SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(MARK ONE)

|X|  ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the Fiscal Year Ended December 31, 2003

|_|  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

       For the transition period from _______________ to ________________

                        Commission File Number 000-50021

                              NUTECH DIGITAL, INC.
                 (Name of Small Business Issuer in its charter)

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<S>                                             <C>
            California                                      95-4642831
   (State or other jurisdiction                 (I.R.S. Employer Identification No.)
  of incorporation or organization)
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                               7900 Gloria Avenue
                           Van Nuys, California 91406
               (Address of principal executive offices)(Zip code)

Issuer's telephone number, including area code:  (818) 994-3831

Securities registered pursuant to Section 12(b) of the Act:

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      Title of each class                Name of each exchange on which each is registered

                            None                            None
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Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value
                                (Title of class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not 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. |_|

         The issuer's revenues for the fiscal year ended December 31, 2003
totaled $3,745,297.

         The number of shares of the issuer's common stock, no par value per
share, outstanding as of March 19, 2004 was 19,725,748. The aggregate market
value of the voting and non-voting common equity held by non-affiliates of the
registrant on March 19, 2004, based on the average bid and ask price on the OTC
Bulletin Board as of such date, was approximately $11,735,070.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None

         Transition Small Business Disclosure Format:   Yes        No  X


<PAGE>


                                TABLE OF CONTENTS

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                                                                            Page
                                                                            ----
PART I

<S>                <C>                                                      <C>
         ITEM 1.   DESCRIPTION OF BUSINESS................................    1
         ITEM 2.   DESCRIPTION OF PROPERTY................................    6
         ITEM 3.   LEGAL PROCEEDINGS......................................    6
         ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF
                   SECURITY HOLDERS.......................................    7

PART II

         ITEM 5.   MARKET FOR COMMON EQUITY AND
                   RELATED STOCKHOLDER MATTERS............................    7
         ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS...................    9
                      OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
         ITEM 7.   FINANCIAL STATEMENTS...................................   F-1 - F-24
         ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                   ON ACCOUNTING AND FINANCIAL DISCLOSURE.................   20
         ITEM 8A.  CONTROLS AND PROCEDURES................................   21

PART III

         ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                   CONTROL PERSONS; COMPLIANCE WITH
                   SECTION 16(a) OF THE EXCHANGE ACT......................   21
         ITEM 10.  EXECUTIVE COMPENSATION.................................   24
         ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                   OWNERS AND MANAGEMENT..................................   27
         ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........   29
         ITEM 13.  EXHIBITS AND REPORTS OF FORM 8-K.......................   31
         ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.................   32


SIGNATURES
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<PAGE>


                    NOTE REGARDING FORWARD LOOKING STATEMENTS

         This Annual Report on Form 10-KSB contains "forward-looking
statements". These forward-looking statements are based on our current
expectations, assumptions, estimates and projections about our business and our
industry. Words such as "believe," "anticipate," "expect," "intend," "plan,"
"will," "may," and other similar expressions identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section of
this Annual Report titled "Management's Discussion and Analysis of Financial
Condition and Results of Operation-Factors Affecting Business, Operating Results
and Financial Condition", as well as the following:

         o    a decline in the general state of the economy, which impacts the
              amount of money spent by consumers for entertainment products,

         o    our lack of capital and whether or not we will be able to raise
              capital when we need it,

         o    whether or not the popularity of Japanese anime and karaoke will
              continue and will grow,

         o    our overall ability to successfully compete in our market and our
              industry,

         o    whether or not we will continue to receive the services of our
              executive officers and directors, particularly our President, Mr.
              Lee Kasper,

         o    whether or not our largest customers will continue to do business
              with us,

         o    whether or not our digital rights management technology is
              successful in increasing our sales over the Internet,

         o    whether or not we are successful in producing contemporary music
              concerts,

         o    whether or not the contemporary music concerts we produce generate
              significant sales

and other factors, some of which will be outside our control. You are cautioned
not to place undue reliance on these forward-looking statements, which relate
only to events as of the date on which the statements are made. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. You should refer to and
carefully review the information in future documents we file with the Securities
and Exchange Commission.


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

HISTORY AND DEVELOPMENT OF THE COMPANY

         In 1993 NuTech Entertainment, Inc. was founded for the purpose of
licensing and distributing karaoke software. In 1997, NuTech Digital, Inc. was
founded for the purpose of licensing and distributing films. In 1999 the
business of NuTech Entertainment, Inc. was combined with the business of NuTech
Digital, Inc. by distributing the assets of NuTech Entertainment, Inc. to its
sole shareholder, Mr. Lee Kasper, who subsequently transferred the assets into
NuTech Digital, Inc. NuTech Entertainment, Inc. ceased doing business in 1999
and was dissolved in 2001.

         NuTech Digital, Inc. (as used in this Annual Report on Form 10-KSB,
unless the context otherwise requires, the terms "we," "us," "the Company," and
"NuTech" refer to NuTech Digital, Inc.) engages in licensing and distributing
general entertainment products for children and adults. Our products include
children's animated films, karaoke software, Japanese anime and late night
programming. We recently began producing contemporary music concerts, which we
also intend to distribute. During the fiscal year ended December 31, 2003, our
primary source of revenue came from our sales of adult entertainment, which
includes late night programming and hentai, a form of Japanese anime for adults.
During 2003, hentai accounted for approximately 51.8% of our sales, late night
programming accounted for approximately 10.23% of our sales and karaoke products
accounted for approximately 29% of our sales. We distribute our products
throughout the world via retail stores, the Internet, and wholesale
distributors. Approximately 3% of our products are distributed outside the
United States, with no concentration in any particular country or geographic
area. Approximately 2% of our sales are made over the Internet. We also
facilitate authoring services to content providers in the entertainment
industry. Our products are replicated for us by third parties.

OUR PRODUCTS

         Our film products are sold in digital versatile disc format, commonly
known as "DVD". Our karaoke products are sold in two formats, DVD and CD + G. In
2003, sales of our DVD film products totaled 517,347 units, which accounted for
approximately 38.08% of our sales. Of these amounts, sales of Japanese anime,
including hentai, represented approximately 25.73% of all DVDs sold. In 2003,
sales of our CD + G karaoke products totaled 833,663 units, which accounted for
approximately 61.37% of our sales, while sales of our DVD karaoke products
totaled 7,461 units, which accounted for less than 1% of our sales.

DIGITAL RIGHTS MANAGEMENT

         In January 2004, we implemented a technology that will allow visitors
to our website to download films and music videos for rent or purchase.
Downloaded works have DVD and high definition quality audio and video. Because
the content is electronically packaged and delivered with an encrypted license,
we do not believe that it can be copied illegally. During the 2004

<PAGE>


fiscal year, we expect to be able to apply this technology to DVDs. The DVD will
be licensed to a consumer for a period of time (for example, 1, 3 or 5 days).
After the expiration of the license, the DVD will no longer play. Visitors to
our website can try out this new technology at WWW.DEMO.NUTECHDIGITAL.TV.

         We believe that this easy method of acquiring our products will
be attractive to users of our website and will grow in popularity since it
provides immediate access to the desired product without the delays and costs
that would be incurred if the product is shipped. We believe that immediate
access to our products may encourage more spontaneous purchases by our
customers.

CONTEMPORARY MUSIC CONCERTS

         In March 2004 we produced our first contemporary music concert using
high definition technology. Our agreement with Juggernaut Media, LLC granted us
worldwide rights to the concert in all media, including DVD, television and any
ancillary markets. The concert was performed by a prominent hip-hop artist,
Russell Jones, whose stage name is Ol' Dirty Bastard. We believe that the
distribution of contemporary music complements our product offerings and we
intend to expand this facet of our business.


CHILDREN'S ANIMATED FILMS

         We acquired 26 classic children's animation titles and produced these
in DVD format, including Alice In Wonderland, Black Beauty, Tom Sawyer and
20,000 Leagues Under the Sea. Our anime products targeted to children and teens
come to us in English. We enhance the soundtrack by adding DTS sound, create
menus, add interactive games, and create the artwork for the packaging. Once
this is complete, we create the new master for replication. Our children's
products accounted for approximately $340,936 in sales during 2003, which
represented approximately 9.1% of our revenues for the year.

KARAOKE

         Karaoke is a pre-recorded song in which the lead vocals have been
eliminated or re-mixed out, and the voice of the individual performing is
substituted on the sound track. The back-up singers and musicians are left in
the song for accompaniment. The goal of karaoke is to make each singer feel like
a star and sound like a professional vocalist. This is achieved through a DVD or
CD + G player and an on-stage television monitor that prompts the singer with
the lyrics and rhythm of the song being sung. If a song is recorded on CD + G
(compact disc plus graphics), the lyrics are displayed on a colored background.
If a song is recorded on DVD, the lyrics are displayed over moving images.

         We license and distribute 239 volumes of karaoke software in DVD and
CD+G formats for use with karaoke recording equipment. One track offers complete
music and vocals for practice and the other track is instrumental-only for
performance by the participant. Most of the music sold by us is accompanied by
printed lyrics. Our CD + G and DVD products include lyrics that appear on a
video or television screen. The music for our karaoke products is produced by us
or by an independent producer.


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         During 2003, karaoke products accounted for approximately $1,078,185 in
sales, which made up approximately 28.8% of our total revenues.

GENERAL PRODUCTION SERVICES

         When businesses offering DVD products obtain a license to duplicate a
film or other work of art, they receive the work as an analog or digital tape.
In order to replicate the film on DVD, the licensee must create a digital linear
tape. This process is known as "authoring". After the digital linear tape is
created, it is shipped to a factory where it is replicated onto a "stamper". The
stamper is used to make the DVDs. We facilitate DVD authoring and menu designs
to complete product replication and packaging for other content providers in the
entertainment industry.

JAPANESE ANIMATED FILMS

         The animated film art form known as "anime" had its start in Japan
around 1963, the product of animators Osamu Tezuka and Mitsuteru Yokoyama. Anime
has a distinctive look, including highly stylized and realistic background
images, which "play-off" the often whimsically drawn characters. Since the early
1990s, anime has begun to find an audience in the United States. Even though
these films are animated, they generally have broad audience appeal due to their
complex story lines. Anime encompasses many genres, including action/adventure
films targeted to young girls ("shojo") and young boys ("shonen"), horror,
fantasy and science fiction films, comedy, and films produced solely for adults
("hentai").

         We believe that anime has a strong and growing fan base, both in Asia
and the United States and that anime, and particularly hentai, is continuing to
grow in popularity. This is evidenced by the increase in the number of anime
titles now available for purchase or rental and by the recognition now being
accorded to anime by the entertainment industry. (For example, recently the
Japanese anime film "Spirited Away" won the Oscar(TM) for Best Animated Feature
Film.) Currently, we have invested in licensing rights to 143 anime titles,
including erotic feature films, action/adventure films, horror films and
children's films.

         Anime comes to us as an original completed master and artwork with
Japanese dialogue tracks. We have the script translated into English, we hire
voice-over actors to dub the dialogue in English or we subtitle the work, and we
create a finished master for DVD format. We also create menus for the DVD
products and redesign the artwork for the packaging. Revenues from sales of
anime, including hentai, totaled approximately $1,942,996 in 2003, which
represented approximately 25.7% of our total sales.

LATE NIGHT FILMS

         We license over 260 late night films, which are distributed through the
Internet as well as through retailers and wholesale outlets. We receive the
original completed master and artwork of a film. We send the master to a
replicator to produce a tape that is then used to manufacture the work in DVD
and VHS formats. Fans of anime enjoy our collection of "hentai", a


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combination of late night programming with animated characters. Revenues from
late night programming (not including hentai) totaled approximately $383,180 in
2003, which represented approximately 10.2% of our total sales.

OUR SUPPLIERS AND CUSTOMERS

         We do not have long-term or exclusive agreements with our suppliers or
our customers. Business generation is based primarily on customer satisfaction
with reliability, quality and price, which has allowed us to establish long-term
relationships with many of our customers.

         We obtain exclusive rights to our Japanese anime products primarily
from studios that produce the works and license them outside of Japan. During
2003, two suppliers accounted for 42% of our anime licensing activity. We
license our late night entertainment and our karaoke products from the producers
or other copyright holders of those works. We replicate our films and music on
DVD through four suppliers, U-Tech Media, Media Factory, L & M and Fortune Disc.
If all of our replicating suppliers were to become unable to provide the volume
of replication services necessary for our business, we believe that we could
find other suppliers who would be able to provide these services to us at
competitive prices.

         We distribute our products throughout the world via retail outlets,
wholesale distributors and the Internet. We do not have distribution agreements
with the retail outlets or the wholesale distributors. We sell our products
directly to approximately 267 retail outlets that, in turn, sell our products to
consumers. Approximately 39.3% of the retail outlets in which we sell our
products are located in California, approximately 4.8% are located in Texas and
approximately 4.5% are located in New York and Illinois. The remaining retail
outlets are located throughout the United States and are not concentrated in any
particular area. Approximately 59.31% of our retail sales are made in
California, New Jersey and Iowa. Retailers account for approximately 35.3% of
our sales. We also sell our products to approximately 49 distributors. In turn,
these distributors sell our products to other retailers or to consumers through
their websites. This method of distribution accounts for approximately 60.6% of
our sales. Approximately 4.1% of our sales are made over the Internet, through
our websites. We sell our adult products through our websites,
WWW.KARAOKEDVD.NET and WWW.NUTECHDVD.COM, and we sell our children's films
through WWW.DIGITALVERSATILEDISC.COM. Approximately 4% of our products are
distributed outside the United States. Sales of our products, including those
distributed outside the United States, are not concentrated in any particular
geographic area.

         Sales made to a single distributor of karaoke software represented
approximately 14% of all revenues earned from sales for the fiscal year ended
December 31, 2003. If we were to lose this distributor, we believe that we would
be able to find other distributors to sell our karaoke products, or that we
would be successful in marketing these products directly.

THE EFFECT OF GOVERNMENT REGULATION ON OUR BUSINESS

         While production of our products does not require government approval,
the sale of our late night programming is subject to regulation by the federal
government, as well as by various state and municipal governments. Several
states and communities in which our products are


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distributed have enacted laws regulating the distribution of late night
programming with some offenses designated as misdemeanors and others as
felonies, depending on numerous factors. The consequences for violating the
state statutes are varied. There is also a federal prohibition with respect to
the dissemination of late night programming, and the potential penalties for
individuals (including corporate directors and officers) violating these federal
laws include fines, community service, probation, forfeiture of assets and
incarceration. We attempt to comply with all applicable statutes and regulations
relating to the sale of late night programming.

         We are subject to the same federal, state, and local laws as other
companies conducting business on the Internet. Today there are relatively few
laws specifically directed towards online sales. However, due to the increasing
popularity and use of the Internet and online sales, it is possible that laws
and regulations will be adopted in the future governing the Internet or online
sales. These laws and regulations could cover issues such as online contracts,
user privacy, freedom of expression, pricing, fraud, content and quality of
products and services, taxation, advertising, intellectual property rights, and
information security. Applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity, and personal privacy is still evolving.

         Due to the global nature of the Internet, it is possible that the
governments of foreign countries might attempt to regulate our activity or
prosecute us for violations of their laws.

LICENSES AND OTHER INTELLECTUAL PROPERTY

         We do not have patents, franchises or concessions and we have not
entered into labor contracts. However, many of our film and music titles are
licensed from third parties. License periods are generally no shorter than five
years and no more than 10 years. Most of the license agreements require us to
pay an advance royalty, which we recoup through sales. Some of the license
agreements require us to pay royalties during the term of the license. The
computation of royalties varies, depending on our determination of the
importance of the title to our product offerings. Royalties are primarily
computed as a percentage of gross sales and may include guaranteed payments of
royalties. We also purchase the rights to certain of our film and music titles
for a one-time fee, rather than for the payment of on-going royalties.

         While we have not registered our trade names or our logo with the
United States Patent and Trademark Office, we believe that the name recognition
and image that we have developed in each of our markets significantly enhance
customer response to our sales promotions. Accordingly, our trademarks are
important to our business and we intend to aggressively defend them.

COMPETITION

         All of our products compete with other products and services that
utilize free time or disposable income. The entertainment industry is, in
general, highly competitive and many of our competitors, such as major motion
picture studios and recording labels, have much larger selections of products,
the ability to spend significant sums on advertising and promotion and


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much greater distribution capacities than we have. We do not represent a
significant presence in our markets. We cannot guarantee you that we can compete
successfully.

EMPLOYEES

         As of December 31, 2003 we had 13 full-time employees and six part-time
employees. Of these employees, two were in administration, one was in sales, one
was in accounting, one was in artistic production, one was in management
information systems and the remainder were in administration and general
operations.

ITEM 2.  DESCRIPTION OF PROPERTY

         Our offices, operations and warehouse facilities are located at 7900
Gloria Avenue, Van Nuys, California 91406. We lease this facility at market
rates. Our facility is approximately 9,500 square feet in size. Our lease term
began on May 1, 2001 and will continue until July 31, 2006. We have one option
to renew the lease, at the end of the lease term, for an additional period of
five years. The facility is adequate for our current operations, and management
believes that it will continue to be adequate through the initial lease term.

ITEM 3.  LEGAL PROCEEDINGS

         Occasionally we are named as a party in claims and legal proceedings
arising out of the normal course of our business. These claims and legal
proceedings may relate to contractual rights and obligations, employment
matters, or to other matters relating to our business and operations. In
addition to legal proceedings arising out of the normal course of our business,
we have been named as a party in, or we have instituted, the following actions.

         Urbach Kahn & Werlin Advisors, Inc. v. NuTech Digital, Inc., et al. On
September 30, 2003, plaintiff Urbach Kahn & Werlin Advisors, Inc. filed an
action against us in Los Angeles Superior Court, Case Number BC303285 alleging
causes of action for breach of contract. In March 2002, we agreed to pay an
outstanding invoice owed to the plaintiff by issuing shares of our common stock.
The plaintiff alleges that we still owed a balance on the invoice, due to a
decline in the stock price. We filed an answer to the complaint on October 23,
2003, generally denying all the allegations in the complaint. The plaintiff is
seeking $80,000 plus fees and costs, including attorney's fees.

         NuTech Digital Inc. v. Roan Meyers Associates LP a/k/a Meyers
Associates. In July 2003 we initiated this arbitration proceeding against
respondent Roan Meyers Associates LP before the National Association of
Securities Dealers in connection with $35,000 we paid to the respondent for
services that we allege were never provided. We seek to recover the entire
amount.

         NuTech Digital Inc. v. National Capital Securities, Inc. d/b/a National
Capital Investment Banking and Barry Migliorini. On March 12, 2004 we filed an
action in the Northwest District of the Los Angeles County Superior Court
against National Capital Securities, Inc. and Barry Migliorini for breach of
written contract, fraud by intentional


                                       6
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misrepresentation, and fraud by negligent misrepresentation. We have alleged
that the defendants fraudulently induced us to enter into a written agreement
for services that the defendants never intended to provide or should have known
that they could not provide. We are demanding an order requiring the defendants
to return 75,000 shares of our common stock or damages for the monetary
equivalent thereof, punitive damages, attorneys' fees and pre-judgment interest.

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

         None.

                                     PART II

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

         Our common stock is quoted on the National Association of Securities
Dealers, Inc. Electronic Bulletin Board (the "OTC Bulletin Board"), and is
traded under the symbol "NTDL". Our common stock began trading on January 17,
2003, but the market for it has been extremely limited and sporadic.

         The table below sets forth the range of high and low bid quotes of our
common stock for each quarter for the last fiscal year, the only full fiscal
year during which our common stock traded, as reported by Yahoo Finance. The bid
prices represent inter-dealer quotations, without adjustments for retail
mark-ups, markdowns or commissions and may not necessarily represent actual
transactions.

                                           PERIOD            HIGH       LOW
                                       -----------------  ---------   --------
Fiscal Year Ended December 31, 2003     First Quarter       $1.50      $0.20
                                        Second Quarter      $0.49      $0.11
                                        Third Quarter       $0.80      $0.12
                                        Fourth Quarter      $0.80      $0.45


         As of March 19, 2004, there were approximately 104 holders of record of
our common stock. This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name.

         Since becoming a reporting company, we have never declared or paid any
cash dividends on our common stock and do not expect to declare or pay any cash
dividends in the foreseeable future. Prior to becoming a reporting company, we
were an S corporation for tax reporting purposes and we paid dividends to our
sole shareholder.


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<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

         On August 7, 2003 we issued to Mr. Shai Stern 100,000 shares of our
common stock for services rendered in connection with stock promotion and
financing activities. The value of the securities on the date of grant was $0.17
per share. The securities were issued in reliance upon the exemption provided in
Section 4(2) of the Securities Act of 1933.

         On August 20, 2003 we issued to Hanover Capital Corporation 125,000
shares of our common stock for services rendered in connection with stock
promotion activities. The value of the securities on the date of grant was $0.35
per share. The securities were issued in reliance upon the exemption provided in
Section 4(2) of the Securities Act of 1933.

         On September 3, 2003 we issued to The Research Works 250,000 shares of
our common stock for services rendered in connection with stock promotion
activities. The value of the securities on the date of grant was $0.39 per
share. The securities were issued in reliance upon the exemption provided in
Section 4(2) of the Securities Act of 1933.

         On September 30, 2003 we issued to Advanced Media Post, LLC 210,000
shares of our common stock as full payment for outstanding invoices relating to
products manufactured for us. The value of the securities on the date of grant
was $0.51 per share. The securities were issued in reliance upon the exemption
provided in Section 4(2) of the Securities Act of 1933.

         On November 5, 2003 we issued to Trilogy Capital Partners, Inc. 150,000
shares of our common stock for services rendered to us. The value of the
securities on the date of grant was $0.70 per share. We also granted warrants to
Trilogy Capital Partners, Inc. to purchase an additional 150,000 shares of our
common stock. The warrants were exercisable for $0.01 per share and have been
exercised. These securities were issued in reliance upon the exemption provided
in Section 4(2) of the Securities Act of 1933.

PURCHASE OF EQUITY SECURITIES

         In April 2003 we purchased 35,000 shares of our registered common
stock. This purchase was not pursuant to a publicly announced plan or program
and currently we do not intend to purchase any additional shares in this manner.

<TABLE>
<CAPTION>
+-------------------------+----------------------+-----------------------+----------------------+----------------------+
|                         |                      |                       |                      | Maximum Number or    |
|                         |                      |                       | Total Number of      | Approximate Dollar   |
|                         |                      |                       | Shares Purchased as  | Value of Shares that |
|                         |                      |                       | part of a Publicly   | may yet be Purchased |
|                         | Total Number of      | Average Price Paid    | Announced Plan or    | Under the Plan or    |
| Period                  | Shares Purchased     | Per Share             | Program              | Program              |
+-------------------------+----------------------+-----------------------+----------------------+----------------------+
<S>                              <C>                     <C>                    <C>                    <C>
|                         |                      |                       |                      |                      |
+-------------------------+----------------------+-----------------------+----------------------+----------------------+
|      April 2003         |      35,000          |       $0.39           |         0            |         0            |
+-------------------------+----------------------+-----------------------+----------------------+----------------------+
</TABLE>


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

         Management's discussion and analysis of results of operations and
financial condition are based on our financial statements. These statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require management to make certain
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates based on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         In consultation with our Board of Directors, we have identified four
accounting principles that we believe are key to an understanding of our
financial statements. These important accounting policies require management's
most difficult, subjective judgments.

         Revenue Recognition. We recognize revenue from product sales when we
ship the product to the customer. Sales are recorded net of sales returns and
discounts. We recognize revenue in accordance with Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements."

         Allowance for Doubtful Accounts. We establish an allowance for doubtful
accounts based on factors surrounding the credit risk of our customers,
historical trends and other information. The allowance for doubtful accounts is
established by analyzing each customer account that has a balance over 90 days
past due. Each account is individually assigned a probability of collection.
When other circumstances suggest that a receivable may not be collectible, it is
immediately reserved for, even if the receivable is not yet in the 90-days-past
due category.

         Inventory. Our inventories are stated at the lower of standard cost or
market. Slow moving and obsolete inventories are analyzed for potential reserves
on a quarterly basis. To calculate the reserve amount, we compare the current
on-hand quantities with the actual usage over the past 36 months. On-hand
quantities greater than actual usage are considered for reserve at the standard
unit cost. Additionally, non-cancelable open purchase orders for inventory we
are obligated to purchase, where demand has been reduced, may be reserved.
Reserves for open purchase orders where the market price is lower than the
purchase order price are also established.

         Income Taxes. We account for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 (SFAS 109), which is an asset and
liability method of accounting that requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between tax bases and financial reporting bases of accounting. In
assessing the realizability of deferred tax assets, management considers whether


                                       9
<PAGE>

it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.

RESULTS OF OPERATIONS

OVERVIEW

         According to media industry analysis, in the year 2003 consumers spent
$14.4 billion purchasing DVDs. This is approximately $5 billion more than was
spent on movie tickets or video rentals. Currently, there are approximately
27,000 movies now available on DVD and collectors are routinely building large
libraries of films. We believe that consumers are using, and will continue to
use, their discretionary income to build their film libraries, as they do with
music and books. We also believe that the audience for anime will continue to
grow worldwide, and that our investment in anime is well-timed.

         We experienced a decline in sales during 2003, which we attribute to a
number of factors. First, the economy of the United States still has not fully
recovered from the slowdown of the last two years, which we believe has driven
down discretionary spending by consumers. Second, in an effort to stabilize the
pricing of our products, we changed our pricing model. We no longer sell
products to distributors at steep discounts. This policy allowed the
distributors to sell the products to retailers at lower prices than we were
willing to sell them. Also, we were unable to fulfill some orders during the
fiscal year ended December 31, 2003 because of a lack of inventory. We have
improved our inventory control procedures to try to avoid this in the future.
Finally, Japanese anime and hentai are becoming more popular, both here in the
United States and abroad, fueling competition in our market.

         Despite the decline in revenues during the 2003 fiscal year, we
operated profitably. We implemented stringent cost-cutting procedures that
significantly reduced our operating expenses. We also reduced our debt, which
resulted in a significant reduction of interest expense. Because of these
measures, we had net income for the 2003 fiscal year of over $300,000 as
compared to a net loss for the 2002 fiscal year of over $900,000.

         We have also begun expanding our business and our product offerings. We
recently produced our first contemporary music concert, which we plan to
distribute. We believe that the production of music concerts will be a
significant source of revenue, since we will own all the rights to the concerts.
This will allow us to choose the manner in which we derive revenues from these
works. For example, we will be able to broadcast the concerts on television and
over the Internet as well as to sell them on DVD or CD. We also announced our
acquisition of the North American licensing rights for 65 high definition DVD
titles of classical concert music from Cascade Gmbh, a prominent German based
DVD and CD label. Finally, we believe that we can increase revenue from our
Internet sales through our digital rights management technology. This technology
allows customers visiting our website to immediately download high definition,
DVD-quality films, either for rent or for purchase. The customer can act
spontaneously, obtaining immediate access to the film of his choice and avoid
handling and shipping costs.


                                       10
<PAGE>

         With the exception of the licenses we will acquire, we have not made
any material commitments for capital expenditures in the immediate future.

         Following is summary financial information reflecting our operations
for the periods indicated.

<TABLE>
<CAPTION>
                                                           Years Ended               Increase
                                                    12/31/2003     12/31/2002       (Decrease)               %
                                                    ----------     ----------       ----------             ----
<S>                                                <C>             <C>             <C>                     <C>
Statements of Operations
    Sales                                          $ 3,745,297     $ 4,292,510     $  (547,213)            (13%)
    Cost of Sales                                    1,110,840       1,403,210        (292,370)            (21%)
         Percentage of Sales                                30%             33%             (3%)
    Gross Profit                                     2,644,457       2,889,300        (244,843)             (8%)
         Percentage of Sales                                70%             67%             (3%)
    Selling, General and Administrative Expenses     2,688,566       3,612,214        (923,648)            (26%)
    Interest Expense                                   133,282         214,684         (81,402)            (38%)
    (Loss) Before Other Income                        (177,391)       (937,598)       (760,207)            (81%)
    Other Income                                       485,442               0         485,442
    Income (Loss) Before Corporation Income            308,051        (937,598)      1,245,649            (133%)
    Taxes
    Corporation Income Tax (Benefit)                       800         (19,225)         20,025

    Net Income (Loss)                              $   307,251     $  (918,373)    $ 1,225,624             133%
    Net Income (Loss) Per Share
    Basic                                                  .03            (.09)            .12
    Diluted                                                .03            (.09)            .12
</TABLE>

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

SALES

         Our revenues from operations for the year ended December 31, 2003 were
$3,745,297, as compared to revenues of $4,292,510 for the year ended December
31, 2002, a 13% decrease. As noted above, we attribute the decrease in our
revenues to the following:

     o   continued weak economic conditions;

     o   our decision to discontinue discounting our product prices to certain
         customers, which resulted in reduced sales. Because we are the
         exclusive distributor for many of our products in the United States,
         our decision to stabilize our product pricing for all of our customers,
         while resulting in lower sales, prevents those customers who purchased
         from


                                       11
<PAGE>

         us at a reduced price from selling to others at a reduced price,
         thereby eroding our customer base;

     o   increased competition; and

     o   lack of inventory so that we were unable to fulfill many of our sales
         orders. We have improved our inventory control procedures so that we
         are now able to fill orders that previously we could not fill due to
         lack of inventory.

         During January and February 2004, our sales increased in comparison to
the same months in 2003. This increase is due to our release of new titles and
our ability to fill orders that were placed during 2003. We also received
$2,500,000 from private offerings of our securities that closed in February
2004. We plan to use these funds primarily for the purchase of new licenses and
the production of popular music concerts.

COST OF SALES AND GROSS PROFIT

         Due to our lower sales, our gross profit from operations for the fiscal
year ended December 31, 2003 decreased to $2,644,457 as compared to $2,889,300
for the fiscal year ended December 31, 2002. Our gross profit increased to 70.6%
in 2003 as compared to 67.3% in 2002. This increase resulted partially from our
decision to stabilize our pricing by discontinuing the discounts we had given in
the past to certain customers and partially from a reduction in our replication
costs. We expect the reduction in replication costs to continue during 2004.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative costs decreased by $923,648, to
$2,688,566 for the year ended December 31, 2003 as compared to $3,612,214, for
the prior fiscal year, a 25.6% decrease. The decrease in selling, general and
administrative expenses was attributable to a cost savings program implemented
by management during the year ended December 31, 2003, which included a
reduction in personnel, various cost eliminations, reduced use of computer
consultants, reduced royalties due to reduced sales and a $168,500 write-off of
obsolete royalty advances in 2002. Professional fees increased mainly due to
costs involved in the preparation of our SEC filings. A summary of our costs is
as follows:

<TABLE>
<CAPTION>
                                                               Years Ended           Increase
                                                         12/31/2003    12/31/2002   (Decrease)      %
                                                         ----------    ----------   ----------    ----
<S>                                                      <C>           <C>          <C>           <C>
Selling, General and Administrative Expenses
     Salaries, wages and payroll taxes                    $1,042,884   $1,221,957   $ (179,073)   (15%)
     Professional fees                                       346,920      182,190      164,730     90%
     Royalty expenses                                        305,610      655,238     (349,628)   (53%)
     Advertising                                               5,611       39,510      (33,899)   (86%)
     Automobile expenses                                      73,239       91,098      (17,859)   (20%)
     Credit card fees                                         68,229       85,604      (17,375)   (20%)
     Depreciation Expense                                    316,649      623,067     (317,457)   (50%)
</TABLE>



<TABLE>
<CAPTION>
                                                               Years Ended           Increase
                                                         12/31/2003    12/31/2002   (Decrease)      %
                                                         ----------    ----------   ----------    ----
<S>                                                      <C>           <C>          <C>           <C>
     Rent                                                    109,471      107,670        1,801      2%
     Freight and Delivery                                     64,785       90,949      (26,154)   (29%)
     Other selling, general and administrative expenses      257,298      446,771     (194,473)   (44%)

          Total Selling, General and Administrative
     Expenses                                             $2,688,566   $3,612,214   $ (923,648)   (26%)
</TABLE>


         Even with a decline in sales, we recorded a net profit of $307,251 from
operations in the 2003 fiscal year as compared to a net loss from operations of
$918,373 in the 2002 fiscal year. Along with the reduction in our debt and in
our selling, general and administrative expenses, we recovered $320,394 in
production costs relating to licenses for various works of anime.

INTEREST EXPENSE

         Interest expense decreased $81,402, or 38%, due to the repayment of
debt, reduction in the interest rates on debt due to changes in the prime rate
of borrowing, and lower interest rates on new borrowings.

                               Years Ended                Increase
                        12/31/2003      12/31/2002       (Decrease)     %
                        ----------      ----------       ----------   -----

Interest Expense        $  133,282      $  214,684       $ (81,402)    (38%)

OTHER INCOME (EXPENSE)

         Our other income is comprised of the following:

        Cost recovery, KSS contract                                   $320,394
        Cancellation of debt                                           169,868
        Loss on disposal of asset                                      (4,820)
                                                                       -------

             Total Other Income                                       $485,442
                                                                      ========

         Cost recovery, KSS Contract - We license certain digital masters from
KSS and we are permitted to recover from KSS any costs we incur for developing
DVD masters, advertising and related costs. During the year ended December 31,
2003, we offset a total of $320,394 in such costs against license royalties that
are due to KSS. These costs are recorded as advance royalty payments and will be
used to offset future royalties, as they accrue.

         Cancellation of Debt - During the year ended December 31, 2003, we were
able to negotiate reductions in accounts and notes payable in the amount of
$169,868.


                                       12
<PAGE>

CORPORATION INCOME TAXES (BENEFIT)

                                                              Years Ended
                                                         12/31/2003  12/31/2002

Corporation Income Taxes (Benefit)
        Federal income tax                               $      0    $(20,225)
        State of California franchise tax                     800         800
                                                         --------    --------
             Total Corporation Income Taxes (Benefit)    $    800    $(19,225)
                                                         ========    ========

         During the year ended December 31, 2002 we experienced a tax net
operating loss and as a result, carried-back a portion of the loss and obtained
a refund from the Internal Revenue Service in the amount of $20,025. For the
year ended December 31, 2003 we will apply a portion of this net operating loss
carryforward to our net income and owe no federal or state tax. Each year we are
responsible for an $800 minimum franchise tax to the State of California.

NET INCOME (LOSS)

         Our net loss decreased from $918,373 in the year ended December 31,
2002 to a profit of $307,251 in the year ended December 31, 2003. The change of
$1,225,624 was due to our improvement in our gross profit on items sold, our
cost containment programs, our costs recovered on the KSS contract and our
cancellation of debt.

LIQUIDITY AND CAPITAL RESOURCES

         To date, we have financed our operations with cash from our operating
activities, a bank line of credit, a loan from the Small Business
Administration, various loans from individuals and a private offering of our
securities.

         Our capital requirements, particularly as they relate to the production
of popular music concerts and expanding our film and anime library, have been
and will continue to be significant. Our future cash requirements and the
adequacy of available funds will depend on many factors, including the pace at
which we expand our business generally, and our film library in particular, the
general state of the economy, which impacts the amount of money that may be
spent for entertainment, our ability to negotiate favorable license agreements
with producers and copyright holders of various works, the continued popularity
of anime and whether or not the works we acquire appeal to consumers and whether
or not the production and distribution of popular music concerts proves to be
lucrative.

         Because of our tight cash flow it is likely that, during the next 12
month period we will seek financing from one or more sources such as lending
institutions, private individuals, including our President and Chief Executive
Officer, Mr. Lee Kasper, or by sales of our securities. Additional financing may
not be available on acceptable terms, or at all.

         At December 31, 2003 cash amounted to $30,827. Our primary sources of
cash in fiscal 2003 consisted of cash provided by operating activities and
loans.


                                       13
<PAGE>

         The primary uses of cash for the fiscal year ended December 31, 2003
consisted of licensing costs and general operating costs. We believe that cash
generated by our current operations will be sufficient to continue our business
for the next 12 months, however cash generated by current operations will not
provide the means to allow us to expand operations by licensing a significant
number of new works of anime, which are costly to obtain, and to continue
producing popular music concerts. In February 2004 we raised gross proceeds of
$2,500,000 through a private offering of our securities. A portion of these
funds have been used to repay loans made to us by Mr. Kasper and his affiliates.
The remainder of the proceeds will be used in our general operations, primarily
for the licensing of additional anime titles and the production of popular music
concerts.

<TABLE>
<CAPTION>
                                                             Years Ended             Increase
Working Capital                                        12/31/2003    12/31/2002     (Decrease)
                                                       ----------    ----------     ----------
<S>                                                   <C>            <C>            <C>
Current Assets                                        $ 1,436,826    $ 1,480,431    $   (43,605)
Current Liabilities                                     2,158,368      2,659,151        500,783
                                                      -----------    -----------    -----------
            Deficit Working Capital                   $  (721,542)   $(1,178,720)   $   457,178
                                                      ===========    ===========    ===========
Long-term Debt                                        $ 1,187,880    $ 1,094,230    $    93,650
                                                      ===========    ===========    ===========
Stockholders' Equity Increase                         $   605,830    $   334,568    $   271,262
                                                      ===========    ===========    ===========
</TABLE>

         The positive changes in our working capital resulted from our 2003
profit, settlement of debt with common stock and issuance of common stock for
cash.

STOCKHOLDERS' EQUITY

         Stockholders' equity increased by $940,398 in the 2003 fiscal year,
primarily due to our net income of $307,251 and because we succeeded in
obtaining a waiver from a shareholder of certain rights it was granted in
connection with the acquisition of our common stock.


STATEMENTS OF CASH FLOWS SELECT INFORMATION

<TABLE>
<CAPTION>
                                                              Years Ended
                                                12/31/2003                    12/31/2002
                                                ----------                    ----------
<S>                                             <C>                           <C>
Net Cash Provided (Used) By:
Operating Activities                            $(130,945)                    $ 379,008
Investing Activities                            $(327,013)                    $(588,181)
Financing Activities                            $ 479,548                     $ 135,432
</TABLE>


                                       14
<PAGE>

OPERATING ACTIVITIES

         During the year ended December 31, 2003, cash was provided by net
profits, reductions in inventory and tax refunds. Cash was used by operations to
fund increases in accounts receivable, to make advances to employees, to pay
advance royalties, to prepay expenses and to reduce accounts payable and accrued
liabilities. During the year ended December 31, 2002, net cash provided by
operating activities was provided by accounts receivable, inventories, advance
royalties, and increases in accounts payable and accrued liabilities, while cash
was used by operations from the net loss, tax refund, prepaid expenses and
corporate income taxes.

INVESTING ACTIVITIES

         During the year ended December 31, 2003, net cash used by investing
activities was $327,013 as compared to $588,181 for the year ended December 31,
2002. Cash used by investing activities was used principally for the acquisition
of property and equipment.

FINANCING ACTIVITIES

         Net cash provided by financing activities was $479,548 for the year
ended December 31, 2003 as compared to $135,432 of net cash provided by
financing activities during the year ended December 31, 2002. During the year
ended December 31, 2003, we received $900,000 from the proceeds of new loans,
all of them from our President and Chief Executive Officer, Mr. Lee Kasper, and
$150,000 from issuance of our common stock. We used funds totaling $570,452 for
reduction of debt, including the repayment of promissory notes to third parties,
payment of a loan to an officer, and payments made toward capital leases. During
the year ended December 31, 2002, we received $207,282 from issuance of our
common stock and debt financing, and we used our funds to repay $71,850 on notes
and capital leases payable.

SOURCES OF CASH

         On February 2, 2004 and again on February 27, 2004 we completed a
private sale of units to accredited investors. The units consisted of one share
of common stock and a warrant to purchase two shares of common stock. Through
these offerings we raised a total of $750,000 and $1,750,000 in gross proceeds,
respectively. The price per unit was $0.40 and the warrant conversion price is
$0.75.

         In 2002 we had a bank line of credit in the amount of $650,000. Our
agreement with the lender, U.S. Bank, N.A., required us to comply with stringent
financial covenants, including debt to equity ratios, a tangible net worth
covenant and a working capital covenant. Because we breached the covenants, U.S.
Bank asked us to make arrangements to pay the line of credit in full. On
November 7, 2002, U.S. Bank, N.A. agreed to make a loan in the amount of
$640,000 to Lee Kasper, our President, who used the proceeds to pay-off our line
of credit. The loan to Mr. Kasper requires 30 monthly payments of $21,333 plus
interest at 3% over prime. The Company pledged all of its assets as collateral
for repayment of the loan and has guaranteed repayment of the loan.


                                       15
<PAGE>

      The principal amount of the loan we received through the Small Business
Administration is $900,000. Interest is adjusted at least once each year. The
interest rate was 2% above the prime rate. The loan had a 10-year term. In July
2003, we renegotiated the loan, reducing the monthly payments to $6,415,
including interest, and extending the due date to July 14, 2018.

      In February 2003 our President and majority shareholder, Mr. Lee Kasper,
received a personal loan in the amount of $500,000. The interest rate on the
loan is 3% and the loan is scheduled to be repaid over 36 months. Mr. Kasper
loaned these funds to us on identical terms. We used these funds to expand our
library of anime titles.

      In September 2003 we also borrowed $360,000 from Mr. Kasper and a total of
$100,000 from trusts created for the benefit of his children. All of these loans
had a term of one year and bore simple interest at the rate of 10%. We repaid
these loans with part of the proceeds we received from the financing we
undertook in February 2004.

      The Company is committed to royalties ranging from 20% to 30% on specific
royalty contracts.

      In August 1998 we entered into an agreement with Ritek Corporation whereby
we received an advance in the amount of $400,000 against royalties to be earned
through the sale of the children's game, "Shadoan". We also agreed to pay simple
interest of 8.5% per year on the advance amount. We used this money to acquire
the license for the game as well as for working capital. As consideration for
the advance, we agreed that, so long as the advance amount was outstanding, our
ownership of the license to the game would be shared equally with Ritek
Corporation. We further agreed to retain the services of Ritek Corporation to
replicate the game, at a per disc price that was competitive in our industry.
Ritek Corporation agreed that we could repay the advance by paying a per-disc
charge of $2 over the replication price. If we fail to make payments in
accordance with our agreement, Ritek Corporation is entitled to give us notice
of default. If we fail to pay the principal amount within 10 days after we
receive the notice, we are required to forfeit our ownership rights in the
license to Ritek Corporation. We have derived minimal revenues from the game and
we have not repaid the advance in accordance with our agreement. As of December
31, 2003, the unpaid balance of the advance was $400,000. We failed to pay all
of the interest that accrued during the past two fiscal years, and we have
recorded a liability for unpaid interest totaling $65,167 for the fiscal year
ended December 31, 2003. Ritek Corporation has not given us notice of default
and has not asked us to transfer our rights to the license. If we were required
to transfer our license to the game to Ritek Corporation, it would not have a
significant impact on our revenues or the results of our operations.

         Currently, we have no commitments for additional financiang.

FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION

      An investment in our securities is very speculative and involves a high
degree of risk. You should carefully consider the following risk factors, along
with the other matters referred to in this Annual Report, before you decide to
buy our securities. If you decide to buy our securities, you should be able to
afford a complete loss of your investment.


                                       16
<PAGE>

      WE WILL CONTINUE TO NEED MONEY TO LICENSE PRODUCTS AND WE ARE NOT SURE WE
CAN OBTAIN ADDITIONAL FINANCING. IF WE CANNOT OBTAIN ADDITIONAL FINANCING, IT
WILL ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS AND THE VALUE OF
YOUR INVESTMENT.

      We acquire licenses to reproduce and sell general entertainment products.
The products we license include films, musical concerts and karaoke products.
Many of these licenses, especially those relating to our hentai products, are
extremely expensive to obtain and most of them require us to pay significant
up-front advances against future royalties and distribution fees. We are also
beginning to produce and distribute popular music concerts, which require a
substantial cash outlay.

      While our cash flow from operations is sufficient to support our
day-to-day operations, it is unlikely that we will be able to continue to
acquire titles or produce music concerts without additional financing. In the
past, we have borrowed money from Lee Kasper, our majority shareholder, and sold
our securities to raise money to acquire product licenses. Currently, we have no
commitments for additional financing. To the extent that we need more money to
acquire additional licenses, we cannot assure you that funds will be available
to us on favorable terms, or at all. To the extent that additional money is
raised through the sale of our securities, the issuance of those securities
could result in dilution to our shareholders. The unavailability of funds could
have a material adverse effect on our ability to expand our library of titles or
continue our concert production work, which will adversely affect our business
and results of operations and the value of your investment.

      THE HOME ENTERTAINMENT INDUSTRY IS INTENSELY COMPETITIVE. WE CANNOT
GUARANTEE YOU THAT WE CAN COMPETE SUCCESSFULY. IF WE DO NOT COMPETE SUCCESSFULY,
YOUR INVESTMENT COULD BECOME WORTHLESS.

      The home entertainment industry is intensely competitive. Our competitors
include major motion picture studios and music labels that are much larger than
we are and have far greater name recognition and financial resources than we
have. We also compete against smaller, independent companies that seek, as we
do, to create niche markets.

      In 2000 we began licensing Japanese hentai, a form of adult animation. We
dubbed over the sound tracks of these films, using the voices of actors from the
adult entertainment industry. During the 2000 and 2001 fiscal years, we earned
$4,186,673 and $5,021,232 in gross revenues, respectively. These films accounted
for approximately 30% of our sales for the fiscal year ended December 31, 2000
and approximately 50% of our sales for the fiscal year ended December 31, 2001.

      Due in part to the slowdown of the U.S. economy, which we believe has had
an adverse effect on discretionary consumer spending, in part to an increase in
competition in the sale of Japanese anime and hentai, and in part to a change in
our business strategy to prevent erosion of our customer base through discounted
pricing of our products, our gross revenues declined to $4,292,510 for the
fiscal year ended December 31, 2002 and $3,745,297 for the fiscal year ended
December 31, 2003.


                                       17
<PAGE>

      In order to strengthen our competitive presence in our market we have
implemented a new technology that we call digital rights management, or DRM,
that allows consumers to download films from our website, for either rent or
purchase. The technology delivers high definition and DVD-quality audio and
video over the Internet, but prevents copying or further distribution of the
work by the consumer. We believe that this easy method of downloading films for
immediate viewing will encourage visitors to our website to act spontaneously to
rent or purchase these products. We are also beginning to produce and distribute
popular music concerts, which we believe will sell as well as our films.

      In spite of the measures we have introduced, we may not be able to compete
successfully in our market. If we fail to compete successfully, our business and
your investment will be adversely affected.

      THE MARKET IN WHICH WE DO BUSINESS MAY CHANGE, DECREASING THE DEMAND FOR
OUR PRODUCTS. IF THE DEMAND FOR OUR PRODUCTS DECLINES, OUR BUSINESS AND RESULTS
OF OPERATIONS MAY BE ADVERSELY AFFECTED WHICH, IN TURN, WILL CAUSE THE VALUE OF
YOUR INVESTMENT TO DECLINE.

      In spite of the introduction of our digital rights management technology,
which allows consumers visiting our website to immediately download films over
the Internet, the majority of our revenues are derived from sales of our DVD
products. Our DVD products compete with pay-per-view cable television systems,
in which cable television subscribers pay a fee to see a movie or other program
selected by the subscriber. Existing pay-per-view services offer a limited
number of channels and programs and are generally available only to households
with a converter to unscramble incoming signals. Recently developed
technologies, however, permit certain cable companies, direct broadcast
satellite companies, telephone companies and other telecommunications companies
to transmit a much greater number of movies to homes in more markets.
Ultimately, further improvements in these technologies or the development of
other technologies, such as Internet-TV, could lead to the availability of a
broad selection of movies or music videos to consumers on demand at low prices,
which could substantially decrease the demand for DVD-video purchases or
rentals. This could have a material adverse effect on our financial condition
and results of operations and on the value of your investment.

      WE RELY ON SALES TO A FEW KEY CUSTOMERS. OUR BUSINESS AND FINANCIAL
RESULTS COULD BE ADVERSELY AFFECTED IF WE LOST THESE CUSTOMERS, WHICH WOULD
CAUSE THE VALUE OF YOUR INVESTMENT TO DECLINE.

      As a percentage of total revenues, our net sales to our four largest
customers during the fiscal year ended December 31, 2003 totaled approximately
28.86%. One major customer accounted for over 14% of our revenues in fiscal
2003. Although we have long-established relationships with many of our
customers, we do not have long-term contractual arrangements with any of them. A
decrease in business from any of our major customers could have a material
adverse effect on our results of operations and financial condition and the
value of your investment.


                                       18
<PAGE>

      WE COULD BECOME INVOLVED IN LITIGATION OVER OUR RIGHTS TO USE OUR
PRODUCTS, OR THE RIGHTS OF OTHERS TO USE OUR PRODUCTS.  RESOLUTION OF ANY SUCH
LITIGATION COULD BE TIME CONSUMING AND COSTLY, WHICH MAY HAVE A MATERIAL
ADVERSE AFFECT OUR OPERATIONS AND FINANCIAL POSITION.

      We are not aware that any of our products infringe the proprietary rights
of third parties, and we are not currently engaged in any material intellectual
property litigation or proceedings. Nonetheless, we cannot assure you that we
will not become the subject of infringement claims or legal proceedings by third
parties with respect to our current or future products. In addition, we may
initiate claims or litigation against third parties for infringement of our
proprietary rights, or to establish the validity of our proprietary rights. Any
such claims could be time-consuming, divert management from our daily
operations, result in litigation, cause product shipment delays or lead us to
enter into royalty or licensing agreements rather than disputing the merits of
such claims. Moreover, an adverse outcome in litigation or a similar adversarial
proceedings could subject us to significant liabilities to third parties,
require the expenditure of significant resources to develop non-infringing
products, require disputed rights to be licensed from others or require us to
cease the marketing or use of certain products, any of which could have a
material adverse effect on our business and operating results.

      GOVERNMENT REGULATIONS COULD ADVERSELY EFFECT THAT PORTION OF OUR
BUSINESS THAT RELATES TO LATE NIGHT PROGRAMMING.  IF WE WERE PROHIBITED FROM
DISSEMINATING LATE NIGHT PROGRAMMING, IT WOULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR RESULTS OF OPERATIONS.  THIS COULD CAUSE THE VALUE OF YOUR INVESTMENT TO
DECLINE.

      During 2003 approximately 10.23% of our sales were from late night
programming, that is, programming that includes sexually explicit content which
is made to be viewed solely by adults.  If we include hentai in the category of
late night programming, then approximately 62.11% of our sales would fall into
this category.

      Although the right to create material containing sexually explicit
content is protected by the First and Fourteenth Amendments to the United
States Constitution, the First and Fourteenth Amendments do not protect the
dissemination of this material.  Several states and communities in which our
products are distributed have enacted laws regulating the distribution of such
programming, with some offenses designated as misdemeanors and others as
felonies.  The consequences for violating the state statutes are as varied as
the number of states enacting them.  Similarly, there is a federal prohibition
with respect to the dissemination of late night programming, and the potential
penalties for individuals (including corporate directors and officers)
violating these federal laws include fines, community service, probation,
forfeiture of assets and incarceration.  While we undertake to restrict the
distribution of our products in order to comply with all applicable statutes
and regulations, we cannot assure you that our efforts will be successful and
that we will always be in compliance.  If we are accused of failing to comply,
we may incur substantial legal costs to defend the action, management will
likely be diverted from its routine activities to assist with preparing the
defense, and we could incur significant fines or penalties if we fail to
prevail in our defense.

      Furthermore, because of the adult content of our products, many people may
regard our business as unwholesome. Federal, state and municipal governments,
along with various religious and children's advocacy groups, consistently
propose and pass new legislation aimed at restricting provision of, access to,
and content of late night entertainment. These groups also may file lawsuits
against providers of late night entertainment, encourage boycotts against such
providers, and mount negative publicity. We cannot assure you that our products
will not be subject to successful legal challenges in the future.

      If we lost the ability to sell our late night products, or if our ability
to sell these products was substantially curtailed, it would have a material
adverse affect on our business and operating results and on the value of your
investment.

      WE ARE DEPENDENT FOR OUR SUCCESS ON A FEW EMPLOYEES. THE LOSS OF ONE OR
MORE OF THESE EMPLOYEES COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS.

      Our future success will depend, to a significant degree, on the continued
services of our executive officers and other key personnel, particularly our
founder, Mr. Lee Kasper, and our Vice President, Mr. Joseph Giarmo. The loss of
Mr. Kasper's or Mr. Giarmo's services would have a material adverse effect on
our business and operations.


                                       19
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

      The financial statements, together with the independent auditors' report
thereon, appear beginning on page F-1 of this report.

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
  of NuTech Digital, Inc.:

We have audited the  accompanying  balance  sheet of NuTech  Digital,  Inc. (the
"Company")  as of December 31, 2003 and the related  statements  of  operations,
stockholders'  equity  and  cash  flows  for the two  years  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility is to express an opinion on the financial statements based on our
audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  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  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of NuTech  Digital,  Inc. as of
December 31, 2003 and the results of its  operations  and its cash flows for the
two years  then  ended,  in  conformity  with  accounting  principles  generally
accepted in the United States of America.

/s/ Farber & Hass, LLP

Camarillo, California
March 18, 2003


<PAGE>

                              NUTECH DIGITAL, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 2003


                                     ASSETS

<TABLE>
<CAPTION>
<S>                                                                      <C>
CURRENT ASSETS
    Cash                                                                 $   30,827
    Accounts receivable, net                                                475,691
    Other receivables                                                         3,250
    Inventories                                                             630,739
    Royalty advances, current portion                                       235,990
    Prepaid expenses, current portion                                        60,329
                                                                         ----------
           TOTAL CURRENT ASSETS                                           1,436,826
                                                                         ----------

PROPERTY AND EQUIPMENT, NET OF
   ACCUMULATED DEPRECIATION                                               1,482,169
                                                                         ----------

OTHER ASSETS
                  Royalty advances, long-term portion                     1,409,010
         Prepaid loan costs, long-term portion                               30,841
         Deposits                                                             7,800
                                                                         ----------

          TOTAL OTHER ASSETS                                              1,447,651
                                                                         ----------

          TOTAL ASSETS                                                   $4,366,646
                                                                         ==========
</TABLE>

                                      F-1
<PAGE>


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
<S>                                                                      <C>
CURRENT LIABILITIES
     Accounts payable                                                    $   653,074
     Accrued liabilities                                                      58,608
     Accrued interest                                                        113,410
     Capital leases payable, current portion                                  25,117
     Notes payable, related parties, current portion                         876,248
     Notes payable, other, current portion                                   431,911
                                                                         -----------

                TOTAL CURRENT LIABILITIES                                  2,158,368
                                                                         -----------

LONG-TERM LIABILITIES
      Capital leases payable, long-term portion                                8,835
     Notes payable, related parties, long-term portion                       339,325
     Notes payable, other, long-term portion                                 702,154
     Convertible promissory notes                                            137,566
                                                                         -----------

         TOTAL LONG-TERM LIABILITIES                                       1,187,880
                                                                         -----------

REDEEMABLE COMMON STOCK                                                       80,000
                                                                         -----------

STOCKHOLDERS' EQUITY
       Preferred stock
          Authorized - 50,000,000 shares
          Issued and outstanding -0- shares                                        0
       Common stock
        Authorized 100,000,000 shares, no par value
        Issued and outstanding - 12,883,248 shares                         1,519,902
       Accumulated (deficit)                                                (579,504)
                                                                         -----------

          TOTAL STOCKHOLDERS' EQUITY                                         940,398
                                                                         -----------

     TOTAL LIABILITIES AND
             STOCKHOLDERS' EQUITY                                        $ 4,366,646
                                                                         ===========
</TABLE>


                             See Accompanying Notes.

                                       F-2


<PAGE>


                              NUTECH DIGITAL, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                                              2003                 2002
                                                          -----------          -----------
<S>                                                       <C>                  <C>
SALES                                                     $ 3,745,297          $ 4,292,510

COSTS OF SALES                                              1,100,840            1,403,210
                                                          -----------          -----------
          GROSS PROFIT                                      2,644,457            2,889,300
                                                          -----------          -----------
EXPENSES
       SELLING EXPENSES                                       515,495              904,206
          GENERAL AND ADMINISTRATIVE
         EXPENSES                                           2,173,071            2,708,008
                                                          -----------          -----------
       TOTAL EXPENSES                                       2,688,566            3,612,214
                                                          -----------          -----------
          OPERATING (LOSS)                                    (44,109)            (722,914)
INTEREST EXPENSE                                              133,282              214,684
                                                          -----------          -----------
          (LOSS) BEFORE OTHER INCOME                         (177,391)            (937,598)
                                                          -----------          -----------
OTHER INCOME (EXPENSE)
    Cost recovery, KSS contract                               320,394                    0
    Cancellation of debt                                      169,868                    0
    Loss on disposal of asset                                  (4,820)                   0
                                                          -----------          -----------
         TOTAL OTHER INCOME                                   485,442                    0
                                                          -----------          -----------
          INCOME (LOSS) BEFORE
             CORPORATION INCOME TAXES                         308,051             (937,598)
CORPORATION INCOME TAXES (BENEFIT)                                800              (19,225)
                                                          -----------          -----------
          NET INCOME (LOSS)                               $   307,251          $  (918,373)
                                                          ===========          ===========
NET INCOME (LOSS) PER COMMON SHARE
   BASIC                                                  $       .03          $      (.09)
                                                          ===========          ===========
   DILUTED                                                $       .03          $      (.09)
                                                          ===========          ===========
WEIGHTED AVERAGE NUMBER OF COMMON
   SHARES OUTSTANDING
   BASIC                                                   11,290,644           10,257,979
                                                          ===========          ===========
   DILUTED                                                 12,068,727           10,257,979
                                                          ===========          ===========
</TABLE>

                             See Accompanying Notes.

                                       F-3


<PAGE>


                              NUTECH DIGITAL, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                           PREFERRED STOCK                  COMMON STOCK
                                  ------------------------------  --------------------------------      ACCUMULATED
                                      SHARES          AMOUNT          SHARES            AMOUNT            DEFICIT         TOTAL
                                  -------------    -------------  --------------   ---------------    --------------   -----------
<S>                               <C>              <C>            <C>              <C>                <C>              <C>
BALANCE, JANUARY 1, 2002                      0    $           0      10,018,550    $    1,008,643    $       31,618   $ 1,040,261

ISSUANCE OF COMMON STOCK FOR:
    CASH-PRIVATE PLACEMENT                    0                0          16,666            25,000                 0        25,000
    NOTES PAYABLE (INCLUDED IN
        REDEEMABLE COMMON STOCK)              0                0         218,333                 0                 0             0
    PREPAID OFFERING COSTS                    0                0         126,620           189,930                 0       189,930

COSTS INCURRED FOR PRIVATE
    PLACEMENT
        PAID BY CASH                          0                0               0            (2,250)                0        (2,250)

NET (LOSS) FOR THE YEAR ENDED
    DECEMBER 31,  2002                        0                0               0                 0          (918,373)     (918,373)
                                  -------------    -------------  --------------    --------------    --------------   -----------
BALANCE, DECEMBER 31, 2002                    0    $           0      10,380,169         1,221,323          (886,755)      334,568

ISSUANCE OF COMMON STOCK FOR:
    SERVICES UNDER 2003
       CONSULTANT STOCK PLAN                  0                0       1,315,000           195,300                 0       195,300
    OTHER SERVICES                            0                0         603,079           121,666                 0       121,666
    ACCOUNTS PAYABLE                          0                0         210,000            83,125                 0        83,125
    CASH - PRIVATE PLACEMENTS                 0                0         375,000           150,000                 0       150,000

ALLOCATION OF OFFERING COST-
   PRIMARILY LEGAL FEES                       0                0               0          (499,012)                0      (499,012)

REDEEMABLE COMMON STOCK                       0                0               0           247,500                 0       247,500

NET INCOME FOR THE YEAR ENDED
    DECEMBER 31, 2003                         0                0               0                 0           307,251       307,251
                                  -------------    -------------  --------------   ---------------    --------------   -----------
BALANCE, DECEMBER 31, 2003                    0    $           0      12,883,248   $     1,519,902    $     (579,504)  $   940,398
                                  =============    =============  ==============   ===============    ==============   ===========
</TABLE>


                             See Accompanying Notes.

                                       F-4


<PAGE>


                              NUTECH DIGITAL, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                                  2003           2002
                                                                               ---------      ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                            <C>            <C>
       Net income (loss)                                                       $ 307,251      $(918,373)
       Adjustments to reconcile net income (loss) to net
          cash provided (used) by operating activities:
          Depreciation                                                           316,649        623,067
          Cost recovery, KSS contract                                           (320,394)             0
          Cancellation of debt                                                  (169,868)             0
          Loss on disposal of asset                                                4,820              0
          Allowance for doubtful accounts                                         31,665         36,998
          Issuance of common stock for services                                  226,966              0
          Issuance of common stock for interest                                        0         37,500
          Allowance for royalty losses                                             5,000              0
       Deferred tax assets/liabilities                                                 0         (1,400)
       Changes in operating assets and liabilities:
          Accounts receivable                                                   (140,627)       535,439
          Corporation income tax refund                                           40,669        (40,669)
          Advance to employees and other receivables                              (3,250)             0
          Inventories                                                            238,812         28,448
          Royalty advances                                                      (178,475)        90,239
          Prepaid expenses                                                       (27,475)      (237,768)
          Accounts payable                                                      (237,860)       214,540
          Accrued liabilities                                                   (224,828)        44,496
          Corporation income taxes payable                                             0        (33,509)
                                                                               ---------      ---------

       NET CASH PROVIDED (USED) BY
         OPERATING ACTIVITIES                                                   (130,945)       379,008
                                                                               ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES
       Purchases of property and equipment                                      (327,013)      (588,181)
                                                                               ---------      ---------

       NET CASH (USED) BY INVESTING ACTIVITIES                                  (327,013)      (588,181)
                                                                               ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES
       Net proceeds from issuance of common stock                                150,000         22,750
       Proceeds from notes payable, other                                        900,000         33,335
       Repayments of notes payable                                              (517,590)       (62,348)
       Proceeds from bank line of credit and officer's loan                            0        121,831
       Changes in loans payable, officer                                         (33,482)        29,366
       Payments on capital leases payable                                        (19,380)        (9,502)
                                                                               ---------      ---------

       NET CASH PROVIDED BY FINANCING ACTIVITIES                                 479,548        135,432
                                                                               ---------      ---------
</TABLE>

                             See Accompanying Notes.

                                       F-5


<PAGE>





                              NUTECH DIGITAL, INC.
                       STATEMENT OF CASH FLOWS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002



<TABLE>
<CAPTION>
                                                                                  2003           2002
                                                                               ---------      ---------
<S>                                                                            <C>            <C>
NET INCREASE (DECREASE) IN CASH                                                $  21,590      $ (73,741)

CASH BALANCE, AT BEGINNING OF YEAR                                                 9,237         82,978
                                                                               ---------      ---------

CASH BALANCE, AT END OF YEAR                                                   $  30,827      $   9,237
                                                                               =========      =========

SUPPLEMENTARY DISCLOSURE OF
   CASH FLOW INFORMATION

   CASH PAID DURING THE YEAR FOR:

       Interest                                                                $  65,869      $ 243,330
                                                                               =========      =========

       Taxes                                                                   $       0      $  33,509
                                                                               =========      =========

NON-CASH INVESTING AND FINANCING
   ACTIVITIES

       Issuance of common stock for services and consulting fees               $ 295,966      $       0
                                                                               =========      =========

       Issuance of common stock for accounts payable, notes
         payable and accrued interest                                          $ 104,125      $ 327,500
                                                                               =========      =========

      Issuance of common stock for offering costs                              $ 459,474      $ 189,930
                                                                               =========      =========
</TABLE>


                             See Accompanying Notes.

                                       F-6


<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


  NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          NATURE OF BUSINESS

          NuTech Digital, Inc. was organized on June 12, 1997, under the laws of
          the state of California. The Company is engaged in licensing and
          distributing general entertainment products, most of which are made
          available through digital versatile disc ("DVD"). The Company's
          products include children's animated films and video games, karoake
          software, Japanese anime and late night programming.

          BASIS OF PRESENTATION

          The Company's financial statements have been prepared on an accrual
          basis of accounting, in conformity with accounting principles
          generally accepted in the United States of America. These principles
          contemplate the realization of assets and liquidation of liabilities
          in the normal course of business.

          ACCOUNTS RECEIVABLE

          Accounts receivable are reported at the customers' outstanding
          balances less any allowance for doubtful accounts. Interest is not
          included on overdue accounts.

          ALLOWANCE FOR DOUBTFUL ACCOUNTS

          The allowance for doubtful accounts on accounts receivables is charged
          to income in amounts sufficient to maintain the allowance for
          uncollectible accounts at a level management believes is adequate to
          cover any probable losses. Management determines the adequacy of the
          allowance based on historical write-off percentages and information
          collected from individual customers. Accounts receivable are charged
          off against the allowance when collectibiltiy is determined to be
          permanently impaired (bankruptcy, lack of contact, account balance
          over one year old, etc).

          ROYALTY ADVANCES

          Royalty advances are stated at cost, less royalties accrued on the
          contracts and less an allowance for potential obsolescence.


                                       F-7


<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


  NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          INVENTORIES

          Inventories are stated at the lower of cost (determined by the
          first-in, first-out method) or market.

          PROPERTY AND EQUIPMENT

          Property and equipment are stated at cost. Major renewals and
          improvements are charged to the asset accounts while replacements,
          maintenance and repairs, which do not improve or extend the lives of
          the respective assets, are expensed. At the time property and
          equipment are retired or otherwise disposed of, the asset and related
          accumulated depreciation accounts are relieved of the applicable
          amounts. Gains or losses from retirements or sales are credited or
          charged to income.

          The Company depreciates its property and equipment for financial
          reporting purposes using the straight-line method based upon the
          following useful lives of the assets:

             Completed masters                              7 years
             Office furniture and equipment                 7 years
             Computer equipment                           5-7 years
             Computer software                              3 years
             Warehouse equipment                         7-10 years
             Trade show equipment                           7 years
             Leasehold improvements                      5-10 years

          ACCOUNTING ESTIMATES

          Management uses estimates and assumptions in preparing financial
          statements in accordance with accounting principles generally accepted
          in the United States of America. Those estimates and assumptions
          affect the reported amounts of assets and liabilities, the disclosure
          of contingent assets and liabilities, and the reported revenues and
          expenses. Actual results could vary from the estimates that were used.

          REVENUE RECOGNITION

          The Company recognizes revenue from product sales when the goods are
          shipped and title passes to customers. The Company recognizes revenue
          in accordance with SEC Staff Accounting Bulletin 101.




                                       F-8
<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


  NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

          The Company has financial instruments, none of which are held for
          trading purposes. The Company estimates that the fair value of all
          financial instruments at December 31, 2003 as defined in FASB 107,
          does not differ materially from the aggregate carrying values of its
          financial instruments recorded in the accompanying balance sheet. The
          estimated fair value amounts have been determined by the Company using
          available market information and appropriate valuation methodologies.
          Considerable judgment is required in interpreting market data to
          develop the estimates of fair value, and accordingly, the estimates
          are not necessarily indicative of the amounts that the Company could
          realize in a current market exchange.

          NET EARNINGS (LOSS) PER SHARE

          The Company adopted Statement of Financial Accounting Standards No.
          128 that requires the reporting of both basic and diluted earnings
          (loss) per share. Basic earnings (loss) per share is computed by
          dividing net income (loss) available to common stockholders by the
          weighted average number of common shares outstanding for the period.
          Diluted earnings (loss) per share reflects the potential dilution that
          could occur if securities or other contracts to issue common stock
          were exercised or converted into common stock. In accordance with FASB
          128, any anti-dilutive effects on net income (loss) per share are
          excluded.

          INCOME TAXES

          Provisions for income taxes are based on taxes payable or refundable
          for the current year and deferred taxes on temporary differences
          between the amount of taxable income and pretax financial income and
          between the tax bases of assets and liabilities and their reported
          amounts in the financial statements. Deferred tax assets and
          liabilities are included in the financial statements at currently
          enacted income tax rates applicable to the period in which the
          deferred tax assets and liabilities are expected to be realized or
          settled as prescribed in FASB Statement No. 109, Accounting for Income
          Taxes. As changes in tax laws or rates are enacted, deferred tax
          assets and liabilities are adjusted through the provision for income
          taxes.

          COMMON STOCK ISSUED FOR NON-CASH TRANSACTIONS

          It is the Company's policy to value stock issued for non-cash
          transactions, such as services, at the fair market value of the goods
          or services received or the consideration granted, whichever is more
          readily determinable, at the date of the transaction.


                                       F-9


<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


  NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          LONG-LIVED ASSETS

          Statement of Financial Accounting Standards No. 121, "Accounting for
          the Impairment of Long-Lived Assets and for Long-Lived Assets to be
          Disposed Of," requires that long-lived assets be reviewed for
          impairment whenever events or changes in circumstances indicate that
          the historical cost-carrying value of an asset may no longer be
          appropriate. The Company assesses the recoverability of the carrying
          value of an asset by estimating the future net cash flows expected to
          result from the asset, including eventual disposition. If the future
          net cash flows are less than the carrying value of the asset, an
          impairment loss is recorded equal to the difference between the
          asset's carrying value and fair value.

          SHIPPING AND HANDLING COSTS

          The Company's policy is to classify shipping and handling costs as
          part of selling, general and administrative costs in the statements of
          operations. These costs for the year ended December 31, 2003 and 2002
          amounted to $68,003 and $88,949, respectively.

          SEGMENT INFORMATION

          The Company sells its products primarily to retail stores and
          distributors. Approximately 6% of the Company's revenues in 2003 were
          to customers outside of the United States of America (no specific
          concentration). The Company had one customer whose sales exceeded 10%
          of revenue.

          RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS

          In June 2002, the FASB issued SFAS 146, "Accounting for Costs
          Associated with Exit or Disposal Activities", which nullifies EITF
          Issue 94-3. SFAS 146 is effective for exit and disposal activities
          that are initiated after December 31, 2002 and requires that a
          liability for a cost associated with an exit or disposal activity be
          recognized when the liability is incurred in contrast to the date of
          an entity's commitment to an exit plan, as required by EITF Issue
          94-3. The Company adopted this pronouncement on January 1, 2003.

          In December 2002, the FASB issued SFAS 148 "Accounting for Stock-Based
          Compensation" an amendment to SFAS 123. SFAS 148 provides alternative
          methods of transition for a voluntary change to the fair value based
          method of accounting for stock-based employee compensation. In
          addition, this Statement amends the disclosure requirements of
          Statement 123 to require prominent disclosures in both annual and
          interim financial statements about the method of accounting for
          stock-based employee compensation and the effect of the method used on
          reported results. This statement is effective for fiscal years ending
          after


                                      F-10
<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


  NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          December 15, 2002 for transition guidance and annual disclosure
          provisions; for financial reports containing financial statements for
          interim periods beginning after December 15, 2002 for interim
          disclosure provisions.

          In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
          Financial Statements with Characteristics of both Liabilities and
          Equity". This Statement establishes standards for how an issuer of
          debt classifies and measures certain financial instruments with
          characteristics of both liabilities and equity. It requires that an
          issuer classify certain financial instruments as a liability (or an
          asset in some circumstances) instead of equity. The Statement is
          effective for financial instruments entered into or modified after May
          31, 2003, and otherwise is effective at the beginning of the first
          interim period beginning after June 15, 2003. The Company will adopt
          this Statement on July 1, 2003.

          In January 2003, the Financial Accounting Standards Board ("FASB")
          issued Interpretation 46 "Consolidation of Variable Interest Entities,
          an interpretation of ARB No. 51". This Interpretation requires a
          Company to consolidate the financial statements of a "Variable
          Interest Entity" ("VIE"), sometimes also known as a "special purpose
          entity", even if the entity does not hold a majority equity interest
          in the VIE. The Interpretation requires that if a business enterprise
          has a "controlling financial interest" in a VIE, the assets,
          liabilities, and results of the activities of the VIE should be
          included in consolidate financial statements with those of the
          business enterprise, even if it holds a minority equity position. This
          Interpretation was effective immediately for all VIE's created after
          January 31, 2003; for the first fiscal year or interim period
          beginning after June 15, 2003 for VIE's in which a Company holds a
          variable interest that it acquired before February 1, 2003.

          In December 2003, the FASB issued SFAS 132R. This Statement revises
          employers' disclosures about pension plans and other postretirement
          benefit plans. It does not change the measurement or recognition of
          those plans required by FASB Statements No. 87, Employers' Accounting
          for Pensions, No. 88, Employers' Accounting for Settlements and
          Curtailments of Defined Benefit Pension Plans and for Termination
          Benefits, and No. 106, Employers' Accounting for Postretirement
          Benefits Other Than Pensions. This Statement retains the disclosure
          requirements contained in FASB Statement No. 132, Employers'
          Disclosures about Pensions and Other Postretirement Benefits, which it
          replaces. It requires additional disclosures to those in the original
          Statement 132 about the assets, obligations, cash flows, and net
          periodic benefit cost of defined benefit pension plans and other
          defined benefit postretirement plans. The Company will adopt the
          provisions of SFAS 132R on January 1, 2004.

          The Company does not believe that any of these recent accounting
          pronouncements will have a material impact on their financial position
          or results of operations.




                                      F-11
<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


NOTE 2    ACCOUNTS RECEIVABLE

          A summary of accounts receivable and allowance for doubtful accounts
          is as follows:

<TABLE>
<CAPTION>
                 <S>                                                              <C>
                    Accounts receivable                                    $        522,424

                    Allowance for doubtful accounts                                 (46,733)
                                                                           ----------------

                    Net accounts receivable                                $        475,691
                                                                           ================

          At December 31, 2003 two customers owed the Company $135,924,
          which was 27% (14% and 13%), of total accounts receivable.

              Allowance for doubtful accounts
                  Balance, January 1, 2003                                 $         15,000
                  Increase to allowance                                              31,733
                                                                           ----------------

                  Balance, December 31, 2003                               $         46,733
                                                                           ================
</TABLE>

NOTE 3    MAJOR CUSTOMERS

          For the year ended December 31, 2003, the Company had one customer
          that accounted for 14% of total revenue. For the year ended December
          31, 2002, the Company had no customer whose sales were 10% of the
          total revenue.


NOTE 4    INVENTORIES

          The inventories are comprised of completed DVDs and Karoake CDs.

NOTE 5    ADVANCE ROYALTIES

          The Company has acquired the licensing, manufacturing and distribution
          rights to various movies from the owners of the titles. The Company
          pays royalties from 20% - 30% of the net sales proceeds. Royalty costs
          for the years ended December 31, 2003 and 2002 were $305,160 and
          $655,238, respectively.


                                      F-12
<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


NOTE 6    PROPERTY AND EQUIPMENT

          Property and equipment and accumulated depreciation consists of :
<TABLE>
<CAPTION>
          <S>                                           <C>
          Completed masters                             $ 3,967,657
          Masters in process                                 26,764
          Office furniture and equipment                    109,417
          Computer equipment                                185,189
          Computer software                                  48,801
          Warehouse equipment                               121,850
          Trade show equipment                               25,855
          Leasehold improvements                            112,041
                                                        -----------
                                                          4,597,574
                     Less accumulated depreciation        3,115,405
                                                        -----------
                                                        $ 1,482,169
                                                        ===========
NOTE 7    ACCOUNTS PAYABLE

          Accounts payable consists of the following:

          U-Tech Media Corporation                           $   102,418
          Other                                                  550,656
                                                             -----------

                                                             $   653,074
                                                             ===========
</TABLE>
NOTE 8    MAJOR SUPPLIERS

          For the year ended December 31, 2003, the Company purchased 42% (31%
          and 11%) of its products from two suppliers.

          For the year ended December 31, 2002, the Company purchased 43% (27%
          and 16%) of its products from two suppliers.

NOTE 9    INCOME TAXES

          The income tax provisions differ from the amount computed by applying
          the federal graduated rate to income before income taxes. A
          reconciliation to the graduated federal income tax rate is as follows:

<TABLE>
<CAPTION>
           <S>                                                             <C>
           Tax at U.S. federal statutory income tax rates                  $      108,000

           Less availability of net operating less carryforward                   108,000
                                                                           --------------

                     Tax Provision                                         $            0
                                                                           ==============
</TABLE>



                                      F-13
<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


NOTE 9    INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
          The following is a summary of the significant components of the
          Company's deferred tax assets and liabilities:
          <S>                                                                              <C>
                    Net operating loss carryforwards                                       $      249,000
                    Accrued expenses and miscellaneous                                             28,800
                                                                                           --------------
                                                                                                  277,800
                    Less valuation allowance                                                     (277,800)
                                                                                           --------------

                    Net deferred tax asset                                                 $            0
                                                                                           ==============

           A reconciliation of the valuation allowance is as follows:

                    Balance, at January 1, 2003                                            $      361,027
                    Reduction for the period                                                      (83,227)
                                                                                           --------------
                    Balance at December 31, 2003                                           $      277,800
                                                                                           ==============
</TABLE>

                 Realization of the net deferred tax assets is dependent on
                 future reversals of existing taxable temporary differences and
                 adequate future taxable income, exclusive of reversing
                 temporary differences and carryforwards.

                 Net Operating Loss Carryforwards

                 Corporation Income Taxes

<TABLE>
<CAPTION>
            <S>                        <C>                    <C>
                  Year of Loss                Amount                Expiration Date
            -------------------------  ---------------------  -------------------------

                December 31, 2002            $ 631,612             December 31, 2022
</TABLE>

NOTE 10   CAPITAL LEASES PAYABLE

          The Company has two capital leases for computer hardware and software.
          The leases are for 36 months with monthly rentals of $2,353 plus
          taxes, including interest at 13.2% and 14.2%. Future minimum lease
          payments on the lease are as follows:

                   December 31, 2004                        $        29,475
                   December 31, 2005                                 19,004
                                                            ---------------
                                                                     48,479
                   Less amount representing interest                (14,527)
                                                            ---------------

                   Present value of future minimum
                      lease payments                                 33,952
                   Less current portion                              25,117
                                                            ---------------

                   Long-term portion                        $         8,835
                                                            ===============


                                      F-14
<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


NOTE 11   NOTE PAYABLE, RELATED PARTIES

<TABLE>
<CAPTION>
                                                                                                         CURRENT
                                                                                        TOTAL            PORTION
                                                                                      ---------         ------------
           <S>                                                                        <C>               <C>
          LEE KASPER (PRESIDENT OF THE COMPANY)

          On November 7, 2000,  U.S. Bank,  N.A. loaned the president of the
          Company  $640,000,  which was used to  pay-off  the  corporation's
          line of credit to U.S. Bank, N.A.

          The  terms of the  loan  from  the  president  are the same as the
          terms of the loan  from  U.S.  Bank,  N.A.  to the  president,  as
          follows:

             1.  The corporation guaranteed the president's loan from the bank.
             2.  Security - all of the corporation's assets.
             3.  Interest - prime plus 3% (7.00% at December 31, 2003).
             4.  Twenty-nine monthly principal payments of $21,333, plus
                 accrued interest beginning December 15, 2002, plus a final
                 payment equal to all unpaid principal on May 15, 2005, the
                 maturity date.
             5.  Principal balance at December 31, 2003 is:                           $ 362,671          $ 255,996
</TABLE>


                                      F-15

<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


NOTE 11   NOTE PAYABLE, RELATED PARTIES (CONTINUED)

<TABLE>
<CAPTION>

                                                                                                            CURRENT
                                                                                            TOTAL           PORTION
                                                                                          ---------        ----------
          LEE KASPER (PRESIDENT OF THE COMPANY)
                <S>                                                                        <C>             <C>
          On February 19, 2003,  the  President of the Company  received a
          $500,000 loan from Skura  Intercontinental  Trading  Company and
          loaned the $500,000  proceeds to the  corporation.  The terms of
          the  loan  are the same as the  terms  of the  loan  from  Skura
          Intercontinental Trading Company to the President as follows:

             l. The loan is secured by a deed of trust on the President's
                personal residence.

             2. Interest - 3%.

             3. Thirty-six monthly payments of  principal and interest  in
                the amount of $14,541.

             4. Principal balance at December 31, 2003 is                                 $ 374,527         $ 141,877

          LEE KASPER (PRESIDENT OF THE COMPANY)

          The Company has two unsecured loans dated December 31, 2003 from
          the President of the Company.  The notes require  twelve monthly
          payments of $31,650,  including  interest at 10%.  This loan was
          repaid in full in February 2004.                                                  336,125           336,125

          BRANDON,  RYAN AND JORDAN  TRUSTS  (CHILDREN OF THE PRESIDENT OF
          THE COMPANY)

          The Company has three  unsecured  loans dated  December 31, 2003
          from three trusts  established for the children of the President
          of the Company.  The notes require  twelve  monthly  payments of
          $8,793,  including interest at 10%. This loan was repaid in full
          in February 2004.                                                                 100,000           100,000
</TABLE>

                                      F-16
<PAGE>

                              NUTECH DIGITAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 2003


NOTE 11 NOTE PAYABLE, RELATED PARTIES (CONTINUED)

<TABLE>
<CAPTION>

                                                                                                            CURRENT
                                                                                            TOTAL           PORTION
                                                                                          ---------        ----------

          JOE GIARMO (AN OFFICER OF THE COMPANY)

          <S>                                                                      <C>               <C>
          The Company is  required  to repay this loan on a monthly  basis
          determined  by paying $0.25 for each VHS or DVD sold pursuant to
          a license until $120,000 is repaid. This loan was repaid in full
          on February 2004.                                                              $   42,250        $   42,250
                                                                                         ----------        ----------


                                                                                         $1,215,573        $  876,248
                                                                                         ==========        ==========

          Future  minimum  principal  payments  on the notes  payable  to
          Related Parties are as follows:

                        December 31, 2004                                                                  $  876,248
                        December 31, 2005                                                                     276,600
                        December 31, 2006                                                                      62,725
                                                                                                           ----------

                                                                                                           $1,215,573
                                                                                                           ==========
</TABLE>

NOTE 12   NOTES PAYABLE, OTHER

<TABLE>
<CAPTION>

                                                                                                            CURRENT
                                                                                            TOTAL           PORTION
                                                                                          ---------        ----------
          RITEK CORP

                 <S>                                                                      <C>               <C>
          In August,  1998,  the  Company  received a $400,000  loan from
          Ritek  Corp.  The loan  accrues  interest at 8.5% per annum and
          entitles Ritek Corp.  50% ownership in the licensing  rights in
          the Shadoan DVD Game.  The loan  requires  monthly  payments of
          interest and principal  with the agreement  that the total loan
          and interest  was to be paid on June 10, 1999.  If the loan was
          not paid on that date,  then Ritek would  become 100% owner and
          license holder of the Title  "Shadoan".  As of the date of this
          report,  Ritek  has not  asked  for  the  ownership  rights  to
          Shadoan.                                                                        $ 400,000         $ 400,000

</TABLE>

                                      F-17
<PAGE>




                              NUTECH DIGITAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 2003


NOTE 12   NOTES PAYABLE, OTHER (CONTINUED) CURRENT TOTAL PORTION


          SMALL BUSINESS ADMINISTRATION AND COMERICA BANK LOAN

<TABLE>
<CAPTION>
                <S>                                                                      <C>               <C>
          On July 12, 2000, the Company received a $900,000 Small Business
          Administration loan with Comerica Bank  participation.  The loan
          requires  monthly payments of $6,414,  including  interest at 2%
          over prime. The loan is secured by all assets of the Company and
          the  major   stockholder's   personal   residence  and  personal
          guaranty.  The loan matures on July 14, 2018. Effective interest
          rate at December 31, 2003 was 6%.                                              $  734,065        $   31,911
                                                                                         ----------        ----------

                                                                                         $1,134,065        $  431,911
                                                                                         ==========        ==========

                 Future minimum principal payments on the notes payable to
                 others are as follows:

                        December 31, 2004                                                                  $  431,911
                        December 31, 2005                                                                      33,964
                        December 31, 2006                                                                      36,148
                        December 31, 2007                                                                      38,473
                        Thereafter                                                                            593,569
                                                                                                           ----------

                                                                                                           $1,134,065
                                                                                                           ==========
</TABLE>

NOTE 13   CONVERTIBLE PROMISSORY NOTES

          The Company issued two convertible promissory notes totaling $137,566
          with the following terms and conditions:

               a. Unsecured
               b. Due date July 7, 2005
               c. Interest  rate  -  minimum  rate  permitted  by  the
                  Internal Revenue Service (4.0% @ December 31, 2003).
               d. Voluntary  conversion - note can be converted  after
                  July 7,  2004  into  common  stock of the  Company  at a
                  conversion price of $0.25 per share (550,264 shares).

                                      F-18
<PAGE>

                              NUTECH DIGITAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 2003


NOTE 14   ADVERTISING

          The Company expenses all advertising as incurred. Advertising expenses
          for the year ended December 31, 2003 and 2002 were $5,611 and $39,510,
          respectively.

NOTE 15   REAL ESTATE LEASE

          On May 1, 2001, the Company leased its office and warehouse facilities
          for five years and three months. The details on the lease are as
          follows:

                 A.  Base rentals - $7,800 per month plus operating  costs
                     with cost of living adjustments in May of each year.

                 B.  Termination date - July 31, 2006

                 C.  Option - one option for an additional 60 month period
                     with rent at the base rental  amount plus cost of living
                     adjustments.

                 As  of  December  31,  2003,   future  minimum  lease  payments
                 excluding operating expenses are as follows:

                        December 31, 2004                             $   96,312
                        December 31, 2005                                 96,312
                        December 31, 2006                                 56,182
                                                                      ----------


                                                                      $  248,806
                                                                      ==========

          The rent expense for the years ended December 31, 2003 and 2002 was
          $109,471 and $107,670, respectively.

NOTE 16   EMPLOYEE STOCK OPTIONS

          The Board of Directors and  stockholders  approved the NuTech Digital,
          Inc. 2001 Equity  Incentive  Plan which permits the Board of Directors
          to grant, for a ten year period,  both stock purchase rights and stock
          options. The Company has reserved 3,500,000 shares of its common stock
          for issuance to the  directors,  employees and  consultants  under the
          Plan. The Plan is administered by the Board of Directors.

                                      F-19
<PAGE>

                              NUTECH DIGITAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 2003


NOTE 16   EMPLOYEE STOCK OPTIONS (CONTINUED)

          The  administrator  has the authority and  discretion,  subject to the
          provisions  of the Plan,  to select  persons  to whom  stock  purchase
          rights or options will be granted,  to designate  the number of shares
          to be covered by each option or stock purchase  right,  to specify the
          type of consideration to be paid, and to establish all other terms and
          conditions of each option or stock  purchase  right.  Options  granted
          under the Plan will not have a term that  exceeds  ten years from date
          of grant.

          The stock  subject to the plan and issuable  upon  exercise of options
          granted under the plan are shares of the  corporation's  common stock,
          no par value,  which may be either  unissued,  restricted or grants of
          options to purchase shares of common stock.

          The exercise  price is the fair market value of the shares at the date
          of the grant of the options.

          Vesting terms of the options range from immediate to ten years.

          The  Company  has  elected  to  continue  to account  for  stock-based
          compensation under the "Intrinsic Value" method of APB Opinion No. 25,
          under  which no  compensation  expense has been  recognized  for stock
          options granted to employees at fair market value.

          A summary of the option activity for the year ended December 31, 2003,
          pursuant to the terms of the plan is as follows:

<TABLE>
<CAPTION>

                                                                                                            WEIGHTED
                                                                                           SHARES            AVERAGE
                                                                                            UNDER           EXERCISE
                                                                                           OPTION             PRICE
                                                                                         ----------        ----------
                 <S>                                                                     <C>               <C>
                 Options outstanding at January 1, 2003                                  1,705,000        $     1.54
                        Granted                                                          1,920,000               .17
                        Exercised                                                                0                 0
                        Cancelled and expired                                           (1,090,000)             1.50
                                                                                         ----------

                 Options outstanding at December 31, 2003                                 2,535,000
                                                                                         ==========
</TABLE>


                 1,355,000 shares are exercisable at December 31, 2003.

                                      F-20
<PAGE>

                              NUTECH DIGITAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 2003


NOTE 16 EMPLOYEE STOCK OPTIONS (CONTINUED)

<TABLE>
<CAPTION>

                 Information  regarding stock options outstanding as of December
                 31, 2003 is as follows:

                        <S>                                                          <C>
                        Price range                                                  $ .11 - $ 1.65
                        Weighted average exercise price                                      $  .78
                        Weighted average remaining contractual life               7 years, 8 months
                        Options exercised
                              Price range                                                         0
                              Shares                                                              0
                              Weighted average exercise price                                     0

                 The weighted  average fair value of options granted in the year
                 ended  December 31, 2003 were estimated as of the date of grant
                 using the  Black-Scholes  stock option pricing model,  based on
                 the following weighted average assumptions:

                        Dividend yield                                                            0
                        Expected volatility                                                      50 %
                        Risk free interest rate                                       3.35 % - 5.13 %
                        Expected life                                                  5 - 10 years

                 For purposes of proforma disclosures,  the estimated fair value
                 of the  options  is  amortized  to  expense  over the  options'
                 vesting periods. The Company's proforma information follows:

                 Net income (loss) from continuing operations
                        As reported                                                     $   307,251
                        Proforma                                                        $    (6,436)

                 Income (Loss) per share attributable
                    to common stock

                 Basic
                        As reported                                                     $       .03
                        Proforma                                                        $     ( .00)

                 Diluted
                        As reported                                                     $       .03
                        Proforma                                                        $     ( .00)
</TABLE>

                                      F-21
<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


NOTE 17   COMMON STOCK PURCHASE WARRANTS

          The following is a summary of the stock purchase warrants  outstanding
          as of December 31, 2003:

                        Number of shares                                 750,000
                        Price per share                        $            0.75
                        Expiration date                        December 31, 2013

NOTE 18   2003 CONSULTANT STOCK PLAN

          In July 2003, the Company adopted the 2003  Consultant  Stock Plan and
          reserved 5,000,0000 shares for issuance of common stock to consultants
          for the Company. The shares will be issued at the fair market value on
          the date the shares are awarded.

          The  following  is a summary of the  shares  covered by the plan as of
          December 31, 2003:


                        Total shares authorized                        5,000,000

                        Shares issued ($0.12 - $0.18 per share)        1,315,000
                                                                    ------------

                        Shares available for future issuance           3,685,000
                                                                    ============

NOTE 19   LITIGATION (REDEEMABLE COMMON STOCK)

          In 2002,  the Company  issued  53,333 shares in full payment of a note
          payable.  The stock  issuance  was  subject to an  agreement  that the
          Company's  common stock must be  registered  with the  Securities  and
          Exchange Commission by October 1, 2002 and must be offered for sale at
          a price of a least $1.50 per share. If neither of these conditions are
          met, then the creditor may rescind the agreement by returning all or a
          portion of their common  stock.  In September  2003,  the  stockholder
          filed a lawsuit  against the Company to demand the  rescission  of the
          agreement and the payment of $80,000 plus accrued interest.




                                      F-22


<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


NOTE 20 4TH QUARTER INTERIM RESULTS OF OPERATIONS (UNAUDITED)


                        Sales                                      $    735,906
                        Costs of sales                                  211,276
                                                                   ------------

                        Gross profit                                    524,630
                        Selling, general and
                          administrative expenses                       718,141
                                                                   ------------

                        Operating (loss)                              ( 193,511)
                        Interest expense                                 18,434
                        Loss on disposal of asset                         4,820
                                                                   ------------

                        (Loss) before corporation  income taxes        (216,765)
                        Corporation income taxes benefit                      0
                                                                   ------------

                        Net (loss)                                 $  ( 216,765)
                                                                   ============

NOTE 21 COMMITMENTS AND CONTINGENCIES

                 The Company  entered into an agreement with  Wellspring  Media,
                 Inc.  at  December  31,  2003 to  purchase  $750,000 of titles;
                 however no  liability  is  recorded  since the  Company has not
                 received any of the titles at December 31, 2003.

NOTE 22  SUBSEQUENT EVENT (UNAUDITED)

                 PRIVATE PLACEMENTS
                 ------------------

                 On February 2, 2004,  the Company  completed a private  sale of
                 1,875,000  shares of common stock to accredited  investors at a
                 price of $.40 per share.  In  conjunction  with the sale of the
                 common stock,  the Company issued  warrants  having an exercise
                 price of  $0.75  per  share.  For each  share of  common  stock
                 purchased,  each  investor  received  warrants to purchase  two
                 shares of the Company's  common stock.  The warrants  expire in
                 ten years.

                 PRIVATE PLACEMENTS (CONTINUED)
                 ------------------------------

                 On February 24, 2004,  the Company  completed a private sale of
                 4,375,000  shares of common stock to accredited  investors at a
                 price of $.40 per share.  In  conjunction  with the sale of the
                 common stock,  the Company issued  warrants  having an exercise
                 price of  $0.75  per  share.  For each  share of  common  stock
                 purchased,  each  investor  received  warrants to purchase  two
                 shares of the Company's  common stock.  The warrants  expire in
                 ten years.

                                      F-23
<PAGE>

                              NUTECH DIGITAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 2003


NOTE 22  SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)

                 REPAYMENT OF RELATED PARTY DEBT

                 In February,  2004,  the Company  repaid the following  related
                 party debt:

<TABLE>
<CAPTION>

                                              PRINCIPAL            INTEREST              TOTAL
                                           --------------       --------------      ---------------

<S>                                        <C>                  <C>                 <C>
                 Lee Kasper                $      336,125       $        4,801      $       340,926

                 Brandon, Ryan and
                   Jordan Kasper Trusts           100,000                2,889              102,889

                 Joe Giarmo                        42,250                    0               42,250
                                           --------------       --------------      ---------------

                                           $      478,375       $        7,690      $       486,065
                                           ==============       ==============      ===============
</TABLE>

          2001 EQUITY INCENTIVE PLAN

          On  January  1,  2004,  the  Company  increased  the  number of shares
          reserved under the 2001 Equity Incentive Plan from 3,500,000 shares to
          3,752,747 shares.

                                      F-24


<PAGE>

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

      Moffitt & Company, P.C., the independent accountants whom we had engaged
as the principal accountants to audit our consolidated financial statements for
the periods ended December 31, 2001 and December 31, 2000, resigned effective
October 11, 2002. On November 11, 2002, we engaged Farber & Hass LLP as our new
principal independent accountants to audit our consolidated financial statements
for the year ending December 31, 2002.

      The report of Moffitt & Company, P.C. on our financial statements as of
and for the years ended December 31, 2000 and December 31, 2001 did not contain
an adverse opinion, or a disclaimer of opinion. During the one-year period ended
December 31, 2001, and the interim period from January 1, 2002 through the date
of resignation by Moffitt & Company, P.C., we did not have any disagreements
with Moffitt & Company, P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Moffitt & Company, P.C.,
would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.


                                       20
<PAGE>

      Prior to engaging Farber & Hass LLP, we did not consult Farber & Hass LLP
regarding the application of accounting principles to a specified transaction,
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements.

ITEM 8A.    CONTROLS AND PROCEDURES

      We carried out an evaluation, under the supervision and with the
participation of our management, including our President and Chief Executive
Officer (who is also our Chief Financial Officer) of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. The evaluation was undertaken in consultation
with our accounting personnel. Based on that evaluation, the President and Chief
Executive Officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.

      There were no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of their evaluation.

                                    PART III

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

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

      The following table sets forth certain information regarding our
directors and executive officers.

-------------------------------------------------------------------------------
Name                       Age        Position
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
                                      Chief  Executive   Officer,   President,
Lee Kasper                 58         Chief Financial Officer, Director
-------------------------------------------------------------------------------
Joseph Giarmo              35         Vice President, Director
-------------------------------------------------------------------------------
Yegia Eli Aramyan          51         Accountant, Director
-------------------------------------------------------------------------------
Jay S. Hergott             57         Director
-------------------------------------------------------------------------------

      There are no family relationships among any of the directors or officers
of the Company.

BUSINESS EXPERIENCE

      Lee Kasper. President, Chief Executive Officer, Chief Financial Officer,
founder and director. Mr. Kasper began his career in the entertainment industry
in 1982 by co-founding Image Entertainment, a publicly traded company. Image
Entertainment distributes video programming on laserdisc and DVD. During his
years with Image Entertainment, Mr. Kasper was a director as well as the
Executive Vice President. He was responsible for business


                                       21
<PAGE>

development as well as for licensing, manufacturing, and product fulfillment.
His major accomplishments while he was at Image Entertainment included building
a team of international manufacturers, acting as primary negotiator of licensing
agreements with over one hundred studios, developing sales relationships with
major retailers and raising over $6,000,000 from Mitsubishi and Mitsui. When Mr.
Kasper left Image Entertainment in 1993, its annual sales had grown to
$60,000,000. Mr. Kasper left Image Entertainment to found NuTech Entertainment,
Inc., a producer of karaoke music software, which is now included in the
operations of NuTech. In 1997 Mr. Kasper formed NuTech for the purpose of
licensing, manufacturing and distributing DVD products worldwide. Mr. Kasper has
been a director since our inception.

      Joseph Giarmo. Vice-President and director. Mr. Giarmo joined us as Vice
President on December 1, 1998. Since that time, he has developed numerous DVD
product lines, award nominated productions and e-commerce Web sites. Mr. Giarmo
is in charge of production of our products, and has been personally responsible
for the production of our anime products. We received the AVN 2002 Award for
best DVD menus primarily as a result of Mr. Giarmo's efforts. Prior to joining
NuTech, Mr. Giarmo was employed by Metro Global Media, Inc. ("Metro"). Mr.
Giarmo joined Metro in September 1995 as a CD-Rom Specialist, creating
interactive games and developing products based on Mac/PC formats. In 1996 Mr.
Giarmo was promoted to Managing Director after launching and marketing various
award winning product lines. In 1997 Mr. Giarmo was promoted to Vice President,
Product Development. During his last year with Metro, Mr. Giarmo created the
first true perspective multi-angle DVD. From 1988 until he joined Metro, Mr.
Giarmo was employed by the company he founded, Compu-Doc, a computer service
company that provided services primarily to military and educational facilities.
Working closely with state educational facilities, Mr. Giarmo became a licensed
authorized service center for IBM, HP, Digital and Zenith data systems, among
others. After becoming one of the largest service centers for Zenith data
systems, and earning Factory Service Status, Compu-Doc eventually became the
sole provider of all service for the tri-state military installations. Compu-Doc
opened a retail division in 1992, the focus of which was custom-built, high
performance computer systems. Mr. Giarmo has been a director of NuTech since May
2001.

      Yegia Eli Aramyan. Accountant and director. Mr. Aramyan joined NuTech in
2001 as an accountant, responsible for maintaining our general ledger, preparing
financial statements, undertaking internal auditing and working with our
independent auditors on our financial statement preparation. Prior to joining
NuTech, Mr. Aramyan worked for 20 years as Group Controller and Accounting
Manager for various companies in an investment group, including Morfi
International and Sobleski USA. His responsibilities included budgeting,
control, tax, audit, consolidations and general ledger and supporting work. On a
consulting basis, Mr. Aramyan has worked for a number of high technology firms,
performing accounting and implementing information systems. Mr. Aramyan earned
his Bachelor of Arts and Masters of Arts degrees in Economics and Finance from
the University of Armenia. Mr. Aramyan became a director in June 2002.

      Jay S. Hergott, director.  Mr. Hergott was appointed to the Company's
Board of Directors in March 2003.  Mr. Hergott is a practicing attorney and has
been a member of the Illinois Bar Association since 1973 and a member of the
California Bar Association since 1976.


                                       22
<PAGE>

In 1985 he founded, and is the President of, Castlewood Development Company, a
real estate development and residential construction firm which is located in
Northbrook, Illinois. From 1977 to 1981 Mr. Hergott was a member of the Midwest
Stock Exchange and since 1976 he has been a member of the Chicago Board Options
Exchange. Mr. Hergott received his B.A. degree in Government from Southern
Illinois University in 1969 and his Juris Doctor from the Illinois Institute of
Technology in 1972.

      No individual on our Board of Directors possesses all of the attributes of
an audit committee financial expert and no one on our Board of Directors is
deemed to be an audit committee financial expert. In forming our Board of
Directors, we sought out individuals who would be able to guide our operations
based on their business experience, both past and present, or their education.
Our business model is not complex and our accounting issues are straightforward.
Responsibility for our operations is centralized within management, which is
comprised of four people. We rely on the assistance of others, such as our
accountant, to help us with the preparation of our financial information. We
recognize that having a person who possesses all of the attributes of an audit
committee financial expert would be a valuable addition to our Board of
Directors, however, we are not, at this time, able to compensate such a person
therefore, we may find it difficult to attract such a candidate.

DIRECTOR COMPENSATION

      All of our directors are also our employees. Our bylaws permit us to
compensate our directors upon resolution by the Board of Directors. The Board of
Directors has agreed to pay to Mr. Jay S. Hergott, for his services as a
director, the sum of $10,000 per year. Our remaining three directors do not
receive separate compensation for these services.

TERM OF OFFICE

      The directors named above will serve until the next annual meeting of our
shareholders. Absent an employment agreement, officers hold their positions at
the pleasure of the Board of Directors.

CODE OF ETHICS

      On February 13, 2004 our Board of Directors adopted a Code of Business
Conduct and Ethics that applies to all of our officers, directors and employees.

COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT

      Section 16(a) of the Securities Exchange Act requires our directors,
executive officers and persons who own more than 10% of our common stock to file
reports of ownership and changes in ownership of our common stock with the
Securities and Exchange Commission. Directors, executive officers and persons
who own more than 10% of our common stock are required by Securities and
Exchange Commission regulations to furnish to us copies of all Section 16(a)
forms they file.


                                       23
<PAGE>

      To our knowledge, based solely upon review of the copies of such reports
received or written representations from the reporting persons, we believe that
during our 2003 fiscal year our directors, executive officers and persons who
own more than 10% of our common stock complied with all Section 16(a) filing
requirements with the exception of the following: Form 4s reporting option
grants made in May 2003 to Lee Kasper, Joseph Giarmo, Yegia Eli Aramyan and Jay
S. Hergott were filed within three days, rather than within two days, of the
grants, Form 4s reporting option grants made to Joseph Giarmo and Yegia Eli
Aramyan in October 2003 were filed within three days, rather than within two
days, of the grants, Mr. Kasper and Mr. Aramyan filed Form 5s on the 48th day,
rather than the 45th day, following the end of the fiscal year, and Mr. Giarmo
has not yet filed a Form 4 to report a trade of securities that occurred in
December 2003. The value of the trade was less than $4,000.

ITEM 10.    EXECUTIVE COMPENSATION

      During the 2003 fiscal year, Mr. Lee Kasper, our Chief Executive Officer
and President, and Mr. Joseph Giarmo, our Vice President, were the only
executive officers receiving compensation of at least $100,000 per year. The
following table sets forth information as to the compensation paid or accrued to
Mr. Kasper and Mr. Giarmo, as well as to compensation paid to our director, Mr.
Jay Hergott, for his services as a director, and to Mr. Yegia Eli Aramyan,
another of our directors, for his services as an officer, for the three years
ended December 31, 2003, December 31, 2002 and December 31, 2001:

                                            SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                             LONG TERM COMPENSATION
                                                                             ----------------------
                                 ANNUAL COMPENSATION                    AWARDS                           PAYOUTS
                              --------------------------------------------------------------------------------------
                                                             OTHER              SECURITIES              ALL OTHER
                                                            ANNUAL   RESTRICTED UNDERLYING     LTIP      COMPEN-
NAME AND PRINCIPAL                  SALARY        BONUS     COMPEN   STOCK       OPTIONS/     PAYOUT     SATION
     POSITION             YEAR        ($)          ($)      -SATION  AWARDS      SARS(1)       ($)         ($)
---------------------  ---------  ------------  ---------     ($)        ($)   -----------  --------  ------------
                                                                -

<S>                       <C>       <C>             <C>       <C>        <C>     <C>                   <C>
Lee Kasper,               2003      $413,077        ---       ---        ---       700,000      ---    $39,600(4)
Director, CEO,            2002     $410,769(1)      ---       ---        ---     500,000(3)     ---    $39,600(4)
President, CFO            2001     $542,673(2)      ---       ---        ---         ---        ---    $39,600(4)

Joseph Giarmo,            2003      $128,349        ---       ---        ---       350,000      ---    12,750(5)
Director                  2002      $159,228        ---       ---        ---     300,000(3)     ---
Vice President            2001      $131,553        ---       ---        ---         ---        ---     5,000(5)
Secretary

Jay S. Hergott            2003       $10,000        ---       ---        ---       25,000
Director                  2002       $5,000         ---       ---        ---         ---        ---       ---
                          2001          0           ---       ---        ---         ---        ---       ---

Yegia Eli Aramyan         2003       $62,838        ---       ---        ---       200,000
Director, Accountant      2002       $56,461        $750      ---        ---      75,000(3)
                          2001       $21,635       $1,000     ---        ---
</TABLE>

(1) Of the amount shown as compensation paid to Mr. Kasper in 2002, the payment
of $41,538 was deferred at Mr. Kasper's election.  This amount was paid in the
2003 fiscal year.
(2) Of the amount shown as compensation paid to Mr. Kasper in 2001, $362,673
was paid to him as a dividend and $180,000 was paid as salary.
(3) This option grant was cancelled, without exercise, on December 10, 2003.


                                       24
<PAGE>

(4) These amounts represent expenses paid in connection with Mr. Kasper's
automobile.
(5) This amount constitutes payments made to Mr. Giarmo pursuant to a joint
venture agreement he entered into with us whereby he advanced funds in the
amount of $60,000 for the acquisition of licensing rights to certain anime
products. Mr. Giarmo is repaid at the rate of $0.25 for each unit of the product
sold. This agreement will terminate once Mr. Giarmo is paid a total of $120,000.

      We do not have a long term incentive plan or arrangement of compensation
with any individual in the group of officers and directors.

EMPLOYMENT AGREEMENTS

      Our Board of Directors is currently considering an employment agreement
for Mr. Lee Kasper. As of January 1, 2004, we have paid Mr. Kasper the salary
required under the employment agreement, even though the Board of Directors has
not yet approved the agreement.

EQUITY INCENTIVE PLAN

      Our Board of Directors and our shareholders have approved the NuTech
Digital, Inc. 2001 Equity Incentive Plan which permits us to grant, for a ten
year period, both stock purchase rights and stock options. We had originally
reserved 3,500,000 shares of our common stock for issuance to our directors,
employees and consultants under the Plan. In January of each year we are
permitted to increase the number of shares of common stock reserved for awards
to an amount that does not exceed 30% of all of our issued and outstanding
shares. On January 1, 2004, we increased the number of shares of common stock
reserved for awards by 252,747 shares. The Plan is administered by the Board of
Directors. As the administrator of the Plan, the Board of Directors has the
authority and discretion, subject to the provisions of the Plan, to select
persons to whom stock purchase rights or options will be granted, to designate
the number of shares to be covered by each option or stock purchase right, to
specify the type of consideration to be paid, and to establish all other terms
and conditions of each option or stock purchase right. Options granted under the
Plan will not have a term that exceeds ten years from date of grant. As of
December 31, 2003, we granted options to purchase a total of 1,975,000 shares of
our common stock under the Plan.

      The following tables set forth certain information concerning the granting
and exercise of stock options during the last completed fiscal year by each of
the named executive officers and our directors, Mr. Jay Hergott and Mr. Yegia
Eli Aramyan, and the fiscal year-end value of unexercised options on an
aggregated basis:


                                       25
<PAGE>

                          OPTION/SAR GRANTS FOR LAST
                       FISCAL YEAR-INDIVIDUAL GRANTS(1)
                       --------------------------------

                    Number of      % of Total
                    Securities    Options/SARs
                    Underlying     Granted to
                   Options/SARs   Employees in  Exercise Price
Name               Granted (#)    Fiscal Year       ($/sh)       Expiration Date
-------------------------------------------------------------------------------
Lee Kasper           700,000         35.4%       $0.176/share    May 29, 2008

Joseph Giarmo        300,000         15.2%        $0.16/share    May 29, 2013
                      50,000          2.5%        $0.50/share   October 6, 2013

Jay S. Hergott        25,000          1.3%        $0.16/share    May 29, 2013

Yegia Eli Aramyan    100,000           5%         $0.16/share    Mar 29, 2013
                     100,000           5%         $0.50/share   October 6, 2013
-------------------------------------------------------------------------------
(1) Option grants made to Mr. Kasper, Mr. Giarmo and Mr. Aramyan were incentive
stock option grants.  The grant made to Mr. Hergott was a non-qualified stock
option grant.

             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                       AND FY-END OPTION/SAR VALUES(1)
                       -------------------------------
<TABLE>
<CAPTION>
                                                                          Value of
                                                        Number of       Unexercised
                                                       Unexercised     In-the-Money
                                                       Options/SARs    Options/SARs
                                                       at FY-End (#)  at FY-End ($)(2)

                  Shares Acquired  Value Realized(1)  Unexercisable/   Unexercisable/
Name               on Exercise (#)       ($)            Exercisable      Exercisable
---------------------------------------------------------------------------------------

<S>                     <C>            <C>             <C>              <C>
Lee Kasper             -0-            -0-               700,000/0       $0/$345,000

Joseph Giarmo          -0-            -0-             175,000/175,000  $89,250/$89,250
                       -0-            -0-              25,000/25,000    $4,250/$4,250

Jay S. Hergott         -0-            -0-                0/25,000        $0/$12,750

Yegia Eli Aramyan      -0-            -0-                0/100,000       $0/$51,000
                                                         0/100,000       $0/$17,000
---------------------------------------------------------------------------------------
</TABLE>

(1) Value realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market value of
the common stock on the date the options are exercised.
(2) The value of unexercised options is determined by calculating the difference
between the fair market value of the securities underlying the options at fiscal
year end and the exercise price of the options.


                                       26
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of March 19, 2004, information
regarding the beneficial ownership of our common stock with respect to each of
our executive officers, each of our directors, each person known by us to own
beneficially more than 5% of the common stock, and all of our directors and
executive officers as a group. The term "executive officer" is defined as the
Chief Executive Officer/President, Chief Financial Officer and the
Vice-President. Each individual or entity named has sole investment and voting
power with respect to shares of common stock indicated as beneficially owned by
them, subject to community property laws, where applicable, except where
otherwise noted.

------------------------------------------------------------------------
                                                  Number of
                                                  Shares of
                                                   Common
                                                    Stock      Percentage of
Title of Class                                   Beneficially     Common
  of Security       Name and Address(1)           Owned(2)         Stock
------------------------------------------------------------------------

Common Stock    Lee Kasper (3)(4)(5)             8,703,178(6)      41.6%
Common Stock    Joseph Giarmo (3)(4)             565,000(7)         2.8%
Common Stock    Yegia Eli Aramyan(4)             200,000(8)         1.0%
Common Stock    Jay S. Hergott(4)                247,500(9)         1.2%
                All Officers,  Directors and 5%
                Shareholders                      9,715,678        46.6%
------------------------------------------------------------------------

*     Less than 1%.
(1)   Unless otherwise indicated, the address of the persons named in this
      column is c/o NuTech Digital, Inc., 7900 Gloria Avenue, Van Nuys,
      California 91406.
(2)   Included in this calculation are shares deemed beneficially owned by
      virtue of the individual's right to acquire them within 60 days of the
      date of this report that would be required to be reported pursuant to Rule
      13d-3 of the Securities Exchange Act of 1934.
(3)   Executive Officer.
(4)   Director.
(5)   5% Shareholder.
(6)   Includes shares of our common stock owned by Michele Kasper as her
      community property. Also includes the right to purchase 1,200,000 shares
      of our common stock upon the exercise of vested options and 150,000 shares
      of our common stock held by Mr. Kasper as custodian or trustee for his
      children.
(7)   Includes the right to purchase 175,000 shares of our common stock upon the
      exercise of vested options.
(8)   Includes the right to purchase 200,000 shares of our common stock upon the
      exercise of vested options.
(9)   Includes the right to purchase 25,000 shares of our common stock upon the
      exercise of a vested option and the right to purchase 125,000 shares of
      our common stock pursuant to the terms of a warrant that was granted as
      part of a unit offering undertaken by us in February 2004. Stock owned by
      the Jay S. Hergott Revocable Trust is included in the number of shares of
      common stock reported as being beneficially owned by Mr. Hergott.

      On May 15, 2001 our Board of Directors adopted and our shareholders
approved the NuTech Digital, Inc. 2001 Equity Incentive Plan (the "Equity
Incentive Plan"). The Equity Incentive Plan has a term of 10 years and is
administered by our Board of Directors. Pursuant to the Equity Incentive Plan,
the Board of Directors may grant to eligible persons, which include employees,
officers, directors, consultants and agents, awards of options (which may be
qualified or non-qualified) or common stock. 3,500,000 shares of our common
stock were originally set


                                       27
<PAGE>

aside for grants made under the Equity Incentive Plan. Pursuant to the terms of
the Equity Incentive Plan, the number of shares available for issuance may be
increased on the first day of each fiscal year by a number that will increase
the total number of shares reserved to 30% of our issued and outstanding common
stock. As of December 31, 2003, we had issued options to employees to purchase a
total of 1,975,000 shares of our common stock. The options will expire 10 years
from the date of grant, with the exception of options granted to our Chief
Executive Officer and President, Mr. Lee Kasper, whose options will expire 5
years from the date of grant. The price for each share of common stock purchased
pursuant to the options varies. With the exception of the exercise price of the
options granted to Mr. Kasper, which equals 110% of the fair market value of our
common stock on the date of grant, the exercise price per share for the options
granted is the fair market value of our common stock on the date of grant. The
following table sets forth, as of December 31, 2003, the number of securities to
be issued upon exercise of outstanding options, the weighted average exercise
price of the outstanding options and the number of securities remaining
available for future issuance under the Equity Incentive Plan.

      On July 11, 2003 our Board of Directors adopted the NuTech Digital, Inc.
2003 Consultant Stock Plan (the "Consultant Plan"). The Consultant Plan has not
been approved by our shareholders. We have reserved 5,000,000 shares of our
common stock to grant as awards under the Consultant Plan. As originally
drafted, only shares of our common stock were permitted to be granted as awards
to eligible persons, however the Board of Directors amended the Consultant Plan
on February 13, 2004 to allow grants of stock options, also. Awards are granted
to individuals who render bona fide services to us, so long as the services do
not relate to capital raising or stock promotion activities. Like the Equity
Incentive Plan, the Consultant Plan is administered by the Board of Directors.
The term of the Consultant Plan is also 10 years. As of December 31, 2003, we
had issued 1,315,000 shares of our common stock to various outside consultants.
The exercise price of the options granted under the Consultant Plan during the
2003 fiscal year varied between fair market value on the date of grant and 85%
of the fair market value on the date of grant. The following table sets forth,
as of December 31, 2003, the number of securities to be issued upon exercise of
outstanding options, the weighted average exercise price of the outstanding
options and the number of securities remaining available for future issuance
under the Consultant Plan.

              EQUITY COMPENSATION AND CONSULTANT PLAN INFORMATION
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                     Number of                               Number of
                     securities to be    Weighted average    securities
                     issued upon         exercise price of   remaining
                     exercise of         outstanding         available for
                     outstanding         options warrants    future issuance
                     options, warrants   and rights          under the equity
Plan Category        and rights                              compensation plan
                                                             (excluding
                                                             securities
                                                             reflected in
                                                             column (a)
                            (a)                 (b)                 (c)
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Shareholder Approved      1,975,000            $0.78          1,525,000(1)(2)
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Not Approved by
Shareholders                0(3)                N/A            3,685,000(3)
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
(1) Pursuant to the terms of the NuTech Digital, Inc. 2001 Equity Incentive
Plan, awards may be granted for options (both incentive stock options and
non-qualified stock options) and for restricted stock and stock bonuses.


                                       28
<PAGE>

(2) The number of shares of common stock included in the NuTech Digital, Inc.
2001 Equity Incentive Plan may be increased on the first day of January of each
year so that the total number of shares of all common stock available for awards
shall equal 30% of our issued and outstanding shares, which is the maximum
amount allowable under Regulation 260.140.45 of Title 10 of the California Code
of Regulations. As of January 1, 2004, the number of shares of common stock was
increased by 252,747.
(3) As of December 31, 2003, no options had been granted from the NuTech
Digital, Inc. 2003 Consultant Stock Plan, however, grants of 1,315,000 shares
had been made.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In order to fund working capital requirements, we have from time to time
borrowed money on an unsecured basis from persons who are executive officers,
directors and/or beneficial holders of 5% or more of our common stock, or their
affiliates. Our unpaid principal indebtedness to these persons is set forth
below.

      In October 2000, we received an unsecured loan in the amount of $100,000
from Mrs. Elynor Kasper, Mr. Lee Kasper's mother. Simple interest accrued on
this loan at the rate of 10% per year. The unpaid principal balance of this loan
was $60,000. This loan was paid in full in February 2004.

      In March 2001, we entered into an arrangement with our Vice-President, Mr.
Joseph Giarmo, whereby Mr. Giarmo advanced funds in the amount of $60,000 for
the acquisition of licensing rights to certain films. Mr. Giarmo receives $0.25
for each unit of the films that are sold. To date, we have paid $65,000 of this
obligation.

      In May 2001, we obtained an unsecured loan from Brandon Kasper in the
amount of $7,418, which accrued interest at the rate of 7% and was due to be
paid on demand. Brandon Kasper is Mr. Lee Kasper's son. We paid this loan in
full in April 2003.

      In May 2001, we obtained an unsecured loan from Ryan Kasper in the amount
of $7,467, which accrued interest at the rate of 7% and was due to be paid on
demand. Ryan Kasper is Mr. Lee Kasper's son. We paid this loan in full in April
2003.

      In May 2001, we obtained an unsecured loan from Jordan Kasper in the
amount of $3,555, which accrued interest at the rate of 7% and was due to be
paid on demand. Jordan Kasper is Mr. Lee Kasper's son. We paid this loan in full
in April 2003.

      On September 15, 2003 we received an unsecured loan from Mr. Lee Kasper in
the amount of $300,000. The term of the loan was one year. Simple interest
accrued on the unpaid principal at the rate of 10% per year. The loan was paid
in full in February 2004.

      On September 18, 2003 we received an unsecured loan from the Brandon G.
Kasper Trust, a trust created for the benefit of Mr. Kasper's child. The amount
of the loan was $33,334. The term of the loan was one year. Simple interest
accrued on the unpaid principal at the rate of 10% per year. The loan was paid
in full in February 2004.

      On September 18, 2003 we received an unsecured loan from the Ryan S.
Kasper Trust, a trust created for the benefit of Mr. Kasper's child. The amount
of the loan was $33,333. The


                                       29
<PAGE>

term of the loan was one year. Simple interest accrued on the unpaid principal
at the rate of 10% per year. The loan was paid in full in February 2004.

      On September 18, 2003 we received an unsecured loan from the Jordan M.
Kasper Trust, a trust created for the benefit of Mr. Kasper's child. The amount
of the loan was $33,333. The term of the loan was one year. Simple interest
accrued on the unpaid principal at the rate of 10% per year. The loan was paid
in full in February 2004.

      On September 18, 2003 we receive an unsecured loan from Mr. Lee Kasper in
the amount of $60,000. The term of the loan was one year. Simple interest
accrued on the unpaid principal at the rate of 10% per year. The loan was paid
in full in February 2004.

      Aside from the foregoing loans, we have also entered into the following
transactions with our President and Chief Executive Officer, Mr. Lee Kasper.

      In July 2000, Mr. Kasper provided both his personal residence and his
personal guaranty as security for a loan in the amount of $900,000 that we
borrowed through the Small Business Administration. We make monthly payments of
principal and interest in the amount of $6,414.

      In March 2002, Mr. Kasper also agreed to personally guarantee our bank
line of credit in the amount of $650,000. We breached certain covenants of the
loan agreement and our lender, U.S. Bank, N.A. wanted us to repay the loan. On
November 7, 2002, U.S. Bank, N.A. agreed to make a loan in the amount of
$640,000 to Mr. Lee Kasper, who used the proceeds to pay-off our line of credit.
The loan to Mr. Kasper requires 30 monthly payments of $21,333 plus interest at
3% over prime. We pledged all of our assets as collateral for repayment of the
loan and we have guaranteed repayment of the loan.

      In February 2003, Mr. Kasper received a personal loan of $500,000. The
interest rate of the loan is 3% and the term is 36 months. Mr. Kasper loaned
these funds to use on terms identical to the terms he received.


                                       30
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

Exhibit No.        Description of Exhibit
3.1                Articles of Incorporation, as amended.(1)
3.2                Bylaws of NuTech Digital, Inc (1)
10.1               2001 NuTech Digital Inc. Equity Incentive Plan, as amended
                   August 13, 2003.(4)
10.2               Business Security Loan Agreement between NuTech Digital,
                   Inc. and U.S. Bank N.A., dated as of March 20,
                   2002including the Addendum and Amendment thereto. (1)
10.3               Letter of Intent between NuTech Digital, Inc. and Ritek
                   Corp. dated as of August 6, 1996 (including Letter of
                   Intent A). (1)
10.4               Promissory Note and Commercial Security Agreement
                   memorializing Small Business Administration Loan between
                   NuTech Digital, Inc. and Imperial Bank, SBA Department,
                   dated as of July 12, 2000. (1)
10.5               Unconditional Guarantee signed by Lee Kasper in favor of
                   Imperial Bank dated July 12, 2000. (1)
10.6               Lease Agreement between Kathy Schreiber, Todd Lorber and
                   Hiroko  ("Lessor") and NuTech Digital, Inc. ("Lessee") for
                   the premises located at 7900 Gloria Avenue, Los Angeles,
                   CA, dated as of March 10, 2001. (1)
10.7               Joint Venture Agreement by and between NuTech Digital,
                   Inc., and Joseph Anthony Giarmo. (1)
10.8               Note Secured by Deed of Trust by and between Lee H. and
                   Michelle Kasper and Skura Intercontinental Trading Company
                   dated February 19, 2003. (2)
10.9               Deed of Trust dated February 19, 2003 by Lee H. Kasper and
                   Michelle Kasper in favor of Skura Intercontinental Trading
                   Company. (2)
10.10              Term Loan Agreement dated November 7, 2002 between Lee
                   Kasper and U.S Bank, N.A. (2)
10.11              Addendum to Term Loan Agreement dated November 7, 2002
                   between U.S. Bank N.A. and Lee Kasper. (2)
10.12              Continuing Guaranty dated November 7, 2002 executed by
                   NuTech Digital, Inc. in favor of U.S. Bank N.A. (2)
10.13              Business Security Agreement dated November 7, 2002 in
                   favor of U.S. Bank N.A. and NuTech Digital, Inc. (2)
10.14              Article 9 Certificate dated November 7, 2002 and executed
                   by Lee Kasper in favor of U.S. Bank N.A. (2)
10.15              Insurance Coverage for benefit of Bank dated November 7,
                   2002 and executed by NuTech Digital, Inc. in favor of U.S.
                   Bank. N.A. (2)
10.16              Promissory Note in the amount of $60,000 dated September
                   18, 2003 in favor of Lee Kasper. (4)
10.17              Promissory Note in the amount of $300,000 dated September
                   2003 in favor of Lee Kasper. (4)
10.18              Promissory Note in the amount of $33,334 dated September
                   18, 2003 in


                                       31
<PAGE>

                   favor of Brandon G. Kasper Trust, Lee Kasper, Trustee. (4)
10.19              Promissory Note in the amount of $33,333 dated September
                   18, 2003 in favor of Ryan S. Kasper Trust, Lee Kasper,
                   Trustee. (4)
10.20              Promissory Note in the amount of $33,333 dated September
                   18, 2003 in favor of Jordan M. Kasper Trust, Lee Kasper,
                   Trustee. (4)
10.21              Form of Common Stock Purchase Agreement. (4)
10.22              Form of Warrant. (4)
10.23              Warrant issued to Brighton Capital, Ltd.(4)
10.24              Amended and Restated NuTech Digital, Inc. 2003 Consultant
                   Stock Plan. (4)
14.                Code of Business Conduct and Ethics.(4)
16.                Letter on Change in Certifying Accountant.(3)
23.                Consent of Farber & Hass, LLP.(4)
31.                Certification pursuant to Rule 13a-14(a) and 15d-14(a).(4)
32                 Certification pursuant to 18 U.S.C. Section 1350, as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of
                   2002.(4)

(1)   Incorporated by reference to the respective exhibits filed with
      registrant's Registration Statement on Form SB-2 (Commission File No.
      333-88550).
(2)   Incorporated by reference from the registrant's Form 10-KSB for the fiscal
      year ended December 31, 2002 filed on March 31, 2003, as amended on April
      10, 2003.
(3)   Incorporated by reference from the registrant's Form 8-K filed on October
      15, 2002.
(4)   Filed herewith.

(b)   Reports on Form 8-K

      No current reports were filed during the fourth quarter of the 2003
fiscal year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following table sets forth fees billed to us by our auditors during
the fiscal years ended December 31, 2003 and December 31, 2002 for: (i) services
rendered for the audit of our annual financial statements and the review of our
quarterly financial statements, (ii) services by our auditor that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as Audit Fees, (iii) services rendered in connection
with tax compliance, tax advice and tax planning, and (iv) all other fees for
services rendered.

                               December 31, 2003              December 31, 2002
                               -----------------              -----------------

(i)     Audit Fees             $ 32,500                       $ 31,288
(ii)    Audit Related Fees     $    0                         $  3,175
(iii)   Tax Fees               $    0                         $    0
(iv)    All Other Fees         $    0                         $    0


                                       32
<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 on this 23rd day of March 2004.

                                          NUTECH DIGITAL, INC.



                                          By:   /s/Lee Kasper
                                             ---------------------------------
                                             Lee Kasper,
                                             President, Chief Executive Officer
                                             and Chief Financial Officer


      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

    Signature                           Title                     Date
    ---------                           -----                     ----


/s/Lee Kasper               President, Chief Executive Officer,   March 23, 2004
--------------------        Chief Financial Officer and Director
Lee Kasper


/s/Joseph Giarmo            Vice-President, Director              March 23, 2004
--------------------
Joseph Giarmo


/s/Yegia Eli Aramyan        Director                              March 23, 2004
--------------------
Yegia Eli Aramyan


/s/Jay S. Hergott           Director                              March 23, 2004
--------------------
Jay S. Hergott


                                       33