 30, 2008, and March 31, 2008. In making our assessment
of internal control over financial reporting, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control  Integrated Framework.  Accordingly, our management, with the participation of
our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of the date of this Quarterly
Report. Based on such evaluation of the above referenced periods, due to the
material weaknesses in our internal controls over financial reporting further
described below, our Chief Financial Officer concluded that such disclosure
controls and procedures were not effective in providing reasonable assurance
that information required to be disclosed by us in the reports we file under the
Exchange Act was recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commissions rules, regulations
and forms.  For the periods referenced above, managements assessment
identified material deficiencies in our internal control over financial
reporting. These deficiencies include lack of segregation of duties, lack of
adequate documentation of our system of internal control, deficiencies in our
information technology systems, limited capability to interpret and apply United
States generally accepted accounting principles and lack of formal accounting
policies and procedures and related documentation.  Managements efforts to resolve these internal control
weaknesses started with the hiring of a full-time Controller on October 1, 2007.
In April 2008, our Board of Directors approved this persons promotion to Chief
Financial Officer. Beginning in October 2007, management prepared a written
review of every facet of our information processing system, like cash
disbursements, sales and billing, cash receipts and other procedures. We
continue to evaluate and address these weaknesses to ensure adherence to written
policy, completeness of reporting, segregation of incompatible duties and
compliance with generally accepted accounting principles; and we intend to
continue to monitor and evaluate these and other factors affecting our internal
controls.  It is managements intent to correct all identified
material deficiencies in our internal controls as reported in previous periods.
Until such time, our internal control over financial reporting may be subject to
additional material weaknesses and deficiencies that we have not yet identified.
Management has determined that these significant deficiencies, in the aggregate,
constitute material weaknesses in the design and operation of our internal
controls in effect prior to December 31, 2008, and 2007, and for the quarterly
period ended March 31, 2009. We continue to address and evaluate these
issues.   16    Our former auditors also
advised us of certain other material weaknesses and significant deficiencies in
our internal controls in connection with auditing our consolidated financial
statements for the years ended December 31, 2007, and 2006, including, in
summary: (i) lack of accounting expertise, with recommended additional training
for our CFO; (ii) issues regarding reimbursement of unsubstantiated expenses;
(iii) segregation of duties of accounting functions among various personnel;
(iv) segregation of cash distribution responsibilities; (v) establishment of
initial control over cash receipts; (vi) material weaknesses on preparation of
our consolidated financial statements; and (vii) the establishment of an audit
committee. We are also addressing these concerns.  Our current costs to remediate our material weaknesses in
internal controls include the increase in salary of a full-time CFO at an annual
cost of approximately $40,000 more than our former part-time chief accounting
officer, together with substantial time and expense of other employees involved
in addressing these issues. Future costs will include fees and costs associated
with attendance at seminars and other programs by our CFO and certain employees
relative to recognizing and resolving these types of issues.  Changes in internal control over financial reporting  Except as indicated in the preceding
paragraph about managements evaluation of disclosure controls and procedures,
our management, with the participation of our chief executive officer and chief
financial officer, has concluded there were no significant changes in our
internal controls over financial reporting that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.  PART II - OTHER INFORMATION   Item 1. Legal Proceedings.  None; not applicable.  Item 1A. Risk
Factors.  Not required; however, various risk factors
about us and our business prospects and products is contained in Item 1A of our
Form 10 Registration Statement that was filed with the Securities and Exchange
Commission on or about August 13, 2008, all of which are still applicable to
us.   Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds.  During the first quarter of 2009,
$2,262,700 of the convertible debt was converted into6,887,825 shares and $1,614,300 of convertible
debt was extended for an additional 18 months.  During the three months ended March 31, 2009, our Board
of Directors approved the issuance of the following equity securities to our
former and present officer and directors: 225,000 stock options to Roy A. Bauer
and Benno Sand (individually) granted on February 6, 2009, reflecting a $0.385
exercise price and that vest over a 36 month period and 100,000 stock options to
Jonathon S. and Pamela J. Miner (individually) also granted on February 6, 2009,
reflecting a $0.385 exercise price and that vest over a 36 month period.  During the three months ended March 31, 2009, in
conjunction with a severance agreement executed between us and Dan Herbeck,
acting though his company, Continental Technologies Solutions, LLC, we approved
the issuance of 100,000 five year cashless warrants to purchase 100,000 shares
of our common stock at $.35 per share.  In conjunction with the of the Separation Agreement
executed between Brad D. Wenzel and us on April 20, 2009, Mr. Wenzel received
warrants to purchase 300,000 shares of our common stock exercisable at a price
of $0.385 per share, over a three (3) year term.  Also pending is the extension of a $250,000 12%
convertible note held by a shareholder that reflected  a maturity date of
April 20, 2009. This convertible note is guaranteed by a member of our Board of
Directors and discussions are underway to confirm, among other terms, the
issuance of additional warrants as consideration for a minimum  six month
extension to this convertible note.   17    In reliance on a pending
private offering not yet finalized, we received $100,000 from an existing
shareholder that shall be tied to a convertible note that reflects the following
minimum terms: a 12% interest rate, a six month maturity date and a  $0.35
conversion rate feature upon or before maturity. In addition, this shareholder
will have 100% warrant coverage and will receive one warrant at a $0.50 exercise
price for each dollar invested and should the shareholder decide to convert the
convertible note upon or before maturity, the warrant exercise price will be
reduced to $0.35 per share.  We issued all of these securities to persons who were
accredited investors or sophisticated investors as those terms are defined
in Rule 501 of Regulation D of the Securities and Exchange Commission; and each
such person had prior access to all material information about us. We believe
that the offer and sale of these securities were exempt from the registration
requirements of the Securities Act, pursuant to Sections 4(2) and 4(6) thereof,
and Rule 506 of Regulation D of the Securities and Exchange Commission.
 Registration of sales to accredited investors and a limited number of
sophisticated investors are preempted from state regulation, though states may
require the filing of  notices, a fee and other administrative
documentation like consents to service of process and the like.   Item 3. Defaults Upon Senior Securities.  After implementation of our Modification Proposal
(discussed in our Plan of Operation above in Part I, Item 2), the following
reflects as of May 15, 2009, the total amount of convertible notes that were
outstanding during each quarter when sold, the remaining principal and accrued
interest outstanding from those convertible note holders that did not convert or
extend their convertible notes, and the quarters in which those unconverted and
unextended convertible notes mature.  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  Relative to the matured convertible notes detailed above,
we have not entered into any formal payment schedules, and we continue to
negotiate alternative payment arrangements.   Item 4. Submission of Matters to a Vote of Security
Holders.  None; not applicable.   Item 5. Other Information.  Board Members  In May 2009, the following individuals were added to our
Board of Directors to fill vacancies.  Karen Gilles Larson.Ms. Larson retired in 2007 after
nearly 10 years as the President and Chief Executive Officer of Synovis Life
Technologies, a publicly-held medical device company.  Ms Larson joined
Synovis (at the time called Bio-Vascular, Inc.) in 1989 as its Director of
Finance and Administration.  She was promoted to the positions of Vice
President of Finance, Chief  18    Financial Officer and
Corporate Secretary.  Ms. Larson filled those capacities until July of
1997, when she was named President and Chief Executive Officer.  In August
of 1997, Ms. Larson was appointed to the Synovis Board of Directors.  She
continues to serve as a Director of Synovis Life Technologies.  During her tenure at Synovis, Ms. Larson developed and
executed a growth and diversification strategy which increased revenue from
$9.7M to $58M within five years.  She built and mentored a strong executive
team resulting in 24 quarters of uninterrupted revenue growth.  Ms. Larson
moved the Synovis stock listing from OTC market to NASDAQ.  Prior to
joining Synovis, Ms. Larson was the Controller at VEE Corporation; and
previously, she was an accountant with the firm of McGladrey, Hendrickson and
Pullen (now called RSM McGladrey).   She earned a Bachelor of Arts
Degree in Economics with a minor in Chemistry from the University of Minnesota.  Kedar R. Belhe.Mr. Belhe was Senior Director of Business
Development at St. Jude Medical, AF Division from 2004 to 2007 and again at the
CV Division from 2007 to 2008.  St. Jude Medical is a $5B global medical
device company with over 20 operations and manufacturing facilities worldwide.
At the CV Division, Mr. Belhe was responsible for mergers and acquisitions and
technology licensing transactions.  He completed $260M of acquisitions in
2008.  At the AF Division, he was responsible for technology strategy
planning of the newly created division.  He led several initiatives of
technology integration within the acquired businesses, as well as technology
partnerships with major external companies.  Mr. Belhe was Senior Director
of Technology Development at St. Judes Daig Division from 1999 to 2004.  Mr. Belhe is currently founder and President of Metamod,
a medical device startup company focused on metabolic disorders.  He has
strong functional expertise in technical, financial and strategic assessment of
high-technology value opportunities.  He earned a Bachelor of Science
degree in Chemical Engineering from the University of Bombay, India, and a PhD
in Chemical Engineering from Washington University in St. Louis.  He also
earned a Master of Business Administration from Washington University in St.
Louis.  Ms. Larson and Mr. Belhes appointments
strengthen our Board in the areas of growth initiatives, business development,
financial management and investor relations.  As compensation for service on our Board of Directors,
each of these persons will be granted options to acquire 225,000 shares of our
common stock at an exercise price of $0.385 per shares that vest over three
years., under the Digitiliti, Inc. 2007 Stock Option Plan.   19    Item 6. Exhibits.   Exhibit No.           Identification
of Exhibit     3.1
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
906 Certification99.1
Digitiliti, Inc. Stock Option Plan.
Exhibit to our Form 10   SIGNATURES  Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized  Digitiliti, Inc.  Date:
May 20, 2009

By:
/s/Roy A. BauerRoy A. Bauer, President, CEO and Director  20     Date:
May 20, 2009

By:
/s/William McDonaldWilliam McDonald, CFO   21