##### 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 December 31, 2007
 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 December 31, 2007  Table of Contents
 PART I FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of
December 31, 2007 (Unaudited) and September 30,
2007
    
    
    1Unaudited Condensed Consolidated Statements of
Operations for the three months ended December 31,
2007 and 2006
    
    
    2Unaudited Condensed Consolidated Statement of
Changes in Stockholders Equity for the three
months ended December 31, 2007
    
    
    3Unaudited Condensed Consolidated Statements of Cash
Flows for the three months ended December 31, 2007
and 2006
    
    
    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.
    
    
    14Item 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)December 31,
    
    
    September 30,2007
    
    
    2007Current Assets:Cash and cash equivalents
    
    $
    19,150
    
    
    $
    21,162Accounts receivable
    
    
    152
    
    
    
    140Deposit
    
    
    84,777
    
    
    
    84,777Prepaid expenses
    
    
    73,553
    
    
    
    22,965Total Current Assets
    
    
    177,632
    
    
    
    129,044Property and equipment, net
    
    
    168,210
    
    
    
    173,440Other Assets:Licenses
    
    
    100
    
    
    
    100Security deposit
    
    
    1,000
    
    
    
    1,000Total Other Assets
    
    
    1,100
    
    
    
    1,100Total Assets
    
    $
    346,942
    
    
    $
    303,584Current Liabilities:Note payable  related party
    
    $
    21,479
    
    
    $
    45,917Notes payable
    
    
    1,687,104
    
    
    
    1,268,017Accounts payable
    
    
    246,227
    
    
    
    333,728Due to related party
    
    
    65,000
    
    
    
    Accrued payroll
    
    
    
    
    
    
    3,368Accrued interest
    
    
    49,947
    
    
    
    40,194Total Current Liabilities
    
    
    2,069,757
    
    
    
    1,691,224Total Liabilities
    
    
    2,069,757
    
    
    
    1,691,224Minority interest in joint ventures
    
    
    37,600
    
    
    
    37,600Total Liabilities and Minority Interest
    
    
    2,107,357
    
    
    
    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
December 31, 2007
and September 30, 2007, respectively
    
    
    15,490
    
    
    
    15,240Additional paid-in capital
    
    
    7,845,525
    
    
    
    7,740,304Accumulated deficit
    
    
    (9,568,890
    )
    
    
    (9,128,244
    )Less: Treasury stock at cost, 594,116 shares
    
    
    (52,540
    )
    
    
    (52,540
    )Total Stockholders Deficit
    
    
    (1,760,415
    )
    
    
    (1,425,240
    )Total Liabilities and Stockholders (Deficit)
    
    $
    346,942
    
    
    $
    303,584
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three
    
    
    ThreeMonths Ended
    
    
    Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Sales
    
    $
    14
    
    
    $
    5Cost of Sales
    
    
    2
    
    
    
    1Gross Profit
    
    
    12
    
    
    
    4General and Administrative Expenses
    
    
    428,480
    
    
    
    436,843Research and Development Costs
    
    
    
    
    
    
    254Loss from Operations
    
    
    (428,468
    )
    
    
    (437,093
    )Other Income (Expense):Interest Expense
    
    
    (12,178
    )
    
    
    (23,229
    )(12,178
    )
    
    
    (23,229
    )Net Loss
    
    $
    (440,646
    )
    
    $
    (460,322
    )Basic and diluted loss per share
    
    $
    (0.03
    )
    
    $
    (0.05
    )Basic and Diluted Weighted Average
Common Shares Outstanding
    
    
    14,672,762
    
    
    
    9,449,807
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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 (UNAUDITED)
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2007
 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)
    
    
    
    
    
    
    
    
    
    
    8,471
    
    
    
    
    
    
    
    
    
    
    
    8,471Net loss for the three months
ended December 31, 2007 (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (440,646
    )
    
    
    (440,646
    )Balance at December 31, 2007 (unaudited)
    
    
    15,489,704
    
    
    $
    15,490
    
    
    $
    7,845,525
    
    
    $
    (52,540
    )
    
    $
    (9,568,890
    )
    
    $
    (1,760,415
    )
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Three
    
    
    ThreeMonths Ended
    
    
    Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Increase/(Decrease) in Cash and Cash Equivalents:Cash flows from operating activities:Net Loss
    
    $
    (440,646
    )
    
    $
    (460,322
    )Adjustments to reconcile net loss to net cash used by operating activitiesDepreciation
    
    
    10,230
    
    
    
    433Market value adjustment of compensation
    
    
    8,471Common stock issued and warrants granted for compensation of
consultants
    
    
    97,000
    
    
    
    Changes in Assets and Liabilities:Accounts receivable
    
    
    (12
    )
    
    
    (4
    )Prepaid expenses
    
    
    (50,588
    )
    
    
    73,979Accounts payable
    
    
    (87,501
    )
    
    
    (16,652
    )Due to related party
    
    
    65,000
    
    
    
    275,000Accrued payroll
    
    
    (3,368
    )Accrued interest
    
    
    9,753
    
    
    
    23,230Net cash used by operating activities
    
    
    (391,661
    )
    
    
    (104,336
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (5,000
    )
    
    
    Net cash used by investing activities
    
    
    (5,000
    )
    
    
    Cash flows from financing activities:Proceeds from note payable  related party
    
    
    
    
    
    
    66,100Proceeds from notes payable
    
    
    422,000
    
    
    
    Payments on capital lease
    
    
    
    
    
    
    (380
    )Payments on note payable  related party
    
    
    (24,438
    )
    
    
    Payments on notes payable
    
    
    (2,913
    )
    
    
    Net cash provided by financing activities
    
    
    394,649
    
    
    
    65,720Net change in cash and cash equivalents
    
    
    (2,012
    )
    
    
    (38,616
    )Cash and cash equivalents at beginning of period
    
    
    21,162
    
    
    
    42,387Cash and cash equivalents at end of period
    
    $
    19,150
    
    
    $
    3,771
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 (UNAUDITED)
 Three
    
    ThreeMonths Ended
    
    Months EndedDecember 31,
    
    December 31,2007
    
    2006Supplemental Information:Interest paid
    
    $
    24,644
    
    
    $
    Income taxes paid
    
    $
    
    
    
    $
    Non-cash Investing and Financing ActivitiesCancellation of consulting agreement
    
    $
    
    
    
    $
    51,765Common stock and warrants issued
for compensation and consulting
    
    $
    97,000
    
    
    $
    
  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
    8




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




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 4
Equity
  Note 5
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 December 31, 2007 and 2006
  Liquidity and capital resources
     13




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Off-Balance sheet arrangements
  
 Item 3. Controls and Procedures.
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  14




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Item 6. Exhibits.
  Exhibit Index
 ExhibitNo.
    
    Description31.1
    
    Section 302 Certification of President, Chief Executive Officer31.2
    
    Section 302 Certification of Chief Financial Officer32
    
    Section 906 Certification
 SIGNATURES
  Dated: February 13, 2008
    TEKNIK DIGITAL ARTS, INC.By
    /s/ John R. WardJohn R. WardPresident, Chief Executive Officer, and
Chief Financial Officer 15