Triton Distribution Systems (TTDS) 10-Q 2008 Q3 Quarterly report

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 SEPTEMBER 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 o
Non-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: November 10, 2008.

CLASS	NUMBER OF SHARES OUTSTANDING
Common Stock, no par value per share	48,964,415 shares

TRITON DISTRIBUTION SYSTEMS, INC.

Index

		Page
		Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007 (audited)	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2008 (unaudited) , the three and nine months ended September 30, 2007 (unaudited) and from inception (January 10, 2006) to September 30, 2008 (unaudited)	2
	Consolidated Statement of Stockholders Equity from inception (January 10, 2006) to September 30, 2008 (unaudited)	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 (unaudited), the nine months ended September 30, 2007 (unaudited) and the period from inception (January 10, 2006) to September 30, 2008 (unaudited).	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management's Discussion and Analysis or Plan of Operations	23
Item 3.	Controls and Procedures	27
PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
SIGNATURES		30

TRITON DISTRIBUTION SYSTEMS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

ASSETS
	September 30, 2008			December 31, 2007
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	21,047		$	8,382
Other current assets		182,731			143,823
Prepaid consulting		675,521			1,457,440
TOTAL CURRENT ASSETS		879,299			1,609,645
DEPOSIT FOR ACQUISITION		250,000			-
FURNITURE AND EQUIPMENT, net		280,200			364,203
WEBSITE DEVELOPMENT COSTS, net		2,463			7,388
INTELLECTUAL PROPERTY, net		172,931			190,820
TOTAL ASSETS	$	1,584,893		$	2,172,056
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Deferred Income	$	25		$	1,470
Accounts payable		1,593,362			653,321
Accrued expenses		114,481			21,577
Accrued payroll		1,019,821			170,689
Accrued lease liability		16,120			20,978
Loan Payable		3,590,000			2,465,967
Loan Payable Related Party		3,543,000			250,000
TOTAL CURRENT LIABILITIES		9,876,809			3,584,002
CONVERTIBLE PROMISSORY NOTES, net of debt discount of $116,000 and $0 as of September 30, 2008 and December 31, 2007 respectively		4,000			-
TOTAL LIABILITIES	$	9,880,809		$	3,584,002
STOCKHOLDERS' EQUITY
Preferred stock; no par value; 2,000,000 shares authorized; 0 shares issued and outstanding
Common stock; no par value; 100,000,000 shares authorized; 48,928,036 and 47,999,566 shares issued and outstanding as of September 30, 2008 and December 31, 2007, respectively	$	13,869,056		$	13,686,896
Additional paid-in capital		5,316,016			3,991,118
Deficit accumulated during the development stage		(27,451,371	)		(19,077,248	)
Accumulated balance of other comprehensive income		(29,617	)		(12,712	)
TOTAL STOCKHOLDERS' EQUITY		(8,295,916	)		(1,411,946	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,584,893		$	2,172,056

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

1

TRITON DISTRIBUTION SYSTEMS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(UNAUDITED)

													Inception
	Three months ended September 30,						Nine months ended September 30,						(January 10, 2006) to
	2008			2007			2008			2007			September 30, 2008
				(restated)						(restated)
NET SALES	$	-		$	-		$	-		$	-		$	-
COST OF SALES		-			-			-			-			-
GROSS PROFIT		-			-			-			-			-
OPERATING EXPENSES:
Payroll and related benefits		886,783			1,293,788			3,294,728			5,592,299			12,315,859
Professional fees		405,681			436,915			1,284,348			1,744,355			5,738,565
Marketing and advertising		2,230			42,307			40,282			226,432			598,064
Other general and administrative expenses		158,951			353,452			753,050			1,078,157			3,956,167
TOTAL OPERATING EXPENSES		1,453,645			2,126,462			5,372,408			8,641,243			22,608,655
LOSS FROM OPERATIONS		(1,453,645	)		(2,126,462	)		(5,372,408	)		(8,641,243	)		(22,608,655	)
OTHER INCOME (EXPENSE)
Interest income		12			3,743			31			24,235			67,817
Note Amort Interest expense		(4,000	)		-			(4,000	)		-			(4,000	)
Note Amort Interest expense – related party		(16,862	)		(662,623	)		(1,498,034	)		(662,623	)		(2,909,383	)
Interest Expense		(70,845	)		(92,833	)		(452,446	)		(120,402	)		(761,386	)
Interest Expense  - related party		(191,188	)		-			(209,518	)		-			(209,518	)
Finance expense		(526,891	)		-			(837,748	)		-			(1,026,339	)
Loss on disposal of assets		-			-			-			(30,373	)		-
TOTAL OTHER INCOME (EXPENSE)		(809,774	)		(751,713	)		(3,001,715	)		(789,163	)		(4,842,809	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(2,263,419	)		(2,878,175	)		(8,374,123	)		(9,430,406	)		(27,451,464	)
PROVISION FOR INCOME TAXES		-			-			-			-			-
NET LOSS		(2,263,419	)		(2,878,175	)		(8,374,123	)		(9,430,406	)		(27,451,464	)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment		9,765			22,038			(16,905	)		2,872			11,621
COMPREHENSIVE LOSS	$	(2,253,654	)	$	(2,856,137	)	$	(8,391,028	)	$	(9,427,534	)	$	(27,439,843	)
NET LOSS PER SHARE:														-
BASIC AND DILUTED	$	(0.05	)	$	(0.06	)	$	(0.17	)	$	(0.20	)	$	(0.62	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED		48,643,463			47,094,678			48,295,269			46,099,579			44,369,347

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

2

TRITON DISTRIBUTION SYSTEMS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE PERIOD FROM INCEPTION (JANUARY 10, 2006) TO SEPTEMBER 30, 2008

										Deficit
										Accumulated
										During the			Accumulated			Total
							Additional			Development			Other			Shareholders
	Common Stock						Paid-in			Stage			Comprehensive			Equity
	Shares			Par Value			Capital			Restated			Income			(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												338,625
Issuance 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												4,924,598
Issuance 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												1,800,000
Issuance of common stock in private placement for cash, net of $149,500 in commissions in September 2006		3,737,500			2,840,500												2,840,500
Fair value of employee stock compensation								139,979									139,979
Net loss											(6,552,079	)					(6,552,079	)
Balance at December 31, 2006		45,013,213			9,503,723			139,979			(6,552,079	)		-			3,091,623
Issuance of shares to investor relation firms for services		1,100,000			2,271,156												2,271,156
Issuance of warrant for short term loan								2,884,381									2,884,381
Fair value of employee stock compensation		860,147			1,607,047												1,607,047
Fair value of employee stock options								760,246									760,246
Exercise of employee stock options		99,478			79,582												79,582
Exercise of warrants		186,875			149,501												149,501
Net loss											(9,430,406	)					(9,430,406	)
Foreign currency translation gain (loss)														2,872			2,872
Balance at September 30, 2007, unaudited
		47,259,713			13,611,009			3,784,606			(15,982,485	)		2,872			1,416,002
Cancellations of stock compensation		(260,147	)		(554,113	)											(554,113	)
Fair value of employee stock options								137,417									137,417
Issuance of shares to consultants		1,000,000			630,000												630,000
Capital contribution								188,500									188,500
Cancellations and terminations								(119,405	)								(119,405	)
Net loss											(3,094,763	)					(3,094,763	)
Foreign currency translation gain (loss)														(15,584	)		(15,584	)
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								661,436									661,436
Issuance of Shares to Legal Counsel		928,470			182,160												182,160
Warrants attached to convertible notes								63,901									63,901
Beneficial conversion feature on notes								56,099									56,099
Capital contribution								543,462									543,462
Net loss											(8,374,123	)					(8,374,123	)
Foreign currency translation gain (loss)														(16,905	)		(16,905	)
Balance at September 30, 2008, unaudited		48,928,036		$	13,869,056		$	5,316,016		$	(27,451,371	)	$	(29,617	)	$	(8,295,916	)

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

3

TRITON DISTRIBUTION SYSTEMS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the  Nine Months			For the  Nine Months			Inception (January 10,
	Ended			Ended			2006) to
	September 30,			September 30,			September 30,
	2008			2007			2008
				(restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,374,123	)	$	(9,430,406	)	$	(27,451,370	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of discount on note		1,502,033			662,623			3,999
Depreciation and amortization expense		106,817			137,935			332,124
Loss on disposal of leasehold improvements		-			30,373			-
Amortization of prepaid consulting		787,500			1,284,991			6,388,926
Finance Fees		543,462			-			731,962
Stock compensation for consultants		-			-			630,000
Fair value of employee stock options		661,436			2,367,293			2,596,332
Changes in assets and liabilities
Prepaid insurance		-			29,577			(31,328	)
Other current assets		(38,908	)		(83,034	)		(151,402	)
Deferred income		(1,445	)		1,190			25
Accounts payable		1,095,212			19,116			1,748,279
Accrued expenses		92,904			44,100			285,170
Accrued interest - related party		-			5,069			-
Accrued payroll		849,132			-			870,110
Lease Liability		(4,858	)		4,982			(4,858	)
Net cash used in operating activities		(2,780,838	)		(4,926,191	)		(14,052,031	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit for acquisition		(250,000	)		-			(250,000	)
Purchase of furniture and equipment		-			(159,165	)		(541,949	)
Payment for web development costs		-			-			(19,700	)
Net cash used in investing activities		(250,000	)		(159,165	)		(811,649	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock		-			229,083			8,999,626
Payment of offering costs		-			-			(972,402	)
Funds transferred to China		-			-			-
Repurchase of shares of common stock		-			-			(400,000	)
Proceeds from issuance of notes payable		3,040,000			-			6,765,000
Proceeds from issuance of convertible note		120,000			-			120,000
Proceeds from issuance of notes payable - related parties		44,000			3,000,000			2,514,867
Repayment on notes payable		(15,000	)		-			(15,000	)
Repayment on notes payable - related parties		(150,000	)		-			(2,131,867	)
Net cash provided by financing activities		3,039,000			3,229,083			14,880,224
EFFECT OF EXCHANGE RATE CHANGES ON CASH		4,503			2,872			4,503
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		12,665			(1,853,401	)		21,047
CASH AND CASH EQUIVALENTS,								-
Beginning of period		8,382			1,944,287			8,382
CASH AND CASH EQUIVALENTS,								-
End of period	$	21,047		$	90,886		$	29,429
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	187,367		$	62,833		$	298,615
Income taxes paid	$	-		$	-		$	800
NON CASH ITEMS:
Contribution of intellectual property for common stock	$	238,525		$	238,525		$	477,050
Issuance of shares of common stock for consulting services	$	-		$	2,438,923		$	4,138,885
Issuance of shares of common stock for compensation	$	-		$	-		$	1,052,934
Cashless exercise of options	$	30,782		$	-		$	61,564
Share Contribution by CEO	$	543,462		$	-		$	1,349,832
Issuance of stock for legal fees	$	182,160		$	-		$	305,721

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

4

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 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 nine months ending September 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 Enterprises as 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

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, the Company has ceased the 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 has 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:

● 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.

6

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

As of September 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 $13,985 as of September 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 years
Software	5 years
Office equipment	5 years
Furniture and fixtures	7 years
Tenant improvements	3-7 years

Website development costs

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

Intangible assets

The Company’s intangible asset was acquired and is carried at its purchase price, net of accumulated amortization, which approximates fair value. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company evaluates its intangible assets for impairment, on a periodic basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. 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 September 30, 2008 and December 31, 2007, net of amortization, amounted to $175,394 and $198,208, respectively.

7

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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 September 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.

Comprehensive Income

The Company reports comprehensive income / (loss) and its components in accordance with SFAS No. 130, Reporting Comprehensive Income. 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.

8

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

Translation adjustments amounted to $29,617 and $12,712 as of September 30, 2008 and December 31, 2007, respectively.  Asset and liability accounts at September 30, 2008 were translated at 6.86 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 nine months ended September 30, 2008 and 2007 were 6.85 RMB and 7.55 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 and the conclusions reached by EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services.” Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable.  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.

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.

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.

9

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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 similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of its choice to use fair value on its earnings. It also requires companies to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the balance sheet. SFAS No. 159 is effective on January 1, 2008. We are currently evaluating the impact of the adoption of this statement on our financial statements.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS No. 141(R)"), which establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. This statement also establishes disclosure requirements to enable financial statement users to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and interim periods within those fiscal years. SFAS No. 141(R) will become effective for our fiscal year beginning January 1, 2009. The Company believes adopting SFAS No. 141R will significantly impact its financial statements for any business combination completed after December 31, 2008.

In December 2007, the FASB issued SFAS No. 160, Non-controlling 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 March 2008, the FASB issued SFAS No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and Hedging Activities." SFAS 161 is intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures to enable financial statement users to better understand the effects of derivatives and hedging on an entity's financial position, financial performance and cash flows. The provisions of SFAS 161 are effective for interim periods and fiscal years beginning after November 15, 2008. The Company does not anticipate that the adoption of SFAS 161 will have a material impact on its consolidated results of operations or financial position.

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. SFAS 142 requires 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.

In May 2008, the FASB issued SFAS No. 162 (“SFAS 162”), "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The Company does not expect the adoption of SFAS 162 will have a material impact on its consolidated results of operations or financial position.  

10

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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 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 is currently evaluating the impact that adopting EITF 07-5 will have on its financial statements.

In June 2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4 is to provide transition guidance for conforming changes made to EITF No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Issue is effective for financial statements issued for fiscal years ending after December 15, 2008. Early application is permitted. Management does not expect the impact of adoption of EITF No. 08-4 on the accounting for the convertible notes and related warrants transactions will have a material effect on the consolidated financial statements..

On October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 became effective on October 10, 2008, and its adoption did not have a material impact on our financial position or results for the quarter ended September 30, 2008.

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.

11

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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 target acquisitions in China and Europe to provide future revenue stream; and an overall reduction in operating expenses by cutting employees and limiting travel and related expenses.  While the Company believes its plans ultimately will resolve the going concern issue, there is no assurance that the intended results will occur.

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

	September 30,			December 31,
		2008			2007
Computer equipment	$	162,552		$	162,360
Software		67,182			67,182
Office equipment		94,339			94,294
Furniture and fixtures		74,924			74,925
Tenant improvements		63,677			137,299
		462,674			536,060
Less accumulated depreciation		(182,474	)		(171,857	)
	$	280,200		$	364,203

Depreciation expense was $10,114, $29,681, $73,685, $63,571 and $262,376 for the three months ended September 30, 2008 and the three months ended September 30, 2007, for the nine months ended September 30, 2008 and the nine months ended September 30, 2007 and for the period from inception (January 10, 2006) to September 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.

12

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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.

As of September 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 nine months ended September 30, 2008 we amortized $16,861 and $1,481,172 of the discount to loan interest expense.

Under the terms of the loan agreement, the Company was required to register the warrants by December 31, 2007.  On May 20, 2008 the Company obtained consent from the warrant holders deferring the registration of the warrants, pending the outcome of its current financing activities.

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.

From January 2008 to June 2008, the Company entered into several short-term loan arrangements with other investors totaling $1,670,000 with 12% interest (1.5% per month in event of default) expiring on dates between February 09, 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 three months ended September 30, 2008, the Company entered into several short-term loan arrangements with other investors totaling $1,570,000 with 12% to 18% interest expiring on dates between August 17, 2008 and February 7, 2009. As of September 30, 2008, notes totaling $920,000 are in default.

In July 2008 the Company received $120,000 in subscription notes through our agreement with 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 from the date of issuance.  Notes mature on June 30, 2011, unless previous converted. The Company is obligated to issue warrants to purchase 240,000 shares of the Company’s common stock for $0.50 per share. The warrants expire three years from the date of issuance. The value of the warrants of $75,250 was calculated using the Black-Scholes model using the following assumptions: discount rate of 3.2%; volatility of 400%; dividend yield of 0%; and expected term of 3 year. The value of the warrants is recorded as a discount to the notes payable in the financial statements.

In connection with the July subscription notes, the Company is obligated to issue a warrant to purchase 96,000 shares of the Company common stock for $0.50 per share. The warrants expire three years from the date of issuance. The value of the warrants of $30,100 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 3.20%; volatility of 400%; dividend yield of 0%; and expected term of 3 year.

13

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

The Company accounted for the secured convertible notes issued pursuant to the subscription agreement discussed in Note 9 under EITF 00-27, ‘‘Application of Issue 98-5 to Certain Convertible Instruments’’.   Based on EITF 00-27, the Company has determined that the convertible notes contained a beneficial conversion feature because at date of note issuance, the effective conversion price of the convertible notes was $0.13 when the average market value per share was $3.0.

The Company recorded a discount on the note related to the intrinsic value of the beneficial conversion feature totaling $63,901 and $56,099 for the fair value of the warrants issued. The discount on notes payable is amortized over the term of notes.

During the nine months ended September 30, 2008, the Company entered into short-term loan arrangements of $44,000 with our CFO, The loans accrue interest at 12% and are due upon receipt of sufficient financing.

The Company has not paid majority of the above mentioned loans and have accrued interest of $825,742 as of September 30, 2008.

Note 6 - Stockholders' equity

In July, Richardson and Patel accepted 363,621 shares of stock as payment on account towards the balance due from May through June of 2008. The value of the payment was $58,599 using prices ranging from $0.11 to $0.32, less a 15%-25% discount to market on the average closing date for the first five days of June and July 2008.

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.

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.

14

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

On June 11, 2007 the Board of Directors approved the grant of a total of 149,868 restricted shares of common stock 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 of common stock 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.

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 of common stock 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.

15

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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, the grant distributed and communicated to employees on July, 2, 2008. In addition, 548,904 shares were issued to managers at an exercise price of $0.38. This grant has not been distributed or communicated to the managers, 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:

Prior to July 14, 2006	Risk-free interest rate	4.50%
	Expected life of the options	9.00 years
	Expected volatility	22%
	Expected dividend yield	0
For options Granted	Risk-free interest rate	4.50%
December 01, 2006	Expected life of the options	8.78 years
	Expected volatility	86%
	Expected dividend yield	0
For options Granted	Risk-free interest rate	4.50%
March 02, 2007	Expected life of the options	10.00 years
	Expected volatility	121%
	Expected dividend yield	0
For options Granted	Risk-free interest rate	4.75%
June 11, 2007	Expected life of the options	10.00 years
	Expected volatility	164%
For options Granted	Risk-free interest rate	4.75%
September 11, 2007	Expected life of the options	3.00 years
	Expected volatility	171%
For options Granted	Risk-free interest rate	4.75%
January 18, 2008	Expected life of the options	9.87 years
	Expected volatility	223%
	Expected dividend yield	0

16

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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

Option Shares	Options		Weighted Ave.		Aggregate
	Outstanding		Exercise Price		Intrensic Value
Outstanding at January 10, 2006		-	$	-	$	-
Granted		3,333,177	$	1.47	$	0.84
Exercised		99,478	$	0.80	$	0.17
Forfeited and cancelled		1,661,557	$	1.80	$	1.02
Outstanding at September 30, 2008		1,572,142	$	1.35	$	0.72

As of September 30, 2008, 3,411,455 options have vested.

During the period ended September 30, 2008, the Company issued 361,780 options of which, 163,616 were forfeited or cancelled during the quarter. In addition, 126,089 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 $183,569 $663,655, $638,492, $723,971, and $2,598,551 in stock option-based compensation expense for the three months and nine months ended September 30, 2008, three months and nine months ended September 30, 2007 and for the period from inception (January 10, 2006) to September 30, 2008, respectively. The fair values of our stock options are estimated using the Black-Scholes option pricing model.

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.		Aggregate
	Outstanding		Exercise Price		Intrensic Value
Outstanding at January 10, 2006		1,614,742	$	0.80
Granted		2,000,000	$	2.90	$	0.78
Exercised		186,875	$	0.80
Forfeited and cancelled		-
Outstanding at September 30, 2008		3,427,867	$	1.98	$	0.78

17

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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

The weighted average fair value of the warrants issued was $1.44 and $1.82 for the nine months ended September 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 nine months ended September 30, 2008, and for the period from inception (January 10, 2006) to September 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 September 30, 2008, all of the warrants are vested. All warrants begin to expire in 2011.

Note 7 - Income taxes

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

	September 30, 2008			December 31, 2007
Deferred tax assets:
Federal net operating loss	$	6,310,869		$	4,276,973
State net operating loss		1,813,351			1,228,936
Equity compensation		2,803,657			2,071,383
Total deferred tax assets		10,927,877			7,577,292
Less valuation allowance		(10,927,877)	)		(7,577,292	)
Total	$	-		$	-

At September 30, 2008, the Company had federal and state net operating loss ("NOL") carryforwards of approximately $10,927,877. Federal NOLs could, if unused, expire in 2021. State NOLs, if unused, could expire in 2011.

The valuation allowance increased by $3,350,585, $3,749,602 and $10,927,877 the nine months ended September 30, 2008, for the nine months ended September 30, 2007 and for the period from inception (January 10, 2006) to September 30, 2008, respectively. The Company has provided a 100% valuation allowance on the deferred tax assets at September 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.

18

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

The reconciliation of the effective income tax rate to the federal statutory rate for the period from inception (January 10, 2006) to September 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.

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:

	Operating
	Leases
Period ending September 30,
2008	$	403,505
2009		336,716
2010		200,137
2011		41,514
2012		-

19

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

The Company incurred rent expense of $43,499, $107,089, $322,301, $340,019 and $1,089,958 for the three months ended September 30, 2008 and 2007, the nine months ended September 30, 2008 and 2007 and for the period from inception (January 10, 2006) to September 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 2007, the Company entered into short-term loan arrangements of $513,000 and $20,000 with the Company’s CFO and CEO, respectively for short term cash flow purpose. During the three months ended September 30, 2008 the Company has made a payment of $140,000 and $10,000 to the Company’s CFO and CEO respectively.

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

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

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

C.	LMU and Company - L. Michael Underwood has ownership in this company; and
D.	Battersea Capital Inc. holds 2,104,082 shares of common stock

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

From January to September, 2008, Gregory Lykiardopoulos contributed 2,859,000 shares of common stock to investors and lenders on behalf of the Company. There shares are valued at $543,462 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.

20

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

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

As Restated
Income Statement	3 Months Ended March 31, 2007		3 Months Ended June 30, 2007		6 Months Ended June 30, 2007		3 Months Ended September 30, 2007		9 Months Ended September 30, 2007
Operating expenses	$	2,502,084	$	4,020,411	$	6,522,495	$	2,126,462	$	8,641,243
Operating loss		2,502,084		4,020,411		6,522,495		2,126,462		8,648,957
Net loss		2,509,674		4,042,557		6,552,231		2,878,175		9,430,406
Net loss per share	$	0.06	$	0.09	$	0.14	$	0.06	$	0.20

Balance Sheet	As of March 31, 2007				As of June 30, 2007				As of September 30, 2007
Prepaid compensation (asset)		706,541				-
Prepaid expenses		13,790				1,004,179				39,850
Additional paid in capital		427,067				3,621,141				3,784,606
Note payable, net		-				77,079				778,242
Common stock		10,408,594				13,430,726				13,611,009
As Reported
Income Statement	3 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		9 Months Ended
	March 31, 2007		June 30, 2007		June 30, 2007		September 30, 2007		September 30, 2007
Operating expenses	$	3,006,064	$	3,186,766	$	6,192,831	$	2,126,463	$	8,641,243
Operating loss		3,006,064		3,186,766		6,192,831		2,126,463		8,641,243
Net loss		3,013,655		3,208,910		6,222,565		2,719,663		9,271,893
Net loss per share	$	0.07	$	0.07	$	0.14	$	0.06	$	0.20

Balance Sheet	As of March 31, 2007		As of June 30, 2007		As of September 30, 2007
Prepaid compensation (asset)		-		-		-
Prepaid expenses		13,790		42,719		39,850
Additional paid in capital		958,225		4,014,143		2,900,225
Note payable, net		-		-		1,504,110
Common stock		9,674,879		11,823,679		13,611,009

21

TRITON DISTRIBUTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(UNAUDITED)

 Note 11 - Acquisition

In March 2008, the Company has entered into a non-binding letter of intent which has been amended in October 2008 to acquire a 100% ownership of 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 7.5 million euro (approximately USD$11.06mil) .  Approximately $500,000 in cash is payable at closing with the remainder due payable over a five year period. We advanced $250,000 on August 15, 2008. Certain dates set forth in the non-binding letter of intent and the October 2008 Addendum for payments and closing of the transaction have elapsed. We are currently discussing revisions that are acceptable to both parties and anticipate formalizing them in a second addendum in the near future.

Note 11 - Subsequent events

The Company issued several short term notes payable totaling $350,000 between 10/15/08 to 11/11/08 with annual interest rates between 12% to 14%.

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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 and 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.  

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.

23

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 September 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.

24

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 September 30, 2008, all of which are short-term, resulted in a working capital deficit of approximately $8.4 million at September 30, 2008.  As of September 30, 2008 we had approximately $7.2 million in loans that mature on or prior to February 7, 2009.  Of this amount, $3 million, plus accrued interest, may be converted to shares of Company common stock any time prior to its maturity on September 30, 2009 at the sole discretion of the loan holder. The remaining balances of our notes as of September 30, 2008 do not contain any conversion options. The 120,000 convertible notes we obtained in July matured in 2011.See Note 5 of our consolidated financial statements for a complete description of the terms of our loans payable at September 30, 2008.

For the period ended September 30, 2008 we received $128,160 from issuances of our common stock which was applied towards account payable for legal fees. Throughout the period we issued an aggregate 928,470 shares of our common stock for compensation to our legal counsel.  We recognized approximately $661,436 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 September 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, throughout 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. We obtained $120,000 convertible notes from Scottsdale, See Note 5. 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 September 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 September 30, 2008 were $22,638,854 which consisted of payroll and related benefits of $12,315,859, professional fees of $5,738,565, marketing and advertising of $598,064 and other general and administrative expenses of $3,986,366.

25

Interest expense from inception to September 30, 2008 was $3,884,287 which consisted of interest accrued on the notes payable to related parties and interest income for the period was $67,817.

Related Parties

During the fiscal years ending December 31, 2006 and December 31, 2007, and the nine month period ending September 30, 2008, we borrowed money from shareholders and officers to meet operating cash flow, see “Note 9” of the financial statements.

Plan of Operation

At December 31, 2007 our cash resources were insufficient to fund the Company’s current and expected operations.  Throughout the fourth quarter of 2007 and the first nine 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 September 30, 2008, we obtained additional short-term debt financing of approximately $4.5 million to meet our obligations and working capital needs through the first three quarters 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 ™ 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.

We have entered into a non-binding letter of intent to acquire a 100% ownership of 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 $7.5 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.

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 2008 we will likely become insolvent by the end of 2008.

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Employees

Our employee head count was 29 as of September 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.

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

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(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 September 30, 2008.

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

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

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.

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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	Exhibit
3.1	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 1934
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	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.

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

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