UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549




FORM 10-QSB




QUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934





FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2008





COMMISSION
FILE NUMBER 000-51046





TRITON
DISTRIBUTION SYSTEMS, INC.


(Name of small business issuer in its
charter)





Colorado
            
            84-1039067(State
      or jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              I.D.
      Number)





One
Harbor Drive, Suite 300, Sausalito, California 94965


(415) 339-4606


(Address
and telephone number of principal executive offices)





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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
[  ]         No
[X]





Transitional small business disclosure
format: 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 o
            Accelerated
      filer oNon-accelerated
      filer x(Do not check if a smaller reporting company)
            Smaller
      reporting company o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES oNO x





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDING
DURING THE PRECEDING FIVE YEARS:





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. YES oNO x





APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each of the issuer's classes of common stock
as of: June 13, 2008





CLASS
            
            NUMBER
      OF SHARES OUTSTANDINGCommon
      Stock, par value $0.001 per share
            
            48,568,890
      shares











TRITON DISTRIBUTION
SYSTEMS, INC.


Index


PageNumberPART
      I.
            FINANCIAL
      INFORMATIONItem
      1.
            Financial
      StatementsConsolidated
      Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007
      (audited)
            1Consolidated
      Statements of Operations for the three months ended March 31, 2008 (unaudited)
      , the three months ended March 31, 2007 (unaudited) and from inception
      (January 10, 2006) to March 31, 2008 (unaudited)
            2Consolidated
      Statement of Stockholders Equity from inception(January 10, 2006)
      to March 31, 2008 (unaudited)
            3Consolidated
      Statements of Cash Flows for the three months ended March 31, 2008
      (unaudited), the three months ended March 31, 2007 (unaudited) and the
      period from inception(January 10, 2006) to March 31, 2008
      (unaudited).
            4Notes
      to Consolidated Financial Statements (unaudited)
            5Item
      2.
            Management's
      Discussion and Analysis or Plan of Operations
            22Item
      3.
            Controls
      and Procedures
            26PART
      II.
            OTHER
      INFORMATION PART II
            27Item
      1.
            Legal
      Proceedings
            27Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            27Item
      3.
            Defaults
      Upon Senior Securities
            27Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            28Item
      5.
            Other
      Information
            28Item
      6.
            Exhibits
            28SIGNATURES
            29







Triton
Distribution Systems, Inc.
 (a
Development Stage Company)
 Consolidated
Balance Sheets
 
 March
      31,
                2008
              
              
              December
      31, 2007(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              25,203
              
              
              $
              8,382Other
      current assets
              
              
              153,799
              
              
              
              143,823Prepaid
      consulting
              
              
              1,190,400
              
              
              
              1,457,440TOTAL
      CURRENT ASSETS
              
              
              1,369,402
              
              
              
              1,609,645FURNITURE
      AND EQUIPMENT, net
              
              
              321,855
              
              
              
              364,203WEBSITE
      DEVELOPMENT COSTS, net
              
              
              5,746
              
              
              
              7,388INTELLECTUAL
      PROPERTY, net
              
              
              184,857
              
              
              
              190,820TOTAL
      ASSETS
              
              $
              1,881,860
              
              
              $
              2,172,056LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESDeferred
      Income
              
              $
              766
              
              
              $
              1,470Accounts
      payable
              
              
              980,040
              
              
              
              653,321Accrued
      expenses
              
              
              84,717
              
              
              
              21,577Accrued
      payroll
              
              
              404,559
              
              
              
              170,689Accrued
      lease liability
              
              
              17,598
              
              
              
              20,978Loan
      Payable
              
              
              3,209,553
              
              
              
              2,465,967Loan
      Payable Related Party
              
              
              1,200,000
              
              
              
              250,000TOTAL
      CURRENT LIABILITIES
              
              
              5,897,233
              
              
              
              3,584,002STOCKHOLDERS'
      EQUITYPreferred
      stock; no par value; 2,000,000 sharesauthorized;
      0 shares issued and outstandingCommon
      stock; no par value; 100,000,000 sharesauthorized;
      48,568,890shares issued and outstanding
              
              
              13,754,625
              
              
              
              13,686,896Additional
      paid-in capital
              
              
              4,613,720
              
              
              
              3,991,118Deficit
      accumulated during the development stage
              
              
              (22,360,325
              )
              
              
              (19,077,248
              )Accumulated
      balance of other comprehensive income
              
              
              (23,394
              )
              
              
              (12,712
              )TOTAL
      STOCKHOLDERS' EQUITY
              
              
              (4,015,374
              )
              
              
              (1,411,946
              )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              1,881,860
              
              
              $
              2,172,056




The accompanying notes are an integral part of these
financial statements.


1


Triton
Distribution Systems, Inc.
 (a
Development Stage Company)
 Consolidated
Statements of Operations
 
 3
      Months Ended
              
              
              3
      Months Ended
              
              
              (January
      10,Ended
              
              
              Ended
              
              
              2006)
      toMarch
      31,
              
              
              March
      31,
              
              
              March
      31,2008
              
              
              2007
              
              
              2007(unaudited)
              
              
              
              
              
              (unaudited)NET
      SALES
              
              $
              -
              
              
              $
              -
              
              
              $
              -COST
      OF SALES
              
              
              -
              
              
              
              -
              
              
              
              -GROSS
      PROFIT
              
              
              -
              
              
              
              -
              
              
              
              -OPERATING
      EXPENSES:Payroll
      and related benefits
              
              
              1,166,280
              
              
              
              1,339,860
              
              
              
              10,197,411Professional
      fees
              
              
              376,327
              
              
              
              726,787
              
              
              
              4,820,542Marketing
      and advertising
              
              
              22,848
              
              
              
              108,543
              
              
              
              580,631Other
      general and administrative expenses
              
              
              274,056
              
              
              
              326,894
              
              
              
              3,484,890TOTAL
      OPERATING EXPENSES
              
              
              1,839,511
              
              
              
              2,502,084
              
              
              
              19,083,474LOSS
      FROM OPERATIONS
              
              
              (1,839,511
              )
              
              
              (2,502,084
              )
              
              
              (19,083,474
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              8
              
              
              
              16,997
              
              
              
              67,796Note
      Amort Interest expense – related party
              
              
              (740,586
              )
              
              
              -
              
              
              
              (2,151,934
              )Interest
      Expense
              
              
              (175,020
              )
              
              
              -
              
              
              
              (483,960
              )Finance
      expense
              
              
              (527,968
              )
              
              
              -
              
              
              
              (716,468
              )Loss
      on disposal of assets
              
              
              -
              
              
              
              (30,373
              )
              
              
              -TOTAL
      OTHER INCOME (EXPENSE)
              
              
              (1,443,566
              )
              
              
              (13,376
              )
              
              
              (3,284,566
              )LOSS
      BEFORE PROVISION FOR INCOME TAXES
              
              
              (3,283,077
              )
              
              
              (2,515,460
              )
              
              
              (22,368,040
              )PROVISION
      FOR INCOME TAXESMINORITY
      INTEREST IN LOSS
              
              
              -
              
              
              
              5,785
              
              
              
              7,715NET
      LOSS
              
              
              (3,283,077
              )
              
              
              (2,509,675
              )
              
              
              (22,360,325
              )OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation adjustment
              
              
              (10,682
              )
              
              
              (16,785
              )
              
              
              (23,394
              )COMPREHENSIVE
      LOSS
              
              $
              (3,293,759
              )
              
              $
              (2,526,460
              )
              
              $
              (22,383,719
              )NET
      LOSS PER SHARE:BASIC
      AND DILUTED
              
              $
              (0.07
              )
              
              $
              (0.06
              )
              
              $
              (0.47
              )WEIGHTED
      AVERAGE SHARES OUTSTANDING:BASIC
      AND DILUTED
              
              
              47,304,183
              
              
              
              39,531,230
              
              
              
              47,398,251




The accompanying notes are an integral part of these
financial statements.




2






Triton
Distribution Systems, Inc. (a Development Stage
Company)


Consolidated
Statement of Stockholders' Equity
 For
the Period from Inception (January 10, 2006) to March 31, 2008
 DeficitAccumulatedDuring
      the
                
                
                AccumulatedAdditional
                
                
                Development
                
                
                other
                
                
                TotalCommon
      Stock
                
                
                Paid-in
                
                
                Stage
                
                
                comprehensive
                
                
                ShareholdersShares
                
                
                Par
      Value
                
                
                Capital
                
                
                Restated
                
                
                income
                
                
                Equity
      (Deficit)Balance
      at inception (January 10, 2006)
                
                
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Issuance
      of common stock for cash and contribution of intellectual property in
      January 2006
                
                
                35,821,198
                
                
                
                338,625
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                338,625Issuance
      of common stock in private placement for cash, net of $822,902 in
      commissions and expenses in July 2006
                
                
                7,148,710
                
                
                
                4,924,598
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,924,598Issuance
      of common stock to placement agent for fees
                
                
                598,029
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Cancellation
      of investor shares in July 2006
                
                
                (6,218,958
                )
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Issuance
      of common stock in connection with transaction with Petramerica Oil, Inc.
      in July 2006
                
                
                2,087,910
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Repurchase
      of shares from Petramerica Oil, Inc. stockholders in July
    2006
                
                
                (400,000
                )
                
                
                (400,000
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (400,000
                )Issuance
      of shares to investor relation firms for services in 2006
                
                
                2,238,824
                
                
                
                1,800,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,800,000Issuance
      of common stock in private placement for cash, net of $149,500 in
      commissions in September 2006
                
                
                3,737,500
                
                
                
                2,840,500
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,840,500Fair
      value of employee stock compensation
                
                
                
                
                
                
                
                
                
                
                139,979
                
                
                
                
                
                
                
                
                
                
                
                139,979Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (6,552,079
                )
                
                
                
                
                
                
                (6,552,079
                )Balance
      at December 31, 2006
                
                
                45,013,213
                
                
                
                9,503,723
                
                
                
                139,979
                
                
                
                (6,552,079
                )
                
                
                -
                
                
                
                3,091,623Issuance
      of shares to investor relations firm for services
                
                
                1,100,000
                
                
                
                2,271,156
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,271,156Fair
      value of employee stock compensation
                
                
                860,147
                
                
                
                1,607,047
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,607,047Cancellations
      of stock compensation
                
                
                (260,147
                )
                
                
                (554,113
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (554,113
                )Fair
      value of employee stock options
                
                
                
                
                
                
                
                
                
                
                897,663
                
                
                
                
                
                
                
                
                
                
                
                897,663Exercise
      of Employee Stock Options
                
                
                99,478
                
                
                
                79,582
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                79,582Exercise
      of Warrants
                
                
                186,875
                
                
                
                149,501
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                149,501Issuance
      of Warrant for Short Term Loan
                
                
                
                
                
                
                
                
                
                
                2,884,381
                
                
                
                
                
                
                
                
                
                
                
                2,884,381Issuance
      of shares to consultants
                
                
                1,000,000
                
                
                
                630,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                630,000Capital
      contribution
                
                
                
                
                
                
                
                
                
                
                188,500
                
                
                
                
                
                
                
                
                
                
                
                188,500Cancellations
      and terminations
                
                
                
                
                
                
                
                
                
                
                (119,405
                )
                
                
                
                
                
                
                
                
                
                
                (119,405
                )Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (12,525,169
                )
                
                
                
                
                
                
                (12,525,169
                )Foreign
      currency translation gain (loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (12,712
                )
                
                
                (12,712
                )Balance
      at December 31, 2007
                
                
                47,999,566
                
                
                
                13,686,896
                
                
                
                3,991,118
                
                
                
                (19,077,248
                )
                
                
                (12,712
                )
                
                
                (1,411,946
                )Fair
      value of employee stock options
                
                
                
                
                
                
                
                
                
                
                120,750
                
                
                
                
                
                
                
                
                
                
                
                120,750Issuance
      of Shares to Legal Counsel for AP and Retainer
                
                
                169,324
                
                
                
                67,729
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                67,729Capital
      contribution
                
                
                
                
                
                
                
                
                
                
                501,852
                
                
                
                
                
                
                
                
                
                
                
                501,852Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,283,077
                )
                
                
                
                
                
                
                (3,283,077
                )Foreign
      currency translation gain (loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (10,682
                )
                
                
                (10,682
                )Balance
      at March 31 2008 (unaudited)
                
                
                48,168,890
                
                
                $
                13,754,625
                
                
                $
                4,613,720
                
                
                $
                (22,360,325
                )
                
                $
                (23,394
                )
                
                $
                (4,015,374
                )
  The accompanying notes are an
integral part of these financial statements.


3


Triton
Distribution Systems, Inc.


(a
Development Stage Company)
 Consolidated
Statement of Cash Flows


For
      the Three
              
              
              For
      the Three
              
              
              Inception
      (January 10,Months
      Ended
              
              
              Months
      Ended
              
              
              2006)
      toMarch
      31
              
              
              March
      31
              
              
              March
      312008
              
              
              2007
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:
              
              (unaudited)
              
              
              
              
              
              (unaudited)Net
      loss
              
              $
              (3,283,077
              )
              
              
              (2,509,675
              )
              
              $
              (22,360,325
              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Minority
      interest
              
              
              -
              
              
              
              4,215
              
              
              
              -Amortization
      of discount on note
              
              
              740,586
              
              
              
              -
              
              
              
              (757,447
              )Depreciation
      and amortization expense
              
              
              24,461
              
              
              
              28,681
              
              
              
              249,768Amortization
      of prepaid consulting
              
              
              334,770
              
              
              
              527,099
              
              
              
              5,936,196Finance
      Fee
              
              
              501,852
              
              
              
              -
              
              
              
              690,352Stock
      compensation for consultants
              
              
              -
              
              
              
              27,174
              
              
              
              630,000Fair
      value of employee stock options & comp expense
              
              
              120,750
              
              
              
              287,090
              
              
              
              2,055,646Changes
      in assets and liabilitiesPrepaid
      insurance
              
              
              4,513
              
              
              
              44,092
              
              
              
              (26,815
              )Other
      current assets
              
              
              (14,489
              )
              
              
              -
              
              
              
              (126,984
              )Loss
      on disposal of assets.
              
              
              -
              
              
              
              30,373
              
              
              
              -Deferred
      income
              
              
              (704
              )
              
              
              686
              
              
              
              766Accounts
      payable
              
              
              326,505
              
              
              
              (91,316
              )
              
              
              979,572Accrued
      expenses
              
              
              297,010
              
              
              
              28,352
              
              
              
              489,276Lease
      Liability
              
              
              (3,380
              )
              
              
              2,678
              
              
              
              17,598Net
      cash used in operating activities
              
              
              (951,203
              )
              
              
              (1,620,551
              )
              
              
              (12,222,397
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of furniture and equipment
              
              
              (4,949
              )
              
              
              (27,603
              )
              
              
              (546,897
              )Disposal
      of furniture and equipment
              
              
              19,973
              
              
              
              -
              
              
              
              19,973Payment
      for web development costs
              
              
              -
              
              
              
              -
              
              
              
              (19,700
              )Net
      cash used in investing activities
              
              
              15,024
              
              
              
              (27,603
              )
              
              
              (546,624
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the issuance of common stock
              
              
              -
              
              
              
              -
              
              
              
              8,999,626Payment
      of offering costs
              
              
              -
              
              
              
              -
              
              
              
              (972,402
              )Repurchase
      of shares of common stock
              
              
              -
              
              
              
              -
              
              
              
              (400,000
              )Proceeds
      from issuance of notes payable
              
              
              953,000
              
              
              
              -
              
              
              
              4,678,000-
      related party
              
              
              -
              
              
              
              -
              
              
              
              2,470,867Repayment
      on notes payable - related party
              
              
              -
              
              
              
              -
              
              
              
              (1,981,867
              )Net
      cash provided by financing activities
              
              
              953,000
              
              
              
              -
              
              
              
              12,794,224NET
      DECREASE IN CASH ANDCASH
      EQUIVALENTS
              
              
              16,821
              
              
              
              (1,648,154
              )
              
              
              25,203Beginning
      of period
              
              
              8,382
              
              
              
              1,944,287
              
              
              
              -CASH
      AND CASH EQUIVALENTS,End
      of period
              
              $
              25,203
              
              
              
              296,133
              
              
              
              25,203SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Interest
      paid
              
              $
              -
              
              
              
              -
              
              
              $
              111,248Income
      taxes paid
              
              $
              -
              
              
              
              -
              
              
              $
              -Contribution
      of intellectual property for common stock
              
              $
              238,525
              
              
              
              238,525
              
              
              $
              238,525Issuance
      of stock for consulting services
              
              $
              -
              
              
              
              -
              
              
              $
              -Issuance
      of 2,200,000 and 2,836,853 shares of common stock for consulting
      services
              
              $
              2,901,156Issuance
      of 600,000  shares of common stock for
    compensation
              
              $
              1,052,934Cashless
      exercise of  options
              
              $
              30,782Share
      Contribution by CEO
              
              $
              690,352Issuance
      of 169,324 shares for 2007 Account Payable and 2008 Legal
      Retainer
              
              $
              67,730




The accompanying notes are an integral part of these
financial statements.


4
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




Note
1 - Basis of presentation, organization and significant accounting
policies





Basis of
presentation





The
unaudited consolidated financial statements have been prepared by Triton
Distribution Systems, Inc. (the “Company”), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
herein reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods.  Certain
information and footnote disclosures normally present in annual consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to such
rules and regulations. These consolidated financial statements should be read in
conjunction with the audited financial statements and footnotes for the period
ended December 31, 2007 included in the Company's Current Report on 10-KSB filed
with the Securities and Exchange Commission on April 17, 2008. The results for
the three months ending March 31, 2008 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2008.





Organization and line of
business





Triton
Distribution Systems, Inc. (“TDS”) was incorporated in the State of Nevada on
January 10, 2006. On July 10, 2006, TDS entered into an exchange agreement with
Petramerica Oil, Inc. (“Petra”), a publicly traded
company.  Subsequent to the exchange agreement, the acquisition was
accounted for as a reverse acquisition of Petra by TDS resulting in a
recapitalization of TDS for accounting purposes, the Company changed its name to
Triton Distribution Systems, Inc.





The
Company is a commercially established, “next generation” web-based travel
services distribution business.  The Company has developed a
proprietary technology platform that provides considerable pricing advantages,
better distribution methods and superior travel product offerings compared to
established competitors.  The travel marketplace is a global arena in
which millions of “buyers” (travel agents and consumers) and “sellers” (hotels,
airlines, car rental agencies, cruise ship lines, tour operators and
entertainment companies) intersect.





Our core
competency is designed for the electronic distribution of travel inventory from
airlines, car rental companies, hotels, tour and cruise operators, and other
travel sellers to travel agencies and their clients.





The
Company is currently a development stage company under the as defined
by  Statement of Financial Accounting Standards ("SFAS") No. 7 Accounting and Reporting by
Development Stage Enterprisesas it has not generated revenues since its
inception.  The accompanying financial information has been prepared
in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”)





Principles of
consolidation





The
accompanying consolidated financial statements include the accounts of Triton
Distribution Systems, Inc. (formerly Petramerica Oil, Inc.), a Colorado
corporation and its wholly owned subsidiaries; Triton Distribution Systems
Philippines, Inc. (“Triton Philippines”), a corporation organized under the laws
of the Philippines; and Triton Distribution Systems Beijing (“Triton Beijing”),
a Chinese Corporation. All inter-company accounts and transactions have been
eliminated in consolidation. Triton Distribution Systems Philippines Inc. was
formed in May 2006 with an office in Manila, Philippines.  In August
2007, as a consequence of these internal issues with Philippine Airlines, we
ceased our operations in the Philippines until these issues are
resolved.  In September 2007 we dissolved our Philippine subsidiary.
Triton Distribution Systems (Beijing) was formed in November 2006. Since
November 2006 operations have been primarily involved sales and marketing
activities.


5
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)





On
December 12, 2005 the Company opened an office in Manila, Philippines. The
subsidiary in the Philippines, Triton Distribution Systems Philippines Inc.
(“Triton Philippines”), was formed on May 29, 2006 as a corporation (60%
Filipino owned, 40% foreign owned), organized under the laws of the Republic of
the Philippines. Triton Philippines had an authorized capital stock of two
million pesos (PHP) (US$40,000) divided into 20,000 shares with a par value of
100 pesos per share. The original ownership group of five individuals was issued
5,000 shares in the aggregate and included the President of the Company as a 20%
owner. Thus, there remained unissued and unsubscribed shares of 15,000 in the
amount of 1.5 million pesos (US$30,000) available for subscription by foreign
subscribers which was subsequently subscribed for in January of 2007 and fully
paid by inward remittances that had occurred subsequent to June 2006 by the
Company.  To complete the process of establishing TDS as the majority
foreign equity holder in Triton Philippines, the authorized capital stock of
Triton Philippines was increased from two million Pesos (US$40,000) to thirty
million Pesos (US$600,000) as of August 23, 2006. Under Philippine law, inward
remittances by TDS towards the operations of its subsidiary, Triton Philippines,
may be treated as an increase in authorized capital stock. Under this increase,
the minority stockholders waived their rights to subscribe to their
proportionate share in the issuance of 280,000 shares of stock with total par
value of Twenty Eight Million Pesos (US$560,000).  This resulted in
the Company owning approximately 98% of Triton Philippines and this transaction
was completed in February 2007.  The President of Triton Philippines
still currently owns 0.33% of Triton Philippines.




During
the initial discovery phase of our project at Philippine Airlines we encountered
certain internal issues that put the project in jeopardy. As a consequence in
order to conserve resources, we ceased our operations in the Philippines and
provided Philippines Airlines an opportunity to resolve their internal
issues.  In August of 2007 the Company ceased operation in the
Philippines and as a result its legal entity will be dissolved.





In
September of 2006 the Company opened another office in Beijing, China. The
subsidiary in China, Triton Distribution Systems (Beijing) (“Triton Beijing”)
was formed November of 2006 as a Wholly Foreign Owned Enterprise under the laws
and regulations of the government of the People’s Republic of
China.  The Company is required to make a total investment in Triton
Beijing of $250,000 U.S. Dollars (USD).  The registered capital of
Triton Beijing is to be $175,000 USD of which 15% of this amount was required to
be contributed within 90 days of formation.  The Company has complied
with this requirement by making the initial funding in January of 2007. On
February 08, 2007 the Company transferred $26,250 USD as the initial deposit.
The remaining amount ($148,750) must be contributed within 2 years of the
issuance of the business license.  The business license was issued on
April 26, 2007.  Triton Beijing’s business license has a term of 20
years that is renewable upon appropriate approval.





Use
of estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from these
estimates.





Fair value of financial
instruments





For
certain of the Company's financial instruments, including cash and cash
equivalents, accounts payable and accrued expenses, the carrying amounts
approximate fair value due to their short maturities.





Cash and cash
equivalents





For
purposes of the statements of cash flows, the Company defines cash equivalents
as all highly liquid debt instruments purchased with a maturity of three months
or less.





6
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




Concentration of credit
risk





Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist of cash and cash equivalents.  From time to time we exceed
the FDIC $100,000 insurance limit. The deposits made in foreign banks are not
insured which amounted to $1202 as of March 31, 2008. The Company has not
experienced any losses, nor do we anticipate incurring any losses related to
this credit risk.  The Company had $0 that exceeded insurance limits
as of March 31, 2008.





Furniture and
equipment





Furniture
and equipment are stated at cost and are depreciated using the straight-line
method over their estimated useful lives of 3-7 years. Expenditures for
maintenance and repairs are charged to operations as incurred while renewals and
betterments are capitalized. Gains and losses on disposals are included in the
results of operations.





The
estimated service lives of furniture and equipment are as follows:





Computer
      equipment
            5
      yearsSoftware
            5
      yearsOffice
      equipment
            5
      yearsFurniture
      and fixtures
            7
      yearsTenant
      improvements
            3-7
      years





Website development
costs




Website
development costs are for the development of the Company's Internet website.
These costs have been capitalized when put into service, and are being amortized
over three years. The Company accounts for these costs in accordance with
Emerging Issues Task Force (“EITF”) 00-2, "Accounting for Website Development
Costs," which specifies the appropriate accounting for costs incurred in
connection with the development and maintenance of websites.





Intangible
assets





The
Company’s intangible asset was acquired and is carried at its purchase price,
net of accumulated amortization, which approximates fair value. In accordance
with SFAS No. 142, Goodwill
and Other Intangible Assets, the Company evaluates its intangible assets
for impairment, on a periodic basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable from its
estimated future cash flows.  Recoverability of intangible assets is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles.  If the net book value of the asset exceeds the
related undiscounted cash flows, the asset is considered impaired, and is
written down to its appropriate fair value on the date of
impairment.  Amortization is computed using the straight-line method
over the estimated useful life of the intellectual property of ten
years.





Revenue
recognition





The
Company applies the guidance within SEC Staff Accounting Bulletin No. 104,
“Revenue Recognition in Financial Statements” (“SAB 104”) to determine when to
properly recognize revenue. SAB 104 states that revenue generally is realized or
realizable and earned when persuasive evidence of an arrangement exists,
services have been rendered, the seller's price to the buyer is fixed or
determinable and collectability is reasonably assured.





7
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




In order
to simplify its business process, the Company provides electronic travel
distribution services through its travel distribution system. These services are
provided for airlines, car rental companies, hotels, tour and cruise operators,
and other travel sellers to travel agencies and their clients: (1) the Company
charges a fee for reservations booked through its distribution system; (2)
revenue is recognized at the time the transactions are processed; (3) however,
if a transaction is subsequently canceled, the transaction fee or fees must be
credited or refunded; (4) therefore, revenue is recorded net of an estimated
amount reserved to account for cancellations which may occur in a future
months;  (5) this reserve is calculated based on industry historical
cancellation rates and will be based on the Company's own cancellation rates
once a sufficient history of cancellations is established; and  (6) in
estimating the amount of future cancellations that will require a transaction
fee to be refunded, the Company assumes that a significant percentage of
cancellations are followed by an immediate re-booking of the transaction,
without a net loss of revenue.





Leases





The
Company accounts for its leases under the provisions of SFAS No. 13,  
Accounting for Leases,
and subsequent amendments, which require that leases be evaluated and classified
as operating or capital leases for financial reporting purposes.  The
Company’s office leases are treated as current operating
expenses.  The office leases contain certain rent escalation clauses
over the life of the leases.  The total amount of rental payments due
over the lease term is being charged to rent expense on a straight-line method
over the term of the lease.  The difference between rent expense
recorded and the amount paid is credited or charged to “accrued lease liability”
on the accompanying consolidated balance sheet.





Foreign currency
translation





The
Company’s reporting currency is the US dollar (“USD”).  The Company’s
Chinese subsidiary’s financial records and books are maintained in its local
currency, Renminbi (RMB), as its functional currency.  The Company’s
former Philippines subsidiary’s financial records and books are maintained in
its local currency, Peso (PESO), as its functional currency.  Results
of operations and cash flow are translated at average exchange rates during the
period, and assets and liabilities are translated at the unified exchange rate,
at the end of the period.  Translation adjustments resulting from this
process are included in accumulated other comprehensive income in the statement
of shareholders’ equity.  Since cash flows are translated at average
translation rates for the period, amounts reported on the statement of cash
flows will not necessarily agree with changes in the corresponding balances on
the balance sheet.




Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred. These amounts are immaterial to the
consolidated financial statements.





Stock based
compensation




The
Company accounts for stock option grants in accordance with SFAS
No. 123(R), Share-Based
Payment. The Company records the cost of employee and non-employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost is recognized over the period
during which an employee is required to provide service in exchange for the
award—the requisite service period (usually the vesting period). No compensation
cost is recognized for equity instruments for which employees do not render the
requisite service. The grant-date fair value of employee share options and
similar instruments is estimated using a Black-Scholes option-pricing model. If
an equity award is modified after the grant date, incremental compensation cost
will be recognized in an amount equal to the excess of the fair value of the
modified award, if any, over the fair value of the original award.





Income
taxes




The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.





8
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)


On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement No. 109(“FIN 48”). The Interpretation gives guidance related to the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and requires that we recognize in our
financial statements the impact of a tax position, if that position is more
likely than not to be sustained upon an examination, based on the technical
merits of the position.





Comprehensive
Income





The
Company reports comprehensive income / (loss) and its components in accordance
with SFAS No. 130, Reporting
Comprehensive Income. The Company’s comprehensive income / (loss) is
comprised of net income / (loss) and foreign currency translation
adjustments.





Loss per
share





The
Company reports loss per share in accordance with SFAS No. 128, Earnings per Share. Basic
loss per share is computed by dividing the net loss by the weighted average
number of common shares outstanding. Diluted loss per share is computed by
dividing net income by the weighted average number of common shares used in the
basic earnings per share calculation plus the number of common shares that would
be issued assuming exercise or conversion of all potentially dilutive common
shares outstanding. The Company excludes equity instruments from the calculation
of diluted weighted average shares outstanding if the effect of including such
instruments is anti-dilutive to earnings per share. For the periods presented,
all equity instruments are considered anti-dilutive.





Recently issued accounting
pronouncements





In June
2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"), which is an interpretation of SFAS
No. 109. FIN 48 prescribes a recognition threshold and a measurement
standard for recognition and measurement in the financial statements of tax
positions taken or expected to be taken in a tax return. For those benefits to
be recognized, a tax position must be more-likely-than-not to be sustained upon
examination by taxing authorities. The amount recognized is measured as the
largest amount of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. We adopted FIN 48 on January 1,
2007, which has not had a material effect on our operations.




In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"), which defines fair value, establishes a framework for
measuring fair value and expands disclosure about fair value measurements. SFAS
No. 157 is effective for fiscal years beginning after November 15,
2007. We will adopt SFAS No. 157 on January 1, 2008. The adoption of
this standard is not expected to have a material effect on our financial
position or results of operations.




In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"), providing
companies with an option to report selected financial assets and liabilities at
fair value. SFAS No. 159's objective is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. SFAS No. 159 helps to
mitigate this type of accounting-induced volatility by enabling companies to
report related assets and liabilities at fair value, which would likely reduce
the need for companies to comply with detailed rules for hedge accounting. SFAS
No. 159 also establishes presentation and disclosure requirements designed
to facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. SFAS No. 159
requires companies to provide additional information that will help investors
and other users of financial statements to more easily understand the effect of
its choice to use fair value on its earnings. It also requires companies to
display the fair value of those assets and liabilities for which it has chosen
to use fair value on the face of the balance sheet. SFAS No. 159 is
effective on January 1, 2008. We are currently evaluating the impact of the
adoption of this statement on our financial statements.




9
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for the
reporting entity in a business combination, including recognition and
measurement in the financial statements of the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree. This
statement also establishes disclosure requirements to enable financial statement
users to evaluate the nature and financial effects of the business combination.
SFAS No. 141(R) applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, and interim periods within
those fiscal years. SFAS No. 141(R) will become effective for our fiscal
year beginning January 1, 2009. We are currently evaluating the effect the
adoption of SFAS No. 141(R) on our financial statements.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements — an amendment of ARB No. 51”.
This Statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008, which for us is the
year ending December 31, 2009, and the interim periods within that fiscal
year. The objective of this Statement is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements. We are currently
evaluating the potential impact, if any, of the adoption of
SFAS No. 160 on our consolidated financial statements.





Note
2 - Development stage company and going concern





The
Company is subject to risks and uncertainties, including new product
development, actions of competitors, reliance on the knowledge and skills of its
employees to be able to service customers, and availability of sufficient
capital and a limited operating history. Accordingly, the Company presents its
financial statements in accordance with the accounting principles generally
accepted in the United States of America that apply in establishing new
operating enterprises. As a development stage enterprise, the Company discloses
the deficit accumulated during the development stage and the accumulated
statement of operations and cash flows from inception of the development stage
to the date on the current balance sheet. Contingencies exist with respect to
this matter, the ultimate resolution of which cannot presently be
determined.





The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of America,
which contemplates continuation of the Company as a going concern. However, the
Company has not generated revenues, has incurred significant operating losses of
to date and has a negative cash flow from operations, which raises substantial
doubt about its ability to continue as a going concern.





Management
has been historically successful at raising capital to fund the Company’s
short-term obligations and operating needs.  The Company’s plan to
continue as going concern, for at least the next twelve months, includes:
raising capital through a long-term debt financing arrangement; further equity
issuances; small, targeted acquisitions in China and Europe that may provide an
immediate revenue stream; and an overall reduction in operating expenses by
cutting employees and limiting travel and related expenses.  While the
Company believes its plans ultimately will resolve the going concern issue,
there is no assurance that the intended results will occur.





In the
event the Company is unsuccessful in its plans to finance operations through the
above means it could be forced to significantly reduce or suspend altogether its
level of operations. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.





10
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)





Note
3 - Furniture and equipment





The cost
of furniture and equipment consisted of the following:




March
              
              
              December31,
      2008
              
              
              31,
      2007Computer
      equipment
              
              $
              162,485
              
              
              $
              162,360Software
              
              
              67,182
              
              
              
              67,182Office
      equipment
              
              
              94,323
              
              
              
              94,294Furniture
      and fixtures
              
              
              74,924
              
              
              
              74,925Tenant
      improvements
              
              
              117,173
              
              
              
              137,299516,087
              
              
              
              536,060Less
      accumulated depreciation
              
              
              (194,232
              )
              
              
              (171,857
              )$
              321,855
              
              
              $
              364,203




Depreciation
expense was $31,881, $29,751, and $231,538 for the three months ended March 31,
2008 and the three months ended March 31, 2007, and for the period from
inception (January 10, 2006) to March 31, 2008, respectively.





Note
4 - Notes payable - related party





On March
28, 2007 the Company entered into a Line of Credit Agreement with JMW Fund, LLC
(“JMW”) to receive up to $1,000,000 for six months.  The Company paid
a $10,000 commitment fee related to the Line of Credit.





On June
28, 2007 the Line of Credit became part of a $3,000,000 Convertible Senior Note
Agreement (Loan) between the Company, JMW, San Gabriel Fund LLC, Underwood
Family Partners LTD., and Battersea Capital Inc (Lenders).  The Loan
began accruing interest at 1% per month on July 1, 2007 and matures on July 1,
2008, if not prepaid without penalty. The Lenders, at their sole discretion, may
convert the outstanding principal balance into shares of common stock at an
exercise price of $3.00 per share including a cashless exercise
option.  The accrued interest, at the time of conversion, may be paid
in either cash or shares of common stock at the Company’s
discretion.





Pursuant
to the terms of the Convertible Note, the Company agreed to a commitment fee via
the issuance of warrants exercisable for an aggregate of 2,000,000 shares of the
Company’s common stock at an exercise price of $3.00 per share for five years,
including a cashless exercise option. The Company agreed to register the shares
underlying the warrants no later than December 31, 2007. Additionally, the
Company agreed to “piggyback” register the shares underlying the warrants in any
future registration prior to the expiration date, if any.  Finally,
the warrants contain certain adjustment provisions related to issuing equity
instruments at prices lower than the current exercise price.





At March
31, 2008 the entire $3,000,000 of the Loan was outstanding.  The
Company recorded $2,884,381 as discount on loan to account for value of the
warrants. The Company has reviewed the provisions of EITF 00-19 “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock” and has determined that the warrants do not qualify for
derivative accounting and accounted for the warrants under APB No. 14
“Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”.
The discount is being amortized over the life of the loan to interest expense.
For the three months ended March 31, 2008 we amortized $2,229,013.04 of the
discount to loan interest expense.





11
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




In
October 2007 the Company entered into several one month short-term loan
arrangements with other investors totaling $200,000 at December 31, 2007 with
12% interest (1.5% per month extra in event of default) expiring from November
2007. The Company did not repay the notes when due and is currently accruing
interest at the default interest rate of 1.5% per month on the unpaid principal
balance.





In
December 2007 the Company entered into several one month short-term loan
arrangements with other investors totaling $525,000 at December 31, 2007 with
12% interest expiring in January 2008.





The
Company has not paid the above mentioned loans and accrued interest amounted to
$302,480 as of March 31, 2008.





From
October and November 2007 we entered into short-term loan arrangements of
$469,000 and $20,000 with our CEO and CFO, respectively.  The loans
accrue interest at 12% and are due upon receipt of sufficient
financing.





From
January to March 2008 the Company entered into several one month short-term loan
arrangements with other investors totaling $950,000 with 12% interest (1.5% per
month extra in event of default) expiring on dates between February 11, 2008 and
April 18, 2008.  The Company did not repay the notes when due and is
currently accruing interest at the default interest rate of 1.5% per month on
the unpaid principal balance.





From
April to May 2008 the Company entered into several one month short-term loan
arrangements with other investors totaling $360,000 with 12% interest (1.5% per
month extra in event of default) expiring on dates between May 15, 2008 and June
19 The Company did not repay the notes when due and is currently accruing
interest at the default interest rate of 1.5% per month on the unpaid principal
balance.





From
October and November 2007 we entered into short-term loan arrangements of
$469,000 and $20,000 with our CEO and CFO, respectively.  The loans
accrue interest at 12% and are due upon receipt of sufficient
financing.





In
January, 2008 we entered into short-term loan arrangements of $3,000 with our
CFO, The loans accrue interest at 12% and are due upon receipt of sufficient
financing.





The
Company has not paid the above mentioned loans and accrued total interest
amounted to $38,512 as of March 31, 2008.





Our notes
payable, net of unamortized discounts, of $757,447.29 at March 31, 2008 are due
prior to December 31, 2008 and classified as current.





Note
6 - Stockholders' equity





On May
28, 2008, we set aside 2,000,000 shares of stock from the 2006 Equity Incentive
Plan for payments towards qualified legal fees incurred in 2008.





In
January 2008 we obtained, through entry into short-term financing arrangements,
obtained an additional $1,128,000.  The notes carry 12% annual
interest rates and expire between February and May 2008. The Company has not
repaid any of these notes and is currently in default.





On
January 17, 2008 our legal counsel accepted 112,168 shares of stock as payment
on account towards the balance due as of December 31, 2007.  The value
of the payment was $38,137 prices at .34, or .40 less a 15% discount to market
on the closing date of January 16, 2008.  The remaining amount was not
eligible for payment via stock.





12
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




In
addition 57,156 shares valued at .34, or .40 less a 15% discount to
market  on January 16, 2008, were issued to our legal counsel as
payment toward a retainer used in the defense of  the Terry et al vs.
Triton matter.





In
November 2007, the Company issued to a consulting firm 1,000,000 shares of
common stock. The Company valued the shares on grant date based on the closing
price on that date. The total value of the shares issued was
$630,000.





In
September 2007 the Company issued 186,875 shares of common stock at $0.80 per
share for the exercise of warrants for total consideration of
$149,501.





From July
to September 2007 the Company issued 38,478 shares of common stock at $0.80 per
share for cashless exercise of employee stock options.





In June
2007 the Company issued 61,000 shares of common stock at $0.80 per share for the
exercise of employee stock options for total consideration of
$48,800.





On June
11, 2007 the Board of Directors approved the grant of a total of 149,868
restricted shares to Michael W. Overby, CFO. The shares were valued at $2.13
which was the closing price on June 11, 2007 for a total value of
$319,219.





In May
and June 2007, the Company issued to two investor relations firms a total of
1,000,000 shares of common stock (500,000 shares each) for 2 years of services.
The company valued each set of 500,000 shares based on the closing price on new
contract start date. The total value of the shares issued was
$2,100,000.





In March,
2007, the Company issued to an investor relations firm a total of 100,000 shares
of common stock valued at $1.71 per share, the closing price of the stock on the
date of issuance. The value of these shares of $171,156 is being amortized over
the terms of the agreements. The shares were actually issued on March 29, 2007,
and the value of these shares is being amortized over the service period of the
agreement which began on March 8, 2007.





On March
2, 2007 the Board of Directors approved the grant of 450,132 restricted shares
to Michael W.Overby, CFO, consistent
with his offer letter. The shares were valued at $1.63 which was the closing
price on March 2, 2007 for a total value of $733,715.





In
September 2006, the Company completed a private placement offering of 3,450,000
shares of our common stock to one accredited investor, Al-Deera Holding Company
KSCC, for an aggregate purchase price of $2,760,000. After paying the commission
and fees associated with the private placements of approximately $ 138,000, the
Company received $2,622,000 from this private placement offering.




In
September 2006, the Company completed a private placement offering of 287,500
shares of our common stock to one accredited investor, Univest Group Kuwait, for
an aggregate purchase price of $230,000. After paying the commission and fees
associated with the private placements of approximately $11,500, the Company
received $218,500 from this private placement offering.





In
connection with the September 2006 private placement offerings, the Company
issued a warrant to purchase 185,000 shares of the Company common stock for
$0.80 per share. The warrants expire five years from the date of issuance. The
value of the warrants of $43,293 issued to the placement agent is considered
additional offering cost. The value of the warrants was calculated using the
Black-Scholes model using the following assumptions: discount rate of 4.5%;
volatility of 22%; dividend yield of 0%; and expected terms of 5 year. The
impact of recording the value of the warrants in the financial statements is $0
as the Company increased stockholders’ equity by $43,293 for the issuance of
these warrants and decreased stockholders’ equity by the same amount to record
the value of these warrants as offering costs.






13
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)






In July
2006 the Company sold a total of 7,148,710 shares of its common stock at $0.80
per share through a private placement offering for gross proceeds of $5,747,500.
After commission and offering expenses, the Company received net proceeds of
$4,924,598. In addition, the Company issued to the placement agent 598,029 share
of common stock and issued a warrant to purchase 1,429,742 shares of common
stock for $0.80 per share. The warrants expire five years from the date of
issuance. The value of the common stock and warrants of $478,423 and $334,580,
respectively, issued to the placement agent are considered additional offering
cost. The value of the warrants was calculated using the Black-Scholes model
using the following assumptions: discount rate of 4.5%; volatility of 22%;
dividend yield of 0%; and expected terms of 5 years.




In July
2006, in connection with the private placement offering described above, the
Company’s original investors agreed to cancel an aggregate of 6,218,958 of their
shares upon the successful completion of selling at least $5,000,000 in the
private placement.




In July
2006, in connection with the transaction with Petra, the Company issued
2,087,910 shares of common stock in exchange for the outstanding shares of Petra
on a one for one basis, the Company repurchased and retired 400,000 shares of
its common stock for $400,000 that were owned by certain shareholders of
Petra.




In July
2006, the Company issued to two investor relation firms a total of 2,238,824
(1,119,412 each) shares of common stock valued at $0.80 per share. The value of
these shares of $1,800,000 is being amortized over the terms of the respective
agreements. The shares were actually issued on July 26, 2006, but the value of
these shares is being amortized over the respective service periods for each
agreement which both began on July 10, 2006 the date of the transaction with
Petra.





Upon the
formation of the Company, the founding stockholders contributed $100,100 in cash
and intellectual property valued at $238,525 in exchange for 35,821,198 shares
of common stock.




Stock
Options





In
December 2007 options were approved by the board of directors for the grant of
options to employees: 324,852 options were granted to new employees and for
promotions at an exercise price of .38. The shares vest over 2 years. The price
was determined on the day the last board member approved the grant January 7,
2008.  The grant notices were distributed to employees January 18,
2008 and were not included in the 2007 or 2008 option expense
calculation.  361,780 shares were issued as a bonus to employees at an
exercise price of .38, The shares vest over one year. This grant has not been
distributed or communicated to the employees as of June 12, 2008. Moreover,
548,904 shares were issued to managers at an exercise price of .38 this grant
has not been distributed or communicated to the employees the shares vest upon
issuance.





On June
12, 2006, the Company's board of directors approved the Triton Distribution
Systems, Inc. 2006 Equity Incentive Plan (the “Plan”).  The Plan
originally provided for the issuance of 4,300,000 shares but was subsequently
amended on September 11, 2007 and now provides for the issuance of up to
8,600,000 shares under the Amended Plan.





The fair
value of each option award was estimated on the date of grant using a
Black-Scholes option valuation model.  The exercise price of all
options outstanding equals the closing market value of the Company’s common
stock on the grant date. Expected volatilities are based on historical
volatility of similar companies for the expected term of the option considering
characteristics such as industry, stage of life cycle, size, financial leverage,
and other factors.  The expected dividend yield is based on the
history our having never paid dividends and our expectation that we will not pay
dividends in the near future.  The following reflects the significant
assumptions used to estimate the fair value of options on the corresponding
grant dates:







14
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)






Prior
      to July 14, 2006
            Risk-free
      interest rate
            4.50%Expected
      life of the options
            3.00
      yearsExpected
      volatility
            22%Expected
      dividend yield
            0For
      options Granted
            Risk-free
      interest rate
            4.50%December
      01, 2006
            Expected
      life of the options
            3.00
      yearsExpected
      volatility
            86%Expected
      dividend yield
            0For
      options Granted
            Risk-free
      interest rate
            4.50%March
      02, 2007
            Expected
      life of the options
            3.00
      yearsExpected
      volatility
            121%Expected
      dividend yield
            0For
      options Granted
            Risk-free
      interest rate
            4.75%June
      11, 2007
            Expected
      life of the options
            3.00
      yearsExpected
      volatility
            164%For
      options Granted
            Risk-free
      interest rate
            4.75%September
      11, 2007
            Expected
      life of the options
            3.00
      yearsExpected
      volatility
            171%Expected
      dividend yield
            0





For
      options Granted
            Risk-free
      interest rate
            3.95%January,
      18 2008
            Expected
      life of the options
            3.00
      yearsExpected
      volatility
            192%Expected
      dividend yield
            0




The
following table illustrates our stock option activity from inception (January
10, 2006) through March 31, 2008.




Option
      Shares
            
            Options
            
            
            Weighted
      Ave.
            
            
            AggregateOutstanding
            
            
            Exercise
      Price
            
            
            Intrensic
      ValueOutstanding
      at January 10, 2006
            
            
            -
            
            
            $
            -
            
            
            $
            -Granted
            
            
            3,008,325
            
            
            $
            1.67
            
            
            $
            0.94Exercised
            
            
            99,478
            
            
            $
            0.80
            
            
            $
            0.17Forfeited
      and cancelled
            
            
            1,069,940
            
            
            $
            2.07
            
            
            $
            1.03Outstanding
      at March 31, 2008
            
            
            1,838,907
            
            
            $
            1.61
            
            
            $
            0.93




As of
March 31 2008, 2,584, 797 outstanding options have vested.




No
options were granted in  the quarter ended March 31, 2008, the
weighted average remaining contractual life of options outstanding is 9.12
years.





As of
March 31, 2008, there was $537,270.52 of total unrecognized compensation cost
related to non-vested options granted under the plan. That cost is expected to
be recognized over the 3 year life of the options.





On June
12, 2006, the Company's board of directors approved the Triton Distribution
Systems, Inc. 2006 Equity Incentive Plan (the “Plan”) that provides for the
issuance of up to 4,300,000 shares under the Plan.








TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




The board
increased the option plan to 8,600,000 shares on September 11,
2007.





The
Company recognized $120,750 $417,966 and $2,055,645 in stock option-based
compensation expense for the three months ended March 31, 2008, for the period
from inception (January 10, 2006) to March 31, 2007 and for the period from
inception (January 10, 2006) to March 31, 2008, respectively. The fair value of
our stock options are estimated using the Black-Scholes option pricing
model.





On May
28, 2008, we set aside 2,000,000 shares of stock from the 2006 Equity Incentive
Plan for payments towards qualified legal fees incurred in 2008.





Warrants





From time
to time the Company issues warrants to non employees in connection with the
entry into various financing arrangements.  The following table
private placement offerings and shares issued for other services as described
above.  The following table is a summary of the warrant
activity:





Below is
a summary of the warrant activity:




Warrants
              
              Warrants
      Outstanding
              
              
              Weighted
      Ave. Exercise Price
              
              
              Aggregate
      Intrinsic ValueOutstanding
      at January 10,2006
              
              
              1,614,742
              
              
              $
              0.80Granted
              
              
              2,075,000
              
              
              $
              2.90
              
              
              $
              0.78Exercised
              
              
              186,875
              
              
              $
              0.80Forfeited
      and cancelled
              
              
              -Outstanding
      at March 31,2008
              
              
              3,502,867
              
              
              $
              1.98
              
              
              $
              0.78




The
Company estimates the fair value of warrants using a Black-Scholes valuation
model.  The assumptions used in estimating the fair value of the
warrants issued on the date of grant are as follows:





For
      Warrants Issued
            Risk-free
      interest rate
            
            4.50%In
      2006
            Expected
      life of the options
            5.00
      yearsExpected
      volatility
            
            22%Expected
      dividend yield
            
            0For
      Warrants Issued
            Risk-free
      interest rate
            
            4.50%In
      2007
            Expected
      life of the options
            5.00
      yearsExpected
      volatility
            
            164%Expected
      dividend yield
            
            0


For
      Warrants Issued in February,
            Risk-free
      interest rate
            
            3.95.%2008
            Expected
      life of the options
            3.00
      yearsExpected
      volatility
            
            197%Expected
      dividend yield
            
            0





16
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




For
      Warrants Issued in March,
            Risk-free
      interest rate
            
            3.95.%2008
            Expected
      life of the options
            3.00
      yearsExpected
      volatility
            
            207%Expected
      dividend yield
            
            0





The
weighted average fair value of the warrants issued was $1.44 and $1.82 for the
years ended December 31, 2007 and 2006, respectively.





The
warrants issued during the year ended December 31, 2007 in the amount of
$2,884,381 were initially recorded as a discount to notes
payable.  The Company recognized $1,498,034 of interest expense
related to the amortization of the discount in the period ended March 31,
2008.  The value of the warrants issued in 2006 reflected a reduction
in the net amount of proceeds received in the private placements noted
above.





The
warrants issued in Q1 of 2008 were attached to short terms notes issued in 2008.
The warrants were issued by the CEO from the CEOs personal shares for the
benefit of the company.  The shares were valued using the Black-Scholes
valuation model.





As of
March 31, 2008, all of the warrants are vested. All warrants begin to expire in
2011.





Note
7 - Income taxes





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:




March
      31, 2008
              
              
              December
      31, 2008Deferred
      tax assets:Federal
      net operating loss
              
              $
              4,956,715
              
              
              $
              4,276,973State
      net operating loss
              
              
              1,424,252
              
              
              
              1,228,936Equity
      compensation
              
              
              2,505,547
              
              
              
              2,171,383Total
      deferred tax assets
              
              
              8,886,514
              
              
              
              7,677,292Less
      valuation allowance
              
              
              (8,886,514
              )
              
              
              (7,677,292
              )Total
              
              $
              -
              
              
              $
              -






At March
31, 2008, the Company had federal and state net operating loss ("NOL")
carryforwards of approximately $4,956,715 and $1,424,252, respectively. Federal
NOLs could, if unused, expire in 2021. State NOLs, if unused, could expire in
2011.





17
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




The
valuation allowance increased by $1,209,222, $1,013,043 and $ 8,886,514 the
three months ended March 31, 2008, for the three months ended March 31, 2007 and
for the period from inception (January 10, 2006) to March 31, 2008,
respectively. The Company has provided a 100% valuation allowance on the
deferred tax assets at March 31, 2008 to reduce such asset to zero, since there
is no assurance that the Company will generate future taxable income to utilize
such asset. Management will review this valuation allowance requirement
periodically and make adjustments as warranted.





The
reconciliation of the effective income tax rate to the federal statutory rate
for the period from inception (January 10, 2006) to March 31, 2008 is as
follows:





Federal
      income tax rate
            
            
            (34.0%)State
      tax, net of federal benefit
            
            
            (6.0%)Equity
      compensation
            
            
            15.6%Non-deductible
      items
            
            
            0.2%Increase
      in valuation allowance
            
            
            24.2%Effective
      income tax rate
            
            
            0.0%




We have
considered the implications of FIN 48 Uncertain Tax Positions and
believe that all of our positions taken in tax filings are more likely than not
to be sustained on examination by tax authorities. In the event that a taxing
authority challenged a position taken by us, no actual liability for tax would
result since we have available tax loss carry forwards which would be applied in
those circumstances.




Note
8 - Commitments and contingencies





Employment
agreement





In July,
2006, the Company entered into a three-year employment agreement with its CEO,
Gregory Lykiardopoulos to be effective as of February 2006 pursuant to which
Mr. Lykiardopoulos will receive an annual base salary of $250,000 and other
compensation to be determined by the Board of Directors. In addition to Mr.
Lykiardopoulos is entitled to receive additional shares of common stock if
certain profitability requirements are met. These shares will be issued from
existing shares. No new shares will be issued pertaining to this
agreement.





Contracts





In order
to obtain and distribute travel products, the Company has entered into
agreements with travel sellers and telecommunications service and infrastructure
providers. All of these agreements may be terminated by either party on 30 days
written notice to the other. Each agreement provides for the payment by travel
sellers of customary travel commissions to the Company’s travel agent buyers and
to the Company. All of the agreements are non-exclusive to the Company. There
are no minimums or required monthly obligations for any of these
agreements.





Leases





The
Company leases office space in an office building in Sausalito, California under
an operating lease agreement that expires in May 2010. The lease provides for
current monthly lease payments of $28,414 which increase over the term of the
lease. The Company also leases office space in Beijing, China that expires in
September 2008, respectively.






18
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)
 
 Future
minimum lease payments under non-cancelable operating leases with initial or
remaining terms of one year or more are as follows:
  OperatingLeasesPeriod
      ending March 31,2008
                
                
                294,0332009
                
                
                339,7162010
                
                
                200,1372011
                
                
                41,5142012
                
                
                -
 The
Company incurred rent expense of $133,504, $135,499 and $901,161 for the three
months ended March 31, 2008, for the three months ended March 31, 2007 and for
the period from inception (January 10, 2006) to March 31, 2008,
respectively.





Note
9 - Related parties





On March
28, 2007 the Company entered into a Line of Credit Agreement with JMW Fund, LLC
(“JMW”) owned by a director to receive up to $1,000,000 for six
months.





On June
28, 2007 the Line of Credit became part of a $3,000,000 Convertible Senior Note
Agreement (Loan) between the Company, JMW (director), San Gabriel Fund LLC,
Underwood Family Partners LTD., and Battersea Capital Inc who are the
shareholders of the Company.





From
October to December 2007 the Company entered into several one month short-term
loan arrangements with other investors totaling $425,000 for short term cash
flow purpose at December 31, 2007 with 12% interest (1.5% per month extra in
event of default) expiring from November 2007.





From
October and November 2007 we entered into short-term loan arrangements of
$469,000 and $20,000 with our CEO and CFO, respectively for short term cash flow
purpose.





Total
interest paid to the related party loans amounted to $320,390 for the period
ended March 31, 2008.





During
2007, Gregory Lykiardopoulos contributed 165,000 shares of common stock to
investors and lenders on behalf of the Company. There shares are valued at
$188,500 which is recorded as finance expense and paid in capital for the
Company.





In
February 2006 the Company entered into a revolving credit agreement with certain
investors for a maximum amount of $2,500,000. The investors, also shareholders,
consisted of the following:





A.
            The
      Elevation Fund, LLC holds 4,394,730 shares of common
  stock;


B.
            West
      Hampton Special Situations Fund, LLC holds 4,394,730 shares of common
      stock which L. Michael Underwood is the manager of the fund and is a
      former director of the Company;


C.
            LMU
      and Company - L. Michael Underwood has ownership in this company;
      and


D.
            Battersea
      Capital Inc. holds 2,104,082 shares of common
  stock





L.
Michael Underwood, a former director of the Company, personally holds 2,259,555
shares of common stock.





The
Company had outstanding various notes payable under this agreement. The notes
accrued interest at 12% per annum. In July 2006, the Company repaid in full its
notes payable - related party ($1,981,867) and accrued interest - related party
($30,915) from the proceeds of the private placement.





19
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 
 (UNAUDITED)




From
January to March, 2008, Gregory Lykiardopoulos contributed 2,480,000 shares of
common stock to investors and lenders on behalf of the Company. There shares are
valued at  $501,909.93 which is recorded as finance expense and paid
in capital for the Company.





Note
10 – Restatement of prior quarter financial statements





The
Company discovered errors to previously issued financial statements for the
first quarter ended March 31, 2007 and second quarter ended June 30,
2007.  The Company intends to restate its financial statements
for both of these periods.  The Company has not filed the restated
financial statements for these periods.  However, the current financial
statements are stated as if the correction of this error had been made. 
One error related to the Company's issuance of 450,132 shares of common stock in
the first quarter that were improperly reported as stock options.  An
additional 410,015 shares of common stock were issued in the second quarter and
were also improperly reported as stock options. The other error relates to
the incorrect valuation of warrants issued in connection with a note payable in
the second quarter. The Company should have recorded the full value of the
warrants issued to additional paid in capital, discount on note payable, and a
prepaid asset. The Company did not record the prepaid asset portion of this
transaction and incorrectly valued the discount on the note
payable.




Quarterly
financial information for the three month periods ending March 31,
2007, June 30, 2007, and September 30, 2007 as restated, is presented
below:






As
Restated


Income
      Statement
            
            3
      Months Ended
              March
      31, 2007
            
            
            3
      Months Ended
              June
      30, 2007
            
            
            6
      Months Ended
              June
      30, 2007
            
            
            3
      Months Ended
              September
      30,
              2007
            
            
            9
      Months Ended
              September
      30,
              2007Operating
      expenses
            
            
            2,502,084
            
            
            
            4,020,411
            
            
            
            6,522,495
            
            
            
            2,126,462
            
            
            
            8,641,243Operating
      loss
            
            
            2,502,084
            
            
            
            4,020,411
            
            
            
            6,522,495
            
            
            
            2,126,462
            
            
            
            8,648,957Net
      loss
            
            $
            2,509,674
            
            
            $
            4,042,557
            
            
            $
            6,552,231
            
            
            $
            2,878,175
            
            
            $
            9,430,406Net
      loss per share
            
            $
            0.06
            
            
            $
            0.09
            
            
            $
            0.14
            
            
            $
            0.06
            
            
            $
            0.20Balance
      Sheet
            
            As
      of
              March
      31, 2007
            
            
            
            
            
            
            As
      of
              June
      30, 2007
            
            
            
            
            
            
            As
      of
              September
      30,
              2007Prepaid
      compensation (asset)
            
            
            706,541
            
            
            
            
            
            
            
            -Prepaid
      expenses
            
            
            13,790
            
            
            
            
            
            
            
            1,004,179
            
            
            
            
            
            
            
            39,850Additional
      paid in capital
            
            
            427,067
            
            
            
            
            
            
            
            3,621,141
            
            
            
            
            
            
            
            3,784,606Note
      payable, net
            
            
            -
            
            
            
            
            
            
            
            77,079
            
            
            
            
            
            
            
            778,242Common
      stock
            
            
            10,408,594
            
            
            
            
            
            
            
            13,430,726
            
            
            
            
            
            
            
            13,611,009




20


As
      ReportedIncome
      Statement
            
            3
      Months Ended
            
            
            3
      Months Ended
            
            
            6
      Months Ended
            
            
            3
      Months Ended
            
            
            9
      Months EndedMarch
      31,
              2007
            
            
            June
      30,
              2007
            
            
            June
      30,
              2007
            
            
            September
      30, 2007
            
            
            September
      30, 2007Operating
      expenses
            
            
            3,006,064
            
            
            
            3,186,766
            
            
            
            6,192,831
            
            
            
            2,126,463
            
            
            
            8,641,243Operating
      loss
            
            
            3,006,064
            
            
            
            3,186,766
            
            
            
            6,192,831
            
            
            
            2,126,463
            
            
            
            8,641,243Net
      loss
            
            $
            3,013,655
            
            
            $
            3,208,910
            
            
            $
            6,222,565
            
            
            $
            2,719,663
            
            
            $
            9,271,893Net
      loss per share
            
            $
            0.07
            
            
            $
            0.07
            
            
            $
            0.14
            
            
            $
            0.06
            
            
            $
            0.20Balance
      Sheet
            
            As
      of
              March
      31, 2007
            
            
            
            
            
            
            As
      of
              June
      30, 2007
            
            
            
            
            
            
            As
      of
              September
      30,
              2007Prepaid
      compensation (asset)Prepaid
      expenses
            
            
            13,790
            
            
            
            
            
            
            
            42,719
            
            
            
            
            
            
            
            39,850Additional
      paid in capital
            
            
            958,225
            
            
            
            
            
            
            
            4,014,143
            
            
            
            
            
            
            
            2,900,225Note
      payable, net
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            1,504,110Common
      stock
            
            
            9,674,879
            
            
            
            
            
            
            
            11,823,679
            
            
            
            
            
            
            
            13,611,009








21




Item
      2.
              Management's
      Discussion and Analysis or Plan of
Operations


Special
Note Regarding Forward-Looking Information





This
Quarterly Report of Triton Distribution Systems, Inc. on Form 10-QSB contains
certain “forward-looking statements” All statements in this Quarterly Report
other than statements of historical fact are “forward-looking statements” for
purposes of these provisions, including any statements of the plans and
objectives for future operations and any statement of assumptions underlying any
of the foregoing. Statements that include the use of terminology such as “may,”
“will,” “expects,” “believes,” “plans,” “estimates,” “potential,” or “continue,”
or the negative thereof or other and similar expressions are forward-looking
statements. Forward-looking statements in this report include, but are not
limited to, statements regarding expanding the use of our technologies in
existing and new markets; diversification of sources of potential revenue; our
expected profit margin from all product sales; the future impact of our critical
accounting policies, including those regarding revenue recognition, allowance
for doubtful accounts, accounting for income taxes, and stock-based
compensation; statements regarding the sufficiency of our cash reserves; and our
expected rate of return on investments, if any.  Actual results may
differ materially from those discussed in these forward looking statements due
to a number of factors, including: the rate of growth of the markets for our
technology; the accuracy of our identification of critical accounting policies
and the accuracy of the assumptions we make in implementing such policies; the
accuracy of our estimates regarding our taxable income and cash needs for the
next twelve months; and fluctuations in interest rate and foreign currencies
These forward-looking statements involve risks and uncertainties, and it is
important to note that our actual results could differ materially from those
projected or assumed in such forward-looking statements.  Among the
factors that could cause actual results to differ materially are the factors
detailed under the heading “Risk Factors” as well as elsewhere in our Annual
Report on Form 10-KSB for the year ended December 31, 2007. All forward-looking
statements  included in this document are made as of the date hereof,
based on information available to us as of the date hereof, and we assume no
obligation to update any forward-looking statement or risk factor. You should
consider the factors affecting results and risk factors listed from time to time
in our filings with the Securities and Exchange Commission (SEC), including our
Annual Report on Form 10-KSB, our Quarterly Reports on Form 10-Q, our Current
Reports on Form 8-K and amendments to such reports. Such filings are available
on our website, free of charge, at www.tritonds.com, but
the information on our website does not constitute part of this Annual
Report.




As used
herein, unless the context otherwise requires, Triton Distribution Systems,
Inc., together with our Chinese subsidiary, Triton Distribution Systems
(Beijing) and our Philippine subsidiary, Triton Distribution Systems Philippines
Inc. are referred to in this Annual Report on Form 10-KSB as “Triton”,
“Company,” “we,” “us” and “our.”





Overview





We are an
emerging, next generation Web-based travel services distribution company. 
Our core business is the electronic distribution of travel inventory from
airlines, car rental companies, hotels, tour and cruise operators, and other
travel sellers to travel agencies and their clients on a global
basis.




We
commenced operations in January 2006 with an initial emphasis on Southeast Asia
and intend to expand to other international locations, including South America
and Europe.  Unlike the travel industry in the United States, which is
highly fragmented and decentralized, emerging countries in Asia have only one or
two flagship airlines for international routes, the airlines are controlled by
the government, the travel agencies are clustered in large associations, and the
government has considerable influence over decisions which affect bookings and
the issuance of tickets to domestic and foreign
travelers.





22


Critical
Accounting Policy and Estimates




Our
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of the financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Since these estimates are
inherently uncertain, actual results may materially differ.





The
following is a discussion of our accounting policies that are both most
important to the portrayal of our financial condition and results, and that
require management’s most difficult, subjective, or complex
judgments.




Intangible
Assets




The
determination of the fair value of certain acquired intangible assets is
subjective in nature and often involves the use of significant estimates and
assumptions.  Further, estimating the useful lives of these assets
requires the exercise of judgment due to the rapidly changing technology
environment.  Historically, we have estimated the fair value of our
intangible assets based on the purchase price.





In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we
evaluate our intangible assets and other long-lived assets for impairment, at
least on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from our estimated
future cash flows. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired and it is written down
to the undiscounted cash flow value.  We have determined, at the
acquisition date, the useful life of our currently held intellectual property
was 10 years.  We amortize intellectual property using the
straight-line method.





As of
March 31, 2008 we have no internally developed intangible assets.




Stock
Based Compensation




We
estimate the fair value of stock option awards to employees using a
Black-Scholes pricing model on the grant date in accordance with SFAS
No. 123(R) Share Based
Payment.  The pricing model requires us to make assumptions
related to the expected term of the options, which generally differs from the
contractual term; expected volatility of our stock price, accounting for known
significant events which may have a material impact on the market value of our
stock; the risk free interest rate on the grant date for instruments with
maturities commensurate with the expected term of the options; and the dividend
yield.





Due to
the limited history of our company, for all options granted in 2006 we have
estimated that the expected term of the employee options to be three
years.   We currently do not have a trading history that allows
us to reasonably estimate the expected volatility of our common stock, therefore
the expected volatility of our stock was based on the historical volatility of
public companies with similar characteristics.  These characteristics
include    industry, stage of life cycle, size, financial
leverage, and other factors.  We periodically review and adjust these
assumptions in determining the fair value of future option grants.





Liquidity
and Capital Resources





We have
not generated any revenue from our operations since our inception on January 10,
2006.  As a result, our primary source of liquidity is through debt
and equity financing arrangements with independent third party investors, as
well as related parties.  Further, we have been successful at entering
into agreements with several of our service providers to accept shares of our
common stock in consideration for services received.





23


Debt
issuances throughout the period ended March 31, 2008, all of which are
short-term, has resulted in a working capital deficit of approximately $1.4
million at March 31, 2008.  As of March 31, 2008 we had approximately
$5.2 million in loans that mature on or prior to July 1, 2008.  Of
this amount, $3 million, plus accrued interest, may be converted to shares of
Company common stock any time prior to its maturity on July 1, 2008 at the sole
discretion of the loan holder. The remaining balances of our notes as of March
31, 2008 do not contain any conversion options. See Note 5 of our consolidated
financial statements for a complete description of the terms of our loans
payable at March 31, 2008.





For the
period ended March 31, 2008 we received $67,730 from issuances of our common
stock $60,675 was applied towards account payable for legal fees and $7,055 was
applied to prepaid legal expenses.  Throughout the period we issued an
aggregate 169,324 shares of our common stock for compensation to our legal
counsel.  We recognized approximately $120,750 in stock based
compensation for options issued to our employees.  The value of the
amount issued to third party service providers was approximately $272,500 which
is being recognized over the remaining lives of the corresponding service
contracts. See Note 6 of our consolidated financial statements for a complete
description of our stock issuances during the period ended March
31,2008.





Our
current and historic liquidity concerns have resulted in our focus being near
term based.  Our efforts are concentrated on developing revenue
generating activities in geographical areas that appear most likely for
success.  Initially, these areas appear to be Southeast Asia, China,
and Europe.





Our
current forecasts are that our 2008 operations will be insufficient to meet our
current debt obligations, or our other working capital needs.  As a
result, in early 2008, we entered into additional short term loan arrangements
to meet our on-going working capital needs.  We are actively pursuing
longer term debt financing arrangements on terms that are more favorable to the
Company.  In addition to seeking the above debt financing, we are
contemplating raising additional capital through equity issuances in
2008.  Any additional equity issuances will be dependent upon market
conditions, achievement of certain milestones in our technology development, and
identification of specific needs.





In the
event we are unsuccessful in our capital raising efforts or generating revenue
from our operations we will not continue as a going concern.




Results
of Operations





Revenue





We have
not generated any revenue since our inception on January 10, 2006.  We
have made significant progress in the development of our technology and have
entered into a series of distribution agreements as of March 31,
2008.  Based on these agreements and improvements we have made to our
technology our objective is to emerge from the development stage during fiscal
year 2008.





Operating
Expenses





Our
operating expenses from inception to March 31, 2008 were $19,083,474 which
consisted of payroll and related benefits of $10,197,411, professional fees of
$ 4,820,542, marketing and advertising of $580,631 and other general and
administrative expenses of $3,484,890





Interest
expense from inception to March 31, 2008 was $483,960 which consisted of
interest accrued on the notes payable to related parties and interest income for
the same period was $67,796.





Related
Parties





During
the fiscal years ending December 31, 2006 and December 31, 2007, and the three
month period ending March 31, 2008, we borrowed money from share holders and
officers to meet operating cash flow, see “Note 9” of the financial
statements.





Plan
of Operation





At
December 31, 2007 our cash resources were insufficient to fund the Company’s
current and expected operations.  Throughout the fourth quarter of
2007 and the first quarter of 2008 our concentration was centered on obtaining
the necessary funding to meet our current obligations and expected additional
2008 needs.  In early 2008 we obtained additional short-term debt
financing of approximately $1.1 million to meet our obligations and working
capital needs through the first half of 2008.  Additionally, we have
focused on reducing and reallocating our expenses to activities that are
essential to distributing our products and services to our target
markets.  To that end, we have reduced our workforce from 45 to 37;
limited travel and related expenses; and entered into equity payment
arrangements with several of our service providers.





24


As noted
in our Part I, Item 1 – Description of Business, our initial emphasis was on
Southeast Asia and China.  Our current plans consist of continued
focus in China and Europe.  The lack of decentralization of the travel
industry in these geographic areas remains attractive for the implementation and
use of our electronic distribution system of travel inventory from airlines,
travel agencies, cruise operators, and other travel related service
providers.  Additionally, we are concentrating our efforts on the
business to business (B2B) market which appears to be relatively “un-tapped” by
our significant competitors.  Current estimates indicate 80% of global
airline tickets and 70% of all travel is booked by service providers in our
target markets.  Travel and Tourism Forecast World,as of May 2006, estimated the global travel distribution market at over
$10 billion.





We
believe our internet-based distribution platform and low-fee structure provides
us certain advantages in penetrating our target markets since our main
competitors’ distribution systems generally operate on high-cost, legacy
mainframe technology platforms.  This appears to be particularly true
in less technologically advanced countries such as China.





We are
building on our already strong Chinese infrastructure.  Our Red Dragon
Express TM is the only comprehensive travel solution where any agent can create a
local Chinese itinerary, including international and domestic segments;
construct passenger records; and clear payments, all on a seamless and low cost
basis.  We also enjoy an association with the China International
Travel Service (CITS), an important Chinese government supported entity and
China’s largest and most influential tourist enterprise group.  CITS
has a network of more than 1,400 agents and tour companies nationwide and has
hosted more than 10 million international visitors to China.





In early
2008, our management team identified significant needs to accelerate our market
penetration in China, and improve our overall market
capitalization.  Congruent with these needs, we are discussing with a
Chinese company to acquire a Chinese online travel distributor (Target) for
approximately $10 million.  Due diligence related to this acquisition
is expected to be completed in July 2008 and we intend to close the transaction
shortly thereafter.  The Target currently has 180,000 registered
users, a 100-seat call center, and 22 agent partners.  The acquisition
will include both business to consumer and business to business platforms which
currently generate revenue.





We expect
to continue to devote funding and personnel to research and product development
as well as to the enhancement of existing product lines and the fulfillment of
foreign joint ventures.  We plan to develop new “add-ons” and
extension modules in response to client needs and requests.  Included
in the our development pipeline are booking systems for private corporate
executive jets and regional air flights, air cargo carriers, railroad travel,
ferries, private clubs and bed and breakfast establishments.





Our
plans, including the above potential acquisitions, are dependent upon our
ability to obtain financing on terms that are not further detrimental to the
Company.  If we are unable to obtain financing in early 2008 we will
likely become insolvent by the end of 2008.





Employees





Our
employee head count was 37 as of March 31, 2008.





25


Off-Balance
Sheet Arrangements





There are
no off balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.





Item
      3.
            Controls
      and Procedures




Disclosure
Controls and Procedures





Audit
Committee. Our audit committee reports to the board regarding the
appointment of our independent auditors, the scope and results of our annual
audits, compliance with our accounting and financial policies and management’s
procedures and policies relatively to the adequacy of our internal accounting
controls.





As of the
date of this amended quarterly report, our audit committee consists of Adrie
Reinders and Jay McCann. Mr. Khaled Magdy El-Marsafy, resigned from our
Audit Committee on November 12, 2007.




(a) As of
the end of the period covered by this report ("the Evaluation Date"), our
management, including our chief executive officer and chief financial officer,
conducted an evaluation ("Evaluation") of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rule
13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934. In the
course of the Evaluation, we identified significant material weaknesses in our
internal disclosure controls and procedures.




The
Company has had discussions with its independent registered public accounting
firm with respect to the valuation and disclosure of equity securities issued to
employees.




Moore
Stephens Wurth Frazer and Torbet, LLP advised Triton that these internal control
deficiencies constitute a material weakness as defined in Statement of Auditing
Standards No. 112. Certain of these internal control weaknesses also constitute
material weaknesses in our disclosure controls. Management has considered the
effects of the financial statement restatements on its evaluation of disclosure
controls and procedures and has concluded that weaknesses are present. Our chief
executive officer and our chief financial officer concluded that as of the
Evaluation Date our disclosure controls and procedures were not effective, and
as of the date of the filing of this amended report, our chief executive officer
and our chief financial officer concluded that we do not maintain disclosure
controls and procedures that are effective in providing reasonable assurance
that information required to be disclosed in our reports under the Securities
Exchange Act of 1934 is recorded, processed, summarized and
reported  within the time periods  specified  in
the SEC's rules and forms, and that such information is accumulated and
communicated to our  management, including our chief executive officer
and our chief financial officer, to allow timely decisions regarding required
disclosure.




We are
committed to improving our financial organization. However, the Company does not
possess the financial resources to address other than the most rudimentary of
accounting and reporting requirements, and therefore relies heavily on outside
advisors. The Company's inability to independently prepare its financial reports
to the standards of Generally Accepted Accounting Principles and the Rules and
Regulations of the Securities and Exchange Commission rise to the level of a
material weakness in internal control.





Management
of the Company intends to promptly remediate this deficiency by:





(i)
acquiring the appropriate level of internal financial support





(ii)
access current developments training programs for financial employees
and





(iii)
provide financial employees with adequate technical resources to research
financial accounting and reporting requirements.





26


We
currently believe we will need to take additional steps to remediate the
above-referenced material weaknesses, and we will continue to evaluate the
effectiveness of our design and operation of our disclosure controls and
procedures on an ongoing basis, and will take further action as
appropriate.





Internal
Control Over Financial Reporting





There has
been no change in our internal control 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





On August 10, 2007 Terry Byers, Arthur Griggs, & Jeff
Wheaton filed suit against the Company; GRSNetwork Inc., a California
Corporation; Internet Travel Technologies, Inc, a California Corporation; and
Gregory Lykiardopoulos, our CEO in Marin County California (Case
No.  CV072075). The suit alleges causes of action for back wages,
breach of contract and age discrimination. The Company denies the
plaintiff’s claims and intends to vigorously defend against them if such
complaint is properly served on the Company.





On or
around November 1, 2007, a complaint was filed in Marin County Superior Court,
Case No. CV07-5186, by Grace Terry, Georgia Schley, and Serena McCallum
(“Plaintiffs”) against Gregory Lykiardopoulos (“Lykiardopoulos”), Internet
Travel Technologies, Inc. (“ITT”), the Company, as well as numerous other
entities and individuals (collectively, the “Defendants”).  The
Plaintiffs allege that they made loans, collectively, in an amount of less than
$200,000 to GRS Networks, Inc. (“GRS”) or possibly others in 2004 or
2005.  They allege that oral agreements were created enabling them to
convert the funds they claim they loaned to GRS to equity or shares in ITT or
TDS.  The Plaintiffs are all relatives of Walter Terry (allegedly his
mother, sister, and domestic partner), who Plaintiffs allege acted as a “dual
agent” representing them and the Defendants in connection with the purported
loans. Based on these facts, the Plaintiffs assert causes of action for (1)
breach of oral contract, (2) breach of the implied covenant of good faith and
fair dealing, (3) intentional interference with contract, (4) intentional
interference with prospective economic advantage, (5) breach of fiduciary duty,
(6) fraud, and (7) violation of Corporations Code § 25401.





Defendants
deny the existence of any such purported oral agreements, or that Terry was
authorized to act as the Company’s agent in such capacity.  It is the
Company’s contention that all the Plaintiffs’ alleged claims are barred and were
released under a settlement agreement and general releases entered into with
Walter Terry in 2005.  Accordingly, the Defendants, including TDS,
deny any liability to Plaintiffs and intend to vigorously defend in the
case.  A demurrer and motion to strike the complaint filed on behalf
of certain of the Defendants is currently pending, and the Court has ordered the
parties to mediation, to be completed by June 30, 2008.





Additionally,
three former employees have filed complaints with the California Department of
Fair Employment and Housing alleging wrongful termination.  We believe
none of the complaints have merit and the Company intends to vigorously defend
itself against the complaints.




Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds




None.





Item
      3.
            Defaults
      Upon Senior Securities


None.




27


Item
      4.
            Submission
      of Matters to a Vote of Security
Holders




None.




Item
      5.
            Other
      Information




Not
applicable




Item
      6.
            Exhibits




(a)
Exhibits







Number
            Exhibit3.1
            Articles
      of Incorporation (1)3.2
            Bylaws
      (1)10.1
            Line
      of Credit Loan Agreement dated March 28, 2007, by and between JMW Fund,LLC
      and Triton Distribution Systems, Inc. (1)31.1
            Certification
      of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 193431.2
            Certification
      of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 193432.1
            Certification
      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
            Certification
      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002


(1)
Previously filed.








28


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





TRITON
      DISTRIBUTION SYSTEMS, INC.June
      13, 2008
              By:
              /s/ Gregory
      LykiardopoulosGregory
      LykiardopoulosChief
      Executive Officer










29