SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2004

                                       OR

          / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from _____ to _____

                         COMMISSION FILE NUMBER: 1-11873

                                K2 DIGITAL, INC.


             (Exact name of registrant as specified in its charter)


          Delaware                                    13-3886065
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

                               c/o Thomas G. Amon
                   500 Fifth Avenue, Suite 1650, New York, NY
                 10110 (Address of principal executive offices,
                               including zip code)

                    Issuer's telephone number: (212) 810-2430

      SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:

                                      None.

      SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

                                  COMMON STOCK
                                (Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 X No

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation SB contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year:

$0

As of March 31, 2005, there were 4,982,699 shares (not including treasury
shares) of the Company's common stock outstanding. Based on the closing sales
price of the Company's common stock on March 31, 2005 of $0.035 per share, the
approximate aggregate market value of the Company's common stock held by
non-affiliates was approximately $174,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits are incorporated by reference to the Company's Registration
Statement on Form SB-2 and the amendments thereto, as listed in response to Item
13(a)(2).

           TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                                    Yes No X

<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

HISTORY

K2 Digital, Inc. (the "Company" or "K2") was founded in 1993 as a general
partnership and initially operated a traditional graphic design business. In
August 1994, the Company shifted its principal business to Web site design and
creation. Thereafter, the Company incorporated as a Delaware corporation. After
the Company's initial public offering on July 26, 1996, the Company began to
develop its business as a full-service digital professional services company.
The Company historically provided consulting and development services including
analysis, planning, systems design, creative and implementation. In November
2000, the Company changed its name from K2 Design, Inc. to K2 Digital, Inc. As
discussed below, the Company effectively ceased its operations in August 2001.

The Company's offices are located c/o Thomas G. Amon, 500 Fifth Avenue, Suite
1650, New York, New York 10110 and its telephone number is (212) 810-2430.

DISCONTINUED OPERATIONS

DISPOSITION OF ASSETS

On May 15, 2001, the Company entered into a non-binding letter of intent with
SGI Graphics LLC, a Delaware limited liability company ("SGI") pursuant to which
SGI expressed its interest in purchasing shares of restricted common stock of
the Company that would have represented fifty-one percent (51%) of the issued
and outstanding capital stock of the Company on a fully diluted basis.
Concurrently with the execution of the letter of intent, the Company borrowed
$250,000 from an affiliate of SGI, for working capital purposes pursuant to a
promissory note secured by a first priority security interest in all of the
assets of the Company. The Company and SGI were ultimately not able to agree on
the definitive terms of the transaction and, in July 2001, the Company and SGI
terminated negotiations and the letter of intent.

On August 29, 2001, the Company sold certain of its fixed and intangible assets
to Integrated Information Systems, Inc., a Delaware corporation ("IIS"),
including certain of the Company's customer contracts, furniture, fixtures,
equipment and intellectual property, for an aggregate purchase price of
$444,000, of which $419,000 was paid in cash and $25,000 of capital lease
obligations were assumed by IIS. IIS also assumed certain deferred revenues and
customer deposits. The Company recognized an approximate $218,000 gain on the
transaction.

Under the terms of the purchase agreement governing the transaction (the
"Purchase Agreement"), IIS assumed the Company's office lease obligations, took
up occupancy in the Company's premises and made offers of employment to
substantially all of the remaining employees of the Company, which offers were
accepted.

In addition to the purchase price and as consideration of the Company's release
of certain employees from the non-competition restrictions contained in their
agreements with the Company, the Company received from IIS at closing a
recruitment and placement fee of $75,000. In addition, the Purchase Agreement
provided for the Company to receive from IIS an additional placement fee of
$7,500 per key employee and $2,500 per other employee that remained employed by
IIS through December 31, 2001. This additional contingent placement fee was to
be paid by IIS in cash in five monthly installments beginning August 31, 2001,
pro rated monthly for the number of employees retained. As of December 31, 2001,
$31,000 of these contingent fees had been paid to the Company and $36,500 due to
the Company remained unpaid by IIS (which was fully reserved for at December 31,
2001). In October 2002, the Company received approximately $9,000 from IIS as a
final payment pursuant to a June 2002 settlement agreement pertaining to the
unpaid balance.

Under the Purchase Agreement, the Company also received from IIS a cash fee of
$50,000 in return for entering into certain noncompetition provisions contained
in the Purchase Agreement, which provide that the Company will not, for a period
of five years, (i) engage in any business of substantially the same character as
the business engaged in by the Company prior to the transaction, (ii) solicit
for employment any employee of IIS (including former employees of the Company),
or (iii) solicit any client or customer of IIS (including any customer
transferred to IIS under the Purchase Agreement) to do business with the
Company.



<PAGE>


Accordingly, the aggregate cash consideration delivered to the Company at
closing was $544,000, of which approximately $258,000 was paid directly to K2
Holdings LLC, an affiliate of SGI, the Company's principal secured creditor, in
order to release SGI's security interest in the assets of the Company.

Subsequent to the sale of assets to IIS, the Company effectively ceased
operations and has been in the process of liquidating assets, collecting
accounts receivable and paying creditors. The Company does not have any ongoing
business operations or any remaining revenue sources beyond those few remaining
receivables not purchased by IIS and not yet collected by the Company.
Accordingly, the Company's remaining operations will be limited to either a
business combination with an existing business (such as one described below) or
the winding up of the Company's remaining business and operations, subject, in
either case, to the approval of the stockholders of the Company. The proceeds
from the sale of assets plus the additional payment due from IIS (collection of
which is uncertain), together with assets not sold to IIS may not be sufficient
to repay substantially all remaining liabilities of the Company.

On January 15, 2002, K2 and FutureXmedia, Inc., f/k/a First Step Distribution
Network, Inc. ("FX") entered into an Agreement and Plan of Merger (the
"Agreement") by and among FX and its shareholders and First Step Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of K2 ("Merger Sub").
Under the terms of the Agreement, as amended, K2 was to have acquired FX by
means of a triangular merger, pursuant to which the Merger Sub would have been
merged with and into FX in a tax free reorganization. Subsequent to the
execution of the Agreement, FX encountered difficulties in financing its
business and in October, 2003 K2 notified FX that it was exploring other
possible transactions. The proposed merger with FX has now been terminated.

AGREEMENT AND PLAN OF MERGER

On January 30, 2004 the Company signed a non-binding letter of intent (the
"Merger Agreement") with SunriseUSA, Inc. "Sunrise", a Delaware Corporation,
whereby Sunrise would merge with the Company (the "Merger"). The minimum value
of the transaction to K2 shareholders was to be 2% of the issued and outstanding
number of shares post merger, with a minimum value of US$533,000. Sunrise is a
privately held holding company that was founded with the objective of
capitalizing on emerging opportunities within rural USA cable markets.

On December 31, 2004, the Company notified Sunrise that in light of the delays
in its consummating the proposed merger, it had decided to terminate the Merger
Agreement dated July 23, 2004 between the Company, Sunrise and K2 Acquisition
Corporation, effective December 31, 2004. Thereafter the parties continued to
discuss the terms of an extension of the Merger Agreement but the Company has
advised Sunrise that it is now exploring other options to enhance shareholder
value. These options may include a merger or similar transaction with another
entity, consummation of a merger with Sunrise pursuant to a new merger agreement
or amendment to the terminated agreement, or liquidation of the Company.

GOVERNMENT REGULATION

Having effectively ceased operations in August 2001, the Company is not
currently subject to direct regulation by any government agency, other than
regulations applicable to businesses generally. Web site developers such as the
Company face potential liability for the actions of clients and others using
their services, including liability for infringement of intellectual property
rights, rights of publicity, defamation, libel and criminal activity under the
laws of the U.S. and foreign jurisdictions. Any imposition of liability from the
Company's prior operations could have a material adverse effect on the Company.

EMPLOYEES

As a result of the transaction entered into with IIS in August 2001 and the fact
that the Company has effectively ceased operations, at December 31, 2004, the
Company had only one employee, Gary W. Brown, the Company's current President,
Chief Financial Officer and Secretary. Since August 2001, Mr. Brown's employment
with the Company has been limited to structuring and negotiating merger
transactions, as well as liquidating assets, collecting accounts receivable and
paying creditors. Since December 31, 2001, Mr. Brown has received no salary,
compensation or benefits.

ITEM 2. DESCRIPTION OF PROPERTY

None.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings as of the date
hereof.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company did not submit any matters to a vote of its stockholders, through
the solicitation of proxies or otherwise, during the fourth quarter of fiscal
2004.










<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock was delisted from the Nasdaq SmallCap Market
("NASDAQ") effective August 15, 2001 and currently trades in the
over-the-counter market under the symbol "KTWO.OB." Prior to its delisting, the
Company's common stock was traded on NASDAQ under the symbol "KTWO." The
following table sets forth, for the periods indicated, the range of high and low
price quotes of the Company's common stock as reported by the over-the-counter
bulletin board (for periods subsequent to the delisting) and NASDAQ (for periods
prior to the delisting) from the quarter ended March 31, 2003 through December
31, 2004. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.

         Fiscal Quarter Ended             High               Low
         --------------------             ----               ---

         March 31, 2003                   $0.04             $0.02

         June 30, 2003                    $0.04             $0.02

         September 30, 2003               $0.05             $0.03

         December 31, 2003                $0.05             $0.03

         March 31, 2004                   $0.09             $0.03

         June 30, 2004                    $0.06             $0.03

         September 30, 2004               $0.07             $0.02

         December 31, 2004                $0.05             $0.02



The approximate number of record holders of the Company's common stock at
December 31, 2004 was 27, not including beneficial owners whose shares are held
by banks, brokers and other nominees.

There were no repurchases by the Company of its common stock on the open market
or from any of its stockholders in fiscal year 2004 or 2003. At December 31,
2004, the Company held a total of 417,417 shares of treasury stock at a cost of
$819,296.

On December 11, 2000, the Company entered into a common stock purchase agreement
(the "Fusion Facility") with Fusion Capital Fund II, LLC ("Fusion Capital"), a
Chicago-based institutional investor. On January 26, 2001, the Company issued to
Fusion Capital, as a commitment fee for the Fusion Facility, 380,485 shares of
common stock, as well as warrants to purchase 297,162 shares of common stock at
an exercise price of $.01 per share, exercisable at any time over a five year
period. In May 2001, the Company issued 862,069 shares of common stock under the
Fusion Facility to an officer of the Company, in exchange for net proceeds of
$250,000. On August 14, 2001, Fusion Capital exercised a warrant to purchase an
additional 297,162 shares of the Company's common stock at an exercise price of
$.01 per share. After applying the net exercise provisions of the warrant, based
upon the closing sale price of the Company's common stock of $0.15 per share on
August 13, 2001, Fusion Capital received 277,351 shares of common stock upon
exercise of the warrant. The shares of common stock and warrants issued to
Fusion Capital were sold pursuant to the exemption from registration provided by
Section 4 (2) of the Securities Act of 1933, as amended, as an offering not
involving any public offering. Because the common stock and warrants were issued
to Fusion Capital as a commitment fee under the Fusion Facility, no proceeds
were received by the Company upon issuance of such common stock and warrants. On
March 4, 2003, the Fusion Facility was terminated.

The Company has not paid any dividends. The Company does not expect to pay cash
dividends on its common stock in the foreseeable future. Declaration of
dividends in the future will remain within the discretion of the Company's Board
of Directors.


<PAGE>


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's consolidated financial statements, the
accompanying notes thereto and other financial information appearing elsewhere
in this report. This section and other parts of this report contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Factors
Affecting Operating Results and Market Price of Stock" commencing on page 7.

OVERVIEW

Founded in 1993, the Company was a digital professional services company that,
until August 2001, provided consulting and development services, including
analysis, planning, systems design, creative and implementation. In August 2001,
the Company sold certain fixed and intangible assets of the Company to IIS,
including certain of the Company's customer contracts, furniture, fixtures,
equipment and intellectual property, and effectively became a "shell" company
with no revenues and continuing general and administrative expenses.

SUMMARY OF RESULTS

Following is a summary of the Company's operations for the years ended December
31, 2004 and 2003:

                                              2004           2003
                                            --------       --------

Other income                                $  2,641       $ 58,344
General and administrative expenses            4,186         33,554
                                            -----------------------

Net Income (Loss)                           $ (1,545)      $ 24,790

In 2004, other income represents a gain from the sale of 1,000 shares of 24/7
Real Media, Inc. common stock. In 2003, other income represents a gain from the
sale of 8,000 shares of 24/7 Real Media, Inc. common stock and the collection of
amounts due to the Company from a vendor. In 2004 and 2003, general and
administrative expenses primarily represent ongoing legal, accounting and other
public company costs, net of amounts paid by merger candidates and offset by
excess accruals reversed in each year.

CONTINUING OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES

Subsequent to the sale of assets to IIS, the Company effectively ceased
operations and has been in the process of liquidating assets, collecting
accounts receivable and paying creditors. The Company does not have any ongoing
business operations or revenue sources beyond those assets not purchased by IIS.
Accordingly, the Company's remaining operations will be limited to either a
business combination with an existing business or the winding up of the
Company's remaining business and operations, subject, in either case, to the
approval of the stockholders of the Company. The proceeds from the sale of
assets plus the additional contingent payments from IIS, together with assets
not sold to IIS may not be sufficient to repay substantially all of the
liabilities of the Company. These, among other matters, raise substantial doubt
about the Company's ability to continue as a going concern.

The Board of Directors of the Company has determined that, subject to
stockholder approval, the best course of action for the Company is to complete a
business combination with an existing business.

If the Company is unsuccessful in completing the Sunrise transaction,
management's alternative may include a further search for a similar business
combination or strategic alliance or liquidation of the Company under Chapter 7
of the U.S. Bankruptcy Code. There can be no assurance that the transaction
described above or management's alternative plan will be realized.

The Company's cash balance of $7,366 at December 31, 2004, decreased by $9,227
or 56% compared to the $16,593 cash balance at

<PAGE>


December 31, 2003. This decrease is primarily due to payments of ongoing
operating expenses, offset by the sale of 24/7 Real Media, Inc. common stock.

FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK

THE COMPANY HAS EFFECTIVELY DISCONTINUED ITS OPERATIONS.

In August 2001, the Company sold certain fixed and intangible assets essential
to its business operations and entered into a purchase agreement containing
provisions restricting the Company's ability to continue to engage in the
business engaged in by the Company prior to the transaction. Accordingly, the
Company's remaining operations have been limited to liquidating assets,
collecting accounts receivable, paying creditors, and negotiating and
structuring the transactions contemplated by the Merger Agreement or the winding
up of the Company's remaining business and operations, subject, in either case,
to the approval of the stockholders of the Company.

On December 31, 2004, the Company notified Sunrise that in light of the delays
in its consummating the proposed merger, it had decided to terminate the Merger
Agreement dated July 23, 2004 between the Company, Sunrise and K2 Acquisition
Corporation, effective December 31, 2004. Thereafter the parties continued to
discuss the terms of an extension of the Merger Agreement, but the Company has
advised Sunrise that it is now exploring other options to enhance shareholder
value. These options may include a merger or similar transaction with another
entity, consummation of a merger with Sunrise pursuant to a new merger agreement
or amendment to the terminated agreement, or liquidation of the Company.

There can be no assurance that a merger with Sunrise or another party will be
realized. If the Company is not successful in completing a merger, it is likely
that the Company will be liquidated under Chapter 7 of the U.S. Bankruptcy Code.

THE COMPANY'S STOCK HAS BEEN DELISTED FROM THE NASDAQ SMALLCAP MARKET

The Company's common stock was delisted from the Nasdaq SmallCap Market
effective August 15, 2001 and currently trades in the over-the-counter market.
On March 13, 2001, the Staff of the Nasdaq Stock Market notified the Company
that it had failed to demonstrate a closing bid price of at least $1.00 per
share for 30 consecutive trading days and was in violation of Nasdaq Marketplace
Rule 4310(c)(4). In accordance with applicable Nasdaq Marketplace rules, the
Company was provided a 90-day grace period, through June 11, 2001, during which
to regain compliance. On June 20, 2001, the Company requested a hearing, which
effectively stayed the delisting. However, after submission of materials in
support of the Company's position to the Panel, the Panel decided to delist the
Company's common stock from the Nasdaq SmallCap Market as of the open of
business on August 15, 2001. The delisting of the Company's common stock from
The Nasdaq SmallCap Market is likely to materially and adversely decrease the
already limited liquidity and market price of the common stock, and may increase
both volatility and the "spread" between bid and asked prices of the common
stock.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         K2 DIGITAL, INC. AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm                      F-1

Consolidated Financial Statements

   Consolidated Balance Sheet                                                F-2
   December 31, 2004

   Consolidated Statements of Operations and Comprehensive Income (Loss)     F-3
   For the Years Ended December 31, 2004 and 2003

   Consolidated Statements of Stockholders' Deficit                          F-4
   For the Years Ended December 31, 2004 and 2003

   Consolidated Statements of Cash Flows                                     F-5
   For the Years Ended December 31, 2004 and 2003

   Notes to Consolidated Financial Statements                           F-6 - 11



<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF K2 DIGITAL, INC.

We have audited the accompanying consolidated balance sheet of K2 Digital, Inc.
and Subsidiary as of December 31, 2004, and the related consolidated statements
of operations and comprehensive income (loss), stockholders' deficit and cash
flows for each of the years in the two-year period ended December 31, 2004.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of K2 Digital, Inc. and
Subsidiary as of December 31, 2004, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
2004, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, during 2001, the Company sold fixed and
intangible assets essential to its business operation and effectively became a
"shell" company with no revenues and continuing general and administrative
expenses. Further, at December 31, 2004, the Company had significant cumulative
losses, a diminutive cash balance and working capital and stockholders'
deficits. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.



                                         /s/  ROTHSTEIN, KASS & COMPANY, P.C.



ROSELAND, NEW JERSEY
APRIL 8, 2005

                                       F-1


<PAGE>




                         K2 DIGITAL, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004

                                     ASSETS
<TABLE>
<S>                                                                         <C>
CURRENT ASSETS:
     Cash                                                                   $     7,366
     Investment in available-for-sale security                                   56,290
                                                                            -----------
          Total current assets                                              $    63,656
                                                                            ===========



                          LIABILITIES & STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
     Accounts payable                                                       $   167,171
     Other accrued expenses                                                      16,995
                                                                            -----------
          Total current liabilities                                             184,166
                                                                            -----------



STOCKHOLDERS' DEFICIT
     Preferred Stock, $0.01 par value, authorized 1,000,000 shares;
          issued and outstanding nil shares
     Common Stock, $0.01 par value, authorized 24,000,000
          shares; Issued 5,400,116 shares, outstanding
          4,982,699 shares                                                       54,001
     Additional paid-in-capital                                               8,317,910
     Accumulated other comprehensive income                                      41,340
     Accumulated deficit                                                     (7,714,465)
                                                                            -----------
                                                                                698,786

     Less: Treasury stock, 417,417 shares at cost                              (819,296)


Total stockholders' deficit                                                    (120,510)
                                                                            -----------

Total liabilities and stockholders' deficit                                 $    63,656
                                                                            ===========
</TABLE>





See the accompanying notes to consolidated financial statements.

                                       F-2


<PAGE>


                         K2 DIGITAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                2004           2003
<S>                                                        <C>            <C>
Revenues                                                   $        --    $        --
Other income                                                     2,641         58,344
General and administrative expenses                              4,186         33,554
                                                           --------------------------
Net income (loss)                                          $    (1,545)   $    24,790
                                                           --------------------------

Net income (loss) per common share-
     basic and diluted                                     $    (0.000)   $     0.005

Weighted average common shares outstanding -
     basic and diluted                                       4,982,699      4,982,699
                                                           --------------------------

Comprehensive income (loss):

Net income (loss)                                          $    (1,545)   $    24,790
Other comprehensive income (loss),
Unrealized gain (loss) on available-for-sale security:
  Unrealized holding gain (loss) arising during the period     (33,719)       123,000
  Reclassification adjustment for loss (gain) included
     in net income (loss)                                       (2,641)       (45,300)
                                                           --------------------------
                                                               (36,360)        77,700
                                                           --------------------------
Comprehensive income (loss)                                $   (37,905)   $   102,490
                                                           ==========================
</TABLE>




See the accompanying notes to consolidated financial statements.

                                       F-3


<PAGE>

                         K2 DIGITAL, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                     YEARS ENDED DECEMBER 31, 2004 AND 2003


<TABLE>
<CAPTION>
                                                                           ACCUMULATED
                                                      ADDITIONAL    OTHER                                               TOTAL
                                    COMMON STOCK       PAID-IN   COMPREHENSIVE   DEFERRED   ACCUMULATED  TREASURY    STOCKHOLDERS'
                                  SHARES     AMOUNT    CAPITAL      INCOME     COMPENSATION   DEFICIT     STOCK        DEFICIT
                                  ------     ------    -------      ------     ------------   -------     -----        -------

<S>                              <C>        <C>      <C>           <C>         <C>         <C>           <C>         <C>
Balances, January 1, 2003        5,400,116  $54,001  $8,317,910    $     --    $     --    $(7,737,710)  $(819,296)  $(185,095)

Other comprehensive income,
  net of reclassification
  adjustment                                                         77,700                                             77,700

Net income                                                                                      24,790                  24,790

                                 --------------------------------------------------------------------------------------------

Balances, December 31, 2003      5,400,116   54,001   8,317,910      77,700          --     (7,712,920)   (819,296)    (82,605)

Other comprehensive loss,
  net of reclassification
  adjustment                                                        (36,360)                                           (36,360)

Net loss                                                                                        (1,545)                 (1,545)

Balances, December 31, 2004      5,400,116  $54,001  $8,317,910     $41,340    $     --    $(7,714,465)  $(819,296)  $(120,510)
                                 ==============================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       F-4


<PAGE>


                         K2 DIGITAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003
<TABLE>
<CAPTION>
                                                                               2004                 2003
<S>                                                                           <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                             $(1,545)            $ 24,790
Adjustments to reconcile net income (loss) to net cash
    used in operating activities:
    Gain on disposition of liabilities                                                             (35,100)
    Gain on sale of available-for-sale securities                              (2,630)             (45,300)
    Increase (decrease) in cash attributable to changes in
     operating assets and liabilities:
    Accounts payable                                                           19,173               10,030
    Accrued expenses                                                          (28,005)
                                                                             -----------------------------
Net cash used in operating activities                                         (13,007)             (45,580)
                                                                             -----------------------------

CASH FLOWS FROM INVESTING ACTIVITIES, gross proceeds
    from sale of available-for-sale securities:                                 3,780               54,000
                                                                             -----------------------------

Net increase (decrease) in cash                                               ( 9,227)               8,420

CASH, beginning of year                                                        16,593                8,173
                                                                             -----------------------------
CASH, end of year                                                            $  7,366             $ 16,593
                                                                             =============================
</TABLE>





See the accompanying notes to consolidated financial statements.

                                       F-5


<PAGE>


                         K2 DIGITAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Prior business and going concern consideration

Through August 2001, K2 Digital, Inc. (together with its wholly-owned
subsidiary, the "Company" or "K2") was a strategic digital services company that
provided consulting and development services including analysis, planning,
systems design and implementation. In August 2001, the Company completed the
sale of fixed and intangible assets essential to its business operations to
Integrated Information Systems, Inc. ("IIS").

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As indicated above, the Company
sold fixed and intangible assets essential to its business operations to IIS and
effectively became a "shell" company with no revenues and continuing general and
administrative expenses. Further, at December 31, 2004, the Company has
cumulative losses of approximately $7.7 million, a diminutive cash balance and
negative working capital and a stockholders' deficit of approximately $121,000.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

In January 2004, the Company signed a non-binding letter of intent with
SunriseUSA, Inc. ("Sunrise") whereby Sunrise would merge with the Company.
Sunrise is a privately-held holding company that was founded with the objective
of capitalizing on emerging opportunities with rural U.S. cable markets.
Ultimately, Sunrise will look to provide bundled telecommunication and cable
services that will represent a convenient alternative to the single product
offerings of some competing vendors. Effective July 23, 2004, the Company signed
a definitive Merger Agreement with Sunrise and K2 Acquisition Corporation,
("Acquisition"), a Delaware Corporation. Pursuant to the Merger Agreement, the
Company, Sunrise and Acquisition would consummate a merger wherein the
shareholders of Sunrise will exchange all of the issued and outstanding common
stock of Sunrise for newly issued shares of common and preferred stock of K2,
Acquisition will merge with and into Sunrise, and Sunrise will become a
wholly-owned subsidiary of K2. Post Merger, the current shareholders of the
Registrant would own a minimum of 2.5% of the surviving entity, which percentage
would be adjusted upward to 3.5% of the surviving entity since new equity
funding was not received by December 31, 2004 (a provision of the definitive
merger agreement).

On December 31, 2004, the Company notified Sunrise that in light of the delays
in its consummating the proposed merger, it had decided to terminate the Merger
Agreement dated July 23, 2004 between the Company, Sunrise and K2 Acquisition
Corporation, effective December 31, 2004. Thereafter, the parties continued to
discuss the terms of an extension of the Merger Agreement but the Company has
advised Sunrise that it is now exploring other options to enhance shareholder
value. These options may include a merger or similar transaction with another
entity, consummation of a merger with Sunrise pursuant to a new merger agreement
or amendment to the terminated agreement, or liquidation of the Company.

2. Summary of significant accounting policies

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of K2
Digital, Inc. and its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of the Company's assets and liabilities that qualify as
financial instruments under Statement of Financial Accounting Standards ("SFAS")
No. 107, "Disclosure about Fair Value of Financial Instruments," approximate
their carrying amounts presented in the consolidated balance sheet at December
31, 2004.

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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

                                       F-6


<PAGE>


                         K2 DIGITAL INC, AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2. Summary of significant accounting policies (continued)

INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES

The Company accounts for its investment in a publicly-traded common stock, 24/7
Real Media, Inc. (formerly 24/7 Media, Inc.) ("24/7 stock"), as
available-for-sale. Available-for-sale securities are carried at fair value
(based upon published closing prices), with the unrealized gains and losses
reported in stockholders' equity (deficit) under the caption accumulated other
comprehensive income (loss). Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in operations.

During the years ended December 31, 2004 and 2003, the Company sold 1,000 and
8,000 shares (after giving effect to 24/7 stock 1-for-5 stock split),
respectively, of 24/7 stock for aggregate proceeds of approximately $4,000 in
2004 and $55,000 in 2003, recognizing a realized gain of approximately $3,000 in
2004 and $45,000 in 2003. At December 31, 2004, the Company had an approximate
$41,000 gross unrealized holding gain on the remaining 13,000 shares of 24/7
stock. During the years ended December 31, 2004 and 2003, the change in
unrealized holding gain (loss) from available-for-sale security was
approximately ($36,000) and $78,000, respectively.

INCOME TAXES

The Company complies with SFAS No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts, based on
enacted tax laws and rates to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.

                                       F-7


<PAGE>


                         K2 DIGITAL, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2. Summary of significant accounting policies (continued)

NET INCOME (LOSS) PER COMMON SHARE

The Company complies with SFAS No. 128, "Earnings Per Share", which requires
dual presentation of basic and diluted earnings per share. Basic earnings per
share excluded dilution and is computed by dividing net income (loss) available
to common stockholders by the weighted average common shares outstanding for the
year. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted to common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Since the effect of outstanding options is
anti-dilutive, they have been excluded from the Company's computation of net
income (loss) per common share. Therefore, basic and diluted income (loss) per
common share for the years ended December 31, 2004 and 2003 were the same.

STOCK-BASED COMPENSATION

The Company follows SFAS No. 123 "Accounting for Stock-Based Compensation." The
provisions of SFAS No. 123 allow companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees" but disclose the pro forma effect on net income
(loss) had the fair value of the options been expensed. The Company has elected
to continue to apply APB Opinion No. 25 in accounting for its stock option
incentive plans.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No.
123R is a revision of SFAS No. 123, "Accounting for Stock Based Compensation,"
and supersedes APB Opinion No. 25 ("APB No. 25"). Among other items, SFAS No.
123R eliminates the use of APB No. 25 and the intrinsic value method of
accounting, and requires companies to recognize the cost of employee services
received in exchange for awards of equity instruments, based on the grant date
fair value of those awards, in the financial statements. The effective date of
SFAS No. 123R for the Company is the first quarter of 2006. SFAS No. 123R
permits companies to adopt its requirements using either a "modified
prospective" method, or a "modified retrospective" method. Under the "modified
prospective" method, compensation cost is recognized in the financial statements
beginning with the effective date, based on the requirements of SFAS No. 123R
for all share-based payments granted after that date, and based on the
requirements of SFAS No. 123 for all unvested awards granted prior to the
effective date of SFAS No. 123R. Under the "modified retrospective" method, the
requirements are the same as under the "modified prospective" method, but also
permits entities to restate financial statements of previous periods, either for
all prior periods presented or to the beginning of the fiscal year in which the
statement is adopted, based on previous pro forma disclosures made in accordance
with SFAS No. 123. The Company has not yet determined which of the methods it
will use upon adoption.

The Company currently utilizes the Black-Scholes option pricing model to measure
the fair value of stock options granted to employees. While SFAS No. 123R
permits entities to continue to use such a model, it also permits the use of a
"lattice" model. The Company expects to continue using the Black-Scholes option
pricing model upon adoption of SFAS No. 123R to measure the fair value of stock
options.

The adoption of this statement will have the effect of reducing net income and
income per share as compared to what would be reported under the current
requirements. These future amounts cannot be precisely estimated because they
depend on, among other things, the number of options issued in the future, and
accordingly, the Company has not determined the impact of adoption of this
statement on its results of operations.

                                       F-8


<PAGE>


                         K2 DIGITAL, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. Commitments and contingencies

Although management believes that it has adequately provided for all of its
known liabilities at December 31, 2004, the Company may be exposed to potential
contingencies related to its business activities that have been discontinued. At
the present time, the Company is not aware of any contingencies that would
require accrual or disclosure in the consolidated financial statements pursuant
to SFAS No.5.

4. Income taxes

The provision (benefit) for income taxes on the net income (loss) for the years
ended December 31, 2004 and 2003 differs from the amount computed by applying
the Federal statutory rate due to the following:

                                              2004             2003
                                             ------           ------

Statutory Federal income tax rate             34.0%            34.0%

State and local taxes, net                     5.1              5.1

Valuation allowance and other                 39.1            (39.1)
                                             ----------------------

Effective income tax rate                       --%              --%
                                             ======================



As of December 31, 2004, the Company had net operating loss carryforwards of
approximately $8.5 million for federal and state income tax purposes, which are
available to reduce future taxable income and will expire through 2024 if not
utilized. In addition, a 2001 impairment charge related to the investment in
available-for-sale securities of approximately $0.8 million, net of
approximately $0.6 million deducted during the years ended December 31, 2004 and
2003 for 2004 and 2003 sales, is not deductible until the securities are sold.
The future tax benefits associated with the net operating loss carryforwards and
impairment charge were the primary components of an estimated $3.7 million
deferred tax asset at December 31, 2004. A valuation allowance has been
established for the entire amount of the deferred tax asset since its
realization is considered unlikely. Further, a change in the ownership of a
majority of the fair market value of the Company's common stock (such as the
change in ownership that would occur in the contemplated transaction discussed
in Note 1) could significantly delay or limit the utilization of net operating
loss carryforwards.

                                       F-9


<PAGE>


                         K2 DIGITAL, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. Stock option plan

The Company has two stock plans, the 1996 Stock Option Plan (the "1996 Plan"),
and the 1997 Stock Incentive Plan (the "1997 Plan", and together with the 1996
Plan, the "Plans"). Pursuant to the Plans, designated employees, including
officers and directors of the Company and certain outside consultants, will be
entitled to receive nonqualified stock options and qualified stock incentive
compensation of up to 225,000 and 500,000 options under the 1996 Plan and 1997
Plan respectively. The number of options available under the 1997 Plan were
increased by an additional 400,000 and 800,000 options in 1999 and 2000,
respectively, to a total of 1,700,000 options. In January 2001, the Board of
Directors and stockholders approved an amendment to the 1997 Plan to increase
the aggregate number of shares reserved for future issuance of the Company's
common stock under the 1997 Plan from 1,700,000 shares to 3,000,000 shares. As
of December 31, 2004, there were 1,135,500 shares of common stock available for
grant under the Plans. The 1996 Plan expires on January 1, 2006 and the 1997
Plan expires on June 12, 2007. Under the terms of the Plans, the minimum
exercise price of options granted cannot be less than 100% of the fair market
value of the common stock of the Company on the option grant date. Options
granted under the Plan generally expire ten years after the option grant date.
For incentive stock options granted to such persons who would be deemed to have
in excess of a 10% ownership interest in the Company, the option price shall not
be less that 110% of such fair market value for all options granted, and the
options expire five years after the option grant date.

A summary of the Plans at December 31, 2004, and 2003 is presented in the table
below:

<TABLE>
<CAPTION>
                                                                                Weighted Average
                                            Shares            Range              Exercise Price
                                          ----------        ---------          ------------------
<S>                                         <C>            <C>                      <C>
Outstanding at December 31, 2002            982,750        $0.05 - $5.81            $  2.40
Granted                                          --                   --                 --
Expired                                          --                   --                 --
                                            -------        -------------            -------
Outstanding at December 31, 2003            982,750        $0.05 - $5.81            $  2.40
Granted                                          --                   --                 --
Expired                                          --                   --                 --
                                            -------        -------------            -------
Outstanding at December 31, 2004            982,750        $0.05 - $5.81            $  2.40


At December 31, 2004, substantially all
outstanding shares are exercisable
</TABLE>

No options were granted during the years ended December 31, 2004 and 2003.

Further information about the Company's outstanding stock options at December
31, 2004 is as follow:
<TABLE>
<CAPTION>
                                                     Weighted Average
                                      Number of    Remaining Contractual   Weighted Average
Range of Exercise Prices               Shares         Life (in Years)          Exercise
------------------------              ---------    ---------------------   ----------------
<S>                                     <C>                <C>                  <C>
$0.05                                   40,000             7.7                  $ 0.05
$0.66 to $1.09                         181,000             6.1                    0.74
$1.50 to $1.75                         435,000             3.7                    1.52
$2.50 to $2.94                          37,500             4.5                    2.60
$5.00 to $5.81                         289,250             5.3                    5.05
                                       -------           -------                ------

Outstanding at December 31, 2004       982,750             4.8                    2.40
</TABLE>


                                      F-10
<PAGE>


                         K2 DIGITAL, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. Stock option plan (continued)

The Company accounts for the Plans under APB Opinion No. 25, "Accounting for
Stock Issued to Employees" under which no compensation cost is recognized for
stock options granted to employees with an exercise price at or above the
prevailing market price on the date of the grant. Had compensation cost for the
Plans been determined consistent with the fair value approach required by SFAS
No. 123, the Company's net income (loss) and basic and diluted net income (loss)
per common share for the years ended December 31, 2004 and 2003 would have been
the following pro forma amounts (in thousands, except for per share data):

                                           2004              2003
                                           ----              ----

Net income (loss), as reported          $   (2)           $   25

Stock-based employee compensation
determined under the fair value
based method, net of related taxes          (3)              (35)
                                          -----            ------

Net loss, proforma                      $   (5)           $  (10)
                                          =====            ======

Net income (loss) per common share,
    basic and diluted:

As reported                             $(0.000)          $ 0.005
                                          =====            =======
Proforma                                $(0.001)          $(0.002)
                                          =====            =======



The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with following assumptions:
risk-free interest rate of 4.5%; no expected dividend yields for options
granted; expected lives of 4 years and expected stock price volatility of
approximately 124%.

                                      F-11

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 8A. CONTROLS AND PROCEDURES

The chief executive officer and chief financial officer of K2 Digital, Inc.
after conducting an evaluation, of the effectiveness of the design and operation
of the Company's disclosure controls and procedures as of a date within 90 days
of the filing of this report, has concluded that K2 Digital, Inc.'s disclosure
controls and procedures were effective to ensure that information required to be
disclosed by K2 Digital, Inc. in its reports filed or submitted under the
Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission (the "SEC"). There were no significant
changes in K2 Digital, Inc.'s internal controls or in other factors that could
significantly affect these controls subsequent to that evaluation, and there
were no significant deficiencies or material weaknesses in such controls
requiring corrective actions.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS OF THE COMPANY

Since December 31, 2001, one director has tendered his resignation from the
Company's Board of Directors. Dr. Steven N. Goldstein resigned effective March
31, 2002. Set forth below are the current directors of the Company.

Matthew G. de Ganon, age 42, has been a director since he joined the Company in
July 1995. Mr. de Ganon resigned from his position as an executive officer of
the Company effective August 1, 2001. From that time until April 2002, Mr. de
Ganon was employed by Integrated Information Systems, Inc., which purchased
certain assets of the Company in August 2001. He was President of the Company
from June 1996 to November 1998 and was also the Chief Operating Officer of the
Company from July 1995 to November 1997. Mr. de Ganon is currently Vice
President and General Manager, consumer applications software at The Weather
Channel Interactive. Until June 2004, Mr. de Ganon was President of Arcavista
Corporation. For the two years prior to joining the Company, Mr. de Ganon
operated a business that created CD-ROM products and offered consulting services
regarding the use of electronic delivery to publishers of newsletters and
directories. Mr. de Ganon is co-author of the essay, "Overcoming Future Shock on
the Superhighway: Suggestions for Providers and Technocrats," published and
presented in the 1994 National Online Conference Proceedings. From August 1992
to July 1993, Mr. de Ganon was the Vice President of New Media of Superior
Computer Systems, Inc., a software developer. Mr. de Ganon's work focused on
UNIX-based 4GL accounting software customization for corporate clients. From May
1991 to July 1992, Mr. de Ganon was involved in casting administration for the
Motion Picture Group of Universal Studios, Inc. He was a franchised theatrical
agent with the Stone Manners Agency in Los Angeles, California from August 1987
to May 1991.

Douglas E. Cleek, age 42, who co-founded the Company in 1993, has been a
director of the Company since it was reorganized as a corporation in January
1995. From January 1995 until August 2001, Mr. Cleek served as the Company's
Executive Vice President--Chief Creative Officer. From 1993 until 1995, Mr.
Cleek was a general partner and Co-Creative Director of the Company. While at
the company he helped develop many of the industry's firsts, including one of
the first CASIE awards for the live webcast of IBM's Deep Blue vs. Kasparov. He
has also served as a judge for the CASIE Awards and International Web Page
Awards. He then accepted the position of Creative Director at Integrated
Information Systems, Inc., when IIS purchased certain assets of K2 Digital,
Inc., in August 2001. In March 2002, he resigned his executive position to
pursue other opportunities. He currently holds a position as Creative Director /
Stratetgist at Magnitude 9.6, Inc., headquartered in New York City. For more
than five years prior to that, Mr. Cleek was an art director for William Allen &
Co. and its successor, A.J. Bart & Sons, specializing in graphic promotional
materials for the travel & hospitality industry.

Gary W. Brown, age 51, has been a director of the Company since February 2000
and joined the Company in April 2000 as Executive Vice President and Chief
Operating Officer. Since August 2001, Mr. Brown has served as President,
Secretary, Chief Financial Officer and Chief Operating Officer of the Company.
Since November 2001, Mr. Brown has served as Senior Vice President and Managing
Director of the Risk Management Division of Canadian Imperial Bank of Commerce
(CIBC World Markets). In March 2004, Mr. Brown was appointed Chief Operating
Officer - US Region and in September 2004, President and Chief Executive
Officer, CIBC World Markets Corp. and Head of the US Region. Prior to that, Mr.
Brown was employed from July 1980 through June 1999 in various management roles
with UBS AG, the successor organization to Union Bank of Switzerland, including
the role of New York Branch Manager. There he served as Division Head for
Structured Finance, one of UBS's six operating divisions in the Americas prior
to the merger of UBS with Swiss Bank Corporation in 1998. Post-merger, Mr. Brown
was designated Chief Credit Officer-Americas for UBS's investment banking
division, Warburg, Dillon Read, where he was responsible for capital commitments
of the firm. Mr. Brown held various business development and risk management
positions throughout his 19-year career at UBS. He also served as President of
the New York Chapter of The Risk Management Association, the trade association
for the financial services risk management industry, and as an ex-officio member
of the RMA National Board. From 1991-1999, he has served on the Board of
Directors of Sefar Americas, a subsidiary of Sefar AG, a manufacturer of Swiss
synthetic fabrics. Prior to joining UBS in 1980, Mr. Brown was employed from
June 1976 through June 1980 with The Chase Manhattan Bank, having served in
various business development functions. Mr. Brown received a Bachelor of Science
degree in Business Administration from Oral Roberts University in May 1976.

David R. Sklaver, age 51, has been a director of the Company since 1999. Since
October 2001, Mr. Sklaver has been President and Chief Executive Officer of
UPOC, Inc., a marketing company. From June 1997 to October 2001, Mr. Sklaver was
a General Partner and Chief Executive Officer of Artustry Partnership, a
strategic and creative marketing company, of which he was a founder. Since
October 1995, Mr. Sklaver has also served as President of Phase 2, Inc. From
1993 to 1995, Mr. Sklaver served as President of Wells Rich Greene DDB, an
advertising agency handling Fortune 500 clients. Prior to being promoted to
President, Mr. Sklaver served as Executive Vice President, Director of Client
Services of Wells Rich Greene from 1989 to 1993. From 1986 to 1988, Mr. Sklaver
was Executive Vice President, Account Group Head, at advertising agency BBD
Needham, New York. From 1984 to 1985, Mr. Sklaver was Managing Director of DDB's
Sydney office. From 1978 to 1984, he served in Account Management at DDB New
York. Prior to 1978, Mr. Sklaver held positions at Foote, Cone & Belding
Advertising and Standard Brands, both advertising agencies.

<PAGE>


FILING REQUIREMENTS

The Company believes that all filing requirements under Section 16(a) of the
Securities Act of 1934, as amended, applicable to its officers, directors and
greater than 10% beneficial owners were complied with during the fiscal year
ended December 31, 2004.

ITEM 10. EXECUTIVE COMPENSATION

DIRECTOR FEES

Directors who are employees of the Company receive no additional compensation
for their service as directors. Directors not so employed are entitled to
receive $25,000 in compensation annually and are entitled to be reimbursed for
expenses incurred in connection with meeting attendance. In addition, each of
the Company's non-employee Directors are granted options to acquire 5,000 shares
of the Company's common stock upon their election or reelection to the Board.
Current Directors have not received any compensation for their services to the
Company since the year-ended December 31, 2002. They may, however, be granted
options to acquire Company common stock in the future.




















<PAGE>


ADVISOR FEES

All non-employees serving as members of the Company's Board of Advisors receive
options to purchase up to 5,000 shares of the Company's common stock upon their
election to the Board of Advisors. There were two members of the Board of
Advisors for the year ending December 31,2001.

EXECUTIVE COMPENSATION

The following table sets forth, for the last three completed fiscal years, the
total annual compensation paid or accrued by the Company for services in all
capacities for the Chief Executive Officer, and those other executive officers
(the "Named Executives") who served in executive capacities during fiscal 2004
and had aggregate compensation in excess of $100,000. Except for Mr. Brown, each
of the Named Executives has resigned his or her position as an officer of the
Company, effective August 1, 2001.

<TABLE>
<CAPTION>
                                                                      Annual Compensation (1)      Long Term Compensation
                                                                      -----------------------      ----------------------
                Name and Principal Position                Year         Salary         Bonus     Restricted         Option
                ---------------------------                ----         ------         -----     -----------        ------
                                                                                                 Stock Awards       Awards
                                                                                                 ------------       ------
<S>                                                        <C>            <C>            <C>         <C>              <C>
Matthew G. de Ganon, Chairman of the Board (2)             2004           --             --          --               --
                                                           2003           --             --          --               --
                                                           2002           --             --          --               --

Douglas E. Cleek, former Executive Vice President -
Chief Creative Officer (2)                                 2004           --             --          --               --
                                                           2003           --             --          --               --
                                                           2002           --             --          --               --


Gary W. Brown, President, Chief Financial Officer and

Secretary (3)(4)                                           2004           --             --          --               --
                                                           2003           --             --          --               --
                                                           2002           --             --          --               --
</TABLE>



(1) The value of perquisites and other personal benefits does not exceed 10% of
the officer's salary. The Company effectively ceased its operations in August
2001.

(2) Resigned as an Officer of the Company effective August 1, 2001.

(3) Mr. Brown accepted compensation less than provided for in his employment
agreement during 2001, and has received no salary, compensation or benefits
since December 31, 2001.

(4) 50,000 shares vested on April 14, 2001 and the remaining 50,000 shares
vested on April 14, 2002. Based on the closing price of the Company's common
stock on April 14, 2000 of $5.00 per share, the fair market value of the
restricted stock awards on the date of grant was $500,000.

EMPLOYMENT CONTRACTS FOR EXECUTIVE OFFICERS

Matthew G. de Ganon, Lynn Fantom and Douglas E. Cleek resigned from their
positions as officers of the Company effective August 1, 2001. In connection
with their resignations, Mr. de Gannon and Mr. Cleek executed releases,
releasing the Company from any further liability under their employment
agreements with the Company.

The employment contract between the Company and Lynn Fantom, as Chief Executive
Officer and President of the Company, terminated on December 31, 2000 and a new
employment contract between the Company and Ms. Fantom as Chief Executive Office
and President of the Company was entered into on February 13, 2001 and was
scheduled to terminate on December 31, 2002. Ms. Fantom resigned from her
position as Chief Executive Officer and President of the Company effective
August 1, 2001.

Gary W. Brown joined the Company as Executive Vice President and Chief Operating
Officer on April 14, 2000 and is currently the Company's President, Chief
Financial Officer and Secretary. Mr. Brown signed an employment contract with
the Company that expired on March 31, 2002. The employment contract provided for
an annual salary of $225,000 and a discretionary annual bonus in the form of
stock options up to a maximum of 100,000 shares of the Company's common stock
per year. Upon joining the Company, Mr. Brown also received 100,000 shares of
restricted stock and options to purchase up to 263,000 shares of the Company's
common stock, all of which had vested as of April 14, 2002.


<PAGE>


OPTION GRANTS IN FISCAL 2004 AND 2003

No stock options were granted under the 1996 Plan or the 1997 Plan for the
year-ended December 31, 2004 and December 31, 2003.

OPTION GRANTS IN FISCAL 2001

The following table sets forth individual grants of stock options made under the
Company's 1996 Stock Incentive Plan (the "1996 Plan") and the 1997 Stock
Incentive Plan (the "1997 Plan") during the fiscal year ended December 31, 2001
for the each of the Named Executives.
<TABLE>
<CAPTION>
                                                   Percent of Total
                          Number of Securities    Options Granted to
                           Underlying Options     Employees in Fiscal      Exercise or Base
Name                            Granted                 Year(1)              Price ($/Sh)         Expiration Date
----                      --------------------    -------------------      ----------------       ---------------
<S>                            <C>                        <C>                   <C>                       <C>
Matthew G. de                      --                     --                      --                     --
Ganon

Douglas E. Cleek                   --                     --                      --                     --

Gary W. Brown                  100,000(2)                 33%                   $0.75             January 2, 2011
</TABLE>



(1) Calculated as a percentage of total options granted to all employees under
both the 1996 Plan and the 1997 Plan.

(2) Such options were granted under the 1997 Plan.

No stock options were granted under the 1996 Plan and 300,000 stock options were
granted under the 1997 Plan to all executive officers and directors as a group
during the fiscal year ended December 31, 2001. Such options are exercisable at
prices per share (reflecting the fair market value on the dates of grant) of
$0.75 under the 1997 Plan. None of such options were exercised during fiscal
2004.

OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE

The table set forth below shows the value of unexercised options under the 1996
Plan and the 1997 Plan held on December 31, 2004 by each of the Named Executives
or Directors.

<TABLE>
<CAPTION>
                                                                                               Value of
                                                         Number of Securities            Unexercised In-the-Money
                             Shares                     Underlying Unexercised          Options held on December 31,
                            Acquired                 Options at December 31, 2004             2004 ($)(1)
                               on         Value      ----------------------------      -----------------------------
Name                        Exercise     Realized    Exercisable    Unexercisable      Exercisable    Unexercisable
-------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>      <C>                 <C>               <C>             <C>
Matthew G. de Ganon            --          --          6,250(2)          --               --              --

Douglas E. Cleek               --          --          6,250(2)          --               --              --

Gary W. Brown                  --          --        368,000(3)          --               --              --
</TABLE>



(1) Based on the closing price of the Company's common stock on December 31,
2004, the last day in fiscal 2004 on which the markets were open for business,
which was $0.025.

(2) Represents grants made under the 1996 Plan.

(3) Represents 346,000 options granted under the 1997 Plan and 22,000 options
granted under the 1996 Plan.


<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

BENEFICIAL OWNERSHIP

The following table sets forth information, as of March 31, 2005 as to the
beneficial ownership of common stock (including shares which may be acquired
within 60 days pursuant to stock options) of each director of the Company, the
Chief Executive Officer of the Company, all directors and executive officers as
a group and persons known by the Company to beneficially own 5% or more of the
common stock. Except as set forth below, each of the listed persons has sole
voting and investment power with respect to the shares beneficially owned by
such person. Except as otherwise indicated, the address of each person included
in the table to the Company, in c/o Thomas G. Amon, Attorney at Law, 500 Fifth
Avenue, Suite 1650, New York, New York 10110.
<TABLE>
<CAPTION>
                                            Shares of Common Stock
Name of Owner                                 Beneficially Owned                 Percent of Class (1)
-------------                                 ------------------                 ----------------
<S>                                             <C>                                    <C>
Matthew G. de Ganon                               936,993(2)                           18.8

Douglas E. Cleek                                  430,531(2)(3)                         8.6

Lynn Fantom                                       405,000(4)                            8.1

Gary W. Brown                                   1,348,069(5)                           27.1

Steven N. Goldstein                                15,000(6)                             *

David Sklaver                                      15,000(6)                             *

All Directors and Executive                     2,720,062(7)                           54.6
Officers as a group (6 persons)
</TABLE>
*Less than one percent.



(1) Does not give effect to: (i) shares held in treasury and (ii) options held
by persons other than the persons named above.

(2) Messrs. de Ganon and Cleek resigned from their positions as officers of the
Company effective August 1, 2001. Pursuant to a 10-year voting agreement entered
into by Messrs. de Ganon, Cleek, David Centner (a former Chief Operating Officer
and Director of the Company) and Bradley Szollose (a former Secretary and
Director of the Company), effective July 26, 1996 (the "Voting Agreement"), the
voting control over 498,158 shares held by Messrs. Cleek, Centner and Szollose
and 6,250 shares underlying presently exercisable stock options held by Mr.
Cleek are vested in Mr. de Ganon. Such shares subject to the Voting Agreement
must be voted in favor of the election of Mr. de Ganon. In addition, the Voting
Agreement grants each party thereto a right of first refusal as to the sale of
the others' common stock. Messrs. de Ganon, Cleek, Centner and Szollose each
disclaim beneficial ownership of those shares with respect to which they are not
record owners. Mr. de Ganon's holdings also include 6,250 shares underlying
presently exercisable stock options held by him.

(3) Includes 6,250 shares underlying presently exercisable stock options.

(4) Ms. Lynn Fantom, the former Chief Executive Officer resigned from her
position as an officer of the Company effective August 1, 2001 and resigned as a
director of the Company effective November 6, 2001. Includes 400,000 shares
underlying presently exercisable stock options, but excludes 200,000 unvested
stock options granted in 2001 that were cancelled upon her resignation from the
company. Ms. Fantom disclaims beneficial ownership of all such shares underlying
unexercised options.

(5) Includes 368,000 shares underlying presently exercisable stock options: (i)
136,500 shares underlying options which vested on April 14, 2001, (ii) 131,500
shares underlying options which vested on April 14, 2002, 50,000 shares
underlying options which vested on January 2, 2002 and 50,000 shares underlying
unvested stock options which vested on January 2, 2003; (iii) 50,000 shares of
restricted common stock which vested on April 14, 2001, and (iv) 50,000 shares
of restricted common stock which vested on April 14, 2002. Mr. Brown disclaims
beneficial ownership of all shares underlying unexercised and/or unvested
options.

(6) Includes 15,000 shares underlying presently exercisable stock options.


<PAGE>

(7) Includes 760,500 shares underlying presently exercisable stock options and
50,000 shares underlying unvested stock options, all of which vest upon the
occurrence of certain change of control transactions. Note that 430,531 of the
2,720,062 shares are subject to the Voting Agreement described above and are
therefore listed as beneficially owned by both Mr. de Ganon and Mr. Cleek. These
shares are counted only once for purposes of the aggregate number of shares of
common stock beneficially owned by all directors and executive officers as a
group.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN RELATED TRANSACTIONS

On May 15, 2001, Mr. Brown acquired 862,069 shares of common stock of the
Company for an aggregate purchase price of $250,000. Mr. Brown purchased the
shares through the Fusion Facility described above. Mr. Brown acquired the
shares for personal investment purposes and to further demonstrate to a
potential investor in the Company his confidence in the Company and the
alignment of his interests, as an officer and director of the Company, with the
interests of the stockholders of the Company.


                                     PART IV


ITEM 13. EXHIBIT LIST AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Documents filed as part of this report:                                                                                   Page
<S>                                                                                                                            <C>
1. Report of Independent Registered Public Accounting Firm.....................................................................F-1

2. Consolidated Financial Statements

Consolidated Balance Sheet - December 31, 2004.................................................................................F-2

Consolidated Statements of Operations and Comprehensive Income (Loss) - For the years ended December 31, 2004 and 2003........ F-3

Consolidated Statements of Stockholders' Deficit - For the years ended December 31, 2004 and 2003..............................F-4

Consolidated Statements of Cash Flows - For the years ended December 31, 2004 and 2003 ........................................F-5

    Notes to Consolidated Financial Statements............................................................................F-6 - 11
</TABLE>





3.  Exhibits

    3.1      Certificate of Incorporation of the Company*

    3.1(a)   Amendment to Certificate of Incorporation of the Company*

    3.1(b)   Amendment to Certificate of Incorporation of the Company
             (incorporated by reference from the Registrant's Form 10-KSB for
             its fiscal year ended 12/31/00).

    3.2      By-laws of the Company*

    3.2(b)   Amendment to By-laws of the Company*

    4.1      Common Stock Certificate*

    4.2      Warrant Certificate*

    4.4      Warrant Agreement by and between Continental Stock Transfer &
             Trust Company and the Company*

    4.5      Voting Agreement among Messrs. Centner, de Ganon, Cleek and
             Szollose*

    10.1     1996 Stock Incentive Plan and Rules Relating thereto*


<PAGE>


    10.2     1997 Stock Option Plan (incorporated by reference from the
             Registrant's Form 10-KSB for its fiscal year ended 12/31/96).

    10.3     Amendment to 1997 Stock Option Plan (incorporated by reference from
             the Registrant's Form 10-KSB for its fiscal year ended 12/31/00).

    10.4     Consulting Agreement with Harvey Berlent*

    10.5     Employment Agreement with Matthew G. de Ganon*








10.19    Agreement and Plan of Merger, dated as of January 15, 2002, by and
         among First Step Distribution Network, Inc. and its shareholders,
         First Step Acquisition Corp. and the Company (incorporated by
         reference from the Registrant's Current Report on Form 8-K filed
         01/17/02).

10.20    Side Letter dated April 8, 2002, by and between the Company and First
         Step Distribution Network, Inc. (incorporated by reference from the
         Registrant's Annual Report on Form 10-KSB filed 04/16/02).

EXHIBIT NUMBER           DESCRIPTION OF DOCUMENT
--------------           -----------------------

16.1                     Letter from Arthur Andersen LLP regarding change in
                         certifying accountant (incorporated by reference from
                         the Registrant's Current Report on Form 8-K filed
                         04/16/02).

21.1                     Subsidiary List*

31**                     Certification of Chief Executive Officer and Principal
                         Financial Officer Pursuant to Section 302 of the
                         Sarbanes-Oxley Act of 2002.

32**                     Certification of Chief Executive Officer and Principal
                         Officer Pursuant to Title 18, United States Code,
                         Section 1350 Adopted Pursuant to Section 906 of the
                         Sarbanes-Oxley Act of 2002.

*  Incorporated by reference from the Company's Registration Statement on Form
   SB-2, No. 333-4319.

** Filed herewith.

(B) REPORTS ON FORM 8-K

The Company filed one report on Form 8-K during the period covered by this
report.

<PAGE>


(i) Form 8-K filed February 15, 2005, reporting under Item 1.

<PAGE>



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES
----------

Audit fees for the fiscal years ended December 31, 2004 and 2003 were
approximately $15,000 and $17,500 respectively. Review fees approximated $3,500
per quarter during 2004 and 2003.

AUDIT RELATED FEES
------------------

Audit related fees for the fiscal years ended December 31, 2004 and December 31,
2003 were approximately $0 and $0, respectively. Audit related services
generally included fees for contemplated business combinations and SEC reporting
obligations (Form 10-QSB and Schedule 14c).

TAX FEES
--------

Tax fees for the fiscal years ended December 31, 2004 and 2003 were $0.

ALL OTHER FEES
--------------

All other fees for products and services provided by Rothstein, Kass & Company,
P.C. was the Company's principal accountant, for the fiscal years ended December
31, 2004 and 2003 were $0.

All audit related services were pre-approved by management, which concluded that
the provision of such services by Rothstein, Kass & Company P.C. was compatible
with the maintenance of that firm's independence in the its auditing functions.






















<PAGE>




                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                K2 DIGITAL, INC.

Dated: April 15, 2005



                              BY: /s/ GARY W. BROWN
                                  ------------------------------------
                                  GARY W. BROWN, PRESIDENT







<TABLE>
<CAPTION>
          Signature                                Title                                          Date
          ---------                                -----                                          ----
<S>                             <C>                                                           <C>
/s/ Matthew G. de Ganon         Chairman of the Board, Director                               April 15, 2005
------------------------------
Matthew G. de Ganon


/s/ Gary W. Brown               President, Chief Operating Officer, Chief Financial           April 15, 2005
------------------------------   Officer (Principal Financial and Accounting Officer),
Gary W. Brown                    Secretary and Director


/s/ Douglas E. Cleek            Director                                                      April 15, 2005
------------------------------
Douglas E. Cleek


/s/ David R. Sklaver            Director                                                      April 15, 2005
------------------------------
David R. Sklaver
</TABLE>


<PAGE>



                                INDEX TO EXHIBITS

EXHIBIT NUMBER          DESCRIPTION OF DOCUMENT

3.1                     Certificate of Incorporation of the Company*

3.1(a)                  Amendment to Certificate of Incorporation of the
                        Company*

3.1(b)                  Amendment to Certificate of Incorporation of the Company
                        (incorporated by reference from the Registrant's Form
                        10-KSB for its fiscal year ended 12/31/00).

3.2                     By-laws of the Company*

3.2(b)                  Amendment to By-laws of the Company*

4.1                     Common Stock Certificate*

4.2                     Warrant Certificate*

4.4                     Warrant Agreement by and between Continental Stock
                        Transfer & Trust Company and the Company*

4.5                     Voting Agreement among Messrs. Centner, de Ganon, Cleek
                        and Szollose*

10.1                    1996 Stock Incentive Plan and Rules Relating thereto*

10.2                    1997 Stock Option Plan (incorporated by reference from
                        the Registrant's Form 10-KSB for its fiscal year ended
                        12/31/96).

10.3                    Amendment to 1997 Stock Option Plan (incorporated by
                        reference from the Registrant's Form 10-KSB for its
                        fiscal year ended 12/31/00).

10.4                    Consulting Agreement with Harvey Berlent*

10.5                    Employment Agreement with Matthew G. de Ganon*

10.6                    Extension of Employment Agreement with Matthew G. de
                        Ganon dated November 2, 1998 (incorporated by reference
                        from the Registrant's Form 10-KSB for its fiscal year
                        ended 12/31/98).

10.7                    Amendment to Employment Agreement of Matthew G. de Ganon
                        dated April 14, 2000 (incorporated by reference from the
                        Registrant's Form 10-QSB for the quarterly period ended
                        03/31/00).

10.8                    Employment Agreement with Douglas E. Cleek*

10.9                    Extension of Employment Agreement with Douglas E. Cleek
                        dated January 15, 1999 (incorporated by reference from
                        the Registrant's Form 10-KSB for its fiscal year ended
                        12/31/98).

10.10                   Employment Agreement with Gary W. Brown dated April 14,
                        2000 (incorporated by reference from the Registrant's
                        Form 10-QSB for the quarterly period ended 03/31/00).


<PAGE>

EXHIBIT NUMBER          DESCRIPTION OF DOCUMENT

10.11                   Restricted Stock Agreement of Gary W. Brown
                        (incorporated by reference from the Registrant's Form
                        10-QSB for the quarterly period ended 03/31/00).




10.12                   Employment Agreement with Lynn Fantom dated February 13,
                        2001 (incorporated by reference from the Registrant's
                        Form 10-KSB for its fiscal year ended 12/31/00).

10.13                   Agreement of Lease dated as of April 18, 1997, between
                        30 Broad Associates, L.P., as landlord, and the Company,
                        as tenant, relating to 30 Broad Street, New York, New
                        York (incorporated by reference from the Registrant's
                        Form 10-KSB for its fiscal year ended 12/31/00).

10.14                   Amendment to Lease dated as of April 1, 1998, between 30
                        Broad Associates, L.P., as landlord, and the Company, as
                        tenant, relating to 30 Broad Street, New York, New York
                        (incorporated by reference from the Registrant's Form
                        10-KSB for its fiscal year ended 12/31/00).

10.15                   Second Amendment to Lease dated as of July 10, 2000,
                        between ASC-CSFB 30 Broad, LLC, as landlord, and the
                        Company, as tenant, relating to 30 Broad Street, New
                        York, New York (incorporated by reference from the
                        Registrant's Form 10-QSB for the quarterly period ended
                        06/30/00).

10.16                   Common Stock Purchase Agreement dated as of December 11,
                        2000 between the Company and Fusion Capital Fund II, LLC
                        (incorporated by reference from the Registrant's Current
                        Report on Form 8-K filed 12/11/00).

10.17                   Form of Registration Rights Agreement between the
                        Company and Fusion Capital Fund II, LLC (incorporated by
                        reference from the Registrant's Current Report on Form
                        8-K filed 12/11/00).

10.18                   Master Transaction Agreement, dated as of August 20,
                        2001, between the Company and Integrated Information
                        Systems, Inc. (incorporated by reference from the
                        Registrant's Current Report on Form 8-K filed 8/30/01).

10.19                   Agreement and Plan of Merger, dated as of January 15,
                        2002, by and among First Step Distribution Network, Inc.
                        and its shareholders, First Step Acquisition Corp. and
                        the Company (incorporated by reference from the
                        Registrant's Current Report on Form 8-K filed 01/17/02).

10.20                   Side Letter dated April 8, 2002, by and between the
                        Company and First Step Distribution Network, Inc.
                        (incorporated by reference from the Registrant's Annual
                        Report on Form 10-KSB filed 04/16/02).

16.1                    Letter from Arthur Andersen LLP regarding change in
                        certifying accountant (incorporated by reference from
                        the Registrant's Current Report on Form 8-K filed
                        04/16/02).


<PAGE>


EXHIBIT NUMBER          DESCRIPTION OF DOCUMENT

21.1                    Subsidiary List*

31**                    Certification of Chief Executive Officer and Principal
                        Financial Officer Pursuant to Section 302 of the
                        Sarbanes-Oxley Act of 2002.

32**                    Certification of Chief Executive Officer and Principal
                        Officer Pursuant to Title 18, United States Code,
                        Section 1350 Adopted Pursuant to Section 906 of the
                        Sarbanes-Oxley Act of 2002.





*  Incorporated by reference from the Company's Registration Statement on Form
   SB-2, No. 333-4319.

** Filed herewith.