##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 Form 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 TEKNIK DIGITAL ARTS, INC.
  Nevada
    
    
    
    68-0539517State or jurisdiction of
    
    
    
    (I. R. S. Employer Identification No.)incorporation or organization
 
  
   
  þ o
 o
 o þ
   o þ
   i




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##### 



TABLE OF CONTENTS
 PART IItem 1 Description of BusinessItem 2 Description of PropertyItem 3 Legal ProceedingsItem 4 Submission of Matters to a Vote of Security HoldersPart IIItem 5 Market for Common Stock and Related Stockholder MattersItem 6 Managements Discussion and Analysis or Plan of OperationItem 7 Financial Statements and Supplementary DataItem 8 Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresItem 8A Controls and ProceduresItem 8B Other InformationPart IIIItem 9 Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange ActItem 10 Executive CompensationItem 11 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12 Certain Relationships and Related TransactionsItem 13 ExhibitsItem 14 Principal Accountant Fees and ServicesEX-31.1EX-31.2Ex-32.1




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##### Table of Contents



Part I
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
 Item 1. BUSINESS
 Company Overview
  Fear Factor
  3




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##### Table of Contents



Our Strengths
  Multiple Platforms
 Highly Visible Consumer Content Licenses and Strategic Relationships. Fear
Factor
 Innovative, Experienced Creative Management. Shrek
 Our Strategy
  
    
    We contemplate entering into additional strategic licensing agreements with respect to
high-profile intellectual properties, such as popular motion pictures, television shows,
characters, and sports figures, and developing and marketing video games based on these
licensed properties.
    
    We anticipate assuming the role of publisher or developer, as appropriate, for potential
products, outsourcing development activities as we deem advisable to mitigate certain risks
and manage up-front expenditures.
    
    We intend to focus our marketing efforts with respect to the video games that we develop
to generate monthly subscription revenues.
   4




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##### Table of Contents



Our Products
 Mobile Phones. Fear Factor Next
Action Star
 Fear Factor and Next Action Stargames. Fear Factor
 Next Action Star Fear Factor
 Next Action Star
 Fear Factor Next Action Star
 Phil Mickelson Gameand other interactive golf entertainment software
 5




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##### Table of Contents



Buddy Rice car racing video game
 Phil Weber basketball game product.
 Joe Johnson mobile basketball product.
 Ripken Baseball product.
 6




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##### Table of Contents



Personal Computers . AniGadget AniDragon AniGadget AniGadget AniDragon AniDragon AniDragon AniGadget AniDragon AniDragon
 Console Game Systems .
    Our Markets
 Fear Factor
 Mobile applications market.
  7




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##### Table of Contents



Personal computer and console markets.
   
 Item 2. DESCRIPTION OF PROPERTY
  
 Item 3. LEGAL PROCEEDINGS
 AniDragon
 8




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##### Table of Contents



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Part II
 
 Item 5. Market for Common Stock and Related Stockholder Matters
  Dividend Policy
  EQUITY COMPENSATION PLAN INFORMATION
  Number of SecuritiesRemaining Available ForNumber of Securities
    
    
    
    
    
    Future Issuance UnderTo Be Issued Upon
    
    Weighted-Average
    
    Equity CompensationExercise of Outstanding
    
    Exercise Price of
    
    Plans (ExcludingOptions, Warrants
    
    Outstanding Options,
    
    Securities ReflectedPlan Category
    
    and Rights
    
    Warrants and Rights
    
    in First Column)Equity compensation plans
not approved by
securityholders
    
    
    (1) 3,900,000
    
    
    $
    2.62
    
    
    
    (2) 1,650,000
 
 (1)
    
    Represents shares of common stock that may be issued pursuant to outstanding options granted
under the 2004 Stock Option Plan as well as outstanding warrants granted to purchase common
stock. See Notes 5 and 6 to our Consolidated Financial Statements for a detailed description
of the terms of these options and warrants.(2)
    
    Represents shares of common stock that may be issued pursuant to options available for future
grant under the 2004 Stock Option Plan. 
 Item 6. Managements Discussion and Analysis or Plan of Operation
  Critical Accounting Policies
  9




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##### Table of Contents



Results of Operations
  10




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##### Table of Contents



Fiscal Year
    
    Fiscal Year
    
    Cumulative January 29,Ended
    
    Ended
    
    2003 (Inception)September 30,
    
    September 30,
    
    through September 30,2005
    
    2004
    
    2005Statement of Operations Data:Revenue
    
    $
    
    
    
    $
    
    
    
    $
    General and administration
expense
    
    
    1,878,028
    
    
    
    931,711
    
    
    
    2,852,882Research and development costs
    
    
    257,744
    
    
    
    2,112,868
    
    
    
    2,665,533Loss from operations
    
    
    (2,135,772
    )
    
    
    (3,044,579
    )
    
    
    (5,518,415
    )Other Income (Expenses):Total other income (expenses)
    
    
    (30,833
    )
    
    
    (7,701
    )
    
    
    (40,179
    )Net loss
    
    
    (2,166,605
    )
    
    
    (3,052,280
    )
    
    
    (5,558,594
    )Shares used in computing basic
and diluted loss per common share
    
    
    8,900,178
    
    
    
    7,676,452
    
    
    
    7,665,272Basic and diluted loss per
common share
    
    $
    (0.24
    )
    
    $
    (0.40
    )
    
    $
    (0.73
    )
 September 30,
    
    September 30,2005
    
    2004Balance Sheet Data:Cash and cash equivalents
    
    
    7,060
    
    
    
    11,995Working capital
    
    
    (918,452
    )
    
    
    (146,178
    )Total assets
    
    
    46,611
    
    
    
    25,081Total liabilities and minority interest
    
    
    992,070
    
    
    
    205,435Common stock
    
    
    9,125
    
    
    
    8,805Additional paid-in-capital
    
    
    4,604,010
    
    
    
    3,202,830Accumulated deficit
    
    
    (5,558,594
    )
    
    
    (3,391,989
    )Stockholders equity (deficit)
    
    
    (945,459
    )
    
    
    (180,354
    )
 Overview
  Fear Factor
 11




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Summary Plan of Operations
  .
 Revenue
  Expenses
     12




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##### Table of Contents



Comparisons of the fiscal year ended September 30, 2005 and 2004
    Liquidity and capital resources
     13




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##### Table of Contents



Off-Balance sheet arrangements
  INFLATION AND SEASONALITY
  
 Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO FINANCIAL STATEMENTS
 Contents
 Report
of Semple & Cooper, LLP, Independent Registered Public Accounting Firm
    
    
    F-1Audited Financial Statements for the Fiscal Year Ended September 30, 2005, the Fiscal Year Ended
September 30, 2004, and the Period from the date of Inception, January 29, 2003, through September
30, 2005.Balance Sheets
    
    
    F-2Statements of Operations
    
    
    F-3Statements of Changes in Shareholders Equity (Deficit)
    
    
    F-4Statements of Cash Flows
    
    
    F-5Notes to Financial Statements
    
    
    F-7
 14




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##### Table of Contents

====================================================================================================================================

Report of Independent Registered Public Accounting Firm
 
      
 F-1




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TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    September 30,2005
    
    
    2004Current Assets:Cash and cash equivalents (Note 1)
    
    $
    7,060
    
    
    $
    11,995Prepaid expenses (Note 1)
    
    
    28,678
    
    
    
    9,762Total Current Assets
    
    
    35,738
    
    
    
    21,757Property and equipment, net (Note 1 and 3)
    
    
    7,673
    
    
    
    1,124Other Assets:Security deposit
    
    
    3,200
    
    
    
    2,200Total Assets
    
    $
    46,611
    
    
    $
    25,081Current Liabilities:Note payable  related party (Note 2)
    
    $
    610,350
    
    
    $
    25,000Notes payable (Note 4)
    
    
    11,069
    
    
    
    Accounts payable
    
    
    311,667
    
    
    
    125,180Accrued vacation
    
    
    1,154
    
    
    
    2,406Capital lease liability  current portion (Note 7)
    
    
    2,283
    
    
    
    Accrued interest  related party (Note 2)
    
    
    17,667
    
    
    
    15,349Total Current Liabilities
    
    
    954,190
    
    
    
    167,935Long-Term LiabilitiesCapital lease liability  long term portion (Note 7)
    
    
    380
    
    
    
    Minority Interest in Joint Venture (Note 9)
    
    
    37,500
    
    
    
    37,500Total Liabilities and Minority Interest
    
    
    992,070
    
    
    
    205,435Stockholders Equity (Deficit): (Notes 1 and 5)Common stock  $.001 par value; 50,000,000 shares
authorized, 9,125,000 and 8,805,000 shares issued and
outstanding, respectively
    
    
    9,125
    
    
    
    8,805Additional paid-in capital
    
    
    4,604,010
    
    
    
    3,202,830Deficit accumulated during development stage
    
    
    (5,558,594
    )
    
    
    (3,391,989
    )Total Stockholders Equity (Deficit)
    
    
    (945,459
    )
    
    
    (180,354
    )Total Liabilities and Stockholders Equity (Deficit)
    
    $
    46,611
    
    
    $
    25,081
  F-2




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TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Date of Inception,January 29, 2003,Year Ended
    
    
    Year Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005Sales
    
    $
    
    
    
    $
    
    
    
    $
    Cost of Sales
    
    
    
    
    
    
    
    
    
    
    Gross Profit
    
    
    
    
    
    
    
    
    
    
    General and Administrative Expenses
    
    
    1,878,028
    
    
    
    931,711
    
    
    
    2,852,882Research and Development Costs
    
    
    257,744
    
    
    
    2,112,868
    
    
    
    2,665,533Loss from Operations
    
    
    (2,135,772
    )
    
    
    (3,044,579
    )
    
    
    (5,518,415
    )Other Income (Expense):Interest Expense
    
    
    (33,005
    )
    
    
    (13,484
    )
    
    
    (49,770
    )Miscellaneous Income
    
    
    2,172
    
    
    
    5,783
    
    
    
    9,591(30,833
    )
    
    
    (7,701
    )
    
    
    (40,179
    )Net Loss
    
    $
    (2,166,605
    )
    
    $
    (3,052,280
    )
    
    $
    (5,558,594
    )Basic and diluted loss per share (Note 1)
    
    $
    (0.24
    )
    
    $
    (0.40
    )
    
    $
    (0.73
    )Weighted Average Common Shares
Outstanding
    
    
    8,900,178
    
    
    
    7,676,452
    
    
    
    7,665,272
  F-3




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 For The Period From The Date of Inception, January 29, 2003 Through September 30, 2005
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    During
    
    
    StockholdersCommon Stock
    
    
    Paid-in
    
    
    Development
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    (Deficit)Balance at Inception,
January 29, 2003
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Issuance of common stock
for compensation and consulting
    
    
    6,635,000
    
    
    
    6,635
    
    
    
    
    
    
    
    
    
    
    
    6,635Net loss from inception to
September 30, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (339,709
    )
    
    
    (339,709
    )Balance at September 30, 2003
    
    
    6,635,000
    
    
    
    6,635
    
    
    
    
    
    
    
    (339,709
    )
    
    
    (333,074
    )Conversion of debt to
common stock
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    499,000
    
    
    
    
    
    
    
    500,000Proceeds from sale of stock
    
    
    190,000
    
    
    
    190
    
    
    
    94,810
    
    
    
    
    
    
    
    95,000Warrants issued for compensation
    
    
    
    
    
    
    
    
    
    
    820,000
    
    
    
    
    
    
    
    820,000Issuance of common stock
for compensation and consulting
    
    
    880,000
    
    
    
    880
    
    
    
    1,539,120
    
    
    
    
    
    
    
    1,540,000Exercise of warrants
    
    
    100,000
    
    
    
    100
    
    
    
    249,900
    
    
    
    
    
    
    
    250,000Net loss for the twelve months
ended September 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,052,280
    )
    
    
    (3,052,280
    )Balance at September 30, 2004
    
    
    8,805,000
    
    
    
    8,805
    
    
    
    3,202,830
    
    
    
    (3,391,989
    )
    
    
    (180,354
    )Issuance of common stock
for compensation and consulting
    
    
    320,000
    
    
    
    320
    
    
    
    799,680
    
    
    
    
    
    
    
    800,000Options and warrants issued for compensation
    
    
    
    
    
    
    
    
    
    
    601,500
    
    
    
    
    
    
    
    601,500Net loss for the twelve months
ended September 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,166,605
    )
    
    
    (2,166,605
    )Balance at September 30, 2005
    
    
    9,125,000
    
    
    $
    9,125
    
    
    $
    4,604,010
    
    
    $
    (5,558,594
    )
    
    $
    (945,459
    )
  F-4




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TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Date of Inception,January 29, 2003,Year Ended
    
    
    Year Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005Decrease in Cash and Cash Equivalents:Cash flows from operating activities:Net Loss
    
    $
    (2,166,605
    )
    
    $
    (3,052,280
    )
    
    $
    (5,558,594
    )Adjustments to reconcile net loss to net cash
used by operating activities:Depreciation
    
    
    1,255
    
    
    
    39
    
    
    
    1,294Common stocks and warrants issued for
compensation and consulting
    
    
    1,401,500
    
    
    
    2,360,000
    
    
    
    3,768,135Changes in Assets and Liabilities:Prepaid expenses
    
    
    (18,916
    )
    
    
    9,660
    
    
    
    (28,678
    )Security deposit
    
    
    (1,000
    )
    
    
    (2,200
    )
    
    
    (3,200
    )Accounts payable
    
    
    186,487
    
    
    
    112,967
    
    
    
    311,667Accrued vacation
    
    
    (1,252
    )
    
    
    1,340
    
    
    
    1,154Accrued interest  related party
    
    
    2,318
    
    
    
    12,068
    
    
    
    17,667Net cash used by operating activities
    
    
    (596,213
    )
    
    
    (558,406
    )
    
    
    (1,490,555
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (3,239
    )
    
    
    (1,163
    )
    
    
    (4,402
    )Net cash used in investing activities
    
    
    (3,239
    )
    
    
    (1,163
    )
    
    
    (4,402
    )Cash flows from financing activities:Proceeds from debt  related party
    
    
    585,350
    
    
    
    356,638
    
    
    
    1,294,588Proceeds from debt
    
    
    11,069
    
    
    
    
    
    
    
    11,069Proceeds from stock
    
    
    
    
    
    
    345,000
    
    
    
    345,000Repayment of debt  related party
    
    
    
    
    
    
    (184,238
    )
    
    
    (184,238
    )Payments on capital lease
    
    
    (1,902
    )
    
    
    
    
    
    
    (1,902
    )Proceeds from joint venture
    
    
    
    
    
    
    37,500
    
    
    
    37,500Net cash provided by financing activities
    
    
    594,517
    
    
    
    554,900
    
    
    
    1,502,017Net change in cash and cash equivalents
    
    
    (4,935
    )
    
    
    (4,669
    )
    
    
    7,060Cash and cash equivalents at beginning of period
    
    
    11,995
    
    
    
    16,664
    
    
    
    Cash and cash equivalents at end of period
    
    $
    7,060
    
    
    $
    11,995
    
    
    $
    7,060
  F-5




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
 Date of Inception,January 29, 2003,Year Ended
    
    Year Ended
    
    ThroughSeptember 30,
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005Supplemental Information:Interest paid
    
    $
    23,958
    
    
    $
    
    
    
    $
    23,958Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    Non-cash Investing and Financing ActivitiesIssuance of common stock for repayment of debt
of related party
    
    $
    
    
    
    $
    500,000
    
    
    $
    500,000Common Stock and warrants issued for
compensation and consulting
    
    $
    1,401,500
    
    
    $
    2,360,000
    
    
    $
    3,768,135Capital lease obligation
    
    $
    4,565
    
    
    $
    
    
    
    $
    4,565
  F-6




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
 Operations
   Consolidated Statements
  Use of Estimates
  Revenue Recognition
  Software Development Costs
  F-7




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
  Impairment of Long Lived Assets
  Cash and Cash Equivalents
  Prepaid Expenses
  Property and Equipment, net
   Organization Costs
  General and Administrative Expenses
  F-8




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 Research and Development Costs
  Miscellaneous Income
  Fair Value of Financial Instruments
   Deferred Income Taxes
  Loss Per Share
   F-9




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 Stock-Based Compensation
   Date of Inception,January 29, 2003,Year Ended
    
    
    Year Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005Net loss:As reported
    
    $
    (2,166,605
    )
    
    $
    (3,052,280
    )
    
    $
    (5,558,594
    )Deduct: Total stock-based employee
compensation expense determined under
the fair value based method for all awards,
net of related tax effects
    
    
    
    
    
    
    
    
    
    
    Pro forma net loss
    
    $
    (2,166,605
    )
    
    $
    (3,052,280
    )
    
    $
    (5,558,594
    )Basic loss per share:As reported
    
    $
    (0.24
    )
    
    $
    (0.40
    )
    
    $
    (0.73
    )Pro forma
    
    $
    (0.24
    )
    
    $
    (0.40
    )
    
    $
    (0.73
    )Diluted loss per share:As reported
    
    $
    (0.24
    )
    
    $
    (0.40
    )
    
    $
    (0.73
    )Pro forma
    
    $
    (0.24
    )
    
    $
    (0.40
    )
    
    $
    (0.73
    )
 F-10




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 Stock-Based Compensation (Continued)
  Share-Based Payment.
           (i)
    
    20,000 shares to Kentucky Eleven, Inc. (valued and expensed at $2.50 per share)
under the terms of our Development Agreement with Phil Simms.(ii)
    
    300,000 shares to Pep Pad, LLC (valued and expensed at $2.50 per share) in
conjunction with Pep Pad, LLC converting their joint venture interest into equity.
 F-11




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 New Accounting Pronouncements
 Share-Based Payment.
 Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements.
 Note 2
Related Party Transactions
   F-12




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 3
Property and Equipment
  September 30,
    
    
    September 30,2005
    
    
    2004Equipment
    
    $
    8,967
    
    
    $
    1,163Less: Accumulated Depreciation
    
    
    (1,294
    )
    
    
    (39
    )$
    7,673
    
    
    $
    1,124
 Note 4
Notes Payable
  Note 5
Stock Options
   F-13




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 5
Stock Options (Continued)
 WeightedAverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at January 29, 2003
    
    
    
    
    
    $
    Granted
    
    
    330,000
    
    
    
    1.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2003
    
    
    330,000
    
    
    
    1.00Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2004
    
    
    330,000
    
    
    $
    1.00Granted
    
    
    150,000
    
    
    
    1.00Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (130,000
    )
    
    
    1.00Outstanding at September 30, 2005
    
    
    350,000
    
    
    $
    1.00
  Options Outstanding
    
    
    
    
    
    
    Options ExercisableWeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedContractural
    
    
    Average
    
    
    Number
    
    
    AverageExercise
    
    
    Number of
    
    
    Life
    
    
    Exercise
    
    
    of
    
    
    ExercisePrice
    
    
    Shares
    
    
    (In Years)
    
    
    Price
    
    
    Shares
    
    
    Price$
    1.00
    
    
    
    350,000
    
    
    
    1.50
    
    
    $
    1.00
    
    
    
    300,000
    
    
    $
    1.00
  F-14




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 5
Stock Options (Continued)
  Note 6
Warrants
     WeightedAverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at January 29, 2003
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    
    Outstanding at September 30, 2003
    
    
    
    
    
    
    Granted  Codefire Acquisition Corp.
    
    
    3,000,000
    
    
    
    2.50Granted  Fortune Lab, LLC
    
    
    400,000
    
    
    
    5.00Exercised  Codefire Acquisition Corp.
    
    
    (100,000
    )
    
    
    2.50Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2004
    
    
    3,300,000
    
    
    $
    2.80Granted
 Pep Pad, LLC
    
    
    250,000
    
    
    
    2.50Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2005
    
    
    3,550,000
    
    
    $
    2.78
 F-15




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 6
Warrants (Continued)
  Warrants Outstanding
    
    
    
    
    
    Warrants ExercisableWeightedAverageRemaining
    
    
    
    
    
    WeightedContractural
    
    Number
    
    AverageExercise
    
    Number of
    
    Life
    
    of
    
    ExercisePrice
    
    Shares
    
    (In Years)
    
    Shares
    
    Price
    
    Fair Value$
    2.50
    
    
    
    2,900,000
    
    
    
    1.25
    
    
    
    2,900,000
    
    
    $
    2.50
    
    
    $
    0.26$
    5.00
    
    
    
    400,000
    
    
    
    2.25
    
    
    
    400,000
    
    
    $
    5.00
    
    
    $
    0.10$
    2.50
    
    
    
    250,000
    
    
    
    2.75
    
    
    
    250,000
    
    
    $
    2.50
    
    
    $
    1.47
   Note 7
Commitments and Contingencies
 Legal proceedings
  F-16




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 7
Commitments and Contingencies (Continued)
 Operating leases
  Year EndingSeptember 30,
    
    Amount2006
    
    $
    37,1132007
    
    
    32,8872008
    
    
    4,318$
    74,318
  Capital leases
  Year EndingSeptember 30,
    
    Amount2006
    
    $
    2,2832007
    
    
    380$
    2,663
 F-17




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 7
Commitments and Contingencies (Continued)
 Other commitments and contingencies
      F-18




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 7
Commitments and Contingencies (Continued)
      F-19




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 8
Income Taxes
  September 30,
    
    
    September 30,2005
    
    
    2004Benefit of Net Operating Loss
    
    $
    2,168,000
    
    
    $
    1,323,000Less: Valuation Allowance
    
    
    (2,168,000
    )
    
    
    (1,323,000
    )$
    
    
    
    $
    
   Federal
    
    
    StateNOL
    
    
    NOLExpires 2008
    
    $
    
    
    
    $
    340,000Expires 2009
    
    
    
    
    
    
    3,052,000Expires 2010
    
    
    
    
    
    
    2,167,000Expires 2023
    
    
    340,000
    
    
    
    Expires 2024
    
    
    3,052,000
    
    
    
    Expires 2025
    
    
    2,167,000
    
    
    
    $
    5,559,000
    
    
    $
    5,559,000
 Note 9
Investments  Joint Venture
  F-20




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 9
Investments  Joint Venture (Continued)
     Note 10
Profit Sharing Plan
  Note 11
Going Concern
   F-21




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##### Table of Contents



TEKNIK DIGITAL ARTS INC. (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 11
Going Concern (Continued)
  F-22




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##### Table of Contents



Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
   
 Item 8A. CONTROLS AND PROCEDURES
  
 Item 8B. OTHER INFORMATION
  
 Part III
 
 Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
  Name
    
    Age
    
    PositionJohn R. Ward
    
    
    49
    
    
    Chairman, Chief Executive OfficerKeith B. Dimond
    
    
    33
    
    
    Chief Financial OfficerCorey Comstock
    
    
    48
    
    
    President, Director of Art/Animation and DirectorBenjamin Robins
    
    
    51
    
    
    DirectorKristine E. Ward
    
    
    55
    
    
    Secretary and Treasurer
 John R Ward
 15




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##### Table of Contents



Keith B Dimond.
 Corey Comstock The Westin Maui The Hyatt Waikaloa Kelowna Waterfront Park Stonekeep Heart of the Alien Virtual Life The Lost World Shrek Lego Alpha Team Warpath: Jurassic Park CADence Landscape Architect and Specifier GamePro Gamefan Game
Players VideoGames Electronic Gaming Monthly and The Web
 Benjamin D. Robins
 Compliance with Section 16(a) of the Securities Exchange Act of 1934
   Compensation Committee
   
 Item 10. EXECUTIVE COMPENSATION
 Director Compensation
  16




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##### Table of Contents



Executive Compensation
  Summary Compensation Table
 Annual
    
    Long-TermCompensation
    
    CompensationName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SecuritiesUnderlyingPrincipal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    Stock
    
    LTIP
    
    All OtherPosition(1)
    
    Year
    
    Salary
    
    Bonus
    
    Compensation
    
    Options
    
    Payouts
    
    CompensationJohn R. Ward
    
    
    2005
    
    
    $
    20,667
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Chairman and CEO (2)
    
    
    2004
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02003
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Keith B.
Dimond CFO (1)(3)
    
    
    2005
    
    
    $
    3,581
    
    
    
    0
    
    
    
    0
    
    
    
    150,000
    
    
    
    0
    
    
    
    02004
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02003
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Corey Comstock
President and
    
    
    2005
    
    
    $
    100,000
    
    
    
    0
    
    
    
    0
    
    
    
    50,000
    
    
    
    0
    
    
    
    0Director of Art &
    
    
    2004
    
    
    $
    100,000
    
    
    
    0
    
    
    $
    125,000
    
    
    
    50,000
    
    
    
    0
    
    
    
    0Animation (1) (4)
    
    
    2003
    
    
    $
    45,833
    
    
    
    0
    
    
    $
    250
    
    
    
    0
    
    
    
    0
    
    
    
    0Anthony Eaton (1)(5)
    
    
    2005
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02004
    
    
    $
    10,000
    
    
    
    0
    
    
    $
    12,500
    
    
    
    0
    
    
    
    0
    
    
    
    02003
    
    
    
    0
    
    
    
    0
    
    
    $
    25
    
    
    
    0
    
    
    
    0
    
    
    $
    24,067
    (6)
 
 (1)
    
    The disclosure in this table (and in subsequent tables in this report) for Corey Comstock
has been provided for informational purposes only and in light of his status as a significant
employee of the Company. The disclosure in this table for Anthony Eaton has similarly been
provided for informational purposes only. Mr. Eaton joined the Company as Chief Financial
Officer in February 2004 and resigned in May 2004. The
disclosure in this table for Keith B. Dimond has been provided
for informational purposes only, Mr. Dimond joined the Company as
Chief Financial Officer in June 2005.(2)
    
    Mr. Ward accepted no salary from the Company for the fiscal year ended September 30, 2003 or
fiscal year ended September 30, 2004.(3)
    
    Mr. Dimond is currently compensated at a rate of $75.00 per hour. In March 2005, Mr. Dimond
was issued 150,000 options for assuming responsibilities as Chief Financial Officer effective
June 2005. The amount of salary listed in the table above reflects total wages earned since
becoming CFO in June 2005.(4)
    
    Under the terms of his employment agreement with the Company, Mr. Comstock is entitled to an
annual salary of $100,000. The amount of salary for 2003 reflected in this table for Mr.
Comstock reflects 5 1/2 months of compensation under his employment agreement. On July 1, 2003,
Mr. Comstock was issued 250,000 shares of common stock (valued at the par value of $0.001 per
share) See Employment Agreements. In addition, under his employment agreement, Mr. Comstock
was issued a total of 150,000 stock options, 50,000 options vested December 31, 2003, another
50,000 options vested December 31, 2004 and the remaining 50,000 options are scheduled to vest
December 31, 2005. Additionally, in April 2004, our board of directors granted Mr. 17




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##### Table of Contents



Comstock a bonus of 250,000 shares of common stock (valued at $0.50 per share) for assuming the
responsibilities of President in April 2004. Mr. Comstocks other annual compensation reflects
the value of the shares issued.(5)
    
    Other annual compensation reflects the fair market value of 25,000 shares of common stock
issued to Mr. Eaton in fiscal 2003 (valued at the par value of $0.001 per share) in connection
with consulting services performed by Mr. Eaton in fiscal 2003, and 25,000 shares issued in
fiscal 2004 (valued at $0.50 per share) in connection with Mr. Eatons resignation.(6)
    
    Includes compensation received in fiscal 2003 pursuant to Mr. Eatons consulting agreement,
prior to his employment with us. Option Grants In Last Fiscal Year
(Individual Grants)
  Percent of TotalSecurities
    
    Options Granted to
    
    ExerciseUnderlying Options
    
    Employees in fiscal
    
    Price
    
    ExpirationName
    
    Fiscal Year
    
    Granted (#)
    
    year
    
    ($/share)
    
    DateKeith Dimond
    
    
    2005
    
    
    
    150,000
    
    
    
    75
    %
    
    $
    1.00
    
    
    
    3/31/08Corey Comstock
    
    
    2005
    
    
    
    50,000
    
    
    
    25
    %
    
    $
    1.00
    
    
    
    12/31/082004
    
    
    
    50,000
    
    
    
    50
    %
    
    $
    1.00
    
    
    
    12/31/072003
    
    
    
    0
    
    
    
    0
    
    
    
    N/A
    
    
    
    N/A
 Stock Option Plan
   18




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##### Table of Contents



Option Exercise
  Aggregate Option Exercises In Last Fiscal Year And Year End Option Values
 Number of SecuritiesUnderlying
    
    Value of UnexercisedShares
    
    
    
    
    
    Unexercised
    
    In-The-Money OptionsAcquired
    
    
    
    
    
    Options at
    
    aton
    
    Value
    
    September 30, 2005 (#)
    
    September 30, 2005 ($)Exercise
    
    Realized
    
    Exercisable /
    
    Exercisable /Name
    
    (#)
    
    ($)
    
    Unexercisable
    
    Unexercisable(1)Corey Comstock
    
    
    0
    
    
    $
    0
    
    
    
    100,000/50,000
    
    
    $
    150,000/$75,000Keith Dimond
    
    
    0
    
    
    $
    0
    
    
    
    150,000/0
    
    
    $
    225,000/$0John Skeel
    
    
    0
    
    
    $
    0
    
    
    
    50,000/0
    
    
    $
    75,000/$0
 
 (1)
    
    Information is based on an assumed $2.50 value, however, as of September 30, 2005, the
Companys common stock had not been traded and therefore, had a closing price of $0. Employment Agreements
  19




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##### Table of Contents



Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Number ofCommon Shares
    
    Percent ofName of Beneficial Owner
    
    Beneficially Owned
    
    Outstanding sharesJohn R. Ward
    
    
    3,476,000
    (1)
    
    
    38.1
    %Corey Comstock
    
    
    500,000
    (2)
    
    
    5.5
    %Benjamin Robins
    
    
    100,000
    
    
    
    1.1
    %CodeFire Acquisition Corp.
    
    
    660,000
    (3)
    
    
    7.2
    %John Skeel
    
    
    500,000
    
    
    
    5.5
    %All officers and directors as a group (4 persons)
    
    
    4,076,000
    
    
    
    44.7
    %
 
 (1)
    
    Includes 660,000 shares held by CodeFire Acquisition Corp., of which Mr. Ward is the
president. In addition, CodeFire Acquisition Corp. owns 2,900,000 shares issuable upon
exercise of outstanding warrants not included in the above table.(2)
    
    Corey Comstock also owns 100,000 shares issuable upon
exercise of outstanding options not included in the above table.(3)
    
    CodeFire Acquisition Corp. also owns 2,900,000 shares issuable upon exercise of outstanding
warrants not included in the above table. 
 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 AniDragon AniDragon AniDragon
 20




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##### Table of Contents



Item 13. EXHIBITS
  
 Item 14. Principal Accountant Fees and Services.
  September 30, 2005
    
    September 30, 2004(i) Audit Fees
    
    $
    15,471
    
    
    $
    24,750(ii) Audit Related Fees
    
    $
    27,290
    
    
    $
    14,420(iii) Tax Fees
    
    $
    0
    
    
    $
    16(iv) All Other Fees
    
    $
    0
    
    
    $
    0
 Audit Committee Pre-Approval Policies and Procedures
  21




---



##### Table of Contents



SIGNATURES
  TEKNIK DIGITAL ARTS, INC./s/ John R. WardJohn R. Ward, Chairman and Chief Executive Officer(Principal Executive Officer)   POWER OF ATTORNEY
  Signatures
    
    Title
    
    Date/s/ John R. Ward

John R. Ward
    
    Chairman, CEO and Director
(Principal Executive Officer)
    
    December 29, 2005/s/ Keith B. Dimond

Keith B. Dimond
    
    Chief Financial Officer
(Principal Financial Officer)
    
    December 29, 2005/s/ Benjamin Robins

Benjamin Robins
    
    Director
    
    December 29, 2005/s/ Corey Comstock

Corey Comstock
    
    Director
    
    December 29, 2005
 22




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description
    
    By Reference from Document3.4
    
    Articles of Incorporation
    
    Filed as Exhibit 3.1 to Form SB-2,
Registration No 333-118101 effective.
August 10, 20043.5
    
    Bylaws
    
    Filed as Exhibit 3.2 for Form SB-2,
Registration No. 333-118101 effective
August 10, 2004.4.5
    
    Specimen of common stock certificate
    
    Filed as Exhibit 4 to Form SB-2,
Registration No. 333-118101 effective
August 10, 2004.5.2
    
    Opinion of Squire, Sanders & Dempsey L.L.P. regarding
legality
    
    Filed as Exhibit 5 to Form SB-2,
Registration No. 333-118101 effective
August 10, 200410.11
    
    Letter of Intent with Quicksilver Software, Inc., dated
May 17, 2003
    
    Filed as Exhibit 10.1 to Form SB-2,
Registration No. 333-118101 effective
August 10, 200410.12
    
    Exchange Agreement with CodeFire Acquisition Corp.,
dated December 31, 2003
    
    Filed as Exhibit 10.2 to Form SB-2,
Registration No. 333-118101 effective
August 10, 200410.13
    
    Joint venture agreement with Playentertainment, LLP,
dated February, 2004
    
    Filed as Exhibit 10.3 to Form SB-2,
Registration No. 333-118101 effective
August 10, 200410.14
    
    2004 Stock Option Plan, effective December 31, 2003
    
    Filed as Exhibit 10.4 to Form SB-2,
Registration No. 333-118101 effective
August 10, 200410.15
    
    Employment agreement with Corey Comstock, dated
July 1, 2003
    
    Filed as Exhibit 10.5 to Form SB-2,
Registration No. 333-118101 effective
August 10, 200410.16
    
    Employment agreement with Jonathan Domasig, dated
July 1, 2003
    
    Filed as Exhibit 10.6 to Form SB-2,
Registration No. 333-118101 effective
August 10, 200424.10
    
    Powers of Attorney (included on the Signature Page of
the Form SB-2)
    
    Filed as Exhibit 24 to Form SB-2,
Registration No. 333-118101 effective
August 10, 2004
 23




---



##### Table of Contents



ExhibitNumber
    
    Description
    
    By Reference from Document10.17
    
    Amendment to Joint Venture Agreement with
Playentertainment, LLP, dated September, 2004
    
    Filed as Exhibit 10.3a to Form SB-2A,
Amendment Two, Registration No.
333-118101, effective January 25, 200510.18
    
    Revolving Credit Agreement with CodeFire Acquisition
Corp., dated March 31, 2003
    
    Filed as Exhibit 10.7 to Form SB-2A,
Amendment Two, Registration No.
333-118101, effective January 25, 200510.19
    
    Software Purchase Agreement with Fortune Labs, Inc.,
dated December 31, 2003
    
    Filed as Exhibit 10.8 to Form SB-2A,
Amendment Two, Registration No.
333-118101, effective January 25, 20054.6
    
    Teknik Digital Arts, Inc. 2004 Stock Option Plan
    
    Filed as Exhibit 4.2 to Form SB-2A,
Amendment Three, Registration No.
333-118101, effective March 1, 200510.20
    
    Software License Agreement with CodeFire Acquisition
Corp., dated February 15, 2003
    
    Filed as Exhibit 10.9 to Form SB-2A,
Amendment Three, Registration No.
333-118101, effective March 1, 200510.21
    
    Exclusive Patent and Copyright License between Andamiro
U.S.A. Corp. and Parisi Sports, Inc. dated June 25, 2003
    
    Filed as Exhibit 10.10 to Form SB-2A,
Amendment Three, Registration No.
333-118101, effective March 1, 200510.22
    
    Merchandise Licensing Agreement between Playinteractive,
Filed as Exhibit 10.12 to Form SB-2A, LLP
and NBC Enterprises, Inc., dated April 21, 2003
    
    Filed as Exhibit 10.11 to Form SB-2A,
Amendment Three, Registration No.
333-118101, effective March 1, 200510.23
    
    Proprietor Approval form between NAS Interactive, LP and
Joy Tashjian Marketing Group, LLC, dated November 21, 2003
    
    Filed as Exhibit 10.12 to
Form SB-2A, Amendment Three, Registration No.
333-118101, effective March 1, 200510.24
    
    Representation Agreement with Gaylord Sports Management,
dated July 28, 2004
    
    Filed as Exhibit 10.13 to Form SB-2A,
Amendment Three, Registration No.
333-118101, effective March 1, 200510.25
    
    Sponsorship and Development Agreement with Independent Golf
Research Corporation dated August 5, 2004
    
    Filed as Exhibit 10.14 to Form SB-2A,
Amendment Three, Registration No.
333-118101, effective March 1, 200510.26
    
    Sponsorship and Development Agreement with Rick Smith
Enterprises, dated August 6, 2004, as amended December 10,
2004
    
    Filed as Exhibit 10.15 to Form SB-2A,
Amendment Three, Registration No.
333-118101, effective March 1, 2005
 24




---



##### Table of Contents



ExhibitNumber
    
    Description
    
    By Reference from Document10.27
    
    Sponsorship and Development Agreement with Mickelson, Inc.,
dated August 6, 2004, as amended December 10, 2004
    
    Filed as Exhibit 10.16 to Form
SB-2A, Amendment Three, Registration
No. 333-118101, effective March 1,
200510.28
    
    Joint Venture and Limited Liability Company Agreement with
PEP PAD, LLC, dated October 14, 2004
    
    Filed as Exhibit 10.17 to Form
SB-2A, Amendment Three, Registration
No. 333-118101, effective March 1,
200510.29
    
    Endorsement and Services Agreement with Kentucky Eleven,
Inc., dated October 15, 2004
    
    Filed as Exhibit 10.18 to Form
SB-2A, Amendment Three, Registration
No. 333-118101, effective March 1,
200510.30
    
    Sponsorship and Development Agreement with Buddy Rice
Racing, Inc., dated November 17, 2004
    
    Filed as Exhibit 10.19 to Form
SB-2A, Amendment Three, Registration
No. 333-118101, effective March 1,
200510.31
    
    Revolving Credit Agreement with CodeFire Acquisition
Corp., dated February 23, 2005
    
    Filed as Exhibit 10.20 to Form
SB-2A, Amendment Three, Registration
No. 333-118101, effective March 1,
200531.1
    
    Certification pursuant to Rules 13a-14(a) and
15d-14(a)(5) of the Securities Exchange Act of 1934
    
    Filed Herewith31.2
    
    Certification pursuant to Rules 13a-14(a) and
15d-14(a)(5) of the Securities Exchange Act of 1934
    
    Filed Herewith32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed Herewith
 25