##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 Form 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition from  to
 commission file number
 TEKNIK DIGITAL ARTS, INC.
  Nevada
    
    68- 0539517State or other jurisdiction of 
incorporation or organization
    
    (IRS Employer Identification No.)
 
 
 þ o
 o þ
  o þ




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Teknik Digital Arts, Inc. and Subsidiaries
Form 10-QSB
For the Quarter Ended March 31, 2008  Table of Contents
 PART I FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and September 30, 2007
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2008 and 2007
    
    
    2Unaudited Condensed Consolidated Statement of Changes in Stockholders Deficit for the six months ended March 31,
2008
    
    
    3Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2008 and 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Controls and Procedures
    
    
    14PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    15Item 6.
    
    Exhibits.
    
    
    15EX-31.1EX-31.2EX-32




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Part I - FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)March 31,
    
    
    September 30,2008
    
    
    2007Current Assets:Cash and cash equivalents
    
    $
    252,292
    
    
    $
    21,162Accounts receivable
    
    
    299,159
    
    
    
    140Deposit
    
    
    
    
    
    
    84,777Prepaid expenses
    
    
    47,111
    
    
    
    22,965Total Current Assets
    
    
    598,562
    
    
    
    129,044Property and equipment, net
    
    
    158,874
    
    
    
    173,440Other Assets:Licenses
    
    
    100
    
    
    
    100Security deposit
    
    
    1,000
    
    
    
    1,000Total Other Assets
    
    
    1,100
    
    
    
    1,100Total Assets
    
    $
    758,536
    
    
    $
    303,584Current Liabilities:Note payable  related party
    
    $
    
    
    
    $
    45,917Notes payable
    
    
    2,095,144
    
    
    
    1,268,017Accounts payable
    
    
    265,129
    
    
    
    333,728Due to related party
    
    
    
    
    
    
    Accrued payroll
    
    
    
    
    
    
    3,368Accrued interest
    
    
    57,799
    
    
    
    40,194Total Current Liabilities
    
    
    2,418,072
    
    
    
    1,691,224Long-Term Liabilities:Notes payable  net of current portion
    
    
    65,651
    
    
    
    Total Liabilities
    
    
    2,483,723
    
    
    
    1,691,224Minority interest in joint ventures
    
    
    37,500
    
    
    
    37,600Total Liabilities and Minority Interest
    
    
    2,521,223
    
    
    
    1,728,824Stockholders Equity (Deficit):Common stock  $.001 par value; 50,000,000 shares
authorized, 15,489,704 and 15,239,704 shares issued;
14,895,588 and 14,645,588 shares outstanding at March 31, 2008
and September 30, 2007, respectively
    
    
    15,490
    
    
    
    15,240Additional paid-in capital
    
    
    7,824,230
    
    
    
    7,740,304Accumulated deficit
    
    
    (9,549,867
    )
    
    
    (9,128,244
    )Less: Treasury stock at cost, 594,116 shares
    
    
    (52,540
    )
    
    
    (52,540
    )Total Stockholders Deficit
    
    
    (1,762,687
    )
    
    
    (1,425,240
    )Total Liabilities and Stockholders Equity
    
    $
    758,536
    
    
    $
    303,584
  1




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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three
    
    
    Three
    
    
    Six
    
    
    SixMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months EndedMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales
    
    $
    299,009
    
    
    $
    18
    
    
    $
    299,023
    
    
    $
    23Cost of Sales
    
    
    111,770
    
    
    
    3
    
    
    
    111,772
    
    
    
    4Gross Profit
    
    
    187,239
    
    
    
    15
    
    
    
    187,251
    
    
    
    19General and Administrative Expenses
    
    
    130,775
    
    
    
    883,047
    
    
    
    559,255
    
    
    
    1,319,890Research and Development Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    254Income / (Loss) from Operations
    
    
    56,464
    
    
    
    (883,032
    )
    
    
    (372,004
    )
    
    
    (1,320,125
    )Other Income (Expense):Interest Expense
    
    
    (37,541
    )
    
    
    (29,303
    )
    
    
    (49,719
    )
    
    
    (52,532
    )Miscellaneous Income
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    (37,441
    )
    
    
    (29,303
    )
    
    
    (49,619
    )
    
    
    (52,532
    )Net Income / (Loss)
    
    $
    19,023
    
    
    $
    (912,335
    )
    
    $
    (421,623
    )
    
    $
    (1,372,657
    )Net Income / (Loss) per common share:Basic
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Diluted
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Shares used in computing net income
/ (Loss) per common share:Basic
    
    
    14,895,588
    
    
    
    12,340,032
    
    
    
    14,783,566
    
    
    
    10,879,039Diluted
    
    
    14,895,588
    
    
    
    12,340,032
    
    
    
    14,783,566
    
    
    
    10,879,039
  2




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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
(UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2008
 TotalAdditional
    
    
    Treasury
    
    
    
    
    
    
    StockholdersCommon Stock
    
    
    Paid-in
    
    
    Stock
    
    
    Accumulated
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    at Cost
    
    
    Deficit
    
    
    (Deficit)Balance at September 30, 2007
    
    
    15,239,704
    
    
    $
    15,240
    
    
    $
    7,740,304
    
    
    $
    (52,540
    )
    
    $
    (9,128,244
    )
    
    
    (1,425,240
    )Stock issued for services (unaudited)
    
    
    250,000
    
    
    
    250
    
    
    
    44,750
    
    
    
    
    
    
    
    
    
    
    
    45,000Warrants granted for compensation
(unaudited)
    
    
    
    
    
    
    
    
    
    
    52,000
    
    
    
    
    
    
    
    
    
    
    
    52,000Adjust fair market value of stock
compensation
issued for services (unaudited)
    
    
    
    
    
    
    
    
    
    
    (12,824
    )
    
    
    
    
    
    
    
    
    
    
    (12,824
    )Net loss for the six months
ended March 31, 2008 (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (421,623
    )
    
    
    (421,623
    )Balance at March 31, 2008 (unaudited)
    
    
    15,489,704
    
    
    $
    15,490
    
    
    $
    7,824,230
    
    
    $
    (52,540
    )
    
    $
    (9,549,867
    )
    
    $
    (1,762,687
    )
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Six
    
    
    SixMonths Ended
    
    
    Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007Increase/(Decrease) in Cash and Cash Equivalents:Cash flows from operating activities:Net Loss
    
    $
    (421,623
    )
    
    $
    (1,372,657
    )Adjustments to reconcile net loss to net cash used by operating activitiesDepreciation
    
    
    20,636
    
    
    
    867Common stock issued in excess of conversion of related party note payable
    
    
    
    
    
    
    850,000Market value adjustment of compensation
    
    
    (12,824
    )
    
    
    (178,823
    )Purchase of joint venture equity interest
    
    
    (100
    )
    
    
    Common stock issued and warrants granted for compensation of consultants
    
    
    97,000
    
    
    
    Changes in Assets and Liabilities:Accounts receivable
    
    
    (299,019
    )
    
    
    (19
    )Prepaid expenses
    
    
    (24,146
    )
    
    
    242,504Deposit
    
    
    84,777
    
    
    
    (7,500
    )Accounts payable
    
    
    (68,599
    )
    
    
    22,207Accrued payroll
    
    
    (3,368
    )
    
    
    Accrued interest
    
    
    17,605
    
    
    
    37,413Net cash used by operating activities
    
    
    (609,661
    )
    
    
    (406,008
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (6,070
    )
    
    
    Net cash used in investing activities
    
    
    (6,070
    )
    
    
    Cash flows from financing activities:Proceeds from note payable  related party
    
    
    
    
    
    
    89,245Proceeds from notes payable
    
    
    899,500
    
    
    
    Payments related to capital lease
    
    
    
    
    
    
    (380
    )Payments on note payable  related party
    
    
    (45,917
    )
    
    
    Payments on notes payable
    
    
    (6,722
    )
    
    
    Due to related party
    
    
    
    
    
    
    275,000Net cash provided by financing activities
    
    
    846,861
    
    
    
    363,865Net change in cash and cash equivalents
    
    
    231,130
    
    
    
    (42,143
    )Cash and cash equivalents at beginning of period
    
    
    21,162
    
    
    
    42,387Cash and cash equivalents at end of period
    
    $
    252,292
    
    
    $
    244
  4




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 (UNAUDITED)
 Six
    
    SixMonths Ended
    
    Months EndedMarch 31,
    
    March 31,2008
    
    2007Supplemental Information:Interest paid
    
    $
    53,799
    
    
    $
    Income taxes paid
    
    $
    
    
    
    $
    Non-cash Investing and Financing ActivitiesCancellation of consulting agreement
    
    $
    
    
    
    $
    51,765Common stock and warrants issued for compensation and consulting
    
    $
    97,000
    
    
    $
    Purchase of joint venture equity interest
    
    $
    100
    
    
    $
    Common stock issued for conversion of related party note payable
    
    $
    
    
    
    $
    1,750,000
  5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
 Presentation of Interim Information:
   Nature of Corporation
  Liquidity
  Revenue Recognition
  Software Development Costs
  6




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 Recent Accounting Pronouncements
    Consolidated Statements
  Use of Estimates
  Loss Per Share
   7




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 Stock-Based Compensation
   Note 2
Related Party Transactions
    ®
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 3
Notes Payable
    9




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 4
Equity
  Note 5
Significant Customers
  Note 6
Going Concern
  
 10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Special Note Regarding Forward-Looking Statements
      Overview
  ® ® ®
 ® ®
 11




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Summary Plan of Operations
  Revenue
 ®
 Expenses
 ®
   12




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Comparisons of the three months ended March 31, 2008 and 2007
 ®
 Comparisons of the six months ended March 31, 2008 and 2007
 ®
 Liquidity and capital resources
    13




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Off-Balance sheet arrangements
  
 Item 3. Controls and Procedures.
  14




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
 (a)
    
    The following exhibits are filed herewith pursuant to Regulation S-B.
 Exhibit Index
 ExhibitNo.
    
    Description31.1
    
    Section 302 Certification of President and Chief Executive Officer31.2
    
    Section 302 Certification of Chief Financial Officer32
    
    Section 906 Certification
 SIGNATURES
  Dated: May 12, 2008
    TEKNIK DIGITAL ARTS, INC.By
    /s/ John R. WardJohn R. WardPresident, Chief Executive Officer,
and Chief Financial Officer 15