UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549




FORM 10-Q




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





FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 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)





Indicate
by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   Yes
[  ]   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)




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 o (Do not check if a smaller reporting
      company)
              Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO x
 
 Indicate the number of shares outstanding of each
of the issuer's classes of common stock as of: August 8, 2008.
 
 CLASS
              
              NUMBER
      OF SHARES OUTSTANDINGCommon
      Stock, no par value per share
              
              48,964,415
      shares







TRITON DISTRIBUTION
SYSTEMS, INC.


Index




PageNumberPART
      I.
            FINANCIAL
      INFORMATIONItem
      1.
            Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007
      (audited)
            1Consolidated
      Statements of Operations for the three and six months ended June
      30, 2008(unaudited)
      , the three and six months ended June 30, 2007 (unaudited) and from
      inception (January 10, 2006) to June 30, 2008 (unaudited)
            2Consolidated
      Statement of Stockholders Equity from inception(January
      10, 2006) to June 30, 2008 (unaudited)
            3Consolidated
      Statements of Cash Flows for the six months ended June 30, 2008
      (unaudited), the six months ended June 30, 2007 (unaudited) and the period
      from inception (January 10, 2006) to June 30, 2008
      (unaudited).
            4Notes
      to Consolidated Financial Statements (unaudited)
            5Item
      2.
            Management's
      Discussion and Analysis or Plan of Operations
            18Item
      3.
            Controls
      and Procedures
            22PART
      II.
            OTHER
      INFORMATION
            22Item
      1.
            Legal
      Proceedings
            22Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            22Item
      3.
            Defaults
      Upon Senior Securities
            23Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            23Item
      5.
            Other
      Information
            23Item
      6.
            Exhibits
            23SIGNATURES
            24










Triton
      Distribution Systems, Inc.(a
      Development Stage Company)Consolidated
      Balance SheetsJune
      30,
                2008
              
              
              December
      31,
                2007(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              219,107
              
              
              $
              8,382Other
      current assets
              
              
              142,897
              
              
              
              143,823Prepaid
      consulting
              
              
              938,007
              
              
              
              1,457,440TOTAL
      CURRENT ASSETS
              
              
              1,300,011
              
              
              
              1,609,645FURNITURE
      AND EQUIPMENT, net
              
              
              289,748
              
              
              
              364,203WEBSITE
      DEVELOPMENT COSTS, net
              
              
              4,104
              
              
              
              7,388INTELLECTUAL
      PROPERTY, net
              
              
              178,894
              
              
              
              190,820TOTAL
      ASSETS
              
              $
              1,772,757
              
              
              $
              2,172,056LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESDeferred
      income
              
              $
              302
              
              
              $
              1,470Accounts
      payable
              
              
              1,590,409
              
              
              
              653,321Accrued
      expenses
              
              
              127,310
              
              
              
              21,577Accrued
      payroll
              
              
              875,907
              
              
              
              170,689Accrued
      lease liability
              
              
              17,195
              
              
              
              20,978Loan
      payable
              
              
              3,339,380
              
              
              
              1,540,131Loan
      payable related party
              
              
              2,536,759
              
              
              
              1,175,836TOTAL
      CURRENT LIABILITIES
              
              
              8,487,262
              
              
              
              3,584,002STOCKHOLDERS'
      EQUITYPreferred
      stock; no par value; 2,000,000 sharesauthorized;
      0 shares issued and outstanding
              
              
              -
              
              
              
              -Common
      stock; no par value; 100,000,000 shares authorized;48,564,415
      and 47,999,566 shares issued and outstandingas
      of June 30, 2008 and December 31, 2007, respectively
              
              
              13,810,457
              
              
              
              13,686,896Additional
      paid-in capital
              
              
              4,702,467
              
              
              
              3,991,118Deficit
      accumulated during the development stage
              
              
              (25,188,047
              )
              
              
              (19,077,248
              )Accumulated
      balance of other comprehensive income
              
              
              (39,382
              )
              
              
              (12,712
              )TOTAL
      STOCKHOLDERS' EQUITY
              
              
              (6,714,505
              )
              
              
              (1,411,946
              )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              1,772,757
              
              
              $
              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 OperationsInception3
      Months
              
              3
      Months
              
              
              6
      Months
              
              
              6
      Months
              
              
              (January
      10,Ended
              
              
              Ended
              
              
              Ended
              
              
              Ended
              
              
              2006)
      toJune 30,
              
              June 30,
              
              
              June 30,
              
              
              June 30,
              
              
              June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)(restated)
              
              
              
              
              
              (restated)NET
      SALES
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -COST
      OF SALES
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -GROSS
      PROFIT
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -OPERATING
      EXPENSES:Payroll
      and related benefits
              
              
              1,044,375
              
              
              
              2,958,650
              
              
              
              2,407,945
              
              
              
              4,298,510
              
              
              
              11,429,076Professional
      fees
              
              
              512,400
              
              
              
              580,653
              
              
              
              878,668
              
              
              
              1,305,154
              
              
              
              5,332,884Marketing
      and advertising
              
              
              15,204
              
              
              
              75,582
              
              
              
              38,052
              
              
              
              184,125
              
              
              
              595,834Other
      general and administrative expenses
              
              
              297,647
              
              
              
              403,597
              
              
              
              594,099
              
              
              
              724,705
              
              
              
              3,797,216TOTAL
      OPERATING EXPENSES
              
              
              1,869,626
              
              
              
              4,018,482
              
              
              
              3,918,764
              
              
              
              6,512,494
              
              
              
              21,155,010LOSS
      FROM OPERATIONS
              
              
              (1,869,626
              )
              
              
              (4,018,482
              )
              
              
              (3,918,764
              )
              
              
              (6,512,494
              )
              
              
              (21,155,010
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              10
              
              
              
              3,495
              
              
              
              18
              
              
              
              20,492
              
              
              
              67,805Amortization
      of discount on note - related party
              
              
              (740,586
              )
              
              
              -
              
              
              
              (1,481,172
              )
              
              
              -
              
              
              
              (2,892,521
              )Interest
      expense
              
              
              (224,911
              )
              
              
              (27,569
              )
              
              
              (399,932
              )
              
              
              (27,569
              )
              
              
              (708,873
              )Finance
      expense
              
              
              (92,181
              )
              
              
              -
              
              
              
              (310,949
              )
              
              
              -
              
              
              
              (499,448
              )Loss
      on disposal of assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (30,373
              )
              
              
              -TOTAL
      OTHER EXPENSE
              
              
              (1,057,668
              )
              
              
              (24,074
              )
              
              
              (2,192,035
              )
              
              
              (37,450
              )
              
              
              (4,033,037
              )LOSS
      BEFORE PROVISION FOR INCOME TAXES
              
              
              (2,927,294
              )
              
              
              (4,042,556
              )
              
              
              (6,110,799
              )
              
              
              (6,549,944
              )
              
              
              (25,188,047
              )PROVISION
      FOR INCOME TAXES
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -NET
      LOSS
              
              
              (2,927,294
              )
              
              
              (4,042,556
              )
              
              
              (6,110,799
              )
              
              
              (6,549,944
              )
              
              
              (25,188,047
              )OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation adjustment
              
              
              20,619
              
              
              
              (2,381
              )
              
              
              (26,670
              )
              
              
              (19,166
              )
              
              
              1,856COMPREHENSIVE
      LOSS
              
              $
              (2,906,675
              )
              
              $
              (4,044,937
              )
              
              $
              (6,137,469
              )
              
              $
              (6,569,110
              )
              
              $
              (25,186,191
              )NET
      LOSS PER SHARE:BASIC
      AND DILUTED
              
              $
              (0.06
              )
              
              $
              (0.09
              )
              
              $
              (0.13
              )
              
              $
              (0.15
              )
              
              $
              (0.57
              )WEIGHTED
      AVERAGE SHARES OUTSTANDING:BASIC
      AND DILUTED
              
              
              48,194,969
              
              
              
              45,015,435
              
              
              
              48,119,258
              
              
              
              45,252,312
              
              
              
              43,933,407




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


2




Triton
      Distribution Systems, Inc. (a Development Stage Company)Consolidated
      Statement of Stockholders' EquityFor
      the Period from Inception (January 10, 2006) to June 30,
    2008DeficitAccumulatedDuring
      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
              
              
              
              
              
              
              
              480,086
              
              
              
              
              
              
              
              
              
              
              
              480,086Issuance
      of shares to legal counsel for AP legal fees
              
              
              169,324
              
              
              
              67,729
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              67,729Issuance
      of shares to legal counsel for AP legal fees
              
              
              395,525
              
              
              
              55,832
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              55,832Capital
      contribution
              
              
              
              
              
              
              
              
              
              
              231,263
              
              
              
              
              
              
              
              
              
              
              
              231,263Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,110,799
              )
              
              
              
              
              
              
              (6,110,799
              )Foreign
      currency translation loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (26,670
              )
              
              
              (26,670
              )Balance
      at June 30, 2008 (unaudited)
              
              
              48,564,415
              
              
              
              13,810,457
              
              
              
              4,702,467
              
              
              
              (25,188,047
              )
              
              
              (39,382
              )
              
              
              (6,714,505
              )


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


3


Triton
      Distribution Systems, Inc. (a Development Stage Company)Consolidated
      Statements of CashflowsFor
      the Six
              
              For
      the Six
              
              
              Inception
      (January 10,Months
      Ended
              
              Months
      Ended
              
              
              2006)
      toJune
      30,
              
              
              June
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:
              
              (unaudited)
              
              (unaudited)
              
              
              (unaudited)Net
      loss
              
              $
              (6,110,799
              )
              
              
              (6,549,944
              )
              
              $
              (25,188,047
              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Amortization
      of discount on note to related party
              
              
              1,481,172
              
              
              
              -
              
              
              
              (16,861
              )Depreciation
      and amortization expense
              
              
              78,782
              
              
              
              88,616
              
              
              
              310,657Amortization
      of prepaid consulting
              
              
              525,000
              
              
              
              948,209
              
              
              
              6,126,426Finance
      Fee
              
              
              231,462
              
              
              
              -
              
              
              
              419,962Stock
      compensation for consultants
              
              
              -
              
              
              
              -
              
              
              
              630,000Fair
      value of employee stock option expense
              
              
              479,887
              
              
              
              2,203,831
              
              
              
              2,414,783Changes
      in assets and liabilitiesOther
      current assets
              
              
              2,298
              
              
              
              33,197
              
              
              
              (141,395
              )Loss
      on disposal of assets.
              
              
              -
              
              
              
              30,372
              
              
              
              -Deferred
      income
              
              
              (1,169
              )
              
              
              835
              
              
              
              301Accounts
      payable
              
              
              1,082,511
              
              
              
              (18,872
              )
              
              
              1,735,832Accrued
      expenses
              
              
              758,314
              
              
              
              31,718
              
              
              
              950,580Lease
      liability
              
              
              (3,783
              )
              
              
              4,437
              
              
              
              17,195Net
      cash used in operating activities
              
              
              (1,476,325
              )
              
              
              (3,227,601
              )
              
              
              (12,740,567
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of furniture and equipment
              
              
              -
              
              
              
              (36,837
              )
              
              
              (536,060
              )Disposal
      of furniture and equipment
              
              
              -
              
              
              
              -
              
              
              
              -Payment
      for website development costs
              
              
              -
              
              
              
              -
              
              
              
              (19,700
              )Net
      cash used in investing activities
              
              
              -
              
              
              
              (36,837
              )
              
              
              (555,760
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the issuance of common stock
              
              
              -
              
              
              
              48,800
              
              
              
              8,999,626Payment
      of offering costs
              
              
              -
              
              
              
              -
              
              
              
              (972,402
              )Repurchase
      of shares of common stock
              
              
              -
              
              
              
              -
              
              
              
              (400,000
              )Proceeds
      from issuance of notes payable
              
              
              1,670,000
              
              
              
              2,000,000
              
              
              
              5,395,000Proceeds
      from issuance of notes payable - related party
              
              
              9,000
              
              
              
              -
              
              
              
              2,479,867Repayment
      on notes payable - related party
              
              
              -
              
              
              
              -
              
              
              
              (1,981,867
              )Net
      cash provided by financing activities
              
              
              1,679,000
              
              
              
              2,048,800
              
              
              
              13,520,224NET
      DECREASE IN CASH ANDEFFECT
      OF EXCHANGE RATES ON CASH
              
              
              8,050
              
              
              
              (19,166
              )
              
              
              (4,790
              )NET
      DECREASE IN CASH ANDCASH
      EQUIVALENTS
              
              
              210,725
              
              
              
              (1,234,804
              )
              
              
              219,107CASH
      AND CASH EQUIVALENTSBeginning
      of period
              
              
              8,382
              
              
              
              1,944,287
              
              
              
              -End
      of period
              
              $
              219,107
              
              
              $
              709,483
              
              
              $
              219,107SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Interest
      paid
              
              $
              -
              
              
              $
              27,500
              
              
              $
              111,248Income
      taxes paid
              
              $
              -
              
              
              $
              800
              
              
              $
              800Contribution
      of intellectual property for common stock
              
              $
              -
              
              
              $
              
              
              
              $
              238,525Issuance
      of shares of common stock for consulting services
              
              $
              -
              
              
              $
              2,271,156
              
              
              $
              4,138,885Issuance
      of  shares of common stock for compensation
              
              $
              -
              
              
              $
              171,156
              
              
              $
              1,052,934Cashless
      exercise of  options
              
              $
              -
              
              
              $
              -
              
              
              $
              30,782Share
      Contribution by CEO
              
              $
              231,263
              
              
              $
              -
              
              
              $
              806,370Issuance
      of stock for legal fees
              
              $
              123,561
              
              
              $
              -
              
              
              $
              123,561




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





4
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 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 10KSB filed
with the Securities and Exchange Commission on April 17, 2008. The results for
the six months ending June 30, 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 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 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 Philippine  Corporation;
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
 JUNE
30, 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 Philippine corporation
(60% Filipino owned, 40% foreign owned) under the laws of the Securities and
Exchange Commission 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 (U$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 the 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 have put the project in jeopardy. As a consequence
in order to conserve resources, we have ceased our operations in the Philippines
until such time as Philippines Airlines can 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





On
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosures requirements for
fair value measures. The carrying amounts reported in the balance sheets for
receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of fair value because of the short period of time
between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels are defined as
follow:


6
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)





·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.





·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.





·
            Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.





As of
June 30, 2008 the Company did not identify any assets and liabilities that are
required to be presented on the balance sheet at fair value.





Reclassifications





Certain
reclassifications have been made to the prior years' financial statements to
conform to the current year presentation. These reclassifications had no effect
on previously reported results of operations or cash flows.





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.





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 may
exceed the FDIC $100,000 insurance limit. The deposits made in foreign banks are
not insured which amounted to $4,471 as of June 30, 2008. The Company has not
experienced any losses, nor do we anticipate incurring any losses related to
this credit risk.





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.





7
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


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. Amortization is computed using the
straight-line method over the estimated useful life of the intellectual property
of ten years.





The
intangible assets as of June 30, 2008 and December 31, 2007, net of
amortization, amounted to $182,998 and $198,208, respectively.





Impairment of long-lived
assets





Per SFAS
No. 144, long-lived assets are analyzed for impairment. The Company tests for
impairment of long-lived assets at least annually or more often whenever there
is an indication that the carrying amount of the asset may not be recovered.
Recoverability of these assets is determined by comparing the forecasted
undiscounted cash flows generated by those assets to the assets' net carrying
value. The amount of impairment loss, if any, is measured as the difference
between the net book value of the assets and the estimated fair value of the
related assets.





Management
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such flows of certain long-lived assets are
not sufficient to recover the carrying value of such assets, the assets are
adjusted to their fair values. As of June 30, 2008, the Company believes that
there were no significant impairments of long-lived assets.





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.





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.





8
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


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. Translation adjustments resulting from this process are
included in accumulated other comprehensive income in the statement of
shareholders’ equity.





Translation
adjustments amounted to $39,382 and $12,712 as of June 30, 2008 and December 31,
2007, respectively.  Asset and liability accounts at June 30, 2008
were translated at 6.87 RMB to $1.00 USD as compared to 7.29 RMB at December 31,
2007.  Equity accounts were stated at their historical rate. The
average translation rates applied to income statements accounts for the three
months ended June 30, 2008 and 2007 were 7.07 RMB and 7.73 RMB,
respectively.




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.Historically, the Company
has not entered into any currency trading or hedging transactions, although
there is no assurance that the Company will not enter into such transactions in
the future.





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.


9
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 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 ant-dilutive.





Recently issued accounting
pronouncements




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 similartypes 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. Italso 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.




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 natureand 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. The Company believes
adopting SFAS No. 141R will significantly impact its financial statements for
any business combination completed after December 31, 2008.




10
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


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.





In June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
No. 07-5”). This Issue is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own
stock and (b) classified in stockholders’ equity in the statement of
financial position would not be considered a derivative financial instrument.
EITF No.07-5 provides a new two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own
stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
The Company believes adopting this statement will have a material impact on the
financial statements because among other things, any option or warrant
previously issued and all new issuances denominated is US dollars will be
required to be carried as a liability and marked to market each reporting
period.





In April
2008, the FASB issued 142-3 “Determination of the useful life of Intangible
Assets”, which amends the factors a company should consider when developing
renewal assumptions used to determine the useful life of an intangible asset
under SFAS142. This Issue is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. SFAS142requires companies to consider whether renewal can be completed
without substantial cost or material modification of the existing terms and
conditions associated with the asset. FSP 142-3 replaces the previous useful
life criteria with a new requirement—that an entity consider its own historical
experience in renewing similar arrangements. If historical experience does not
exist then the Company would consider market participant assumptions regarding
renewal including 1) highest and best use of the asset by a market participant,
and 2) adjustments for other entity-specific factors included in SFAS 142. The
Company is currently evaluating the impact that adopting SFAS No.142-3 will have
on its 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 to 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.





11
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


In the
event the Company is unsuccessful in its plans to finance operations through the
above means it could be forced to significantly reduce 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.








Note
3 - Furniture and equipment





The cost
of furniture and equipment consisted of the following:





June
      30,
              
              
              December
      31,2008
              
              
              
              2007Computer
      equipment
              
              $
              162,544
              
              
              $
              162,360Software
              
              
              67,182
              
              
              
              67,182Office
      equipment
              
              
              94,337
              
              
              
              94,294Furniture
      and fixtures
              
              
              74,924
              
              
              
              74,925Tenant
      improvements
              
              
              118,193
              
              
              
              137,299517,180
              
              
              
              536,060Less
      accumulated depreciation
              
              
              (227,432
              )
              
              
              (171,857
              )$
              289,748
              
              
              $
              364,203




Depreciation
expense was $31,891, $54,750, $63,571, $84,499 and $235,428 for the three months
ended June 30, 2008 and the three months ended June 30, 2007, for the six months
ended June 30, 2008 and the six months ended June 30, 2007 and for the period
from inception (January 10, 2006) to June 30, 2008, respectively.





Note
4 - Notes payables





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.  The Company is currently in default on the convertible
note.





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.





12
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


At June
30, 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 and six months ended June 30, 2008 we
amortized $740,586 and $1,481,172 of the discount to loan interest
expense.









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.





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





During
the quarter ended June 30, 2008 the Company entered into several one month
short-term loan arrangements with other investors totaling $1,670,000 with 12%
interest (1.5% per month extra in event of default) expiring on dates between
February 11, 2008 and August 17, 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.





During
the period ended June 30, 2008, we entered into short-term loan arrangements of
$9,000 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 interest amounted to
$564,682 as of June 30, 2008.








Note
6 - Stockholders' equity





On June
9, 2008, Richardson and Patel accepted 395,525 shares of stock as payment on
account towards the balance due from January through April of 2008. The value of
the payment was $55,832 using prices ranging from $0.13 to $0.17, less a 15%
discount to market on the average closing date for the first five days of
April  and May 2008.





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.





On
January 17, 2008 Richardson and Patel 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 $0.34, $0.40
less a 15% discount to market on the closing date of January 16,
2008.  The remaining amount was not eligible for payment via
stock.


13
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)





In
addition 57,156 shares valued at $0.34, $0.40 less 15% discount to
market  on January 16, 2008 were issued as payment toward a retainer
used in the defense of  the Terry et all vs. Triton matter. 
Total value of the payment was $29,592.





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
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.





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.




14
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


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 of 2007, 1,235,537 options were approved by the board of directors for
the grant of options to employees In January 2008, the Company issued 220,852
options were granted to new employees and for promotions at an exercise price of
..38. 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. 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. The options expire in December 2017.  The Company valued these
options using the Black Scholes model with the following factors: market price
of $0.38; volatility of 223%; risk free rate of 4.75%; exercise price of $0.38;
and an estimated life of 10 years.





The
additional 361,780 shares were issued as a bonus to employees at an
exercise price of $0.38, with a vesting period of over one year. This grant has
not been distributed or communicated to the employees as of June 30, 2008. In
addition, 548,904 shares were issued to managers at an exercise price of $0.38.
This grant has also 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”) that 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:


15
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)








Prior
      to July 14, 2006
            Risk-free
      interest rate
            4.50%Expected
      life of the options
            9.00
      yearsExpected
      volatility
            22%Expected
      dividend yield
            0For
      options Granted
            Risk-free
      interest rate
            4.50%December
      01, 2006
            Expected
      life of the options
            8.78
      yearsExpected
      volatility
            86%Expected
      dividend yield
            0For
      options Granted
            Risk-free
      interest rate
            4.50%March
      02, 2007
            Expected
      life of the options
            10.00
      yearsExpected
      volatility
            121%Expected
      dividend yield
            0For
      options Granted
            Risk-free
      interest rate
            4.75%June
      11, 2007
            Expected
      life of the options
            10.00
      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%For
      options Granted
            Risk-free
      interest rate
            4.75%January
      18, 2008
            Expected
      life of the options
            9.87
      yearsExpected
      volatility
            223%Expected
      dividend yield
            0





The
following table illustrates our stock option activity from inception (January
10, 2006) through June 30, 2008.




Option
      Shares
            
            Options
            
            
            Weighted
      Ave.
            
            
            AggregateOutstanding
            
            
            Exercise
      Price
            
            
            Intrensic
      ValueOutstanding
      at January 10, 2006
            
            
            -
            
            
            $
            -
            
            
            $
            -Granted
            
            
            3,333,177
            
            
            $
            1.53
            
            
            $
            0.84Exercised
            
            
            99,478
            
            
            $
            0.80
            
            
            $
            0.17Forfeited
      and cancelled
            
            
            1,661,557
            
            
            $
            1.80
            
            
            $
            1.02Outstanding
      at June 30, 2008
            
            
            1,572,142
            
            
            $
            1.35
            
            
            $
            0.72




As of
June 30, 2008, 3,213,291 options have vested.





During
the period ended June 30, 2008, the Company granted 324,852 options of which,
104,000 were forfeited or cancelled during the quarter. In addition, 487,617
options were forfeited during the quarter ended June 30, 2008 unrelated to the
options above. The weighted average remaining contractual life of options
outstanding is 8.87 years.  For all options granted, the exercise
price was equal to the market price of the Company's stock at the date of grant.
All the options expire in 2017.





The
Company recognized $161,535, $480,086, $309,693, $560,506, and $2,414,982 in
stock option-based compensation expense for the three months and six months
ended June 30, 2008, three months and six months ended June 30, 2007 and for the
period from inception (January 10, 2006) to June 30, 2008, respectively. The
fair values of our stock options are estimated using the Black-Scholes option
pricing model.





16
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


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:




Warrant
      Shares
              
              Warrants
              
              
              Weighted
      Ave.
              
              
              AggregateOutstanding
              
              
              Exercise
      Price
              
              
              Intrensic
      ValueOutstanding
      at January 10, 2006
              
              
              1,614,742
              
              
              $
              0.80Granted
              
              
              2,000,000
              
              
              $
              2.90
              
              
              $
              0.78Exercised
              
              
              186,875
              
              
              $
              0.80Forfeited
      and cancelled
              
              
              -Outstanding
      at June 30, 2008
              
              
              3,427,867
              
              
              $
              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




The
weighted average fair value of the warrants issued was $1.44 and $1.82 for the
six months ended June 30, 2008 and 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 $740,586, $1,481,172, and $2,867,549
of interest expense related to the amortization of the discount for the three
months and six months ended June 30, 2008, and for the period from inception
(January 10, 2006) to June 30, 2008, respectively  The value of the
warrants issued in 2006 reflected a reduction in the net amount of proceeds
received in the private placements noted above.





As of
June 30, 2008, all of the warrants are vested. All warrants begin to expire in
2011.





17
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


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:




June
      30, 2008
            
            
            December
      31, 2007Deferred
      tax assets:Federal
      net operating loss
            
            $
            5,716,806
            
            
            $
            4,276,973State
      net operating loss
            
            
            1,642,654
            
            
            
            1,228,936Equity
      compensation
            
            
            2,653,861
            
            
            
            2,071,383Total
      deferred tax assets
            
            
            10,013,321
            
            
            
            7,577,292Less
      valuation allowance
            
            
            (10,013,321
            )
            
            
            (7,577,292
            )Total
            
            $
            -
            
            
            $
            -




At June
30, 2008, the Company had federal and state net operating loss ("NOL")
carryforwards of approximately $10,013,321. Federal NOLs could, if unused,
expire in 2021. State NOLs, if unused, could expire in 2011.





The
valuation allowance increased by $2,436,029, $6,062,622 and $10,013,321 the six
months ended June 30, 2008, for the six months ended June 30, 2007 and for the
period from inception (January 10, 2006) to June 30, 2008, respectively. The
Company has provided a 100% valuation allowance on the deferred tax assets at
June 30, 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 June 30, 2008 is as
follows:





Federal
      income tax rate
            
            
            (34.0%)State
      tax, net of federal benefit
            
            
            (8.9%)Equity
      compensation
            
            
            15.6%Non-deductible
      items
            
            
            0.2%Increase
      in valuation allowance
            
            
            27.1%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.





18
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)


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,
Beijing, China, and Amsterdam, the Netherlands under an operating lease
agreements that expire from September 2008 through May 2010. The leases provide
for current monthly lease payments ranging from  $1,000 to $26,173
which increase over the term of the lease..




Future
minimum lease payments under non-cancelable operating leases with initial or
remaining terms of one year or more are as follows:




OperatingLeasesPeriod
      ending June 30,2008
              
              $
              395,4442009
              
              
              336,7162010
              
              
              200,1372011
              
              
              41,5142012
              
              
              -





The
Company incurred rent expense of $129,440, $115,241, $278,802, $229,959 and
$1,046,459 for the the three months ended June 30, 2008 and 2007, the six
months ended June 30, 2008 and 2007 and for the period from inception (January
10, 2006) to June 30, 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  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.





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:


19
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)





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.





From
January to June, 2008, Gregory Lykiardopoulos contributed 1, 779,000 shares of
common stock to investors and lenders on behalf of the Company. There shares are
valued at $231,263 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
      RestatedIncome
      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
            
            
            $
            0.20










20
 TRITON
DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (UNAUDITED)








Balance
      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
            
            
            
            
            
            
            
            13,611,009As
      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




Note
11 - Subsequent events




From July
to August 2008 the Company entered into several one month short-term loan
arrangements with other investors totaling $575.000 with 12% interest (1.5% per
month extra in event of default) expiring on dates between August 16, 2008 and
October 6, 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 July
to August 2008 the Company received $120,000 in subscription notes via
Scottsdale Capital.  The notes are convertible at $0.25 per share with
200% warrant coverage.  Interest is payable at 10% on a semi annual
basis form the date of issuance.  Notes mature on June 30, 2011,
unless previous converted.
 
 Per note
6, the additional 361,780 shares granted in December of 2007 as a bonus to
employees at an exercise price of .38, with a vesting period of over one year
was distributed and communicated to employees on July, 2,
2008.




21


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





Special
Note Regarding Forward-Looking Information





This
Annual Report of Triton Distribution Systems, Inc. on Form 10-KSB contains
certain “forward-looking statements” All statements in this Annual 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; 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 this Annual Report on Form 10-KSB. All
forward-looking statements and risk factors 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
June 30, 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.




Adoption of new accounting
policies
 
 On
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosures requirements for
fair value measures. The carrying amounts reported in the balance sheets for
receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of fair value because of the short period of time
between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels are defined as
follow:
  ·
              Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.
 
 ·
              Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.
 
 ·
              Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.
 
 As of
March 31, 2008 the Company did not identify any assets and liabilities that are
required to be presented on the balance sheet at fair
value.


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.





Debt
issuances throughout the period ended June 30, 2008, all of which are
short-term, has resulted in a working capital deficit of approximately $7.2
million at June 30, 2008.  As of June 30, 2008 we had approximately
$5.9 million in loans that mature on or prior to October 9, 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 June
30, 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 June 30, 2008.





23


For the
period ended June 30, 2008 we received $123,561 from issuances of our common
stock. $100,699 was applied towards account payable for legal fees and $22,862
was applied to prepaid legal expenses.  Throughout the period we
issued an aggregate 564,849 shares of our common stock for compensation to our
legal counsel.  We recognized approximately $480,086 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 June 30,
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 June 30,
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 June 30, 2008 were $21,155,010 which
consisted of payroll and related benefits of $11,429,076, professional fees of
$5,332,881, marketing and advertising of $595,834 and other general and
administrative expenses of $3,797,216.





Interest
expense from inception to June 30, 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 six
month period ending June 30, 2008, we borrowed money from share holders and
officers to meet operating cash flow, see “Note 9” of the financial
statements.





24


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 six months of 2008 our concentration was centered on
obtaining the necessary funding to meet our current obligations and expected
additional 2008 needs.  For the period ended June 30, 2008, we
obtained additional short-term debt financing of approximately $1.7 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 29; limited travel and related expenses; and entered into
equity payment arrangements with several of our service providers.





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 have
entered into a non-binding letter of intent to acquire a 51% ownership stake in
a European Company that serves as the general sales agent for the German Railway
System and has a network of over 25,000 travel agents in Germany, Switzerland,
Austria, Russia, and Poland.  The approximate cost of this acquisition
would be $5.0 million.





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.





25


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 29  as of June 30, 2008.





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.




(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.





26


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.





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.




27


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





In July
2006 we acquired all of the outstanding common stock of Triton Distribution
Systems, Inc. for 36,750,950 shares of our common stock pursuant to a Share
Exchange Agreement with Triton and its stockholders.





In July
2006 we issued an aggregate of 7,148,710 shares of our common stock to a group
of 230 accredited investors through Brookstreet Securities Corporation, as
Placement Agent, at $.80 per share pursuant to the exemption provided by Section
4(2) of the Act and Rule 506 of Regulation D promulgated thereunder.  The
shares were offered solely to accredited investors, no form of general
advertising was used, and all investors took the shares as an investment and not
with the intent to distribute and all shares were issued with a restrictive
legend thereon. As additional consideration for acting as our Placement Agent,
we issued to Brookstreet warrants to acquire 1,429,742 shares of our common
stock at $.80 per share and also issued to it 598,029 shares for investment
banking consulting services valued at $.80 per share.





In July
2006 we issued 1,119,412 shares each valued at $.80 per share to Capital Group
Communications, Inc. and Livestrong Venture Capital Partners, Inc. for investor
relations services pursuant to the exemption provided by Section 4(2) of the
Act.





In
September 2006 we issued 3,450,000 and 287,500 shares of our common stock to two
accredited Kuwaiti corporate investors, pursuant to the exemption provided by
Section 4(2) of the Act, for $.80 per share and paid a finder's fee of 185,000
common stock purchase warrants. The warrants are exercisable at $.80 per share
until September 18, 2007. Both investors took the common stock for investment
purposes and not with the intent to distribute and the certificates were issued
with a restrictive legend thereon.





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.








Item 3. Defaults Upon Senior
Securities





None.





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





On August
17, 2006, the shareholders of Triton at a Shareholders' Meeting approved
amendments to Triton's Articles of Incorporation to change its name to Triton
Distribution Systems, Inc. and to increase its authorized shares of no par
common stock to 100,000,000 shares effective August 17, 2006.In addition, on August 17, 2006, the
shareholders of Triton at a Shareholders' Meeting approved Triton's 2006 Equity
Incentive Plan.




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.August 14,
      2008
            By:
            /s/ Gregory
      LykiardopolousGregory
      Lykiardopolous
              Chief
      Executive Officer
















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