##### 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, 2007
 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 þ
    o þ




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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 Matters and Small Business Issuer Purchasers of Equity SecuritiesItem 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, Control Persons; and Corporate Governance; 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 Transactions, and Director IndependenceItem 13
    
    ExhibitsItem 14
    
    Principal Accountant Fees and ServicesEX-24EX-31.1EX-31.2EX-32.1
  ii




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




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Our Strengths
  Multiple Platforms
 Exclusive Rights To Award Winning Technology.
 Innovative, Experienced Management and Advisory Team.
 Our Strategy
  
    
    We contemplate entering into additional strategic endorsement agreements with respect to
high-profile individuals and related media such as popular motion pictures, television
shows, characters, and sports figures, and developing and marketing our physically
interactive video game systems based on these endorsements.
    
    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 physically interactive
video game systems that we develop to generate profit margins on equipment sold and monthly
league subscription revenues.
    Our Products
 Physically Interactive Video Gaming System .
 Pep Pad Training Systems .
 4




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Mobile Phones. Fear Factor, Next Action Star
 Fear Factor
 Next Action Star Fear Factor
 Next Action Star
 Fear Factor Next Action Star
 Buddy Rice car racing video game
  5




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Phil Weber basketball game product
  Joe Johnson mobile basketball product
 Our Markets
 Personal computer and console markets.
   
 Item 2. DESCRIPTION OF PROPERTY
  6




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Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Part II
 
 Item 5. Market for Common Stock and Related Stockholder Matters and Small Business Issuer Purchases
of Equity Securities
  Quarter Ended
    
    High
    
    Low12/31/05
    
    $
    5.25
    
    
    $
    0.363/31/06
    
    $
    0.90
    
    
    $
    0.516/30/06
    
    $
    0.90
    
    
    $
    0.609/30/06
    
    $
    0.85
    
    
    $
    0.5512/31/06
    
    $
    0.65
    
    
    $
    0.513/31/07
    
    $
    0.35
    
    
    $
    0.156/30/07
    
    $
    0.30
    
    
    $
    0.209/30/07
    
    $
    0.23
    
    
    $
    0.15
 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)6,227,500
    
    
    $
    0.66
    
    
    
    (2)1,850,000
 
 (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 Note 5 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. 7




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Item 6. Managements Discussion and Analysis or Plan of Operation
  Critical Accounting Policies
     Results of Operations
  8




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Fiscal Year
    
    Fiscal YearEnded
    
    EndedSeptember 30,
    
    September 30,2007
    
    2006Statement of Operations Data:Revenue
    
    $
    59
    
    
    $
    3,551Cost of Sales
    
    
    9
    
    
    
    2,056Gross Profit
    
    
    50
    
    
    
    1,495General and administration
expense
    
    
    2,232,251
    
    
    
    1,109,835Research and development costs
    
    
    254
    
    
    
    38,868Loss from operations
    
    
    (2,232,455
    )
    
    
    (1,147,208
    )Other Income (Expenses):Total other income (expenses)
    
    
    (81,117
    )
    
    
    (108,870
    )Net loss
    
    
    (2,313,572
    )
    
    
    (1,256,078
    )Shares used in computing basic
and diluted loss per common share
    
    
    12,706,514
    
    
    
    8,986,207Basic and diluted loss per
common share
    
    $
    (0.18
    )
    
    $
    (0.14
    )
 September 30,
    
    September 30,2007
    
    2006Balance Sheet Data:Cash and cash equivalents
    
    
    21,162
    
    
    
    42,387Working capital
    
    
    (1,562,180
    )
    
    
    (1,036,250
    )Total assets
    
    
    303,584
    
    
    
    361,408Total liabilities and minority interest
    
    
    1,728,824
    
    
    
    1,709,399Common stock
    
    
    15,240
    
    
    
    9,990Additional paid-in-capital
    
    
    7,740,304
    
    
    
    5,457,466Accumulated deficit
    
    
    (9,128,244
    )
    
    
    (6,814,672
    )Stockholders equity (deficit)
    
    
    (1,425,240
    )
    
    
    (1,347,991
    )
 Overview
   9




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Summary Plan of Operations
   Revenue
  Expenses
    10




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Comparisons of the fiscal year ended September 30, 2007 and 2006
   Liquidity and capital resources
      11




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Off-Balance sheet arrangements
  Inflation and seasonality
  
 Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO FINANCIAL STATEMENTS
 Contents
 Report of Semple, Marchal & Cooper, LLP, Independent Registered Public Accounting Firm
    
    
    F-1Audited Financial Statements for the Fiscal Year Ended September 30, 2007, and the Fiscal Year
Ended September 30, 2006.Consolidated Balance Sheets
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Statements of Changes in Stockholders Equity (Deficit)
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-7
 12




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Report of Independent Registered Public Accounting Firm
 
      
 F-1




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    September 30,2007
    
    
    2006Current Assets:Cash and cash equivalents
    
    $
    21,162
    
    
    $
    42,387Accounts receivable
    
    
    140
    
    
    
    90Deposit
    
    
    84,777
    
    
    
    Prepaid expenses
    
    
    22,965
    
    
    
    238,072Total Current Assets
    
    
    129,044
    
    
    
    280,549Property and equipment, net
    
    
    173,440
    
    
    
    8,583Other Assets:Prepaid expenses  long term portion
    
    
    
    
    
    
    71,176Licenses
    
    
    100
    
    
    
    100Security deposit
    
    
    1,000
    
    
    
    1,000Total Other Assets
    
    
    1,100
    
    
    
    72,276Total Assets
    
    $
    303,584
    
    
    $
    361,408Current Liabilities:Note payable  related party
    
    $
    45,917
    
    
    $
    882,500Notes payable  current portion
    
    
    1,268,017
    
    
    
    Accounts payable
    
    
    333,728
    
    
    
    372,689Due to related party
    
    
    
    
    
    
    25,000Accrued payroll
    
    
    3,368
    
    
    
    Capital lease liability  current portion
    
    
    
    
    
    
    380Accrued interest
    
    
    40,194
    
    
    
    36,230Total Current Liabilities
    
    
    1,691,224
    
    
    
    1,316,799Long-Term Liabilities:Notes payable  net of current portion
    
    
    
    
    
    
    355,000Total Liabilities
    
    
    1,691,224
    
    
    
    1,671,799Minority interest in joint ventures
    
    
    37,600
    
    
    
    37,600Total Liabilities and Minority Interest
    
    
    1,728,824
    
    
    
    1,709,399Stockholders Equity (Deficit):Common stock  $.001 par value; 50,000,000 shares
authorized, 15,239,704 and 9,989,704 shares issued and
14,645,588 and 9,489,704 outstanding at September 30, 2007
and 2006,
respectively
    
    
    15,240
    
    
    
    9,990Additional paid-in capital
    
    
    7,740,304
    
    
    
    5,457,466Accumulated deficit
    
    
    (9,128,244
    )
    
    
    (6,814,672
    )Less: Treasury stock at cost, 594,516 and 500,000 shares at
September 30, 2007 and 2006, respectively
    
    
    (52,540
    )
    
    
    (775
    )Total Stockholders Deficit
    
    
    (1,425,240
    )
    
    
    (1,347,991
    )Total Liabilities and Stockholders Equity
    
    $
    303,584
    
    
    $
    361,408
  F-2




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years EndedSeptember 30,2007
    
    
    2006Sales
    
    $
    59
    
    
    $
    3,551Cost of Sales
    
    
    9
    
    
    
    2,056Gross Profit
    
    
    50
    
    
    
    1,495General and Administrative Expenses
    
    
    2,232,251
    
    
    
    1,109,835Research and Development Costs
    
    
    254
    
    
    
    38,868Loss from Operations
    
    
    (2,232,455
    )
    
    
    (1,147,208
    )Other Income (Expense):Interest Expense
    
    
    (81,117
    )
    
    
    (108,870
    )(81,117
    )
    
    
    (108,870
    )Net Loss
    
    $
    (2,313,572
    )
    
    $
    (1,256,078
    )Basic and diluted net loss per share
    
    $
    (0.18
    )
    
    $
    (0.14
    )Basic and diluted weighted average common
shares outstanding
    
    
    12,706,514
    
    
    
    8,986,207
  F-3




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 Years Ended September 30, 2007 and 2006
 TotalAdditional
    
    
    Treasury
    
    
    
    
    
    
    StockholdersCommon Stock
    
    
    Paid-in
    
    
    Stock
    
    
    Accumulated
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    at Cost
    
    
    Deficit
    
    
    (Deficit)Balance at
September 30, 2005
    
    
    9,125,000
    
    
    
    9,125
    
    
    
    4,604,010
    
    
    
    
    
    
    
    (5,558,594
    )
    
    
    (945,459
    )Warrants granted
for compensation
    
    
    
    
    
    
    
    
    
    
    293,400
    
    
    
    
    
    
    
    
    
    
    
    293,400Stock issued for
compensation
    
    
    614,704
    
    
    
    615
    
    
    
    354,973
    
    
    
    
    
    
    
    
    
    
    
    355,588Issuance of common
stock
for litigation
settlement
    
    
    250,000
    
    
    
    250
    
    
    
    169,750
    
    
    
    
    
    
    
    
    
    
    
    170,000Beneficial
coversion feature
of convertible debt
    
    
    
    
    
    
    
    
    
    
    35,333
    
    
    
    
    
    
    
    
    
    
    
    35,333Treasury stock,
500,000 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (775
    )
    
    
    
    
    
    
    (775
    )Net loss for the
year
ended September 30,
2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,256,078
    )
    
    
    (1,256,078
    )Balance at
September 30, 2006
    
    
    9,989,704
    
    
    
    9,990
    
    
    
    5,457,466
    
    
    
    (775
    )
    
    
    (6,814,672
    )
    
    
    (1,347,991
    )Cancellation of
consulting
agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,765
    )
    
    
    
    
    
    
    (51,765
    )Stock issued for
services
    
    
    250,000
    
    
    
    250
    
    
    
    57,250
    
    
    
    
    
    
    
    
    
    
    
    57,500Warrants granted
for compensation
    
    
    
    
    
    
    
    
    
    
    650,000
    
    
    
    
    
    
    
    
    
    
    
    650,000Stock issued for
conversion
of related party
note payable
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    1,745,000
    
    
    
    
    
    
    
    
    
    
    
    1,750,000Market value
adjustment of
compensation
    
    
    
    
    
    
    
    
    
    
    (169,412
    )
    
    
    
    
    
    
    
    
    
    
    (169,412
    )Net loss for the
year
ended September 30,
2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,313,572
    )
    
    
    (2,313,572
    )Balance at
September 30, 2007
    
    
    15,239,704
    
    
    $
    15,240
    
    
    $
    7,740,304
    
    
    $
    (52,540
    )
    
    $
    (9,128,244
    )
    
    $
    (1,425,240
    )
  F-4




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years EndedSeptember 30,2007
    
    
    2006Increase / (Decrease) in Cash and Cash Equivalents:Cash flows from operating activities:Net Loss
    
    $
    (2,313,572
    )
    
    $
    (1,256,078
    )Adjustments to reconcile net loss to net cash
used by operating activities:Depreciation
    
    
    9,378
    
    
    
    1,415Market value adjustment of compensation
    
    
    (221,177
    )
    
    
    Accrued financing fees
    
    
    10,913
    
    
    
    Common stock issued and warrants granted for
compensation of consultants
    
    
    707,500
    
    
    
    648,988Beneficial and induced conversion feature expense
    
    
    850,000
    
    
    
    35,333Common stock issued for litigation settlement
    
    
    
    
    
    
    170,000Changes in Assets and Liabilities:Accounts receivable
    
    
    (50
    )
    
    
    (90
    )Prepaid expenses
    
    
    286,283
    
    
    
    (280,570
    )Deposit
    
    
    (84,777
    )
    
    
    Security deposit
    
    
    
    
    
    
    2,200Accounts payable
    
    
    (38,961
    )
    
    
    61,022Due to related party
    
    
    (25,000
    )
    
    
    25,000Accrued vacation
    
    
    
    
    
    
    (1,154
    )Accrued payroll
    
    
    3,368
    
    
    
    Accrued interest  related party
    
    
    3,964
    
    
    
    18,563Net cash used by operating activities
    
    
    (812,131
    )
    
    
    (575,371
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (87,131
    )
    
    
    (3,100
    )Net cash used in investing activities
    
    
    (87,131
    )
    
    
    (3,100
    )Cash flows from financing activities:Proceeds from note payable  related party
    
    
    90,545
    
    
    
    272,150Proceeds from note payable
    
    
    815,000
    
    
    
    Proceeds from note payable-convertible debt
    
    
    
    
    
    
    355,000Payments on capital lease
    
    
    (380
    )
    
    
    (2,283
    )Payments on note payable  related party
    
    
    (27,128
    )
    
    
    (11,069
    )Net cash provided by financing activities
    
    
    878,037
    
    
    
    613,798Net change in cash and cash equivalents
    
    
    (21,225
    )
    
    
    35,327Cash and cash equivalents at beginning of period
    
    
    42,387
    
    
    
    7,060Cash and cash equivalents at end of period
    
    $
    21,162
    
    
    $
    42,387
  F-5




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 Years EndedSeptember 30,2007
    
    2006Supplemental Information:Interest paid
    
    $
    77,153
    
    
    $
    54,974Income taxes paid
    
    $
    
    
    
    $
    Non-cash Investing and Financing ActivitiesCancellation of consulting agreement
    
    $
    51,765
    
    
    $
    Common stock and warrants issued for compensation and consulting
    
    $
    707,500
    
    
    $
    648,988Common stock issued for litigation settlement
    
    $
    
    
    
    $
    170,000Common stock issued for conversion of related party note payable
    
    $
    1,750,000
    
    
    $
    Fixed assets exchanged for treasury stock
    
    $
    
    
    
    $
    775Financing fees related to note payable
    
    $
    10,913
    
    
    $
    Financing for purchase of a vehicle
    
    $
    87,104
    
    
    $
    Beneficial conversion feature relative to convertible debt
    
    $
    
    
    
    $
    35,333
  F-6




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
 
 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
  Advertising Costs
  Software Development Costs
  F-7




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
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
  Office furniture and equipment
    
    5-7 yearsVehicles
    
    5 yearsWebsite
    
    3 years
 Research and Development Costs
  Fair Value of Financial Instruments
   Deferred Income Taxes
  F-8




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 Loss Per Share
   Stock-Based Compensation
     F-9




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
 New Accounting Pronouncements
    Note 2
Related Party Transactions
    F-10




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 2
Related Party Transactions (Continued)
  Note 3
Property and Equipment
  September 30,
    
    
    September 30,2007
    
    
    2006Equipment
    
    $
    14,481
    
    
    $
    10,903Vehicles
    
    
    137,104
    
    
    
    Tooling
    
    
    6,553
    
    
    
    Website
    
    
    27,000
    
    
    
    Less: Accumulated Depreciation
    
    
    (11,698
    )
    
    
    (2,320
    )$
    173,440
    
    
    $
    8,583
 Note 4
Notes Payable
  F-11




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 4
Notes Payable (Continued)
    Note 5
Equity
 Stock Options
   F-12




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TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 5
Equity (Continued)
 Stock Options (Continued)
 WeightedAverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at September 30, 2005
    
    
    350,000
    
    
    
    1.00Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    (50,000
    )
    
    
    1.00Forfeited
    
    
    (150,000
    )
    
    
    1.00Outstanding at September 30, 2006
    
    
    150,000
    
    
    
    1.00Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2007
    
    
    150,000
    
    
    $
    1.00
  Options Outstanding
    
    Options ExercisableWeightedAverageRemaining
    
    Weighted
    
    
    
    
    
    
    
    
    
    WeightedContractural
    
    Average
    
    Aggregate
    
    Number
    
    Average
    
    AggregateExercise
    
    Number of
    
    Life
    
    Exercise
    
    Intrinsic
    
    of
    
    Exercise
    
    IntrinsicPrice
    
    Shares
    
    (In Years)
    
    Price
    
    Value
    
    Shares
    
    Price
    
    Value$1.00
    
    
    150,000
    
    
    
    0.50
    
    
    $
    1.00
    
    
    $
    
    
    
    
    150,000
    
    
    $
    1.00
    
    
    $
    
 F-13




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 5
Equity (Continued)
 Warrants
       WeightedAverageNumber of
    
    
    ExerciseWarrants
    
    
    PriceOutstanding at September 30, 2005
    
    
    3,550,000
    
    
    $
    2.78Granted  Girard Securities
    
    
    427,500
    
    
    
    0.75Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at September 30, 2006
    
    
    3,977,500
    
    
    
    2.56Granted  Guide Dog, LLC
    
    
    5,000,000
    
    
    
    0.20Exercised
    
    
    
    
    
    
    Expired
    
    
    (2,900,000
    )
    
    
    2.50Outstanding at September 30, 2007
    
    
    6,077,500
    
    
    $
    0.65
 F-14




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 5
Equity (Continued)
 Warrants (Continued)
  Warrants Outstanding
    
    Warrants ExercisableWeightedAverageRemaining
    
    
    
    
    
    WeightedContractural
    
    Number
    
    Average
    
    WeightedExercise
    
    Number of
    
    Life
    
    of
    
    Exercise
    
    AveragePrice
    
    Shares
    
    (In Years)
    
    Shares
    
    Price
    
    Fair Value$5.00
    
    
    400,000
    
    
    
    0.25
    
    
    
    400,000
    
    
    $
    5.00
    
    
    $
    0.10$2.50
    
    
    250,000
    
    
    
    0.72
    
    
    
    250,000
    
    
    $
    2.50
    
    
    $
    1.47$0.75
    
    
    427,500
    
    
    
    1.77
    
    
    
    427,500
    
    
    $
    0.75
    
    
    $
    0.69$0.20
    
    
    5,000,000
    
    
    
    3.00
    
    
    
    5,000,000
    
    
    $
    0.20
    
    
    $
    0.13
   Common Stock Grants
    (i)
    
    50,000 shares to Waterville Investment Research, Inc. (valued and expensed at
$0.90 per share) under the terms of our marketing agreement with Waterville Investment
Research, Inc.
 F-15




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 5
Equity (Continued)
 Common Stock Grants (Continued)
 (ii)
    
    250,000 shares to Codefire, Inc. (valued and expensed at $0.68 per share) in
conjunction with a litigation settlement.(iii)
    
    141,176 shares to Ray Artigue (valued at $0.55 per share, expensed as the
stock vests over a one year period, resulting in expense for the year of $6,471) under
the terms of our marketing agreement with Ray Artigue.(iv)
    
    141,176 shares to Charles Corbin (valued at $0.55 per share, expensed as the
stock vests over a two year period, resulting in expense for the year of $3,235) under
the terms of our exercise advisory service agreement with Charles Corbin.(v)
    
    141,176 shares to Craig Phelps (valued at $0.55 per share, expensed as the
stock vests over a two year period, resulting in expense for the year of $3,235) under
the terms of our medical and wellness advisory agreement with Craig Phelps.(vi)
    
    141,176 shares to Alare Capital Partners, LLC (valued at $0.55 per share,
expensed as the stock vests over a one year period, resulting in expense for the year
of $6,471) under the terms of our consulting agreement with Alare Capital Partners,
LLC.
 Note 6
Commitments and Contingencies
 Legal Proceedings
  Operating leases
  Year EndingSeptember 30,
    
    Amount2008
    
    $
    12,9652009
    
    
    7,803$
    20,768
  F-16




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 6
Commitments and Contingencies (Continued)
 Capital leases
  Other commitments and contingencies
    F-17




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 7
Income Taxes
  September 30,
    
    
    September 30,2007
    
    
    2006Benefit of Net Operating Loss
    
    $
    2,357,000
    
    
    $
    1,978,000Less: Valuation Allowance
    
    
    (2,357,000
    )
    
    
    (1,978,000
    )$
    
    
    
    $
    
   Net Operating LossCarryforward
    
    Federal
    
    StateExpires 2008
    
    $
    335,000
    
    
    
    2023
    
    
    
    2008Expires 2009
    
    
    2,955,000
    
    
    
    2024
    
    
    
    2009Expires 2010
    
    
    859,000
    
    
    
    2025
    
    
    
    2010Expires 2011
    
    
    922,000
    
    
    
    2026
    
    
    
    2011Expires 2012
    
    
    972,000
    
    
    
    2027
    
    
    
    2012$
    6,043,000
  September 30, 2007
    
    
    September 30, 2006Income tax benefit at federal statutory rate
    
    $
    (754,393
    )
    
    $
    (334,473
    )State income tax benefit, net of effect on federal taxes
    
    
    (86,216
    )
    
    
    (38,225
    )Permanent differences and other (federal)
    
    
    (55,602
    )
    
    
    117,708Permanent differences and other (state)
    
    
    (6,355
    )
    
    
    13,452Increase in valuation allowance
    
    
    902,566
    
    
    
    241,538Income tax expense (benefit)
    
    $
    
    
    
    $
    
 F-18




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 8
Investments  Joint Venture
       Note 9
401(K) Profit Sharing Plan
  Note 10
Going Concern
  F-19




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##### Table of Contents



TEKNIK DIGITAL ARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Note 10
Going Concern (Continued)
  F-20




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##### Table of Contents



Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
   
 Item 8A. CONTROLS AND PROCEDURES
  
 Item 8B. OTHER INFORMATION
  
 Part III
 
 Item 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
  Name
    
    Age
    
    PositionJohn R. Ward
    
    
    51
    
    
    Chairman, Chief Executive OfficerBenjamin Robins
    
    
    53
    
    
    DirectorKristine E. Ward
    
    
    57
    
    
    Secretary and Treasurer
 John R Ward
 Benjamin D. Robins
 14




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##### Table of Contents



Compliance with Section 16(a) of the Securities Exchange Act of 1934
   Compensation Committee
   
 Item 10. EXECUTIVE COMPENSATION
 Director Compensation
  15




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##### Table of Contents



Executive Compensation
  Summary Compensation Table
 Non-Equity
    
    NonqualifiedBonus
    
    Stock
    
    Option
    
    Incentive Plan
    
    Deferred
    
    All OtherName and
    
    
    
    
    
    Salary
    
    ($)
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    Compensation
    
    TotalPrincipal Position
    
    Year
    
    ($)(1)
    
    (1)(2)
    
    ($)(3)
    
    ($)(4)
    
    ($)(5)
    
    Earnings ($)(6)
    
    ($)(7)
    
    ($)John Ward
    
    
    2007
    
    
    $
    36,000
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    36,000Chief Executive
Officer2006
    
    
    $
    0
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    02005
    
    
    $
    20,667
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    20,667John Ward
    
    
    2007
    
    
    $
    36,000
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    36,000Chief Financial
Officer2006
    
    
    $
    0
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    02005
    
    
    $
    20,667
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    20,667Keith Dimond
    
    
    2007
    
    
    $
    0
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    02006
    
    
    $
    13,219
    
    
    $
    0
    
    
    
    0
    
    
    
    234,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    247,2192005
    
    
    $
    3,581
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    3,581Corey Comstock
    
    
    2007
    
    
    $
    0
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    02006
    
    
    $
    20,833
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    02005
    
    
    $
    100,000
    
    
    $
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0.
    
    
    $
    100,000
 
 (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 prior status as a
significant employee of the Company.(2)
    
    Mr. Ward accepted no salary from the Company for the fiscal year ended September 30, 2006.(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. Mr. Dimond resigned as CFO in April 2006 but continues to act as a consultant to
the Company on an ongoing contractual basis. The amount of salary listed in the table above
reflects total wages earned since becoming CFO in June 2005 up until his resignation as CFO in
April 2006.(4)
    
    Under the terms of his employment agreement with the Company, Mr. Comstock was entitled to an
annual salary of $100,000. On July 1, 2003, Mr. Comstock was issued 250,000 shares of common
stock (valued at the par value of $0.001 per share). 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 vested December 31, 2005. Additionally, in April 2004, our board of directors granted
Mr. 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 resigned during the
year ended September 30, 2006, forfeiting 500,000 shares of common stock and 150,000 options.
The Company has no further financial liability due to the former employee. 16




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##### Table of Contents



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
    
    
    
    3/31/08
 Stock Option Plan
    17




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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, 2007 (#)
    
    September 30, 2007 ($)Exercise
    
    Realized
    
    Exercisable/
    
    Exercisable/Name
    
    (#)
    
    ($)
    
    Unexercisable
    
    UnexercisableKeith Dimond
    
    
    0
    
    
    $
    0
    
    
    
    150,000/0
    
    
    $
    0
 
 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
    
    
    2,816,000
    
    
    
    19.2
    %Benjamin Robins
    
    
    100,000
    
    
    
    0.7
    %CodeFire Acquisition Corp.
    
    
    6,001,300
    (1)
    
    
    41.0
    %All officers and directors as a group (2 persons)
    
    
    8,917,300
    
    
    
    60.9
    %
 
 (1)
    
    Mr. Ward is the president of CodeFire Acquisition Corp. 
 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   18




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##### Table of Contents



Item 13. EXHIBITS
  
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  September 30, 2007
    
    September 30, 2006(i)
    
    Audit Fees
    
    $
    82,659
    
    
    $
    46,469(ii)
    
    Audit Related Fees
    
    $
    0
    
    
    $
    0(iii)
    
    Tax Fees
    
    $
    0
    
    
    $
    0(iv)
    
    All Other Fees
    
    $
    0
    
    
    $
    0
 Audit Committee Pre-Approval Policies and Procedures
  19




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##### Table of Contents



SIGNATURES
  TEKNIK DIGITAL ARTS, INC./s/ John R. WardJohn R. Ward, Chairman and Chief Executive Officer(Principal Executive Officer)   20




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Title3.1
    
    Articles of incorporation
    
    *3.2
    
    By-laws
    
    *10.1
    
    2004 Stock Option Plan, effective December 31, 2003
    
    *10.2
    
    Convertible Note Purchase Agreement
    
    **10.3
    
    Convertible Promissory Note
    
    **10.4
    
    Artigue Marketing Consulting Agreement
    
    **10.5
    
    Corbin Exercise and Wellness Consulting Agreement
    
    **10.6
    
    Phelps Medical and Wellness Consulting Agreement
    
    **10.7
    
    Alare Capital Partners Consulting Agreement
    
    **10.8
    
    Teknik-Powergrid Joint Venture Agreement
    
    **10.9
    
    Teknik-Powergrid Joint Venture License Agreement
    
    **24
    
    Powers of Attorney
    
    +31.1
    
    Certification pursuant to Rules 13a-14(a) and 15d-14(a)
of the Securities Exchange Act of 1934
    
    +31.2
    
    Certification pursuant to Rules 13a-14(a) and 15d-14(a)
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
    
    +
 
 *
    
    Included in the original filing of our Form SB-2 on August 10, 2004, SEC File Number 333-118101.**
    
    Included in the filing of our Form10KSB on December 28, 2006, SEC File Number 000-51253+
    
    Filed herewith. 21