<PAGE>
                       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, 2002

[   ]    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)

                  CALIFORNIA                           95-4642831
---------------------------------------       --------------------------------
       (State or other jurisdiction         (I.R.S. Employer Identification No.)
    of incorporation or organization)

                               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:

   TITLE OF EACH CLASS       NAME OF EACH EXCHANGE ON WHICH EACH IS REGISTERED
   -------------------       -------------------------------------------------
             None                                  None

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, 2002 were
$4,292,510.

         The number of shares of the registrant's common stock, no par value per
share,  outstanding as of March 26, 2003 was  10,380,169.  The aggregate  market
value of the voting and non-voting  common equity held by  non-affiliates of the
registrant on March 26, 2003,  based on the average bid and ask price on the OTC
Bulletin Board as of such date, was approximately $619,337.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None

         Transition Small Business Disclosure Format:   Yes       No    X
                                                           -----      --------

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                                TABLE OF CONTENTS

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                                                                                                               PAGE
PART I
<S>         <C>

         ITEM 1.      BUSINESS............................................................................        5
         ITEM 2.      DESCRIPTION OF PROPERTY.............................................................        9
         ITEM 3.      LEGAL PROCEEDINGS...................................................................        9
         ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF
                      SECURITY HOLDERS....................................................................        9

PART II

         ITEM 5.      MARKET FOR COMMON EQUITY AND
                      RELATED STOCKHOLDER MATTERS.........................................................        9
         ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSI OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION        12
         ITEM 7.      FINANCIAL STATEMENTS................................................................        20
         ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                      ON ACCOUNTING AND FINANCIAL DISCLOSURE..............................................        20

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..............................................................        23
         ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                      OWNERS AND MANAGEMENT...............................................................        26
         ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................        26
         ITEM 13.     EXHIBITS AND REPORTS OF FORM 8-K....................................................        29


SIGNATURES


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                    NOTE REGARDING FORWARD LOOKING STATEMENTS

         This Annual Report on Form 10-KSB contains "forward-looking statements"
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities  Exchange Act of 1934.  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;

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. To
accomplish  this, the assets of NuTech  Entertainment,  Inc. were distributed 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 and video games, karaoke software,  Japanese anime and
late night  programming.  Our primary  source of revenue comes from our sales of
adult entertainment, which includes late night programming and hentai, a form of
Japanese anime for adults.  During 2002,  hentai accounted for approximately 53%
of our sales,  late night  programming  accounted for  approximately  15% of our
sales and karaoke  products  accounted for  approximately  25% of our sales.  We
distribute our products  throughout  the world via retail stores,  the Internet,
and wholesale  distributors.  Approximately  8% of our products are  distributed
outside the United States,  with no concentration  in any particular  country or
geographic area.  Approximately  4% 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 two formats,  DVD and VHS tapes.  Our karaoke
products are also sold in two formats, DVD and CD + G. In 2002, sales of our DVD
film products totaled 647,923 units,  which accounted for  approximately  73% of
our  sales,  while  sales  of  films on VHS tape  totaled  30,329  units,  which
accounted for approximately 2% of our sales. Of these amounts, sales of Japanese
anime,  including  hentai,  represented  approximately  72% of all DVDs sold and
approximately  98% of all VHS tapes sold.  In 2002,  sales of our CD + G karaoke
products  totaled 792,496 units,  which accounted for  approximately  25% of our
sales,  while sales of our DVD  karaoke  products  totaled  1,763  units,  which
accounted for less than 1% of our sales.

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

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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, will continue 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 136 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 and VHS formats. We also create menus for the
DVD  products and redesign the artwork for the packaging. Revenues from sales of
anime, including hentai, totaled approximately $2,456,146 in 2001 and $2,355,659
in  2002,  which  represented  approximately  50%  and  55%  of our total sales,
respectively.

CHILDREN'S ANIMATED FILMS AND GAMES

         We acquired 27 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.  We are also a DVD distributor of "Shadoan", a
role-playing  game  set  in  a magical kingdom populated by princes, princesses,
wizards  and  dragons. 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  $109,429  in sales during 2002, which represented
approximately  3%  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


                                       6
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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.

         During 2002, karaoke products accounted for approximately $1 million in
sales, which made up approximately 25% of our total revenues.

LATE NIGHT AND ANIMATED 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 combination
of late night  programming  with animated  characters.  Revenues from late night
programming (not including  hentai) totaled  approximately  $638,728 in 2002 and
$887,715  in 2001,  which  represented  approximately  15% and 18% of our  total
sales, respectively.

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.

OUR SUPPLIERS AND CUSTOMERS

         We obtain  exclusive  rights to our Japanese anime  products  primarily
from four suppliers who produce the works and license them outside of Japan.  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,  IDM and L & M. 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 350 retail outlets that, in turn, sell our products to
consumers. Approximately 34% of the retail outlets in which we sell our products
are  located  in  California,  approximately  6% are  located  in New  York  and
approximately  4% are  located in  Florida.  The  remaining  retail  outlets are
located  throughout the United States and are not concentrated in any particular
area. This method of distribution

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accounts  for  approximately  35% of our  sales.  We also sell our  products  to
approximately 20  distributors.  These  distributors  sell our products to other
retailers or to consumers  through their  websites.  This method of distribution
accounts for approximately  60% of our sales.  Approximately 4% 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 8% 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  7% of all  revenues  earned  from sales for the fiscal year ended
December 31, 2002 and 10.4% of all  revenues  earned from sales for the previous
fiscal year.  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  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.

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,  as
well as the game "Shadoan", 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.


                                       8
<PAGE>


COMPETITION

         Nearly all of our  products  compete  with other  products and services
that  utilize  free  time  or  disposable  income.  The businesses with which we
compete are, in general, highly competitive and service-oriented. 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,
timeliness,  quality  and  price,  which  has  allowed us to establish long-term
relationships  with many of our customers. However, we cannot assure you that we
can  compete successfully with our competitors' products or services, since many
of  them  have  significantly  greater  market  presence,  name  recognition and
financial  resources  than we have. See the section of this Annual Report titled
"Management's  Discussion  and  Analysis  of Results of Operations and Financial
Condition--Factors  Affecting  Business,  Operating  Results  and  Financial
Condition--Our  industry  is intensely competitive. We cannot guarantee you that
we  can  compete  successfully."

EMPLOYEES

         As of December 31, 2002 we had 14 full-time  employees including two in
administration,  two in sales, five in distribution,  two in accounting,  one in
production, one in management information systems and one in customer service.


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 least 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

         None.

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".

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Our common stock began  trading on January 17,  2003,  but the market for it has
been extremely limited and sporadic.

         As of March 21, 2003, there were  approximately 56 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 we have become a  reporting  company,  we have never  declared or
paid any cash  dividend on our common  stock and do not expect to declare or pay
any cash  dividend  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.

         Our Board of Directors adopted and our shareholders approved the NuTech
Digital,  Inc. 2001 Equity  Incentive  Plan.  We currently  have no other equity
compensation  plans  (including  individual   compensation   arrangements).   In
accordance  with the NuTech  Digital,  Inc. 2001 Equity  Incentive  Plan we have
issued  options to  employees  to  purchase a total of  1,705,000  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 is $1.50, with
the  exception  of the  price  to Mr.  Kasper,  which is $1.65  per  share.  The
following table sets forth, as of December 31, 2002, 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 NuTech  Digital,  Inc.  2001  Equity
Incentive Plan.
<TABLE>
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                                                 EQUITY COMPENSATION PLAN INFORMATION
<S>                                   <C>                        <C>                         <C>

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

                                Number of  securities to be   Weighted average             Number of securities
                                issued  upon  exercise of     exercise                     remaining  available  for
                                outstanding  options,         price of outstanding         future issuance  under the
                                warrants and rights           options warrants and rights  equity compensation plan
                                                                                           (excluding securities
                                                                                           reflected in column (a)
Plan Category                               (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Shareholder Approved                     1,705,000                      $1.54                   1,795,000(1)(2)
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

(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.

(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  be  the  maximum  amount   allowable  under  Regulation
     260.140.45 of Title 10 of the California Code of Regulations.  No change in
     the number of shares of common stock included in the NuTech  Digital,  Inc.
     2001 Equity Incentive Plan was made in January 2003.


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RECENT SALES OF UNREGISTERED SECURITIES

     On July 31, 2000 our Board of Directors  issued to Mr. Joseph  Giarmo,  our
Vice-President and a director, 50 shares of our common stock as compensation for
extraordinary  services  rendered  by  Mr.  Giarmo to us, such services having a
value  of  $250.  The  securities  were  issued  in  reliance upon the exemption
provided  in  Section 4(2) of the Securities Act. These shares were issued prior
to the stock split that the Company effected on May 4, 2001. After giving effect
to  the  stock  split,  Mr.  Giarmo  owned  392,250  shares of our common stock.

     On May 4, 2001 our Articles of  Incorporation  were amended to increase the
authorized  number of shares of our common stock from  2,000,000 to  100,000,000
and to split each share of  outstanding  common  stock from one share into 7,905
shares.

     On May 31,  2001,  we issued  100,000  shares of our common stock to Elynor
Kasper in exchange for the release of certain  contract  rights.  We  determined
that the value of the  contract  rights was  $3,000.  On May 31,  2001,  we also
issued  350,000  shares of our common  stock to Leora  Kimble,  in exchange  for
bookkeeping  services rendered to us having a value of $10,500.  Also on May 31,
2001,  we  issued  400,000  shares  of our  common  stock  to  Saratoga  Capital
Corporation, our distributor in Asia, for services rendered to us having a value
of $12,000. We determined that the value of the common stock on May 31, 2001 was
$ .03 per share.  The securities  issued on May 31, 2001 were issued in reliance
upon the exemption provided in Section 4(2) of the Securities Act.

     On June 1, 2001, we began a private offering of our securities, pursuant to
the exemption  provided in Section 4(2) of the Securities Act and Section 506 of
Regulation D  promulgated  thereunder.  In selling the  securities,  we provided
non-financial  and financial  statement  information to the  investors,  did not
offer or sell the  securities  by any form of  general  solicitation  or general
advertising,  and advised each investor that the securities  could not be resold
without registration under the Securities Act or an exemption  therefrom.  These
securities  were sold with the  assistance  of  broker-dealers  to  persons  who
represented that they were accredited investors, as that term is defined in Rule
501 of Regulation D. Each investor who purchased  shares of common stock in this
offering received a warrant to purchase a like number of additional  shares. The
unit price was $1.50 per share.  The warrant  exercise price is $3.00 per share.
The warrants, if not exercised, will expire on June 30, 2003. We sold a total of
703,444  shares  of  our common stock in the offering. In addition to the shares
sold,  we  issued  a total of 208,142 shares of common stock to brokers, dealers
and advisors in connection with the offering. Brokers and dealers were also paid
a  commission  of 10%. Our legal counsel, Richardson & Patel, LLP, subscribed to
this  offering  by  accepting  53,333 shares of our common stock in exchange for
services  that  had  been  rendered  to  us  having  a  value  of  $80,000.

     On September  13, 2001 we agreed to convert  $100,000 of debt owed to Sarah
and LeBron Barkstelle to common stock. The debt was converted at the rate of one
share of common stock for each $1.00  converted.  The securities  were issued in
reliance upon the exemption provided in Section 4(2) of the Securities Act.

     On  March  4,  2002,  Urbach  Kahn  & Werlin, Inc. agreed to convert to our
common  stock  $80,000 of debt for services rendered to us on the condition that
(i)  we  file a registration statement which included Urbach Kahn & Werlin, Inc.
as  a  shareholder  selling  53,333  shares  of  common  stock,  and  (ii)  the
registration  statement  was  declared  effective  by  the  Securities



                                       11
<PAGE>

Exchange Commission before October 1, 2002. The conversion was made at $1.50 per
share.  The  securities  were issued in reliance upon the exemption  provided in
Section 4(2) of the Securities Act.

     Also  on  March  4, 2002, Advanced Media Post, LLC agreed to convert to our
common  stock $247,500 of debt for services rendered to us on the condition that
(i)  we file a registration statement which included Advanced Media Post, LLC as
a  shareholder selling 165,000 shares of common stock, and (ii) the registration
statement  was  declared  effective by the Securities Exchange Commission before
October 1, 2002. The conversion was made at $1.50 per share. The securities were
issued in reliance upon the exemption provided in Section 4(2) of the Securities
Act.

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 upon the Company's  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 seven
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.

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

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  collectibility  is
determined to be


                                       12
<PAGE>


permanently impaired (bankruptcy, lack of contact, account balance over one year
old, etc.).

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 useful lives of the assets that range from 5 to 10 years.

REVENUE RECOGNITION
-------------------
         We recognize  revenue from product sales when the goods are shipped and
title passes to customers.

COMMON STOCK ISSUED FOR NON-CASH TRANSACTIONS
---------------------------------------------
         It is our policy to value stock issued for non-cash transactions,  such
as services, at the fair market value at the date the transaction is negotiated.

SHIPPING AND HANDLING COSTS
---------------------------
         Our  policy  is to  classify  shipping  and  handling  costs as part of
selling, general and administrative costs in the statements of operations.

RESULTS OF OPERATIONS

         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. In the year 2001,  consumers spent $4.9 billion  purchasing VHS tapes and
$5.4 billion  purchasing  DVDs. We also believe that the audience for anime will
continue to grow worldwide, and that our investment in anime is well-timed.

         Our  liquidity  has been  negatively  impacted  by the decline in sales
revenues we  experienced  during the fiscal year ended  December  31,  2002.  We
attribute  this  decline in revenues  primarily  to the  general  decline in the
economy of the United  States,  which we believe has driven  down  discretionary
spending by consumers.  Because we experienced a decline in revenues  during the
fiscal year ended December 31, 2002, we were unable to license or


                                       13
<PAGE>


otherwise  acquire a significant number of new anime titles, which are costly to
obtain.  This,  in  turn,  further  contributed  to  a  decline  in  sales.

         With the  exception of the licenses we will  acquire,  we have not made
any material commitments for capital expenditures in the immediate future. While
we believe  that DVD  products  and anime will  continue  to grow in  popularity
worldwide,  the  continued  poor  economic  conditions  in the United States may
continue to have a significant adverse impact on our revenues from sales.

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



                                                        YEAR ENDED DECEMBER 31,
                                                     ---------------------------
                                                         2001           2002
                                                         ----          ----

         Net revenues                                $5,021,232      $4,292,510
         Cost of revenues                            $1,134,862      $1,403,210
         Gross profit                                $3,886,370      $2,889,300
         Selling, general and administrative         $3,430,563      $3,612,214
         Gain (Loss) from operations                 $  455,807      $ (722,914)
         Net gain (loss)                             $  167,181      $ (918,373)


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

         Our revenues from  operations for the year ended December 31, 2002 were
$4,292,510,  as compared to revenues of $5,021,232  for the year ended  December
31, 2001, a 14.5% decrease. We believe that the decrease in our revenues was due
primarily to the general  decline in the economy of the United States,  which we
believe has had an adverse effect on discretionary consumer spending, and to our
inability,  due  to a lack  of  capital,  to  license  or  otherwise  acquire  a
substantial  number of new works in anime.  In February  2003 our  President and
Chief Executive Officer, Mr. Lee Kasper,  received a personal loan in the amount
of  $500,000,  which he  loaned to the  Company  and which was used only for the
licensing of new works in anime.  See the section of this Annual  Report  titled
"Liquidity and Capital Resources".

         Our gross profit from operations for the fiscal year ended December 31,
2002 decreased to $2,889,300 as compared to $3,886,370 for the fiscal year ended
December 31, 2001.  Our gross margin  percent  decreased to 67.3% in fiscal year
2002  from  77.3% in  fiscal  year  2001.  The  decrease  in gross  profit  from
operations  is  attributable  to our lower  sales;  the decrease in gross margin
percent is attributable to our decision to sell off certain products included in
our inventory by reducing the selling price.

         Selling,  general and  administrative  costs increased by $181,651,  to
$3,612,214 for the year ended  December 31, 2002 as compared to $3,430,563,  for

                                       14
<PAGE>

the prior fiscal year, a 5.3% increase.  This increase is primarily attributable
to expenses  associated  with our  relocation  to larger  office,  warehouse and
production space in 2001, which increased our rent and operating
costs, to legal and accounting costs associated with our reporting  requirements
as a publicly traded corporation and to personnel-related and staffing expenses.

         We recorded a  net loss of $918,373 from  operations in the 2002 fiscal
year as compared to net income  from  operations  of $167,181 in the 2001 fiscal
year. The net loss is primarily attributable to the decrease in our sales.

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
common stock.

         Our bank line of credit was 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 $21,000  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.

         The principal amount of the loan we received through the Small Business
Administration  is  $900,000.  Interest is adjusted at least once per year.  The
interest  rate is 2% above the prime rate.  The loan has a 10-year term. We make
monthly payments of principal and interest in the amount of $12,398.

         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.

         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


                                       15
<PAGE>

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, 2002, the unpaid  balance of the advance was $400,000.  We failed to pay all
of the interest  that accrued  during the fiscal year ending  December 31, 2002,
and we have recorded a liability for unpaid  interest  totaling  $31,165.  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.  We intend to repay the advance to
Ritek Corporation.

         Our capital requirements,  particularly as they relate to 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.

         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.

2002 FISCAL YEAR COMPARED TO 2001 FISCAL YEAR

         At December 31, 2002,  cash amounted to $9,237.  Our primary sources of
cash in fiscal 2002 consisted of cash provided by operating activities.

         The primary  uses of cash for the fiscal year ended  December  31, 2002
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.  In February 2003 our
Chief Executive  Officer,  Mr. Lee Kasper,  borrowed $500,000 which he, in turn,
loaned to us for the license of additional anime titles.

         During the fiscal year ended  December 31, 2002,  net cash  provided by
operating  activities  was  $379,008 as  compared to net cash used by  operating
activities of $221,018  during the fiscal year ended December 31, 2001. Cash was
used for operating activities because our net profit decreased by $1,085,554 and
our sales  decreased by $728,722 over the prior year.  These  decreases were the
result of the general  decline in the United  States  economy,  which we believe
negatively impacted discretionary spending by consumers, and by our inability to
significantly  expand our library of anime products due to a lack of capital. In
February 2003 we received a loan from our President and Chief Executive  Officer
that we used to license additional products.


                                       16
<PAGE>

         Net cash used by investing  activities was $588,181 for the fiscal year
ended  December  31,  2002 as  compared  to  $744,095  for the fiscal year ended
December 31, 2001. These amounts reflect  expenditures of $528,174 for completed
masters and $60,007 for  purchases of computer  software and hardware to improve
our information systems capabilities.  Net cash provided by financing activities
during the fiscal year ended  December  31, 2002 was $135,432 as compared to net
cash provided by financing  activities  of $1,018,165  for the fiscal year ended
December  31,  2001.  Financing  activities  in the 2002 fiscal  year  consisted
primarily of proceeds in the amount of $22,750  derived from a private  offering
of our  common  stock and a loan in the  amount  of  $121,831  from an  officer.
Financing  activities  in the fiscal  year ended  December  31,  2001  consisted
primarily of proceeds in the amount of $878,093  derived from a private offering
of our common stock and proceeds of  approximately  $496,836 from a bank line of
credit.  Net cash used by  investing  activities  during the  fiscal  year ended
December 31, 2001 included the payment of a dividend to our sole  shareholder of
$326,673 and the repayment of loans totaling $369,659.

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.

WE INCURRED A  SIGNIFICANT  LOSS DURING THE LAST FISCAL YEAR AND WE MAY CONTINUE
TO SUSTAIN LOSSES IN THE FUTURE.

         As of December  31, 2002 we had a net loss of $918,373.  We  anticipate
that we may continue to have substantial  losses in the future.  If you purchase
our securities, you may lose your entire investment.

WE WILL CONTINUE TO NEED MONEY TO FUND FUTURE OPERATIONS, AND WE ARE NOT SURE WE
CAN OBTAIN ADDITIONAL FINANCING.

         We will  continue to need money,  primarily  for use in  expanding  our
library of anime. To the extent that we need more money in the future, we cannot
assure you that funds will be available to us on favorable terms, or at all. The
unavailability  of funds could have a material  adverse effect on our ability to
expand our operations by expanding our library of anime.

OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.

         Our debt,  and any debt we acquire in the  future,  could have  adverse
consequences for our business, including the following:


                                       17
<PAGE>

     o   We will be more vulnerable to adverse general economic conditions;

     o   We are required to dedicate a substantial portion of our cash flow from
         operations to repayment of our debt,  limiting the availability of cash
         for other purposes;

     o   We may have difficulty obtaining additional financing in the future for
         working capital,  capital  expenditures,  general corporate purposes or
         other purposes;

     o   We could be limited by financial and other  restrictive  covenants in
         our credit arrangements if we borrow additional funds; or

     o   We may fail to comply with the  covenants  under which we borrowed  our
         indebtedness, which could result in an event of default. If an event of
         default  occurred  and was not cured or waived,  it could result in all
         amounts   outstanding,   together  with  accrued   interest,   becoming
         immediately  due and payable.  If we were unable to repay such amounts,
         the lender could proceed against any collateral granted to it to secure
         the indebtedness.

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,  and on our ability to continue to attract,  motivate and retain  highly
qualified and talented personnel. We do not have, and currently we do not intend
to acquire, key-man life insurance on the lives of Mr. Kasper or Mr. Giarmo. The
loss of Mr.  Kasper's or Mr.  Giarmo's  services  would have a material  adverse
effect on our business and operations.

OUR  INDUSTRY IS  INTENSELY  COMPETITIVE.  WE CANNOT  GUARANTEE  YOU THAT WE CAN
COMPETE SUCCESSFULLY.

         Our business is highly competitive.  We must compete with all the other
existing forms of entertainment  including video arcade games, home video games,
theme  parks,  nightclubs,  television,  and CDs.  All aspects of our  business,
including  pricing,  promptness of service,  and product quality are significant
competitive factors and our ability to successfully compete with respect to each
factor is material to our profitability. Our competitors may develop products or
services  that may be more popular than our products or services and they may be
more successful in marketing their products or services than we are in marketing
ours. Some of our current and potential  competitors have significantly  greater
market presence, name recognition and financial resources than we have, and many
have  longstanding  market  positions  and  established  brand  names  in  their
respective  markets.  Pricing  competition could result in lower margins for our
products.  Although  we place a high value upon our  ability to provide  quality
products and services to our customers in order to be  competitive in the market
place, we cannot assure you that we will be able to compete  successfully in our
markets,  or compete  successfully  against  current and new  competitors as our
market continues to evolve.

THE MARKET IN WHICH WE DO  BUSINESS  MAY CHANGE,  DECREASING  THE DEMAND FOR OUR
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.

                                       18
<PAGE>


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  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.

WE ARE DEPENDENT ON TWO  SUPPLIERS FOR A SIGNIFICANT  PORTION OF THE PRODUCTS WE
SELL. THE LOSS OF THESE  SUPPLIERS  COULD HAVE A MATERIAL  ADVERSE EFFECT ON OUR
BUSINESS.

         During the fiscal year ended December 31, 2002, we purchased 43% of our
products from two suppliers.  During the fiscal year ended December 31, 2001, we
purchased  60% of our  products  from one  supplier.  While  there  are  several
suppliers from whom we may purchase our products, we may not be able to purchase
the  products  on terms  that are as  advantageous  to us or,  if the  terms are
unacceptable  to us, at all. If we were to lose these  suppliers and were unable
to  negotiate  acceptable  agreements  with  other  suppliers,  it could  have a
material adverse effect on our business.

WE ARE DEPENDENT ON A FEW  CUSTOMERS FOR A SIGNIFICANT  PORTION OF OUR REVENUES.
THE LOSS OF THESE CUSTOMERS COULD HAVE A MATERIAL  ADVERSE EFFECT ON OUR RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.

         As a percentage  of total  revenues,  our net sales to our nine largest
customers  during  the  fiscal  years  ended  December  31,  2002 and 2001  were
approximately  38.4% and 37.6%  respectively.  One major customer  accounted for
approximately  7% of our  sales  revenues  in  fiscal  2002.  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.

GOVERNMENT  REGULATIONS  COULD  HAVE  AN  ADVERSE  EFFECT  ON A  PORTION  OF OUR
BUSINESS.

         During  2002,  approximately  67% of our sales  were  from  late  night
programming,  including hentai. Although the right to create material containing
late night  programming 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,  and several states and communities
in  which  our  products  are  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 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. Although we

                                       19
<PAGE>

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 comply with all applicable  state and
federal statutes and regulations.

MANY OF OUR PRODUCTS INCLUDE SEXUALLY EXPLICIT CONTENT,  WHICH MAY SUBJECT US TO
ADDITIONAL FUTURE REGULATION OR OTHER LEGAL CHALLENGES.

         Many of our products include sexually  explicit  material.  Many people
may regard this  division of our business as  unwholesome.  This may  negatively
impact the value of our common stock. Federal,  state and municipal governments,
along with  various  religious  and  children's  advocacy  groups,  consistently
propose  and  pass 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 campaigns. We cannot assure you that
sales  of  these  products will not be subject to successful legal challenges in
the  future.

WE HAVE  NOT  PAID  CASH  DIVIDENDS  AND IT IS  UNLIKELY  THAT WE WILL  PAY CASH
DIVIDENDS IN THE FORESEEABLE FUTURE.

         We plan to use all of our earnings,  to the extent we have earnings, to
fund our operations. We do not plan to pay any cash dividends in the foreseeable
future.  We cannot  guarantee  that we will,  at any time,  generate  sufficient
surplus  cash that would be  available  for  distribution  as a dividend  to the
holders of our common stock.  You should not expect to receive cash dividends on
our common stock.

ITEM 7.  FINANCIAL STATEMENTS

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

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


                                       20
<PAGE>

caused it to make a reference  to the  subject  matter of the  disagreements  in
connection with its reports.

         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.

                                                               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.
<TABLE>
<CAPTION>

Name                                        Age              Position
<S>                                          <C>               <C>
---------------------------------------- ---------------- ------------------------------------------------------------
                                                          Chief  Executive   Officer,   President,   Chief  Financial
Lee Kasper                               56               Officer, Director
---------------------------------------- ---------------- ------------------------------------------------------------
Joseph Giarmo                            34               Vice President, Director
---------------------------------------- ---------------- ------------------------------------------------------------
Yegia Eli Aramyan                        49               Accountant, Director
---------------------------------------- ---------------- ------------------------------------------------------------
Jay S. Hergott                           56               Director
---------------------------------------- ---------------- ------------------------------------------------------------
</TABLE>


         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 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


                                       21
<PAGE>

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.  In  1988  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

                                       22
<PAGE>

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

         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 $5,000 per year. During the
fiscal year ended  December  31, 2002,  the Company paid Mr.  Hergott the sum of
$4,200 for consulting services.  Our remaining three directors have not received
compensation for their services as directors.

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.

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.

         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 2002 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 3s for Lee
Kasper,  Joseph  Giarmo and Yegia Eli Aramyan were filed in February 2003 rather
than in October 2002.

ITEM 10. EXECUTIVE COMPENSATION

         During the 2002  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 for the three years ended December 31, 2002,  December
31, 2001 and December 31, 2000:

                                       23
<PAGE>

<TABLE>
<CAPTION>


                                                      SUMMARY COMPENSATION TABLE



                                                                                LONG TERM COMPENSATION
                                                                               -------------------------
                                    ANNUAL COMPENSATION                    AWARDS                      PAYOUTS
                                 -----------------------------------------------------------------------------------
                                                            OTHER      RESTRICTED
                                                            ANNUAL     STOCK      SECURITIES   LTIP       ALL OTHER
                                                            COMPEN-    AWARDS     UNDERLYING    PAYOUT   COMPEN-SATION
  NAME AND PRINCIPAL                 SALARY        BONUS    SATION        ($)      OPTIONS/      ($)         ($)
       POSITION           YEAR         ($)          ($)       ($)                     SARS(1)
---------------------    ------- ------------- ---------   --------- ----------  ------------ -------- --------------
<S>                       <C>       <C>          <C>          <C>      <C>          <C>         <C>          <C>
Lee Kasper,               2002      $369,231        ---       ---        ---         ---        ---      $39,600(2)
Director, CEO,            2001     $542,673(1)      ---       ---        ---         ---        ---      $39,600(2)
President, CFO            2000     $222,389(1)      ---       ---        ---         ---        ---      $15,048(2)

Joseph Giarmo,            2002     $159,228(3)      ---       ---        ---         ---        ---         ---
Director                  2001      $131,553        ---       ---        ---         ---        ---         ---
Vice President            2000      $135,872        ---       ---        ---         ---        ---         ---
Secretary


-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) 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.  The amount shown as
compensation  paid to Mr.  Kasper  in 2000 was  paid as a  dividend.
(2) These  amounts  represent  expenses  paid in  connection  with Mr.  Kasper's
automobile.
(3) This amount includes payments made to Mr. Giarmo pursuant to a joint venture
agreement  he entered  into with the Company  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

         We have no employment agreements with our named executive officers, who
provide services to us on an at-will basis.

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 have currently
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. 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


                                       24
<PAGE>

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 the  date of this  report,  we have  granted
1,705,000 awards under the Plan.

         The  following  tables set forth  certain  information  concerning  the
granting and  exercise of  incentive  stock  options  during the last  completed
fiscal  year by each of the named  executive  officers  and the fiscal  year-end
value of unexercised options on an aggregated basis:
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                            OPTION/SAR GRANTS FOR LAST
                                         FISCAL YEAR-INDIVIDUAL GRANTS(1)
--------------------------------------------------------------------------------------------------------------------
                               Number of            % of Total
                               Securities       Options/SARs Granted
                               Underlying          to Employees in
                              Options/SARs             Fiscal             Exercise Price
Name                           Granted (#)              Year                  ($/sh)                Expiration Date
-------------------------- -------------------- ---------------------- ---------------------- ----------------------
<S>                          <C>                  <C>                        <C>                      <C>

Lee Kasper                       500,000               29.33%               $1.65/share          April 15, 2007

Joseph Giarmo                    300,000               17.60%               $1.50/share          April 15, 2012

Yegia Eli Aramyan                70,000                 4.11%               $1.50/share           April 15,2012
-------------------------- -------------------- ---------------------- ---------------------- ----------------------



--------------------------------------------------------------------------------------------------------------------
                                AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                          AND FY-END OPTION/SAR VALUES(1)
--------------------------------------------------------------------------------------------------------------------
                                                                                                   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
-------------------------- -------------------- ---------------------- ---------------------- ----------------------

Lee Kasper                         -0-                   -0-                 500,000/0                $0/$0

Joseph Giarmo                      -0-                   -0-                 300,000/0                $0/$0

Yegia Eli Aramyan                  -0-                   -0-               46,666/23,334              $0/$0
-------------------------- -------------------- ---------------------- ---------------------- ----------------------
</TABLE>


                                       25
<PAGE>

(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.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table sets  forth,  as of March 26,  2003,  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.
<TABLE>
<CAPTION>

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

Common Stock            Lee Kasper (3)(4)(5)(6)                        8,065,000         77.69%
Common Stock            Joseph Giarmo (3)(4)                             692,250          6.67%
Common Stock            Yegia Eli Aramyan                                 46,667              *
Common Stock            Jay  S. Hergott (4)                                    0              0
                        All    Officers,    Directors   and   5%
                        Shareholders                                   8,803,917         84.36%
----------------------- ----------------------------------------- --------------- --------------

</TABLE>

*        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.

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.

                                       26
<PAGE>


     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  VHS or DVD unit of the films that are sold. Our obligation under this
agreement will terminate once we have paid to Mr. Giarmo a total of $120,000. To
date,  Mr.  Giarmo  has  been  paid $10,000 in accordance with this arrangement.

         In May 2001,  we obtained a loan from  Brandon  Kasper in the amount of
$7,418,  which  accrues  interest  at the  rate  of 7% and is due to be  paid on
demand. Brandon Kasper is Mr. Lee Kasper's son.

         In May 2001,  we  obtained  a loan from  Ryan  Kasper in the  amount of
$7,467,  which  accrues  interest  at the  rate  of 7% and is due to be  paid on
demand. Ryan Kasper is Mr. Lee Kasper's son.

         In May 2001,  we  obtained a loan from  Jordan  Kasper in the amount of
$3,555,  which  accrues  interest  at the  rate  of 7% and is due to be  paid on
demand. Jordan Kasper is Mr. Lee Kasper's son.




                                       27
<PAGE>

     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  accrues on
this loan at the rate of 10% per year. The unpaid principal balance of this loan
is $60,000.  We are current on all  interest  payments.  This loan is payable on
demand. To date, no demand for payment has been made.

     Aside from the  foregoing  loans,  we have also entered into the  following
transactions with our President and Chief Executive Officer,  Mr. Lee Kasper, or
with our Vice  President and  Secretary,  Mr. Joseph  Giarmo.  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.  Interest  is  adjusted  at least  once per year.  The
interest  rate is 2% above the prime rate.  The loan has a 10-year term. We make
monthly payments of principal and interest in the amount of $12,398.

     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 $21,000 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.

ITEM 13. CONTROLS AND PROCEDURES

     Within 90 days prior to the filing of this report,  the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer of the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures. The evaluation was undertaken in consultation with the Company's
accounting  personnel.  Based  on  that  evaluation,  the  President  and  Chief
Executive  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures are effective to ensure that information  required to be disclosed by
the  Company  in the  reports  that it files or  submits  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 the Company's internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of their evaluation.



                                       28
<PAGE>


         The  Company  has not yet  adopted  a Code of  Ethics  for  management,
although it intends to do so.


ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>


(a)      Exhibits

         Exhibit
         NUMBER                     DESCRIPTION OF EXHIBIT
<S>      <C>                          <C>

         3.1      Articles of Incorporation, as amended.(1)
         3.2      Bylaws.(1)
         3.3      Certificate of Amendment of Articles of Incorporation.(1)
         10.1     2001 NuTech Digital Inc. Equity Incentive Plan, as amended on June 28,
                  2002.(1)
         10.2     Business Loan Agreement between NuTech Digital, Inc. and U.S. BankN.A., dated as of March 20, 2002, including
                  Amendment to Loan Agreement and Note, Authorization for Preauthorized Debts for Payment of Loans, Addendum to
                  Amendment to Loan Agreement and Note, Commercial Guaranty between Lee Kasper and U.S. BankN.A., Business Security
                  Agreement, Insurance Coverage for the Benefit of Bank.(1)
         10.3     Letter of Intent between NuTech Digital, Inc. and RitekCorp, 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 Bankdated 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 ofMarch 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.(3)
         10.11    Addendum to Term Loan Agreement dated November 7, 2002 between
                  U.S. Bank N.A. and Lee Kasper.(3)
         10.12    Continuing Guaranty dated November 7, 2002 executed by NuTech
                  Digital, Inc. in favor of U.S. Bank N.A.(3)
         10.13    Business Security Agreement dated November 7, 2002 in favor of U.S.
                  Bank N.A. and NuTech Digital, Inc.(3)
         10.14    Article 9 Certificate dated November 7, 2002 and executed by Lee Kasper
                  in favor of U.S. Bank N.A.(3)
         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.(3)
         99.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.(2)
               (1)  Incorporated  by reference to the respective  exhibits filed
                    with  registrant's   Registration  Statement  on  Form  SB-2
                    (Commission File No. 333-88550).
               (2)  Filed herewith.
               (3)  To be filed by amendment.
</TABLE>

(b) Reports on Form 8-K

         We filed a current report on Form 8-K on October 15, 2002 to report the
resignation of our independent auditors, Moffitt & Company, PC.

         We filed a current report on Form 8-K on October 31, 2002 to report the
action taken by the Board of Directors to extend the expiration date of warrants
to purchase  703,444 shares of our common stock. The warrants had been issued to
those  individuals who purchased our securities in a private offering that began
in June 2001. The expiration  date of the warrants has been extended to June 30,
2003.


                                       29
<PAGE>

         We filed a current report on Form 8-K on January 11, 2003 to report our
engagement of Farber & Hass LLP as our new independent auditors.

                                   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 28th day of March 2003.

                                  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.
<TABLE>
<CAPTION>

         SIGNATURE                                      TITLE                              DATE

<S>     <C>                                               <C>                               <C>

/S/LEE KASPER                President, Chief Executive Officer,                    March 28, 2003
-------------------          Chief Financial Officer and Director
Lee Kasper


/S/JOSEPH GIARMO             Vice-President, Director                               March 28, 2003
--------------------
Joseph Giarmo


/S/YEGIA ELI ARAMYAN         Director                                               March 28, 2003
--------------------
Yegia Eli Aramyan



/s/ JAY S. HERGOTT           Director                                               March 28, 2003
--------------------
Jay S. Hergott

</TABLE>

                                       30
<PAGE>



                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
                       PURSUANT TO RULES 13A-14 AND 15D-14
                     OF THE SECURITIES EXCHANGE ACT OF 1934

          I, Lee Kasper,  Chief Executive Officer and Chief Financial Officer of
     NuTech Digital, Inc., certify that:

         (1) I have  reviewed  this  Annual Report  on Form  10-KSB  of  NuTech
Digital, Inc.

         (2) Based on my  knowledge,  this  Annual Report  does not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
Annual Report.

         (3)  Based  on  my  knowledge,  the  financial  statements,  and  other
financial  information  included  in  the  Annual  Report, fairly present in all
material  respects the financial condition, results of operations and cash flows
of  the  registrant  as  of,  and  for,  the  periods  presented  in the Annual
Report.

         (4)  I am  responsible  for  establishing  and  maintaining  disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and I have:

                  a. designed such disclosure  controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities,  particularly
during the period in which this Annual Report is being prepared;

                  b. evaluated the effectiveness of the registrant's  disclosure
controls and  procedures as of a date within 90 days prior to the filing date of
this Annual Report (the "Evaluation Date"); and

                  c.  presented in this Annual Report my  conclusions  about the
effectiveness  of the disclosure  controls and procedures based on my evaluation
as of the Evaluation Date.

         (5) I have  disclosed,  based on our  most  recent  evaluation,  to the
registrant's auditors and the registrant's Board of Directors:

                  a. all significant  deficiencies in the design or operation of
internal  controls  which could  adversely  affect the  registrant's  ability to
record, process, summarize and Report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b.  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal controls; and


                                       31
<PAGE>
I  have  indicated  in  this Annual Report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal  controls  subsequent  to  the  date  of  our  most  recent evaluation,
including  any  corrective  actions  with regard to significant deficiencies and
material  weaknesses.



/S/ LEE KASPER                                     March 28, 2003
-------------------------------------
Lee Kasper
President and Chief Executive Officer



                                       32
<PAGE>



                                TABLE OF CONTENTS


                                                               PAGE NO.


INDEPENDENT AUDITORS' REPORT

FINANCIAL STATEMENTS

       Balance Sheet.........................................F-1 - F-2

       Statements of Operations..............................F-3 - F-4

       Statement of Stockholders' Equity...........................F-5

       Statements of Cash Flows...............................F-6- F-7

       Notes to Financial Statements.........................F-8- F-22




<PAGE>



                          INDEPENDENT AUDITORS' REPORT



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


We have audited the  accompanying  balance  sheet of Nutech  Digital  Inc.  (the
"Company")  as of December 31, 2002 and the related  statements  of  operations,
stockholders'  equity,  and cash flows for the year 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, 2002 and the results of its  operations  and its cash flows for the
year then ended, in conformity with accounting  principles generally accepted in
the United States of America.



/S/  FARBER & HASS, LLP.
      OXNARD, CALIF.

     March 18, 2003



<PAGE>


                          INDEPENDENT AUDITORS' REPORT



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


We have audited the accompanying related statements of operations, stockholders'
equity,  and cash flows of Nutech Digital,  Inc. for the year ended December 31,
2001.  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  results  of  operations  and cash flows of NuTech
Digital,  Inc.  for the  year  ended  December  31,  2001,  in  conformity  with
accounting principles generally accepted in the United States of America.



/S/ MOFFITT & COMPANY, P.C.
     SCOTTSDALE, ARIZONA

     March 2, 2002


<PAGE>



                              NUTECH DIGITAL, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 2002



                                     ASSETS


CURRENT ASSETS

         Cash                                           $    9,237
         Accounts receivable, net                          366,729
         Corporation income tax refund                      40,669
         Inventories                                       869,551
         Royalty advances, current portion                 177,000
         Prepaid expenses                                   14,632
         Prepaid loan costs, current portion                 2,613
                                                      ------------

           TOTAL CURRENT ASSETS                        $ 1,480,431


PROPERTY AND EQUIPMENT, NET OF
   ACCUMULATED DEPRECIATION                              1,831,318

OTHER ASSETS
         Prepaid public offering costs                     459,474
         Royalty advances, long-term portion               619,438
         Prepaid loan costs, long-term portion              16,988
         Deposits                                            7,800
                                                      -------------

          TOTAL OTHER ASSETS                             1,103,700
                                                      -------------


          TOTAL ASSETS                                $  4,415,449
                                                      =============

           See Accompanying Notes and Independent Auditors' Report.

                                      F-1

<PAGE>


                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>


CURRENT LIABILITIES
<S>                                                                                <C>                <C>

      Accounts payable                                                             $1,256,821
      Accrued legal fees                                                              216,516
      Accrued liabilities                                                             180,330
      Loan payable, officer                                                            33,482
      Capital leases payable, current portion                                          22,684
      Note payable, officer, current portion                                          255,996
      Notes payable, other, current portion
           Related parties                                                            158,439
           Unrelated parties                                                          534,883
                                                                                   -------------

          TOTAL CURRENT LIABILITIES                                               $ 2,659,151

LONG-TERM LIABILITIES
      Capital leases payable, long-term portion                                        30,648
      Note payable, officer, long-term portion                                        362,671
      Notes payable, other, long-term portion
           Unrelated entities                                                         700,911
                                                                                -------------

         TOTAL LONG-TERM LIABILITIES                                              $ 1,094,230

REDEEMABLE COMMON STOCK                                                               327,500

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 - 10,380,169 shares                                  1,221,323
       Accumulated deficit                                                           (886,755)
                                                                                -------------

          TOTAL STOCKHOLDERS' EQUITY                                                  334,568
                                                                                -------------

     TOTAL LIABILITIES AND
             STOCKHOLDERS' EQUITY                                                 $ 4,415,449
                                                                                =============



            See Accompanying Notes and Independent Auditors' Report.

                                        F-2


</TABLE>

<PAGE>


                              NUTECH DIGITAL, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>


                                                                2002              2001
                                                           --------------     -------------
<S>                                                               <C>              <C>

SALES                                                         $4,292,510       $5,021,232

COSTS OF SALES                                                 1,403,210        1,134,862
                                                           --------------     -------------

          GROSS PROFIT                                         2,889,300        3,886,370

SELLING, GENERAL
  AND ADMINISTRATIVE EXPENSES                                  3,612,214        3,430,563
                                                           --------------     -------------

          OPERATING INCOME (LOSS)                               (722,914)         455,807

INTEREST EXPENSE                                                 214,684          253,717
                                                           --------------     -------------

          INCOME (LOSS) BEFORE
             CORPORATION INCOME TAXES                           (937,598)         202,090

CORPORATION INCOME TAXES (BENEFIT)                               (19,225)          34,909
                                                           --------------     -------------

          NET INCOME (LOSS)                                    $(918,373)      $  167,181
                                                           ==============     =============




NET INCOME (LOSS) PER COMMON SHARE

   BASIC AND DILUTED                                          $   ( .09)       $     .02
                                                           ==============     =============

WEIGHTED AVERAGE NUMBER OF COMMON
   SHARES OUTSTANDING

   BASIC AND DILUTED                                         10,257,979         8,992,496
                                                           ==============     =============



Stock  warrants to purchase  703,444 shares of common stock were not included in
the computation.



            See Accompanying Notes and Independent Auditors' Report.

                                        F-3

</TABLE>

<PAGE>
                              NUTECH DIGITAL, INC.
                      STATEMENTS OF OPERATIONS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001


<TABLE>
<CAPTION>


PROFORMA NET INCOME
<S>                                                            <C>                  <C>

PROFORMA NET INCOME IF THE CORPORATION
 WAS TAXED AS A REGULAR CORPORATION
  FOR THE WHOLE YEAR:
                                                              2002                        2001
                                                       ----------------           -----------------

  INCOME (LOSS) BEFORE CORPORATION
     INCOME TAXES                                     $     ( 937,598)            $   202,090

   CORPORATION INCOME
      TAXES    (BENEFIT)                                     ( 19,225)                 73,000
                                                      -----------------           -----------------

   PROFORMA NET INCOME (LOSS)                         $     ( 918,373)            $   129,090
                                                      =================           =================

   PROFORMA NET INCOME (LOSS)
      PER COMMON SHARE

      BASIC AND DILUTED                               $          (.09)            $       .01
                                                      =================           =================

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING

     BASIC AND DILUTED                                     10,257,979               8,992,496
                                                      =================           =================



</TABLE>

            See Accompanying Notes and Independent Auditors' Report.

                                        F-4


<PAGE>

                              NUTECH DIGITAL, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>
---------------------------------------- ------------------------- ------------------------- ------------ ------------
                                             Preferred Stock             Common Stock
---------------------------------------- ------------------------- ------------------------- ------------ ------------
                                                                                             Accumulated
                                           Shares       Amount       Shares       Amount       Deficit       Total
---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S>                                           <C>        <C>           <C>          <C>         <C>           <C>

BALANCE, JANUARY 1, 2001                           0      $     0    8,300,250     $  1,050   $  215,110    $ 216,160
---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
ISSUANCE OF COMMON STOCK FOR
     CASH-PRIVATE PLACEMENT                        0            0      638,445      950,200            0      950,200
     OPTIONS                                       0            0      100,000      100,000            0      100,000
     SERVICES                                      0            0      850,000       25,500            0       25,500
     ACCOUNTS PAYABLE                              0            0       53,333       80,000            0       80,000
---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
COST INCURRED FOR PRIVATE
  PLACEMENT - PAID BY:
     CASH                                          0            0           0,    (172,107)            0    (172,107)
     SERVICES                                      0            0       76,522      114,783            0            0
                                                                                  (114,783)
---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
DIVIDENDS PAID                                     0            0            0            0    (326,673)    (326,673)
---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
NET INCOME FOR THE YEAR ENDED
  DECEMBER 31, 2001                                0            0            0            0      167,181      167,181
---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
TRANSFER SUBCHAPTER "S"
  UNDISTRIBUTED INCOME TO
  COMMON STOCK
                                                   0           0             0       24,000     (24,000)            0
--------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
--------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2001                         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        25,00
     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
                                         ============ ============ ============  ===========  ===========  ===========
</TABLE>

            See Accompanying Notes and Independent Auditors' Report.

                                       F-5


<PAGE>
<TABLE>
<CAPTION>

                              NUTECH DIGITAL, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001



                                                                                               2002                 2001
                                                                                        -------------------     -----------------
<S>                                                                                      <C>                      <C>

CASH FLOWS FROM OPERATING ACTIVITIES
       Net income (loss)                                                                $        (918,373)    $       167,181
       Adjustments to reconcile net income (loss) to net
          cash provided (used) by operating activities:
             Depreciation                                                                         623,067             539,099
             Issuance of common stock for services                                                      0              25,500
             Issuance of redeemable common stock for interest                                      37,500                   0
       Deferred tax assets/liabilities                                                             (1,400)              1,400
       Changes in operating assets and liabilities:
             Accounts receivable                                                                  572,437            (522,414)
             Corporation income tax refund                                                        (40,669)                  0
             Insurance recovery and other receivables                                                   0               1,300
             Inventories                                                                           28,448            (281,907)
             Royalty advances                                                                      90,239            (505,195)
             Prepaid expenses                                                                    (237,768)            (33,674)
             Deposits                                                                                   0              (1,200)
             Accounts payable                                                                      214,540            351,650
             Customer deposits                                                                           0            ( 6,500)
             Accrued liabilities                                                                    44,496             10,233
             Corporation income taxes payable                                                      (33,509)            33,509
                                                                                        -------------------     -----------------

       NET CASH PROVIDED (USED) BY
         OPERATING ACTIVITIES                                                                     379,008            (221,018)
                                                                                        -------------------     -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
       Purchases of property and equipment                                                       (588,181)           (744,095)
                                                                                        -------------------     -----------------

       NET CASH (USED) BY INVESTING ACTIVITIES                                                   (588,181)           (744,095)
                                                                                        -------------------     -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
       Bank overdraft                                                                                   0             (52,987)
       Dividends paid                                                                                   0            (326,673)
       Net proceeds from issuance of common stock                                                  22,750             878,093
       Proceeds from notes payable, other                                                          33,335             388,439
       Repayments of notes payable                                                                (62,348)           (369,659)
       Proceeds from bank line of credit and officer's loan                                       121,831             496,836
       Changes in loans payable, officer                                                           29,366               4,116
       Payments on capital leases payable                                                          (9,502)                  0
                                                                                        -------------------     -----------------

       NET CASH PROVIDED BY FINANCING ACTIVITIES                                                  135,432           1,018,165
                                                                                        -------------------     -----------------

</TABLE>

            See Accompanying Notes and Independent Auditors' Report.

                                        F-6

<PAGE>
<TABLE>
<CAPTION>
                              NUTECH DIGITAL, INC.
                       STATEMENT OF CASH FLOWS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001



                                                                                               2002                 2001
                                                                                        -----------------     ---------------
<S>                                                                                       <C>                      <C>

NET INCREASE (DECREASE) IN CASH                                                         $          (73,741)   $        53,052

CASH BALANCE, AT BEGINNING OF YEAR                                                                  82,978              29,926
                                                                                        ------------------    ----------------

CASH BALANCE, AT END OF YEAR                                                            $            9,237    $         82,978
                                                                                        ==================    ================


SUPPLEMENTARY DISCLOSURE OF
   CASH FLOW INFORMATION

   CASH PAID DURING THE YEAR FOR:

       Interest                                                                         $         243,330     $       232,849

       Taxes                                                                            $          33,509     $         5,469
                                                                                        =================     ===============

NON-CASH INVESTING AND FINANCING
   ACTIVITIES

       Issuance of common stock for services                                            $               0     $        25,500
                                                                                        =================     ===============

       Issuance of common stock for private placement costs                             $               0     $       114,783
                                                                                        =================     ===============

       Issuance of common stock for accounts payable, notes
        payable and accrued interest                                                    $         327,500     $       180,000
                                                                                        =================     ===============


      Issuance of common stock for prepaid offering costs                               $          189,930    $             0
                                                                                        ==================    ================


</TABLE>

            See Accompanying Notes and Independent Auditors' Report.

                                        F-7

<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

  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.

                  CASH AND CASH EQUIVALENTS
                  -------------------------
                  For  purposes  of the  statement  of cash  flows,  the Company
                  considers all highly liquid debt instruments purchased with an
                  original   maturity  of  three  months  or  less  to  be  cash
                  equivalents.

                  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  collectibility is determined to be
                  permanently  impaired  (bankruptcy,  lack of contact,  account
                  balance over one year old, etc.).

                  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.

            See Accompanying Notes and Independent Auditors' Report.

                                       F-8


<PAGE>





                                               NUTECH DIGITAL, INC.
                                           NOTES TO FINANCIAL STATEMENTS
                                                 DECEMBER 31, 2002



NOTE 1            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  PROPERTY AND EQUIPMENT (CONTINUED)
                   ---------------------------------
                  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.  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.

                 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, 2002 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.


            See Accompanying Notes and Independent Auditors' Report.

                                        F-9


<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 1           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                 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 at the
                 date the transaction is negotiated.

                 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.  This standard did not
                 have a material effect on the Company's  results of operations,
                 cash flows or financial position.

            See Accompanying Notes and Independent Auditors' Report.

                                       F-10


<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 1           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                 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  years  ended
                 December  31, 2002 and 2001  amounted to $88,949 and  $115,133,
                 respectively.

                  SEGMENT INFORMATION
                  -------------------
                  The  Company  sells  its  products  primarily  through  retail
                  outlets.  Approximately  8% of the Company's  revenues in 2002
                  were to  customers  outside of the United  States (no specific
                  concentration).  No customer  accounted  for over 10% of total
                  revenues in 2002.

                 RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS
                 -----------------------------------------
                 In June 2001, the Financial  Accounting  Standards Board issued
                 SFAS 141 "Business  Combinations",  and SFAS 142, "Goodwill and
                 Other Intangible Assets",  effective for fiscal years beginning
                 after  December  15,  2001.  Under the new rules,  goodwill and
                 certain intangible assets will no longer be amortized, but will
                 be subject to annual impairment tests.  Other intangible assets
                 with finite  useful lives will  continue to be  amortized  over
                 their  useful  lives.  The Company does not expect any material
                 effect on its financial  position or results of operations from
                 the  adoption of these  statements.  The Company  adopted  this
                 pronouncement on January 1, 2002.

                 In August 2001, the FASB issued SFAS 143, "Accounting for Asset
                 Retirement  Obligations",  effective for fiscal years  starting
                 after June 15, 2002. SFAS 143 establishes  accounting standards
                 for recognition and measurement of a liability for the costs of
                 asset  retirement  obligations.  Under  SFAS 143,  the costs of
                 retiring  an asset will be  recorded  as a  liability  when the
                 retirement  obligation arises, and will be amortized to expense
                 over the life of the  asset.  The  Company  does not expect any
                 material  effect  on  its  financial  position  or  results  of
                 operations  from the  adoption of this  statement.  The Company
                 adopted this pronouncement on January 1, 2003.

                 In October, 2001, the FASB issued SFAS 144, "Accounting for the
                 Impairment  or Disposal of  Long-Lived  Assets",  effective for
                 fiscal  years  starting  after  December  15,  2001 and interim
                 periods  within  those  years.  SFAS  144  addresses  financial
                 accounting  and  reporting  for the  impairment  or disposal of
                 long-lived assets and discontinued operations. The Company does
                 not expect any  material  effect on its  financial  position or
                 results of operations from the adoption of this statement.  The
                 Company adopted this pronouncement on January 1, 2002.

                 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.

            See Accompanying Notes and Independent Auditors' Report.
                                       F-11

<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 1           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                 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  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.  There was
                 no impact on the Company's operations from the adoption of this
                 Standard

                 RESTATEMENT OF COMMON STOCK ISSUED AND OUTSTANDING AT
                 DECEMBER 31, 2001
                 -----------------------------------------------------
                 Common  stock  issued for cash in the year ended  December 31,
                 2001 was previously  reported as 633,446  shares.  The correct
                 shares are 638,445.

NOTE 2           ACCOUNTS RECEIVABLE

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

            Accounts receivable                 $        381,729

            Allowance for doubtful accounts               15,000
                                                ----------------

            Net accounts receivable             $        366,729
                                                ================

                 At December 31, 2002,  two  customers  accounted for 23% (18.1%
                 and 14.6%) of the accounts receivable.

                     Allowance for doubtful accounts
                         Balance, January 1, 2002                $      40,000
                         Recovery of prior allowance                    11,998
                         Write-off of uncollectible accounts          ( 36,998)
                                                                 --------------

                         Balance, December 31, 2002              $      15,000
                                                                 ==============

NOTE 3           INVENTORIES

                 The  inventories  are comprised of completed  DVD'S and Karoake
CD'S.


            See Accompanying Notes and Independent Auditors' Report.

                                       F-12

<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 4           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,
                 2002 and 2001 were $655,238 and $626,577, respectively.

NOTE 5           PROPERTY AND EQUIPMENT

                 Property and equipment and accumulated depreciation consists
                 of :

                           Completed masters                       $ 4,087,655
                           Masters in process                           11,471
                           Office furniture and equipment              107,333
                           Computer equipment                          192,648
                           Computer software                            48,801
                           Warehouse equipment                         118,226
                           Trade show equipment                         25,855
                           Leasehold improvements                      112,041
                                                                  --------------
                                                                     4,704,030
                               Less accumulated depreciation         2,872,712
                                                                  --------------

                                                                   $ 1,831,318
                                                                  ==============
NOTE 6           PREPAID PUBLIC OFFERING COSTS

                 Prepaid public  offering costs  represent the costs incurred in
                 preparation  of the Company's  initial public  offering,  which
                 became effective on September 27, 2002.

NOTE 7           ACCOUNTS PAYABLE

                 Accounts payable consists of the following:

                      Advanced Media Post                      $      118,545
                      U-Tech media corporation                        252,507
                      Other                                           885,769
                                                               --------------

                                                               $    1,256,821

            See Accompanying Notes and Independent Auditors' Report.

                                       F-13


<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 8           INCOME TAXES

                 From  January 1, 2000 to May 31, 2001,  the  Company,  with the
                 consent of its stockholders, elected under the Internal Revenue
                 Code to be an S  corporation.  In lieu  of  corporation  income
                 taxes,  the stockholders of an S corporation are taxed based on
                 their  proportionate  share of the  Company's  taxable  income.
                 Therefore,  no  provision or  liability  for U. S.  corporation
                 income  taxes has been  computed for the period from January 1,
                 2000 to May 31, 2001.

                 On  June  1,  2001,  the  corporation   became  taxed  as  a  C
                 corporation.  The  provision  for income tax for the year ended
                 December 31, 2002 is estimated as follows:
<TABLE>
<CAPTION>
<S>                      <C>                                                                          <C>

                           Income tax estimated to be refunded currently                          $      (40,669)

                           Deferred income tax (benefit)                                                       0
                                                                                                  --------------
                                      Total tax (benefit)                                         $      (40,669)
                                                                                                  ===============


               A reconciliation  of the provision for income taxes compared with
               the amounts at U.S. federal statutory rate is as follows:

                           Tax (benefit) at U.S. federal statutory income tax rates              $       ( 40,669)

                           Benefits and taxes due to timing differences for
                             expense deductions (principally net operating
                             loss carrybacks)                                                             21,444
                                                                                                  --------------

                                      Total income tax (benefit)                                  $     ( 19,225)
                                                                                                  ==============

                 The following is a summary of the significant components of the
                 Company's deferred tax assets and liabilities:

                               Net operating loss                                                 $      330,983

                               Property and equipment related                                           ( 24,378)

                              Timing differences for expense deductions                                   54,422
                                                                                                  --------------

                                                                                                         361,027
                              Valuation allowance                                                        361,027
                                                                                                  --------------

                             Deferred tax asset, net of valuation allowance                       $           0
                                                                                                  ==============



            See Accompanying Notes and Independent Auditors' Report.

                                       F-14
</TABLE>
<PAGE>
                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
<TABLE>
<CAPTION>

NOTE 8           INCOME TAXES (CONTINUED)

                 Summary of valuation allowance:
<S>               <C>                                                       <C>

                    At date converted from S corporation
                        to C corporation                             $            0

                    Addition for year                                       361,027
                                                                     --------------


                    Valuation allowance at December 31, 2002         $      361,027
                                                                     ==============

                      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.

NOTE 9           LOAN PAYABLE, OFFICER

                 Periodically,  the  president  of the Company  will advance the
                 Company funds to pay corporation  obligations.  The balance due
                 to the officer is payable on demand and is unsecured.  The loan
                 balance at December 31, 2002 was $33,482.

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, 2003                                               $        30,636
                             December 31, 2004                                                        30,636
                             December 31, 2005                                                        14,744
                                                                                             ---------------
                                                                                                      76,016
                             Less amount representing interest                                        22,684
                                                                                             ---------------

                             Present value of future minimum
                                lease payments                                                        53,332
                             Less current portion                                                     22,684
                                                                                             ---------------

                             Long-term portion                                               $        30,648
                                                                                             ===============
</TABLE>

NOTE 11    NOTE PAYABLE, OFFICER

               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.

            See Accompanying Notes and Independent Auditors' Report.

                                       F-15
<PAGE>


                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 11    NOTE PAYABLE, OFFICER (CONTINUED)

               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% (7.25% at December 31, 2002).
               4.   Twenty-nine  monthly payments of $21,333 beginning  December
                    15, 2002, plus a final payment equal to all unpaid principal
                    on May 15, 2005, the maturity date.

                 Future minimum principal payments on the note are as follows:
<TABLE>
<CAPTION>
<S>                          <C>                                    <C>

                             December 31, 2003                   $       255,996
                             December 31, 2004                           255,996
                             December 31, 2005                           106,675
                                                                 ---------------

                                                                 $       618,667

NOTE 12    NOTES PAYABLE, OTHER (RELATED PARTIES)
                                                                                                         CURRENT
                                                                                        TOTAL            PORTION
                                                                                    -----------------  ---------------
                ELYNOR KASPER (MOTHER OF THE PRESIDENT OF THE COMPANY)
                                                                                          $ 60,000          $  60,000
                Unsecured, 10% note with no due date.


                JOE GIARMO (AN OFFICER OF THE COMPANY)
                                                                                            80,000             80,000
                On March 5, 2001,  the Company  received a $60,000 loan from Joe
                Giarmo.  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 the KSS Inc. license until $120,000 is repaid.

                OTHER NOTES

                The  Company  has  three  loans  from  children  of the  principal          18,439             18,439
                stockholder.  The loans are  unsecured,  bear interest notes at 7%
                and are payable on demand.
                                                                                    -----------------  ---------------
                                        Total
                                                                                          $158,439          $ 158,439
                                                                                    =================  ===============

            See Accompanying Notes and Independent Auditors' Report.
</TABLE>

                                       F-16

<PAGE>
<TABLE>
<CAPTION>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 13    NOTE PAYABLE, OTHER (UNRELATED PARTIES)
                                                                                                            CURRENT
                                                                                          TOTAL              PORTION
                                                                                    -----------------  ---------------
<S>                                                                                         <C>             <C>

                RITEK CORP                                                                $ 400,000         $ 400,000

                In August 1998, the Company  received a $400,000 loan from Ritek
                Corp.  The loan is secured by a deed of trust on property  owned
                by the principal stockholder, 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  could  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.

                SMALL BUSINESS ADMINISTRATION
                LOAN AND COMERICA BANK LOAN                                                 769,122            68,211

                On July 12, 2000, the Company received a $900,000 Small Business
                Administration loan with Comerica Bank  participation.  The loan
                requires  monthly payments of $12,398  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 12, 2010. Effective interest
                rate at December 31, 2002 was 6.25%.

                ANNABELLE SCHNITMAN

                On February 13, 2001,  the Company  received a $100,000  loan from           66,672            66,672
                Annabelle  Schnitman.  The note is  unsecured  and does not have a
                stated  interest  rate.  However,  the Company is required to make
                monthly payments of $16,666  (totaling  $200,000) on the loan. The
                loan was due on July 20, 2002.
                                                                                    -----------------  ---------------

                                        Total                                           $ 1,235,794         $ 534,883
                                                                                    =================  ===============

            See Accompanying Notes and Independent Auditors' Report.

                                       F-17

</TABLE>

<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 13    NOTES PAYABLE, (UNRELATED PARTIES) (CONTINUED)

                 Maturities on long-term debt are as follows:

                        December 31, 2003                    $       534,883
                        December 31, 2004                             76,105
                        December 31, 2005                             84,912
                        December 31, 2006                             94,759
                        December 31,  2007 and Thereafter            445,135
                                                             ---------------

                                                             $     1,235,794

NOTE 14    ADVERTISING

          The Company expenses all advertising as incurred. Advertising expenses
          for the  year  ended  December  31,  2002 and 2001  were  $39,510  and
          $39,954, 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,  2002,  future  minimum  lease  payments  excluding
          operating expenses are as follows:

                        December 31, 2003               $       96,312
                        December 31, 2004                       96,312
                        December 31, 2005                       96,312
                        December 31, 2006                       56,182

          The  rent  expense  for  the year ended December 31, 2002 and 2001 was
          $107,670  and  $68,930,  respectively.

NOTE 16    LEGAL AND ACCOUNTING FILES

          Legal  and  accounting  fees for the years ended December 31, 2002 and
          2001  were  $175,516  and  $122,030,  respectively.



            See Accompanying Notes and Independent Auditors' Report.

                                       F-18


<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 17   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.  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. On April 15, 2002, the Company granted  1,705,000 options at
          $1.50 per share.

          The stock  subject to the Plan and issuable  upon  exercise of options
          granted  under the Plan are shares of the Company'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 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, 2002,
          pursuant to the terms of the Plan is as follows:
<TABLE>
<CAPTION>

<S>               <C>                                                                 <C>                    <C>
                                                                                                           WEIGHTED
                                                                                      SHARES                AVERAGE
                                                                                       UNDER              EXERCISE
                                                                                      OPTION                PRICE
                                                                                   --------------         -----------
                  Options outstanding at December 31, 2001                                      0         $       .00
                        Granted                                                         1,705,000                1.54
                        Exercised                                                               0                 .00
                        Cancelled and expired                                                   0                 .00
                                                                                   --------------         -----------

                 Options outstanding at December 31, 2002                               1,705,000         $      1.54
                                                                                   ==============         ===========
</TABLE>

            See Accompanying Notes and Independent Auditors' Report.

                                      F-19

<PAGE>



                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 17   EMPLOYEE STOCK OPTIONS (CONTINUED)

          1,165,003 shares are exercisable at December 31, 2002.

          Information  regarding  stock options  outstanding  as of December 31,
          2002 is as follows:
<TABLE>
<CAPTION>
<S>                      <C>                                                                   <C>
                        Price range                                                      $ 1.50 -    $ 1.65
                        Weighted average exercise price                                              $ 1.54
                        Weighted average remaining contractual life                    7 years, 9 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,  2002 was  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                                                     5.127 %
                        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 (loss) from continuing operations
                     As reported                                                $     (918,373)
                     Proforma                                                   $   (1,062,357)

         (Loss) per share attributable to common stock
                      As reported                                                $        (.09)
                      Proforma                                                   $        (.10)

NOTE 18    COMMON STOCK PURCHASE WARRANTS

          The following is a summary of the stock purchase warrants  outstanding
          as of December 31, 2002:

                           Number of shares                                                           703,444
                           Price per share                                                           $   3.00
                           Expiration date                                                     June 30,  2003

            See Accompanying Notes and Independent Auditors' Report.

                                      F-20

</TABLE>
<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 19          MAJOR SUPPLIERS

                 For the year ended December 31, 2002, the Company purchased 43%
                 of its products from two suppliers.

                 For the year ended December 31, 2001, the Company purchased 60%
                 of its products from one supplier.

NOTE 20          STOCK ACQUISITION AGREEMENT

                 In May  2000,  the  Company  entered  into a stock  acquisition
                 agreement with one of the  stockholders/officers of the Company
                 who owns 395,250  shares of the  Company's  common  stock.  The
                 stockholder can not transfer, sell, assign or otherwise dispose
                 of his Company  stock  without the consent of the Company.  The
                 Company and the principal  stockholder shall have an option and
                 right of first  refusal  to  acquire  the stock at fair  market
                 value in the event the  stockholder  requests to dispose of his
                 shares.

NOTE 21          REDEEMABLE COMMON STOCK

                 The Company  issued 218,333 shares in full payment of two notes
                 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 sales at a price of a least $1.50 per share.  If
                 neither of these  conditions  are met,  then the  creditors may
                 rescind the  agreement by  returning  all or a portion of their
                 common stock.  As of the date of this report,  the  stockholder
                 has not rescinded the agreement.

NOTE 22          4TH QUARTER INTERIM RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
<S>                          <C>                                                         <C>

                           Sales                                                    $     1,136,228
                           Costs of sales                                                   415,522
                                                                                    ---------------

                           Gross profit                                                     720,706
                           Selling, general and
                             administrative expenses                                        758,281
                                                                                    ---------------

                           Operating (loss)                                                 (37,575)
                           Interest expense                                                  55,223
                                                                                    ---------------

                           (Loss)  before  corporation  income  taxes                       (92,798)
                           Corporation income taxes benefit 13,933

                           Net (loss)                                               $       106,731
                                                                                    ===============
</TABLE>

            See Accompanying Notes and Independent Auditors' Report.
                                       F-21


<PAGE>
                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 23  SUBSEQUENT EVENT

          On February  19,  2003,  Lee Kasper,  the  President  of the  Company,
          borrowed $500,000 from Skura Intercontinental  Trading Company (Skura)
          and he simultaneously  loaned the Company the $500,000  proceeds.  The
          terms of the  Company's  loan with Lee  Kasper  are  identical  to Lee
          Kasper's terms with Skura as detailed below:

          1.   Interest - 3%.

          2.   Payments - 36 equal monthly  principal  and interest  payments of
               $14,541.

          3.   Security - deed of trust on Lee Kasper's personal residence.







            See Accompanying Notes and Independent Auditors' Report.

                                       F-22


<PAGE>