##### 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 June 30, 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
    
    (IRS Employer Identification No.)incorporation or organization
 
  
  þ o
 o þ
  o þ




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##### 



Teknik Digital Arts, Inc. and Subsidiaries
Form 10-QSB
For the Quarter Ended June 30, 2008  Table of Contents
 PART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of June
30, 2008 (Unaudited) and September 30, 2007
    
    
    1Unaudited Condensed Consolidated Statements of
Operations for the three and nine months ended June
30, 2008 and 2007
    
    
    2Unaudited Condensed Consolidated Statement of
Changes in Stockholders Deficit for the nine
months ended June 30, 2008
    
    
    3Unaudited Condensed Consolidated Statements of Cash
Flows for the nine months ended June 30, 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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##### Table of Contents



Part I - FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)June 30,
    
    
    September 30,2008
    
    
    2007Current Assets:Cash and cash equivalents
    
    $
    321,277
    
    
    $
    21,162Accounts receivable
    
    
    159
    
    
    
    140Inventory
    
    
    111,769
    
    
    
    Deposit
    
    
    
    
    
    
    84,777Prepaid expenses
    
    
    33,828
    
    
    
    22,965Total Current Assets
    
    
    467,033
    
    
    
    129,044Property and equipment, net
    
    
    150,743
    
    
    
    173,440Other Assets:Licenses
    
    
    100
    
    
    
    100Security deposit
    
    
    1,000
    
    
    
    1,000Total Other Assets
    
    
    1,100
    
    
    
    1,100Total Assets
    
    $
    618,876
    
    
    $
    303,584Current Liabilities:Note payable  related party
    
    $
    
    
    
    $
    45,917Notes payable
    
    
    2,052,078
    
    
    
    1,268,017Accounts payable
    
    
    255,722
    
    
    
    333,728Accrued payroll
    
    
    
    
    
    
    3,368Accrued interest
    
    
    9,877
    
    
    
    40,194Total Current Liabilities
    
    
    2,317,677
    
    
    
    1,691,224Minority interest in joint ventures
    
    
    37,500
    
    
    
    37,600Total Liabilities and Minority Interest
    
    
    2,355,177
    
    
    
    1,728,824Stockholders Equity (Deficit):Common stock  $.001 par value; 50,000,000 shares
authorized, 17,761,926 and 15,239,704 shares issued;
17,167,810 and 14,645,588 shares outstanding at June 30, 2008
and September 30, 2007, respectively
    
    
    17,762
    
    
    
    15,240Additional paid-in capital
    
    
    8,336,158
    
    
    
    7,740,304Accumulated deficit
    
    
    (10,037,681
    )
    
    
    (9,128,244
    )Less: Treasury stock at cost, 594,116 shares
    
    
    (52,540
    )
    
    
    (52,540
    )Total Stockholders Deficit
    
    
    (1,736,301
    )
    
    
    (1,425,240
    )Total Liabilities and Stockholders Deficit
    
    $
    618,876
    
    
    $
    303,584
  1




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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three
    
    
    Three
    
    
    Nine
    
    
    NineMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales, Net
    
    $
    (299,000
    )
    
    $
    
    
    
    $
    23
    
    
    $
    23Cost of Sales
    
    
    (111,768
    )
    
    
    
    
    
    
    4
    
    
    
    4Gross Profit (loss)
    
    
    (187,232
    )
    
    
    
    
    
    
    19
    
    
    
    19General and Administrative Expenses
    
    
    264,624
    
    
    
    159,163
    
    
    
    823,879
    
    
    
    1,479,053Research and Development Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    254Income / (Loss) from Operations
    
    
    (451,856
    )
    
    
    (159,163
    )
    
    
    (823,860
    )
    
    
    (1,479,288
    )Other Income (Expense):Interest Expense
    
    
    (35,958
    )
    
    
    (3,642
    )
    
    
    (85,677
    )
    
    
    (56,174
    )Miscellaneous Income
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    (35,958
    )
    
    
    (3,642
    )
    
    
    (85,577
    )
    
    
    (56,174
    )Minority interest portion of joint venture loss
    
    
    
    
    
    
    106,460
    
    
    
    
    
    
    
    106,460Net Loss
    
    $
    (487,814
    )
    
    $
    (56,345
    )
    
    $
    (909,437
    )
    
    $
    (1,429,002
    )Net Loss per
common share, basic & diluted:
    
    $
    (0.03
    )
    
    $
    (0.00
    )
    
    $
    (0.06
    )
    
    $
    (0.12
    )Shares used in computing net Loss per common share:Weighted
Average Common Shares Outstanding basic & diluted
    
    
    15,157,493
    
    
    
    14,401,083
    
    
    
    14,907,753
    
    
    
    12,053,054
  2




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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 (UNAUDITED)
 FOR THE NINE MONTHS ENDED JUNE 30, 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)
    
    
    550,000
    
    
    
    550
    
    
    
    95,450
    
    
    
    
    
    
    
    
    
    
    
    96,000Warrants granted for compensation (unaudited)
    
    
    
    
    
    
    
    
    
    
    94,750
    
    
    
    
    
    
    
    
    
    
    
    94,750Capital contribution (unaudited)
    
    
    
    
    
    
    
    
    
    
    53,229
    
    
    
    
    
    
    
    
    
    
    
    53,229Stock issued for conversion of note payable
(unaudited)
    
    
    1,972,222
    
    
    
    1,972
    
    
    
    353,028
    
    
    
    
    
    
    
    
    
    
    
    355,000Adjust fair market value of stock compensation
issued for services (unaudited)
    
    
    
    
    
    
    
    
    
    
    (603
    )
    
    
    
    
    
    
    
    
    
    
    (603
    )Net loss for the six months
ended June 30, 2008 (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (909,437
    )
    
    
    (909,437
    )Balance at June 30, 2008 (unaudited)
    
    
    17,761,926
    
    
    $
    17,762
    
    
    $
    8,336,158
    
    
    $
    (52,540
    )
    
    $
    (10,037,681
    )
    
    $
    (1,736,301
    )
  3




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Nine
    
    
    NineMonths Ended
    
    
    Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007Increase/(Decrease) in Cash and Cash Equivalents:Cash flows from operating activities:Net Loss
    
    $
    (909,437
    )
    
    $
    (1,429,002
    )Adjustments to reconcile net loss to net cash used by operating activitiesDepreciation
    
    
    31,121
    
    
    
    2,301Common stock issued in excess of conversion of related party note payable
    
    
    
    
    
    
    850,000Market value adjustment of compensation
    
    
    (603
    )
    
    
    (187,295
    )Purchase of joint venture equity interest
    
    
    (100
    )
    
    
    Common stock issued and warrants granted for compensation of consultants
    
    
    190,750
    
    
    
    57,500Capital contribution for interest relief
    
    
    53,229
    
    
    
    Accrued management fees
    
    
    
    
    
    
    300,000Accrued financing fees
    
    
    
    
    
    
    10,913Changes in Assets and Liabilities:Accounts receivable
    
    
    (19
    )
    
    
    (19
    )Prepaid expenses
    
    
    (10,863
    )
    
    
    263,916Inventory
    
    
    (111,769
    )
    
    
    Deposit
    
    
    84,777
    
    
    
    Security Deposit
    
    
    
    
    
    
    Accounts payable
    
    
    (78,006
    )
    
    
    (27,631
    )Accrued payroll
    
    
    (3,368
    )Accrued interest
    
    
    (30,317
    )
    
    
    (6,726
    )Minority interest portion of loss
    
    
    
    
    
    
    (106,460
    )Net cash used by operating activities
    
    
    (784,605
    )
    
    
    (272,503
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (8,424
    )
    
    
    (18,000
    )Net cash used in investing activities
    
    
    (8,424
    )
    
    
    (18,000
    )Cash flows from financing activities:Proceeds from note payable  related party
    
    
    
    
    
    
    90,545Proceeds from notes payable
    
    
    1,149,500
    
    
    
    400,000Payments related to capital lease
    
    
    
    
    
    
    (380
    )Payments on note payable  related party
    
    
    (45,917
    )
    
    
    (11,691
    )Payments on notes payable
    
    
    (10,439
    )
    
    
    Distribution to related party
    
    
    
    
    
    
    (75,000
    )Net cash provided by financing activities
    
    
    1,093,144
    
    
    
    403,474Net change in cash and cash equivalents
    
    
    300,115
    
    
    
    112,971Cash and cash equivalents at beginning of period
    
    
    21,162
    
    
    
    42,387Cash and cash equivalents at end of period
    
    $
    321,277
    
    
    $
    155,358
  4




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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 (UNAUDITED)
 Nine
    
    NineMonths Ended
    
    Months EndedJune 30,
    
    June 30,2008
    
    2007Supplemental Information:Interest paid
    
    $
    84,450
    
    
    $
    62,900Income taxes paid
    
    $
    
    
    
    $
    Non-Cash Investing and Financing ActivitiesCancellation of consulting agreement
    
    $
    
    
    
    $
    51,765Common stock and warrants issued for compensation and consulting
    
    $
    190,750
    
    
    $
    57,500Purchase of joint venture equity interest
    
    $
    100
    
    
    $
    Common stock issued for conversion of related party note payable
    
    $
    
    
    
    $
    1,750,000Stock issued for conversion of notes payable
    
    $
    355,000
    
    
    $
    Capital contribution
    
    $
    53,229
    
    
    $
    Financing fees related to note payable
    
    $
    
    
    
    $
    10,913Conversion of due to related party to minority interest
    
    $
    
    
    
    $
    211,250
  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
  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)
 Loss Per Share
   Stock-Based Compensation
   Note 2
Related Party Transactions
   8




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 2
Related Party Transactions (Continued)
  ®
 Note 3
Notes Payable
   9




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 3
Notes Payable (Continued)
   Note 4
Equity
  Note 5
Revenues
 ® ® ® ®
 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 June 30, 2008 and 2007
 ® ® ® ®
 Comparisons of the nine months ended June 30, 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.
  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
  TEKNIK DIGITAL ARTS, INC.Dated: August 14, 2008
    By /s/ John R. WardJohn R. WardPresident, Chief Executive Officer,
and Chief Financial Officer 15