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, 2004

|_|   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
   of incorporation or organization)                    Identification No.)

                               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, 2004 totaled
$4,180,576.

      The number of shares of the issuer's common stock, no par value per share,
outstanding as of March 18, 2005 was 22,030,494. The aggregate market value of
the voting and non-voting common equity held by non-affiliates of the registrant
on March 18, 2005, based on the average bid and ask price on the OTC Bulletin
Board as of such date, was approximately $2,326,140.

                       DOCUMENTS INCORPORATED BY REFERENCE

      None

      Transition Small Business Disclosure Format: Yes |_| No |X|

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                         Page

PART I
<S>                                                                  <C>
    ITEM 1.  DESCRIPTION OF BUSINESS................................        2
    ITEM 2.  DESCRIPTION OF PROPERTY................................        5
    ITEM 3.  LEGAL PROCEEDINGS......................................        6
    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
             SECURITY HOLDERS.......................................        6

PART II

    ITEM 5.  MARKET FOR COMMON EQUITY AND
             RELATED STOCKHOLDER MATTERS............................        7
    ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS...................        8
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
    ITEM 7.  FINANCIAL STATEMENTS................................... F-1-F-24
    ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                ON ACCOUNTING AND FINANCIAL DISCLOSURE..............       18
    ITEM 8A. CONTROLS AND PROCEDURES................................       18
    ITEM 8B. OTHER INFORMATION......................................       18


PART III

    ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                CONTROL PERSONS; COMPLIANCE WITH
                SECTION 16(a) OF THE EXCHANGE ACT...................       19
    ITEM 10. EXECUTIVE COMPENSATION.................................       21
    ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
             OWNERS AND MANAGEMENT..................................       24
    ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........       26
    ITEM 13. EXHIBITS...............................................       29
    ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.................       30

SIGNATURES
</TABLE>

<PAGE>

                    Note Regarding Forward Looking Statements

      This Annual Report on Form 10-KSB contains "forward-looking statements".
These forward-looking statements are based on our current expectations,
assumptions, estimates and projections about our business and our industry.
Words such as "believe," "anticipate," "expect," "intend," "plan," "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 or Plan 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 the popular music concerts we produce and film will generate
            significant sales and be profitable;

      o     whether our sales of Japanese anime will remain at current rates or
            grow, even though we do not intend to acquire additional films,

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

      o     whether we will continue to receive the services of our executive
            officers and directors, particularly our Chief Executive Officer and
            President, Mr. Lee Kasper,

      o     whether our digital rights management technology is successful in
            increasing our sales over the Internet,

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

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

      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.

      The 2004 fiscal year saw a major change in the direction of our business
as we shifted our emphasis from licensing and distributing general entertainment
products to producing, filming and distributing popular music concerts. Prior to
2004, we licensed and distributed karaoke products as well as general
entertainment films that included action adventure films, children's animated
films, horror films, comedies, Japanese hentai (which is adult animation) and
late night programming. While we continue to offer action adventure, horror and
comedy films, Japanese hentai and late night programming, we have stopped
licensing new products to sell. Furthermore, we have not renewed the license we
had to manufacture and distribute children's animated films and we have stopped
offering karaoke products. It is our intent, during the 2005 fiscal year, to
sell our library of karaoke videos and music tracks, although there is no
guarantee that we will be able to do this.

      We began the production and filming of popular music concerts in March
2004 with a concert given by Russell Jones, who performs under the name Ol'
Dirty Bastard. During 2004, we also produced and filmed concerts given by
Jessica Simpson and Macy Gray and we acquired the rights to distribute DVDs of
concerts given by RZA and Kool and the Gang. Aside from the right to sell DVDs
of the concert video, we sometimes acquire broadcast rights, usually for all
media, including the Internet. It is our plan to continue to expand this portion
of our business, however, we have not yet generated any significant revenues
from the production and distribution of these concerts.

      During the 2004 fiscal year we added a significant method for providing
our products to our customers by implementing our digital rights management
technology. Digital rights management technology allows visitors to our website,
and to the websites of distributors who sell our products, to download our films
and music videos for rent. Downloaded works have DVD and high definition quality
audio and video. Because the content is electronically packaged and delivered
with an encrypted license, we do not believe that it can be copied illegally. We
currently have 154 films available to download from our website. During the 2004
fiscal year, we also applied this technology to DVDs. The DVD contains over 30
full length feature hentai animation films. After registering on our website,
the consumer can watch a film for a period of time (for example, 1, 3 or 5 days)
without having to download the movie file. After the expiration of the license,
the DVD will no longer play. We expect to begin licensing these encrypted DVDs
during the 2005 fiscal year.

      We believe that this easy method of acquiring our products is attractive
to users of the Internet and will continue to grow in popularity since it
provides immediate access to the desired product without the delays and costs
that would be incurred if the product is shipped. We believe that immediate
access to our products may encourage more spontaneous purchases by our
customers. During the 2004 fiscal year, digital rights management technology
accounted for $14,942 in sales, while sales from January 1, 2005 through March
31, 2005 totaled $8,368. We expect use of our digital rights management
technology to increase substantially during the 2005 fiscal year as customers to
our website and to the websites of our distributors become more familiar with
it.

      During the year ended December 31, 2004, our primary source of revenue
came from sales of hentai. During 2004, hentai accounted for approximately
59.35% of our sales, sales of our general entertainment films accounted for
approximately 20.48% of our sales, karaoke products accounted for approximately
12.11% of our sales, late night programming accounted for approximately 6.68% of
our sales and music concerts accounted for approximately 1.38% of our sales. We
also facilitate authoring, manufacturing and packaging services to content
providers in the entertainment industry, although our revenue from this activity
is minimal.

                                       2

<PAGE>

Our Products

Contemporary Music Concerts

      During the 2004 fiscal year we produced three contemporary music concerts
using high definition technology. The concerts we filmed were performed by
Russell Jones, whose stage name is Ol' Dirty Bastard, Jessica Simpson and Macy
Gray. We also acquired the rights to distribute DVDs of concerts given by RZA
and Kool and the Gang. We believe that the distribution of contemporary music
complements our product offerings and we intend to expand this facet of our
business. Sales of our contemporary music products accounted for approximately
$57,717 during 2004.

Japanese Animated Films

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

      Hentai comes to us as an original completed master and artwork with
Japanese dialogue tracks. We have the script translated into English, we hire
voice-over actors to dub the dialogue in English or we subtitle the work, and we
create a finished master for DVD format. We also create menus for the DVD
products and redesign the artwork for the packaging. Revenues from sales of
hentai totaled approximately $2,481,269 in 2004 as compared to $1,942,996 in
2003.

      We license and have available for sale 150 anime films. We do not
currently intend to license any additional anime titles.

Late Night Films

      We license 260 late night films. 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 format. Revenues from late night
programming totaled approximately $279,310 in 2004 as compared to $383,180 in
2003.

General Entertainment Films

      During the 2004 fiscal year, we offered 26 classic children's animated
films and 23 action adventure, horror and comedy films. Revenues from these
films totaled approximately $856,066 in 2004 as compared to $340,936 in 2003.
The increase in revenues was due to a one-time significant order for children's
animated films. While we continue to offer adventure, horror and comedy films,
we no longer sell classic children's animated films.

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.

      During 2004, karaoke products accounted for approximately $506,214 in
sales as compared to $1,078,185 in 2003. During 2004, we had 239 volumes of
karaoke products available for sale. We have stopped selling karaoke videos and
sound tracks and, as noted above, during the 2005 fiscal year we intend to sell
our library of karaoke products, although there is no guarantee that we will be
able to do this.

                                       3
<PAGE>

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. We generate minimal revenues from this activity.

Our Suppliers and Customers

      We distribute our products throughout the world via retail stores, the
Internet, wholesale distributors and through our digital rights management
technology. We host two websites, www.nutechdvd.com and www.nutechdigital.tv.
Information included on our websites is not a part of this annual report.
Approximately 3% of our products are distributed outside the United States, with
no concentration in any particular country or geographic area.

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

      We obtain exclusive rights to our Japanese anime products from studios
that 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.

      During 2004, we entered into an agreement with Dollar Tree Stores, Inc.
for sales of our children's animated films. The sales resulting from this
agreement represented approximately 17% of all revenues earned from sales for
the fiscal year ended December 31, 2004. This was a single transaction and will
not reoccur in the future. During the 2004 fiscal year, other than this
customer, no single customer represented more than 10% of our sales.

      We replicate our films and music on DVD through four suppliers, U-Tech
Media, Media Factory, L & M and Fortune Disc. During 2004, U-Tech Media and
Fortune Disc were responsible for replicating 86% and 13%, respectively, of the
DVDs we offer for sale. 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 do not have long-term agreements with
any of our suppliers.

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 relating to the sale of late night
programming.

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

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

                                       4
<PAGE>

      Our products are subject to copyright laws. We may become the subject of
infringement claims or legal proceedings by third parties with respect to our
current or future products. In addition, we may initiate claims or litigation
against third parties for infringement of our proprietary rights, or to
establish the validity of our proprietary rights. Any such claims could be
time-consuming, divert management from our daily operations, result in
litigation, cause product shipment delays or lead us to enter into royalty or
licensing agreements rather than disputing the merits of such claims. Moreover,
an adverse outcome in litigation or a similar adversarial proceedings could
subject us to significant liabilities to third parties, require the expenditure
of significant resources to develop non-infringing products, require disputed
rights to be licensed from others or require us to cease the marketing or use of
certain products, any of which could have a material adverse effect on our
business and operating results.

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 titles are licensed from third
parties. License periods are generally no shorter than five years and no more
than 10 years. Most of the license agreements require us to pay an advance
royalty, which we recoup through sales. Some of the license agreements require
us to pay royalties during the term of the license. The computation of royalties
varies, depending on our determination of the importance of the title to our
product offerings. Royalties are primarily computed as a percentage of gross
sales and may include guaranteed payments of royalties. We also purchase the
rights to certain of our film titles for a one-time fee, rather than for the
payment of on-going royalties.

      The films we make of popular music concerts will be registered with the
United States Copyright Office. Generally, we co-own the copyright of the work
with the artist. Depending on our agreement with the artist, we retain the
exclusive right to exploit the work for varying periods of time, which may range
from a term of years to perpetuity.

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

Competition

      All of our products compete with other products and services that utilize
free time or disposable income. The entertainment industry is, in general,
highly competitive and many of our competitors, such as major motion picture
studios and recording labels like Sony/BMG, Warner/Elecktra, Universal and
Motown, have much larger selections of products, the ability to spend
significant sums on advertising and promotion and much greater distribution
capacities than we have. We do not represent a significant presence in our
markets. We cannot guarantee you that we can compete successfully.

Employees

      As of December 31, 2004 we had 8 full-time employees and 3 part-time
employees. Of these employees, two were in administration, one was in sales, one
was in accounting, one was in artistic production, one was in management
information systems and the remainder were in general operations.

ITEM 2. DESCRIPTION OF PROPERTY

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

                                       5
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

      Occasionally we are named as a party in claims and legal proceedings
arising out of the normal course of our business. These claims and legal
proceedings may relate to contractual rights and obligations, employment
matters, or to other matters relating to our business and operations. We are not
currently involved in any legal proceedings.

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

      Our annual meeting of security holders was held on October 15, 2004.

      The votes cast for, against or withheld as to each director and each other
matter is as follows:

Election of Directors:

   Name of Director   Votes cast "For"   Votes cast "Against"   Votes "Withheld"

Lee Kasper                17,624,555               0                144,800
Joseph Giarmo             17,635,955               0                133,400
Yegia Eli Aramyan         17,632,955               0                136,400
Jay S. Hergott            17,635,955               0                133,400

      Farber & Hass L.L.P. was ratified as our independent auditors. Of the
votes cast, 17,742,195 were cast for this proposal, 20,500 votes were cast
against this proposal and 6,660 votes abstained from voting on this proposal.

      Stock option grants to Lee Kasper, Joseph Giarmo, Yegia Eli Aramyan and
Jay S. Hergott were approved. Of the votes cast, 10,192,513 votes were cast for
the proposal, 346,493 votes were cast against the proposal and 25,260 abstained
from voting on this proposal.

      Shares which abstained from voting as to the proposals, and shares held in
"street name" by brokers or nominees who indicated on their proxies that they
did not have discretionary authority to vote such shares as to the proposals
("broker non-votes"), were counted for purposes of determining whether the
affirmative vote of a majority of the shares present at the meeting and entitled
to vote on the proposals had been obtained, but had the effect of reducing the
number of affirmative votes required to achieve the majority vote on the
proposals.

                                       6
<PAGE>

                                     PART II

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

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

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

                                            PERIOD          HIGH        LOW
                                        --------------    --------    --------

Fiscal Year Ended December 31, 2004     First Quarter      $1.50       $0.56
                                        Second Quarter     $0.97       $0.35
                                        Third Quarter      $0.49       $0.20
                                        Fourth Quarter     $0.35       $0.18

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

      As of March 18, 2005, there were approximately 58 holders of record of our
common stock. This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name.

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

Recent Sales of Unregistered Securities

      On December 1, 2004 we issued 360,000 shares of our common stock to our
attorneys, Richardson & Patel LLP. The common stock was issued in exchange for
services rendered to us. The per share value of the common stock on December 1,
2004 was $0.27. We relied on Section 4(2) of the Securities Act of 1933 to issue
this stock. We did not engage in general solicitation or advertising in making
this offering and the offeree is an accredited investor.

Purchase of Equity Securities

      In January 2004 our President and Chief Executive Officer, Lee Kasper,
purchased 200 shares of our registered common stock for his own account. This
purchase was not pursuant to a publicly announced plan or program. No other
purchases of our common stock were made by us or any affiliated purchaser during
the 2004 fiscal year.

<TABLE>
<CAPTION>
                                                                                       Maximum Number or
                                                                Total Number of        Approximate Dollar
                                                                Shares Purchased as    Value of Shares that
                                                                part of a Publicly     may yet be Purchased
                     Total Number of      Average Price Paid    Announced Plan or      Under the Plan or
Period               Shares Purchased     Per Share             Program                Program

<S>                        <C>                 <C>                     <C>                    <C>
   January 2004            200                 $0.68                   0                      0
</TABLE>

                                       7
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
        OPERATION

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

Overview Of Business

      We are engaged in the business of licensing and distributing general
entertainment products, most of which are made available through digital
versatile discs, commonly known as DVDs. Our products include popular music
concerts, Japanese anime, late night programming and general entertainment
action adventure films. Prior to 2004, we also actively engaged in the sale of
children's animated films and karaoke software. We began phasing out these
products during 2004 when management decided to shift the emphasis of our
business from selling general entertainment products to producing, filming using
high definition technology, and distributing popular music concerts. While we
currently have the exclusive right to sell more than 600 films on DVD, we are
not actively seeking to license additional titles. Instead, we are working to
expand our library of high definition music concerts and, whenever possible, to
obtain broadcast rights to these concerts.

      All of our DVD products are sold through retail stores, the Internet, and
wholesale distributors. We also license the broadcast rights to the music
concerts we produce and film.

      In January 2004 we implemented a digital rights management technology
affording us the ability to offer our products on demand over the Internet. Our
digital rights management technology allows our products to be accessed via
secure downloads to a personal computer.

      Our acquisition of general entertainment films is typically done through
the payment of advance royalties in exchange for a license that usually lasts
between five years and 10 years. The licenses for certain of our hentai
products permitted us to recover from the licensor all reasonable and necessary
costs paid by us to exploit the license. During 2004, we recovered all the
expenses that we were permitted to recover under these licenses.

      The production and filming of popular music concerts is extremely cash
intensive. Production costs, such as fees or costs for the artist, venue,
musicians, sound and cameramen, make-up, wardrobe, insurance and releases, are
paid either prior to or immediately following the performance. To date, we have
paid these costs or, in some instances, we have partnered with unrelated third
parties who assist us with the payment of these costs in exchange for a share of
the royalties. After the performance, we must spend additional funds to have the
master prepared and ultimately approved by the artist, which may take several
months. For example, while we filmed our first concert in April 2004, the
release of our first concert DVD did not occur until November 2004. Depending on
our agreement with the artist, we may obtain all the rights to the production,
in which case we can exploit it in any medium, or we may obtain only restricted
rights, such as the right to broadcast the concert only outside the United
States. Generally, our agreements require us to split the royalty from sales of
the concert DVD and, if we received them, broadcast rights, with the artist
after we recoup our production expenses, although the terms of these agreements
vary. There is no guarantee that any concert we film will result in a DVD that
will sell enough copies to make filming the concert profitable. As of December
31, 2004, revenues from our music concerts, which we began selling in November
2004, totaled only $57,717. Although we expect revenues from this source to
increase as we release more concert DVDs, we cannot be certain that this will
happen.

      While we added popular music concerts to our product offerings during the
2004 fiscal year we also decided to stop offering karaoke products. Karaoke
products represented approximately 28.8% of our revenues during the 2003 fiscal
year and approximately 12.11% of our revenues during the 2004 fiscal year.

                                       8
<PAGE>

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.

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

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

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

      Income Taxes. We account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), which is an asset and
liability method of accounting that requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between tax bases and financial reporting bases of accounting. In
assessing whether deferred tax assets will be realized, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.

      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 of the goods or services received or the consideration granted, whichever
is more readily determinable, at the date the transaction is negotiated.

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

Results of Operations

Selected Statement Of Operations Data

      Summarized in the table below is statement of operations data comparing
the year ended December 31, 2004 with the year ended December 31, 2003:

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                              Year Ended:                 Increase
                                                     12/31/2004         12/31/2003       (Decrease)
                                                  ----------------  -----------------  ---------------
<S>                                                    <C>                <C>                <C>
     Sales                                             $4,180,576         $3,745,297         $435,279
     Cost of Sales                                      1,408,773          1,100,840          307,933
                                                  ----------------  -----------------  ---------------
         Percentage of Sales                                  34%                29%
     Gross Profit                                       2,771,803          2,644,457          127,346
                                                  ----------------  -----------------  ---------------
         Percentage of Sales                                  66%                71%
     Expenses                                           3,763,909          2,689,153        1,074,756
                                                  ----------------  -----------------  ---------------
     Operating Income (Loss)                             (992,106)           (44,696)        (947,410)
     Interest Expense                                    (150,824)          (132,695)          18,129
                                                  ----------------  -----------------  ---------------
     Income (Loss) Before Other Income                 (1,142,930)          (177,391)        (965,539)
     Other Income (Expense)                               (91,740)           485,442         (577,182)
                                                  ----------------  -----------------  ---------------
     Income (Loss) Before Corporation
         Income Taxes                                  (1,234,670)           308,051       (1,542,721)
     Corporation Income Tax Benefit                           800                800                0
                                                  ----------------  -----------------  ---------------
     Net Income (Loss)                                ($1,235,470)          $307,251      ($1,542,721)
                                                  ================  =================  ===============
     Net Income (Loss) Per Share
         Basic and Diluted                                 ($0.06)             $0.03           ($0.09)
                                                  ================  =================  ===============
</TABLE>

Sales

      Our sales for the year ended December 31, 2004 were $4,180,576, as
compared to sales of $3,745,297 for the year ended December 31, 2003, a 12%
increase. This increase for the year ended December 31, 2004 is primarily
attributable to the increase in the number of units we sold. The number of units
we sold increased due to a single large order from Dollar Tree Stores, Inc. This
order is not recurring. Aside from the significant discount we gave to Dollar
Tree Stores, Inc. due to the size of the order, we stopped discounting prices of
our products to our distributors. The addition of popular music concert DVDs to
our product offerings contributed only $57,717 to the overall increase in our
revenues. We expect sales from the production of live concerts to grow as we
expand this segment of our business.

Cost of Sales and Gross Profit

      Our cost of sales for the year ended December 31, 2004 was $1,408,773 or
34% of sales, as compared to $1,100,840 or 29% of sales for the year ended
December 31, 2003. The 5% increase in cost of sales as a percentage of sales for
the year ended December 31, 2004 was partially attributable to the unique,
significant discount we provided to Dollar Tree Stores Inc. because of the
significant size of the order and was partially attributable to a change in our
product sales mix in that a greater portion of our sales for the year ended
December 31, 2004 was comprised of our anime products, which carry a lower
overall gross profit percentage than our other products.

      Our gross profit for the year ended December 31, 2004 was $2,771,803 or
66% of sales, as compared to $2,644,457 or 71% of sales for the year ended
December 31, 2003. The 5% decline in our gross profit as a percentage for the
year ended December 31, 2004 is attributable to the significant discount
provided to Dollar Tree Stores Inc.

Selling, General and Administrative Expenses

      Summarized in the table below are selling, consulting and general and
administrative expenses comparing the year ended December 31, 2004 with the year
ended December 31, 2003:

                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                       Year Ended:            Increase
                                                12/31/2004    12/31/2003      (Decrease)
                                                -----------   -----------    -----------
<S>                                             <C>           <C>            <C>
Expenses
Selling Expenses
    Credit Card Fees                            $    39,564   $    41,209    $    (1,645)
    Freight and Delivery                             78,179        64,108         14,071
    Salaries, Wages and Payroll Taxes                88,910        93,776         (4,866)
    Royalty Expense                                 212,101       305,160        (93,059)
    Other Selling Expenses                           16,403        10,842          5,561
                                                -----------   -----------    -----------
                                                $   435,157   $   515,095    $   (79,938)
                                                -----------   -----------    -----------

Consulting Expenses                             $   564,820   $   145,634    $   419,186
                                                -----------   -----------    -----------

General and Administrative Expenses
    Bad Debts                                        76,250        32,477         43,773
    Automobile Expenses                              39,283        73,239        (33,956)
    Bank and Credit Card Fees                        41,060        43,269         (2,209)
    Travel Expenses                                  45,187        22,218         22,969
    Internet and Web Development                     36,934        20,794         16,140
    Telephone and Utility Expense                    63,532        46,906         16,626
    Accounting Fees                                  73,425        84,023        (10,598)
    Promotion and Public Relations                  106,603         3,172        103,431
    Rent                                            109,342       109,471           (129)
    Insurance                                       155,877       111,187         44,690
    Legal Fees                                      275,492       111,689        163,803
    Amortization and Depreciation                   364,590       320,143         44,447
    Salaries, Wages and Payroll Taxes             1,189,418       949,109        240,309
    Other General and Administrative Expenses       186,939       100,727         86,212
                                                -----------   -----------    -----------
                                                $ 2,763,932   $ 2,028,424    $   735,508
                                                -----------   -----------    -----------
Total Expenses                                  $ 3,763,909   $ 2,689,153    $ 1,074,756
                                                ===========   ===========    ===========
</TABLE>

      Our selling, consulting and general and administrative expenses for the
year ended December 31, 2004 were $3,763,909, representing an increase of
$1,074,756 or 40% from selling, consulting and general and administrative
expenses of $2,689,153 for the year ended December 31, 2003. The principal
reasons for the increase included an increase, to $564,820, in consulting
expenses paid during the year ended December 31, 2004 as compared to consulting
expenses of $145,634 paid during the year ended December 31, 2003, and an
increase of $735,508 or 36% in general and administrative expenses to
$2,763,932. The $735,508 increase in general and administrative expenses is
principally attributable to an increase in the amount of $103,431 in promotion
and public relations expenses, an increase in the amount of $163,803 in legal
fees and an increase of $240,309 in salaries, wages and payroll taxes.

      The reduction of royalty expenses incurred during the year ended December
31, 2004 is the result of fewer product sales that directly effect the amount of
royalty expense. Also, during the three months ended December 31, 2004 we
cancelled a contract for the sale of licensing rights and reversed a $52,000
royalty expense previously recorded.

      The consulting expenses incurred during the year ended December 31, 2004
related to our retention of several consultants to assist us in developing a
business plan, promoting our products, acquiring performers for musical concerts
and maintaining investor relations. We do not expect these expenses to continue
at these levels in the future.

                                       11
<PAGE>

      The change in our other general and administrative expenses for the year
ended December 31, 2004 was attributable to miscellaneous general and
administrative expenses offset by expense savings attributable to recent cost
reductions. We expect our other general and administrative expenses to continue
at current levels.

      The legal fees paid for the year ended December 31, 2004 primarily related
to litigation costs, the preparation of documents relating to an offering of our
securities and the preparation of production agreements relating to the
production and filming of popular music concerts. Legal fees are also incurred
on an on-going basis for preparation of the reports we file with the Securities
and Exchange Commission.

      The increase in salaries and wages for the year ended December 31, 2004 is
primarily attributable to the fact that we hired an in-house MIS specialist to
manage our Internet and web hosting needs, and to a salary increase given to our
President. We expect these expenses to remain constant from this period forward.

      The increase in our promotion and public relations expense for the year
ended December 31, 2004 was incurred in connection with our efforts to promote
our business and to develop a positive corporate image in our industry. For the
foreseeable future we do not intend to engage promotional or public relations
expenses, therefore, these expenses will not recur.

Interest Expense

      Interest expense for the year ended December 31, 2004 was $150,824 as
compared to $132,695 for the year ended December 31, 2003. This increase of
$18,129 or 14% is the result of the overall increase in the prime interest rate,
which increases the rate of interest that accrues on the Small Business
Administration loan we have through Comerica Bank.

Other Income (Expense)

      Summarized in the table below is other income or loss comparing the year
ended December 31, 2004 with the year ended December 31, 2003:

                                               Year Ended:             Increase
                                       12/31/2004      12/31/2003     (Decrease)
                                        ---------      ---------      ---------

Cost Recovery, KSS Contract             $      --      $ 320,394      $(320,394)
Lawsuit Settlement                         25,000              0         25,000
Royalty Dispute                          (125,000)             0       (125,000)
Loss on Disposal of Asset                       0         (4,820)         4,820
Cancellation of Debt                        8,260        169,868       (161,608)
                                        ---------      ---------      ---------
     Total Other Income                 $ (91,740)     $ 485,442      $(577,182)
                                        =========      =========      =========

      The category, "Cost Recovery, KSS Contract" relates to our licensing
agreement with KSS Inc., a supplier. We license certain digital masters from KSS
Inc. and we are permitted to recover from KSS Inc. any costs we incur for
developing the DVD masters, advertising and related costs. No costs relating to
this licensing agreement were recovered during the year ended December 31, 2004
and we do not expect to recover any further costs in the future. During the year
ended December 31, 2004, we accepted $25,000 in settlement of an action we
brought against a consultant for breach of contract and we agreed to pay
$125,000 to settle a dispute for alleged unpaid royalties with the licensor of
certain music included in our karaoke products. The cancellation of debt during
the year ended December 31, 2003 in the amount of $169,868 resulted from our
negotiation of a reduction in our accounts and notes payable.

Net Income (Loss)

      For the year ended December 31, 2004, we recorded a net loss of $1,235,470
as compared to net income of $307,251 for the year ended December 31, 2003. The
decrease in net income of $1,542,721 is principally attributable to an increase
of $419,186 in consulting expenses and an increase of $735,508 in general and
administrative expenses and was partially offset by an increase of $127,346 in
our gross profit. In the year ended December 31, 2003, we also benefited from
$485,422 of other income as a result of the $320,394 cost recovery from KSS Inc.
and $169,868 from cancellation of debt. Neither of these events reoccurred in
the year ended December 31, 2004 and are not expected to reoccur in the future.

                                       12
<PAGE>

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, cash raised through the
offerings of our securities or the exercise of options or warrants, and the
issuance of our securities to various consultants in payment for the provision
of their services or to other creditors in satisfaction of our indebtedness to
them.

      On February 2, 2004 and again on February 27, 2004, we completed a private
sale of units to accredited investors. The units consisted of one share of
common stock and a warrant to purchase two shares of common stock. Through these
offerings, we raised a total of $750,000 and $1,750,000 in gross proceeds,
respectively. The price per unit was $0.40 and the warrant conversion price is
$0.75. We received net proceeds totaling $2,252,000 from these sales after costs
and fees.

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

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

      In August 1998 we entered into an agreement with Ritek Corporation whereby
we received an advance in the amount of $400,000 against royalties to be earned
through the sale of the children's game, "Shadoan". We also agreed to pay simple
interest of 8.5% per year on the advance amount. We used this money to acquire
the license for the game as well as for working capital. As consideration for
the advance, we agreed that, so long as the advance amount was outstanding, our
ownership of the license to the game would be shared equally with Ritek
Corporation. We further agreed to retain the services of Ritek Corporation to
replicate the game, at a per disc price that was competitive in our industry.
Ritek Corporation agreed that we could repay the advance by paying a per-disc
charge of $2 over the replication price. If we fail to make payments in
accordance with our agreement, Ritek Corporation is entitled to give us notice
of default. If we fail to pay the principal amount within 10 days after we
receive the notice, we are required to forfeit our ownership rights in the
license to Ritek Corporation. We have derived minimal revenues from the game and
we have not repaid the advance in accordance with our agreement. As of December
31, 2004, the unpaid balance of the advance was $400,000. We failed to pay all
of the interest that accrued during the past two fiscal years, and we have
recorded a liability for unpaid interest totaling $99,165 as of December 31,
2004. 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.

Sources And Uses Of Cash

      Summarized in the table below is information derived from our statements
of cash flow comparing the year ended December 31, 2004 with the year ended
December 31, 2003:

                                              Year Ended:            Increase
Net Cash Provided (Used) By:           12/31/2004     12/31/2003     (Decrease)
                                       -----------    -----------    -----------

Operating Activities                  ($1,178,449)   ($  130,945)   ($1,047,504)
Investing Activities                     (283,851)      (327,013)        43,162
Financing Activities                    1,431,473        479,548        951,925
                                      -----------    -----------    -----------
   Net Increase (Decrease) in Cash    ($   30,827)   $    21,590    ($   52,417)
                                      ===========    ===========    ===========

                                       13
<PAGE>

Operating Activities

      During the year ended December 31, 2004, our net loss was $1,235,470. This
included non-cash items of depreciation in the amount of $354,234, allowances in
the amount of $3,267 and payment of consulting fees and services with common
stock in the amount of $951,072. Cash was provided from operations by the
decrease of receivables in the amount of $100,503, the decrease in prepaid
consulting expense in the amount of $44,000 and the increase in accounts payable
and accruals in the amount of $1,011,607. We used the cash provided from
operations, along with cash provided from the issuance of our securities, to
acquire rights to DVD entertainment products through royalty advances totaling
$1,722,591, to fund an increase in our inventories of $289,040 and reimbursable
production costs of $404,890.

      During the year ended December 31, 2003, our net income was $307,251. This
included non-cash items of depreciation in the amount of $316,649, cost recovery
from the KSS Inc. contract in the amount of $320,394, cancellation of debt in
the amount of $169,868 and payment of consulting fees and services with
securities in the amount of $226,966. Additional cash was provided from
operations by the reduction of inventory and a corporation income tax refund. We
used cash in operations to increase receivables by $143,877, to acquire rights
to DVD entertainment products through royalty advances in the amount of
$178,475, and to reduce accounts payable and accruals by $462,688.

Investing Activities

      During the year ended December 31, 2004, we used $283,851 for the
purchases of property and equipment as compared to our use of $327,013 in the
year ended December 31, 2003 for the same purpose.

Financing Activities

      Financing activities for the year ended December 31, 2004, provided net
cash of $1,431,473. The primary source of cash consisted of net proceeds in the
amount of $2,252,000 we received from the issuance of our securities. We also
had a bank overdraft of $42,733 at December 31, 2004. A portion of the offering
proceeds were used to reduce our notes payable and capital leases by $880,910.

      Financing activities for the year ended December 31, 2003 provided net
cash of $479,548. The primary source of this cash was a loan in the amount of
$500,000 obtained from our Chief Executive Officer and President, Lee Kasper.
Mr. Kasper obtained the loan from Skura Intercontinental Trading Company and
loaned the proceeds to us on terms identical to those he had received. We also
received $150,000 from the issuance of common stock. Proceeds from these
financing activities were used to repay $570,452 of our notes payable and
capital leases.

Commitments For Capital Expenditures

      As of December 31, 2004, we had no commitments for capital expenditures.

Going Concern

      The financial statements included in this annual report are presented on a
"going concern" basis. Going concern contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business over a
reasonable length of time. Our auditors have indicated that the following
factors raise substantial doubt as to our ability to continue as a going
concern:

      o     we have an accumulated a deficit of $1,814,974 since inception;

      o     we have a working capital deficit of $1,260,575; and

      o     we have begun producing music concerts which require a substantial
            investment of cash but have not, to date, generated substantial
            revenues for us.

            We believe that the following will help to eliminate these deficits:

                                       14
<PAGE>

      o     We have negotiated an agreement with our legal services provider
            that will help us contain the costs for these services and we have
            eliminated public relations expenses for the immediate future;

      o     We released our first live music concert DVD in November of 2004 and
            we have scheduled for release in 2005 four additional DVDs that we
            believe will increase the revenue stream from this business segment;
            and

      o     We intend to continue negotiating with major artists for the
            exclusive rights to produce and distribute their live music concerts
            worldwide.

Off-Balance Sheet Arrangements

      There are no guarantees, commitments, lease and debt agreements or other
agreements that could trigger an adverse change in our credit rating, earnings,
cash flows or stock price, including requirements to perform under standby
agreements.

Capital Requirements And Available Capital Resources

      Our capital requirements, particularly as they relate to the production of
popular music concerts, have been and will continue to be significant. Our
primary use of cash consists of licensing and royalty costs ranging from 20% to
30%, production of live music concerts and general operating costs. Our future
cash requirements and the adequacy of available funds will depend on many
factors, including the pace at which we expand our production of popular music
concerts, our ability to negotiate favorable production agreements with the
artists whose concerts we film, whether our popular music concerts generate
significant revenues, the general state of the economy, which impacts the amount
of money that may be spent for entertainment and the continued popularity of
anime and our general film library, from which we expect to continue to derive
revenues.

      As of December 31, 2004 we had available $0 of cash on hand and $1,260,575
of a working capital deficit. Cash generated by our current operations is not
sufficient to continue our business for the next twelve months. We may need
additional financing during the next 12 months to produce music videos and to
pay our costs and expenses, if they stay at current levels. To the extent it
becomes necessary to raise additional cash in the future, we will seek to raise
it through the public or private sale of debt or equity securities, funding from
joint-venture or strategic partners, debt financing or short-term loans, or a
combination of the foregoing. We may also seek to satisfy indebtedness without
any cash outlay through the private issuance of debt or equity securities. We
currently do not have any binding commitments for, or readily available sources
of, additional financing. We cannot give you any assurance that we will be able
to secure the additional cash or working capital we may require to continue our
operations.

Factors Affecting Business, Operating Results and Financial Condition

      An investment in our securities is very speculative and involves a high
degree of risk

We have begun producing and filming popular music concerts. We are not certain
that this activity will be profitable.

      During the 2004 fiscal year we shifted the emphasis of our business from
licensing and distributing general entertainment products to producing, filming
and distributing popular music concerts. We have stopped selling karaoke
products and we do not intend to license new film products. The shift in
emphasis to producing, filming and distributing popular music concerts and,
whenever possible, obtaining the broadcast rights for them, will be more
expensive than licensing and distributing general entertainment products, and
the time between our expenditure of funds and receipt of revenues will be
longer. Furthermore, our filmed concert programming may not ultimately be as
desirable to our customers as we would hope, which would lead to lower than
expected sales, decreased profit margins or losses. We do not know if this new
venture will be profitable.

We will continue to need money to produce and film music concerts and we are not
sure we can obtain additional financing. If we cannot obtain additional
financing, it will adversely affect our business and results of operations.

      The production, filming and distribution of concert DVDs requires a
significant outlay of capital.

                                       15
<PAGE>

      It is unlikely that we will be able to continue to produce and distribute
music concerts without additional financing. In the past, we have borrowed money
from Lee Kasper, our Chief Executive Officer and President and a significant
shareholder, and sold our securities to raise money. Currently, we have no
commitments for additional financing. To the extent that we need more money to
continue our production of music concerts, we cannot assure you that funds will
be available to us on favorable terms, or at all. To the extent that additional
money is raised through the sale of our securities, the issuance of those
securities could result in dilution to our shareholders. The unavailability of
funds could have a material adverse effect on our ability to continue our
concert production work, which will adversely affect our business and results of
operations.

We may be unable to continue as a going concern.

      Our independent auditor has noted in its report concerning our financial
statements as of December 31, 2004 that we have incurred significant operating
losses and that we have negative working capital.

The home entertainment industry is intensely competitive. We cannot guarantee
you that we can compete successfully.

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

Decreasing retail prices for DVDs may negatively impact our revenues.

      The home entertainment programming market in which we compete is rapidly
evolving and intensely competitive. Many of our competitors, including major
studios, are increasingly offering programming, particularly DVD programming, at
lower prices. They may be able to produce or secure programming on more
favorable terms and may be able to adopt more aggressive pricing policies. The
industry trend of lowering prices may, over time, lead to higher levels of
competition and, therefore, lost sales, decreased profit margins or decreased
overall revenues.

If music entertainment programming cannot compete successfully in the home
entertainment industry, our business may be adversely affected.

      While we have decided to enter the music entertainment market, we cannot
assure you that the music industry in general will continue to prosper or that
music entertainment programming will compete successfully against other home
entertainment programming. If music programming cannot compete successfully in
the home entertainment market, our business will be adversely affected.

Inventory obsolescence poses a significant risk to us.

      We maintain a substantial investment in product inventory and if we
overestimate the demand for a particular title, we may retain significant
quantities of that title in our warehouse. Retained inventory may become
obsolete as our distribution term for the title expires. Although we may sell
such inventory at a steeply discounted price toward the end of the distribution
term in order to recoup our manufacturing, storage and other costs, there is no
guarantee that a market will exist for a given title, even at the steeply
discounted price.

Our success depends on the unpredictable commercial success of our programming.

      Operating in the entertainment industry involves a substantial degree of
risk. Each music video, feature film or other programming title is an individual
artistic work, and unpredictable audience reactions primarily determine
commercial success. The commercial success of a title also depends upon the
quality and acceptance of other competing programs or titles released into the
marketplace, critical reviews, the availability of alternative forms of
entertainment and leisure activities, general economic conditions and other
tangible and intangible factors, all of which are subject to change and cannot
be predicted with certainty. Our success will depend in part on the popularity
of our programming which, in turn, depends on our ability to gauge and predict
expected popularity.

                                       16
<PAGE>

The market in which we do business may change, decreasing the demand for our
products. If the demand for our products declines, our business and results of
operations may be adversely affected.

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

We could become involved in litigation over our rights to use our products, or
the rights of others to use our products. Resolution of any such litigation
could be time consuming and costly, which may have a material adverse affect on
our operations and financial position.

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

Government regulations could adversely effect that portion of our business that
relates to late night programming. If we were prohibited from disseminating late
night programming, it would have a material adverse effect on our results of
operations.

      During 2004 approximately 6.68% of our sales were from late night
programming, that is, programming that includes sexually explicit content which
is made to be viewed solely by adults. If we include hentai in the category of
late night programming, then approximately 66.03% of our sales would fall into
this category.

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

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

                                       17
<PAGE>

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

We are dependent for our success on a few employees. The loss of one or more of
these employees could have an adverse effect on our operations.

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

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

      Not applicable.

ITEM 8A. CONTROLS AND PROCEDURES

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

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

ITEM 8B. OTHER INFORMATION

      Not applicable.

                                       18
<PAGE>

                                    PART III

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

Identification of Directors and Executive Officers

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

Name                    Age      Position

                                 Chief Executive Officer, President,
Lee Kasper              59       Chief Financial Officer, Director
Joseph Giarmo           36       Vice President, Director
Yegia Eli Aramyan       52       Accountant, Director
Jay S. Hergott          58       Director

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

Business Experience

      Lee Kasper. President, Chief Executive Officer, Chief Financial Officer,
founder and director. Mr. Kasper began his career in the entertainment industry
in 1982 by co-founding Image Entertainment, a publicly traded company. Image
Entertainment distributes video programming on laserdisc and DVD. During his
years with Image Entertainment, Mr. Kasper was a director as well as the
Executive Vice President. He was responsible for business development as well as
for licensing, manufacturing, and product fulfillment. His major accomplishments
while he was at Image Entertainment included building a team of international
manufacturers, acting as primary negotiator of licensing agreements with over
one hundred studios, developing sales relationships with major retailers and
raising over $6,000,000 from Mitsubishi and Mitsui. When Mr. Kasper left Image
Entertainment in 1993, its annual sales had grown to $60,000,000. Mr. Kasper
left Image Entertainment to found NuTech Entertainment, Inc., a producer of
karaoke music software, which is now included in the operations of NuTech. In
1997 Mr. Kasper formed NuTech for the purpose of licensing, manufacturing and
distributing DVD products worldwide. Mr. Kasper has been a director since our
inception.

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

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

                                       19
<PAGE>

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

      We do not have an audit committee and 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. Responsibility for our operations is
centralized within management, which is comprised of three 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.

      There have been no material changes to the procedures by which
shareholders may recommend nominees to our Board of Directors, as described in
our last proxy statement.

Director Compensation

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

Term of Office

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

Code of Ethics

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

Compliance With Section 16(a) of Exchange Act

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

      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 2004 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:

                                       20
<PAGE>

<TABLE>
<CAPTION>
Name of Filer                                     Form        Description
<S>                                                <C>        <C>
Lee Kasper                                         4          Filed a form 4 reporting the purchase of 200 shares of
                                                              common stock on January 5, 2004 instead of January 4, 2004.
                                                   4          On January 23, 2004 filed a form 4 disclosing the
                                                              termination on December 15, 2003 of an option to purchase
                                                              500,000 and the acquisition of an option to purchase
                                                              500,000 shares on January 9, 2004.
                                                   4          On April 16, 2004 reported the transfer of 76,822 shares
                                                              of common stock for no consideration to consultants for
                                                              services performed for us.
                                                   4          On April 16, 2004 incorrectly reported the grant of an
                                                              option to purchase 2,000,000 shares of common stock.  This
                                                              grant was subsequently made on June 18, 2004.  No form 4
                                                              has been filed disclosing that grant.
Joseph Giarmo                                      4          On January 23, 2004 filed a form 4 disclosing the
                                                              termination on December 15, 2003 of an option to purchase
                                                              300,000 and the acquisition of an option to purchase
                                                              100,000 shares on January 9, 2004.
                                                   4          On April 16, 2004 incorrectly reported the grant of an
                                                              option to purchase 300,000 shares of common stock.  This
                                                              grant was subsequently made on June 18, 2004.  No form 4
                                                              has been filed disclosing that grant.
                                                   4          On September 1, 2004 an option to purchase 1,000,000
                                                              shares of common stock was granted to Mr. Giarmo.  A form
                                                              4 has not been filed disclosing that grant.
                                                4 and 5       On April 6, 2004 file a form 5 disclosing the sale of
                                                              5,250 shares of common stock on December 8, 2003.
Jay S. Hergott                                     4          On March 9, 2004 reported the acquisition of 35,000 shares
                                                              of common stock on January 22, 2004.
                                                   4          On March 9, 2004 reported the acquisition, on February 17,
                                                              2004, of 62,500 shares of common stock and a warrant to
                                                              purchase an additional 125,000 shares of common stock.
                                                   4          On September 1, 2004 Mr. Hergott was granted an option to
                                                              purchase 40,000 shares of common stock.  No form 4 has
                                                              been filed disclosing the grant.
                                                   4          On December 6, 2004 Mr. Hergott was granted an option to
                                                              purchase 30,000 shares of common stock.  No form 4 has
                                                              been filed disclosing the grant.
Yegia Eli Aramyan                                  4          On April 16, 2004 incorrectly reported the grant of an
                                                              option to purchase 75,000 shares of common stock.  A grant
                                                              for 100,000 shares was subsequently made on June 18,
                                                              2004.  No form 4 has been filed disclosing that grant.
                                                4 and 5       On February 17, 2004 filed a form 5 disclosing the
                                                              termination on December 15, 2003 of an option to purchase
                                                              70,000 shares of common stock.
</TABLE>

ITEM 10. EXECUTIVE COMPENSATION

      During the 2004 fiscal year, Mr. Lee Kasper, our Chief Executive Officer
and President, and Mr. Joseph Giarmo, our Vice President, were the only
executive officers receiving compensation of at least $100,000 per year. The
following table sets forth information as to the compensation paid or accrued to
Mr. Kasper and Mr. Giarmo, as well as to compensation paid to our director, Mr.
Jay Hergott, for his services as a director, and to Mr. Yegia Eli Aramyan,
another of our directors, for his services as an employee, for the three years
ended December 31, 2004, December 31, 2003 and December 31, 2002:

                                       21
<PAGE>

                                       SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                             Securities
      Name and Principal                                                     Underlying        All Other
           Position                          Salary           Bonus           Options/       Compensation
                               Year           ($)              ($)             SARs(1)            ($)
-----------------------        ----       ----------          -----          -----------     --------------
<S>                            <C>        <C>                  <C>           <C>             <C>
Lee Kasper,                    2004       $  497,308(1)              --         500,000(3)           --
President, CFO                 2003       $    3,077                 --         700,000      $   39,600(8)
President, CFO                 2002       $  410,769(2)              --         500,000(4)   $   39,600(8)

Joseph Giarmo,                 2004       $  136,779                 --       1,400,000(5)
Director                       2003       $  128,349                 --         350,000      $   12,750(9)
Vice President                 2002       $  159,228                 --         300,000(4)
Secretary

Jay S. Hergott                 2004       $   10,000                 --          70,000(6)   $   37,450(10)
Director                       2003       $   10,000                 --          25,000              --
                               2002       $    5,000                 --              --              --

Yegia Eli Aramyan              2004       $   65,308         $    5,000         150,000(7)
Director, Accountant           2003       $   62,838                 --         200,000
                                                2002         $   56,461      $      750          75,000(4)
</TABLE>

(1) Of the amount shown as compensation paid to Mr. Kasper in 2004, the payment
of $115,385 has been accrued but unpaid.
(2) Of the amount shown as compensation paid to Mr. Kasper in 2002, the payment
of $41,538 was deferred at Mr. Kasper's election. This amount was paid in the
2003 fiscal year.
(3) Mr. Kasper was granted two options during the 2004 fiscal year. The first
option, for 500,000 shares of common stock, was granted on January 9, 2004 at an
exercise price of $0.66 per share. The second option was an option for 2,000,000
shares of common stock granted to Mr. Kasper on June 18, 2004. The right to
purchase the shares vested on the attainment of certain performance targets
during the 2004 fiscal year. Mr. Kasper is able to exercise the option for a
total of 500,000 shares. The exercise price of the option is $0.385 per share.
(4) This option grant was cancelled, without exercise, on December 15, 2003.
(5) Mr. Giarmo was granted three options during the 2004 fiscal year. The first
option, for 100,000 shares of common stock, was granted on January 9, 2004 at an
exercise price of $0.60 per share. The second option was an option for 300,000
shares of common stock granted to Mr. Giarmo on June 18, 2004. Of this amount,
the right to purchase 150,000 shares vested immediately and the balance vested
on the attainment of certain performance targets during the 2004 fiscal year.
Mr. Giarmo is able to exercise the option for a total of 200,000 shares. The
exercise price is $0.35 per share. The third option, granting to Mr. Giarmo the
right to purchase 1,000,000 shares of common stock, was granted on September 1,
2004. The exercise price for the option is $0.26 per share. The right to
purchase 500,000 shares vested on the date of grant and the right to purchase
500,000 shares vested on October 1, 2004.
(6) Mr. Hergott was granted two options during the 2004 fiscal year. The first
option, for 40,000 shares of common stock, was granted on September 1, 2004 at
an exercise price of $0.26 per share. The second option, for 30,000 shares of
common stock, was granted on December 6, 2004 at an exercise price of $0.27 per
share. Mr. Hergott also received a grant of 35,000 shares of common stock on
January 28, 2004.
(7) Mr. Aramyan was granted two options during the 2004 fiscal year. The first
option, for 100,000 shares of common stock, was granted on June 18, 2004 at an
exercise price of $0.35 per share. The second option, for 50,000 shares of
common stock, was granted to Mr. Aramyan on December 6, 2004. The exercise price
is $0.27 per share.
(8) These amounts represent expenses paid in connection with Mr. Kasper's
automobile.
(9) This amount constitutes payments made to Mr. Giarmo pursuant to a joint
venture agreement he entered into with us whereby he advanced funds in the
amount of $60,000 for the acquisition of licensing rights to certain anime
products. Mr. Giarmo is repaid at the rate of $0.25 for each unit of the product
sold. This agreement will terminate once Mr. Giarmo is paid a total of $120,000.
(10) Represents the value, on January 28, 2004, of 35,000 shares of common stock
granted to Mr. Hergott.

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

Employment Agreements

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

Equity Incentive Plan

      Our Board of Directors and our shareholders approved the NuTech Digital,
Inc. 2001 Equity Incentive Plan which permits us to grant, for a ten year
period, both stock purchase rights and stock options. We had originally reserved
3,500,000 shares of our common stock for issuance to our directors, employees
and consultants under the Plan. In January of each year we are permitted to
increase the number of shares of common stock reserved for awards to an amount
that does not exceed 30% of all of our issued and outstanding shares. On January
1, 2005, we were permitted to increase the number of shares of common stock
reserved for awards by 551,352 shares, although we have not yet done so. The
Plan is administered by the Board of Directors. As the administrator of the
Plan, the Board of Directors has the authority and discretion, subject to the
provisions of the Plan, to select persons to whom stock purchase rights or
options will be granted, to designate the number of shares to be covered by each
option or stock purchase right, to specify the type of consideration to be paid,
and to establish all other terms and conditions of each option or stock purchase
right. Options granted under the Plan will not have a term that exceeds ten
years from date of grant. As of December 31, 2004, we granted options to
purchase a total of 2,805,000 shares of our common stock under the Plan.

                                       22
<PAGE>

Individual Plans

      On June 18, 2004 we also granted incentive stock options to Mr. Lee
Kasper, Mr. Joseph Giarmo, Mr. Yegia Eli Aramyan and Mr. Jay Hergott. The
options granted to Messrs. Giarmo, Aramyan and Hergott have an exercise price of
$0.35 per share. The option granted to Mr. Kasper was granted at an exercise
price of $0.385 per share. The options granted to Mr. Kasper and Mr. Giarmo were
for 2,000,000 shares of common stock and 300,000 shares of common stock,
respectively, and were performance based. The term of Mr. Kasper's option is
five years, while the term of Mr. Giarmo's option is 10 years. Mr. Kasper's
option vested as to 500,000 shares based on the completion of a performance
target, while Mr. Giarmo's option vested as to 150,000 shares in recognition of
past services and as to 50,000 shares based on the completion of a performance
target. The grant made to Mr. Aramayan vested as to 25,000 shares on the date of
grant. His right to purchase the remaining shares vests in increments of 25,000
shares over a three year period. The grant to Mr. Hergott was fully vested on
the date of grant. On September 1, 2004 we granted an additional option to Mr.
Giarmo to purchase 1,000,000 shares of our common stock at a price of $0.26 per
share. All of the options granted under these individual plans were incentive
stock options. All of the above-described options were approved by our
stockholders at the annual meeting held on October 15, 2004.

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

<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 Year       Exercise Price ($/sh)
Name                           Granted (#)                                                       Expiration Date
-------------------------- -------------------- ---------------------- ---------------------- ----------------------
<S>                             <C>                     <C>                 <C>                 <C>
Lee Kasper                        500,000                8.5%                $0.66/share          January 9, 2009
                                2,000,000               34.1%               $0.385/share            June 18, 2009

Joseph Giarmo                     100,000                1.7%                $0.60/share          January 9, 2014
                                  300,000                5.1%                $0.35/share            June 18, 2014
                                1,000,000               17.1%                $0.26/share        September 1, 2014

Jay S. Hergott                     40,000                   *                $0.26/share        September 9, 2014
                                   30,000                   *                $0.27/share         December 6, 2009

Yegia Eli Aramyan                 100,000                   *                $0.35/share            June 18, 2014
                                   50,000                   *                $0.27/share         December 6, 2009
--------------------------------------------------------------------------------------------------------------------
</TABLE>

*Less than 1%.

                                       23
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                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
-------------------------- -------------------- ---------------------- ---------------------- ----------------------
<S>                                 <C>                   <C>              <C>                      <C>
Lee Kasper                         -0-                   -0-                 0/700,000              0/$16,800
                                   -0-                   -0-                 0/500,000                 N/A
                                   -0-                   -0-                 0/500,000                 N/A

Joseph Giarmo                      -0-                   -0-                 0/300,000              0/$12,000
                                   -0-                   -0-               25,000/25,000               N/A
                                   -0-                   -0-                 0/100,000                 N/A
                                   -0-                   -0-                 0/200,000                 N/A
                                   -0-                   -0-                0/1,000,000                N/A

Jay S. Hergott                     -0-                   -0-                 0/25,000               0/$1,000
                                   -0-                   -0-                 0/40,000                  N/A
                                   -0-                   -0-                 0/30,000                  N/A

Yegia Eli Aramyan                  -0-                   -0-                 0/100,000              0/$9,000
                                   -0-                   -0-                 0/100,000                 N/A
                                   -0-                   -0-               75,000/25,000               N/A
                                   -0-                   -0-                 0/50,000                  N/A

</TABLE>

(1) Value realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market value of
the common stock on the date the options are exercised. The closing price of the
common stock on December 31, 2004 was $0.20.
(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 18, 2005, 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. Beneficial ownership is determined under the
rules of the Securities and Exchange Commission and generally includes voting or
investment power over securities. 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 the shares of common stock indicated as beneficially owned
by them, subject to community property laws, where applicable, except where
otherwise noted.

      Shares of common stock subject to options or warrants that are currently
exercisable or exercisable within 60 days of March 18, 2005 are considered
outstanding and beneficially owned by the person holding the options or warrants
for the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.

                                       24
<PAGE>

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

<S>                     <C>                                          <C>                    <C>
Common Stock            Lee Kasper (3)(4)(5)                         12,236,178(6)          45.78%
Common Stock            Joseph Giarmo (3)(4)                          2,045,000(7)           8.64%
Common Stock            Yegia Eli Aramyan(4)                            279,000(8)           1.25%
Common Stock            Jay S. Hergott(4)                               317,500(9)           1.43%
                        All Officers, Directors and 5%
                        Shareholders                                  9,715,678              46.6%
----------------------- ----------------------------------------- ----------------- ---------------
</TABLE>

(1) Unless otherwise indicated, the address of the persons named in this column
is c/o NuTech Digital, Inc., 7900 Gloria Avenue, Van Nuys, California 91406.
(2) Included in this calculation are shares deemed beneficially owned by virtue
of the individual's right to acquire them within 60 days of the date of this
report that would be required to be reported pursuant to Rule 13d-3 of the
Securities Exchange Act of 1934.
(3) Executive Officer.
(4) Director.
(5) 5% Shareholder.
(6) Includes shares of our common stock owned by Michele Kasper as her community
property. Also includes the right to purchase 1,700,000 shares of our common
stock upon the exercise of vested options, 3,000,000 shares of common stock upon
exercise of a warrant and 100,000 shares of our common stock held by Mr. Kasper
as custodian or trustee for his children.
(7) Includes the right to purchase 1,650,000 shares of our common stock upon the
exercise of vested options.
(8) Includes the right to purchase 200,000 shares of our common stock upon the
exercise of vested options.
(9) Includes the right to purchase 95,000 shares of our common stock upon the
exercise of vested options and the right to purchase 125,000 shares of our
common stock pursuant to the terms of a warrant that was granted as part of a
unit offering undertaken by us in February 2004. Stock owned by the Jay S.
Hergott Revocable Trust is included in the number of shares of common stock
reported as being beneficially owned by Mr. Hergott.

      On May 15, 2001 our Board of Directors adopted and our shareholders
approved the NuTech Digital, Inc. 2001 Equity Incentive Plan (the "Equity
Incentive Plan"). The Equity Incentive Plan has a term of 10 years and is
administered by our Board of Directors. Pursuant to the Equity Incentive Plan,
the Board of Directors may grant to eligible persons, which include employees,
officers, directors, consultants and agents, awards of options (which may be
qualified or non-qualified) or common stock. 3,500,000 shares of our common
stock were originally set aside for grants made under the Equity Incentive Plan.
Pursuant to the terms of the Equity Incentive Plan, the number of shares
available for issuance may be increased on the first day of each fiscal year by
a number that will increase the total number of shares reserved to 30% of our
issued and outstanding common stock. As of December 31, 2004, a total of
2,840,000 shares of the common stock included in the Equity Incentive Plan had
been issued, or reserved for issuance, pursuant to awards. Of this amount,
2,805,000 shares have been reserved for option grants. Generally, the option
terms extend for a period of 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 five years from the date of grant. The price for each
share of common stock purchased pursuant to the options varies. With the
exception of the exercise price of the options granted to Mr. Kasper, which
equals 110% of the fair market value of our common stock on the date of grant,
the exercise price per share for the options granted is generally the fair
market value of our common stock on the date of grant. The following table sets
forth, as of December 31, 2004, the number of securities to be issued upon
exercise of outstanding options, the weighted average exercise price of the
outstanding options and the number of securities remaining available for future
issuance under the Equity Incentive Plan.

      On July 11, 2003 our Board of Directors adopted the NuTech Digital, Inc.
2003 Consultant Stock Plan (the "Consultant Plan"). The Consultant Plan has not
been approved by our shareholders. We have reserved 5,000,000 shares of our
common stock to grant as awards under the Consultant Plan. As originally
drafted, only shares of our common stock were permitted to be granted as awards
to eligible persons, however the Board of Directors amended the Consultant Plan
on February 13, 2004 to allow grants of stock options, also. Awards are granted
to individuals who render bona fide services to us, so long as the services do
not relate to capital raising or stock promotion activities. Like the Equity
Incentive Plan, the Consultant Plan is administered by the Board of Directors.
The term of the Consultant Plan is also 10 years. As of December 31, 2004, we
had issued 2,602,500 shares of our common stock to various outside consultants.
The exercise price of the options granted under the Consultant Plan during the
2004 fiscal year varied between fair market value on the date of grant and 85%
of the fair market value on the date of grant. The following table sets forth,
as of December 31, 2004, the number of securities to be issued upon exercise of
outstanding options, the weighted average exercise price of the outstanding
options and the number of securities remaining available for future issuance
under the Consultant Plan.

                                       25
<PAGE>

      We also adopted certain individual stock option plans during the 2004
fiscal year. On June 18, 2004 we granted incentive stock options to Mr. Lee
Kasper, Mr. Joseph Giarmo, Mr. Yegia Eli Aramyan and Mr. Jay Hergott. The
options granted to Messrs. Giarmo, Aramyan and Hergott have an exercise price of
$0.35 per share. The option granted to Mr. Kasper was granted at an exercise
price of $0.385 per share. The options granted to Mr. Kasper and Mr. Giarmo were
for 2,000,000 shares of common stock and 300,000 shares of common stock,
respectively, and were performance based. The term of Mr. Kasper's option is
five years, while the term of Mr. Giarmo's option is 10 years. Mr. Kasper's
option vested as to 500,000 shares based on the completion of a performance
target, while Mr. Giarmo's option vested as to 150,000 shares in recognition of
past services and as to 50,000 shares based on the completion of a performance
target. The grant made to Mr. Aramayan vested as to 25,000 shares on the date of
grant. His right to purchase the remaining shares vests in increments of 25,000
shares over a three year period. The grant to Mr. Hergott was fully vested on
the date of grant. On September 1, 2004 we granted an additional option to Mr.
Giarmo to purchase 1,000,000 shares of our common stock at a price of $0.26 per
share. All of the options granted under these individual plans were incentive
stock options. All of the above-described options were approved by our
stockholders at the annual meeting held on October 15, 2004.

      The following table illustrates, as of December 31, 2004, information
relating to all of our equity compensation plans.

                      Equity Compensation Plan Information
<TABLE>
<CAPTION>
                                                                                          Number of securities
                                                                                          remaining available for
                                Number of securities to be                                future issuance under the
                                issued upon exercise of      Weighted average exercise    equity compensation plan
                                outstanding options,         price of outstanding         (excluding securities
                                warrants and rights          options warrants and rights  reflected in column (a)
Plan Category                               (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                                      <C>                            <C>                      <C>
Shareholder Approved/Equity
Incentive Plan                           3,435,000                      $0.59                     282,747(1)(2)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Shareholder
Approved/Individual Option
Grants                                   1,800,000                      $0.31                           0
------------------------------- ---------------------------- ---------------------------- ----------------------------
Not Approved by
Shareholders/Consultant Plan                     0(3)                    N/A                    2,397,500(3)
------------------------------- ---------------------------- ---------------------------- ----------------------------
</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 equal 30% of our issued and outstanding shares, which is the maximum
amount allowable under Regulation 260.140.45 of Title 10 of the California Code
of Regulations. On January 1, 2004, we increased the number of shares of common
stock by 252,747. As of January 1, 2005, we were permitted to increase the
number of shares of common stock by 551,352, although we have not yet done so,
and this number is not included in this column total.
(3) As of December 31, 2004, no options had been granted from the NuTech
Digital, Inc. 2003 Consultant Stock Plan, however, grants of 2,602,500 shares
had been made.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                       26
<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 accrued on
this loan at the rate of 10% per year. The unpaid principal balance of this loan
was $60,000. This loan was paid in full in February 2004.

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

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

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

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

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

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

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

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

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

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

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

                                       27
<PAGE>

      In February 2003, Mr. Kasper received a personal loan of $500,000 from
Skura Intercontinental Trading Company, which is secured by his assets. 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.

      On March 17, 2005, our Board of Directors granted Mr. Kasper a warrant to
purchase 3,000,000 shares of our common stock at a price of $0.14 in exchange
for Mr. Kasper's guarantee of the loan to the Small Business Administration, his
assumption of the obligation to U.S. Bank, N.A. and for providing security for
the loan to Skura Intercontinental Trading Company.

                                       28
<PAGE>

ITEM 13. EXHIBITS

Exhibit No.    Description of Exhibit

3.1            Articles of Incorporation, as amended.(1)

3.2            Bylaws of NuTech Digital, Inc (1)

10.1           2001 NuTech Digital Inc. Equity Incentive Plan, as amended August
               13, 2003.(4)

10.2           Letter of Intent between NuTech Digital, Inc. and Ritek Corp.
               dated as of August 6, 1996 (including Letter of Intent A). (1)

10.3           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)

10.4           Unconditional Guarantee signed by Lee Kasper in favor of Imperial
               Bank dated July 12, 2000. (1)

10.5           Lease Agreement between Kathy Schreiber, Todd Lorber and Hiroko
               ("Lessor") and NuTech Digital, Inc. ("Lessee") for the premises
               located at 7900 Gloria Avenue, Los Angeles, CA, dated as of March
               10, 2001. (1)

10.6           Note Secured by Deed of Trust by and between Lee H. and Michelle
               Kasper and Skura Intercontinental Trading Company dated February
               19, 2003. (2)

10.7           Deed of Trust dated February 19, 2003 by Lee H. Kasper and
               Michelle Kasper in favor of Skura Intercontinental Trading
               Company. (2)

10.8           Term Loan Agreement dated November 7, 2002 between Lee Kasper and
               U.S Bank, N.A. (2)

10.9           Addendum to Term Loan Agreement dated November 7, 2002 between
               U.S. Bank N.A. and Lee Kasper. (2)

10.10          Continuing Guaranty dated November 7, 2002 executed by NuTech
               Digital, Inc. in favor of U.S. Bank N.A. (2)

10.11          Business Security Agreement dated November 7, 2002 in favor of
               U.S. Bank N.A. and NuTech Digital, Inc. (2)

10.12          Article 9 Certificate dated November 7, 2002 and executed by Lee
               Kasper in favor of U.S. Bank N.A. (2)

10.13          Insurance Coverage for benefit of Bank dated November 7, 2002 and
               executed by NuTech Digital, Inc. in favor of U.S. Bank. N.A. (2)

10.14          Promissory Note in the amount of $60,000 dated September 18, 2003
               in favor of Lee Kasper. (4)

10.15          Promissory Note in the amount of $300,000 dated September 2003 in
               favor of Lee Kasper. (4)

10.16          Promissory Note in the amount of $33,334 dated September 18, 2003
               in favor of Brandon G. Kasper Trust, Lee Kasper, Trustee. (4)

10.17          Promissory Note in the amount of $33,333 dated September 18, 2003
               in favor of Ryan S. Kasper Trust, Lee Kasper, Trustee. (4)

10.18          Promissory Note in the amount of $33,333 dated September 18, 2003
               in favor of Jordan M. Kasper Trust, Lee Kasper, Trustee. (4)

10.19          Form of Common Stock Purchase Agreement. (4)

10.20          Form of Warrant. (4)

10.21          Warrant issued to Brighton Capital, Ltd.(4)

10.22          Amended and Restated NuTech Digital, Inc. 2003 Consultant Stock
               Plan. (4)

10.23          Consulting Agreement dated February 18, 2004 between NuTech
               Digital, Inc. and Redwood Consultants, LLC.(4)

10.24          Agreement dated February 4, 2004 between NuTech Digital, Inc. and
               Brighton Capital, Ltd.(4)


                                       29
<PAGE>

10.25          Agreement dated January 29, 2004 between NuTech Digital, Inc. and
               Lyons Capital, LLP.(4)

10.26          Agreement dated February 2, 2004 between NuTech Digital, Inc. and
               Sloan Securities Corp.(4)

10.27          Agreement dated December 4, 2003 between NuTech Digital, Inc. and
               Queenstone Financial Corp., including an amendment thereto dated
               February 22, 2004(4)

10.28          Option grant to Lee Kasper dated June 18, 2004.(5)

10.29          Option grant to Joseph Giarmo dated June 18, 2004.(5)

10.30          Option grant to Yegia Eli Aramyan dated June 18, 2004.(5)

10.31          Option grant to Joseph Giarmo dated September 1, 2004.(5)

14.            Code of Business Conduct and Ethics.(4)

23.            Consent of Farber & Hass, LLP.(5)

31.            Certification pursuant to Rule 13a-14(a) and 15d-14(a).(5)

32             Certification pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(5)

(1) Incorporated by reference to the respective exhibits filed with registrant's
Registration Statement on Form SB-2 (Commission File No. 333-88550).
(2) Incorporated by reference from the registrant's Form 10-KSB for the fiscal
year ended December 31, 2002 filed on March 31, 2003, as amended on April 10,
2003.
(3) Incorporated by reference from the registrant's Form 8-K filed on October
15, 2002.
(4) Incorporated by reference from the registrant's Form 10-KSB for the fiscal
year ended December 31, 2003 filed on March 24, 2004.
(5) Filed herewith.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following table sets forth fees billed to us by our auditors during
the fiscal years ended December 31, 2004 and December 31, 2003 for: (i) services
rendered for the audit of our annual financial statements and the review of our
quarterly financial statements, (ii) services by our auditor that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as Audit Fees, (iii) services rendered in connection
with tax compliance, tax advice and tax planning, and (iv) all other fees for
services rendered.

                               December 31, 2004      December 31, 2003
                               -----------------      -----------------

(i)     Audit Fees                  $ 38,000               $ 32,500
(ii)    Audit Related Fees          $      0               $      0
(iii)   Tax Fees                    $      0               $      0
(iv)    All Other Fees              $      0               $      0


                                       30

<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Form 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized on this 8th day of April 2005.


                                       NUTECH DIGITAL, INC.

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


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

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

/s/Lee Kasper             President, Chief Executive Officer,     April 8, 2005
----------------------    Chief Financial Officer and Director
Lee Kasper


/s/Joseph Giarmo          Vice-President, Director                April 8, 2005
------------------
Joseph Giarmo


/s/Yegia Eli Aramyan      Director                                April 8, 2005
--------------------
Yegia Eli Aramyan


/s/Jay S. Hergott         Director                                April 8, 2005
------------------
Jay S. Hergott


                                       31

<PAGE>


      REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

      To the Board of Directors and Shareholders of

      NuTech Digital Inc.

      We have audited the accompanying balance sheet of NuTech Digital Inc.
("the Company") as of December 31, 2004 and the related statements of
operations, stockholders' equity, and cash flows for each of the 2 years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the 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
audits provide 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 the Company as of December
31, 2004, and the results of its operations and its cash flows for each of the
two years then ended, in conformity with accounting principles generally
accepted in the United States.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant operating losses and
has negative working capital. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are described in Note 24. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

      /s/ Farber & Hass, LLP

      Camarillo, California

      February 28, 2005


                                      F-1
<PAGE>

                              NUTECH DIGITAL, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 2004

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

                                     ASSETS

CURRENT ASSETS
     Accounts receivable, net ..................................    $   360,188
     Inventories ...............................................        919,779
     Prepaid consulting, current portion .......................        193,533
     Prepaid expenses, current portion .........................         51,240
                                                                    -----------
           TOTAL CURRENT ASSETS ................................      1,524,740
                                                                    -----------

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION ........      1,221,344
                                                                    -----------

OTHER ASSETS
     Prepaid royalties .........................................      3,273,033
     Prepaid production costs ..................................        679,890
     Prepaid consulting, long-term portion .....................         32,612
     Prepaid expenses, long-term portion .......................         12,054
     Deposits ..................................................          7,800
           TOTAL OTHER ASSETS ..................................      4,005,389
                                                                    -----------

           TOTAL ASSETS ........................................    $ 6,751,473
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Bank overdraft ............................................    $    42,733
     Accounts payable ..........................................      1,504,552
     Accrued liabilities .......................................        210,436
     Accrued interest ..........................................        121,711
     Capital leases payable, current portion ...................         11,713
     Loan payable, related party ...............................         53,745
     Notes payable, related party, current portion .............        276,653
     Notes payable, other, current portion .....................        426,206
     Convertible promissory note ...............................        137,566
                                                                    -----------
           TOTAL CURRENT LIABILITIES ...........................      2,785,315
                                                                    -----------

LONG-TERM LIABILITIES
     Notes payable, related parties, long-term portion .........         57,801
     Notes payable, other, long-term portion ...................        676,562
                                                                    -----------
           TOTAL LONG-TERM LIABILITIES .........................        734,363
                                                                    -----------

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 - 21,880,944 shares ..........      5,046,769
     Accumulated (deficit) .....................................     (1,814,974)
                                                                    -----------
           TOTAL STOCKHOLDERS' EQUITY ..........................      3,231,795
                                                                    -----------

           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..........    $ 6,751,473
                                                                    ===========


   The accompanying notes are an integral part of these financial statements.

                                       F-2

<PAGE>

                              NUTECH DIGITAL, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

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

<TABLE>
<CAPTION>
                                                                               2004             2003
                                                                           ------------    ------------
<S>                                                                       <C>             <C>
SALES, NET .............................................................   $  4,180,576    $  3,745,297
COSTS OF SALES .........................................................      1,408,773       1,100,840
                                                                           ------------    ------------
     GROSS PROFIT ......................................................      2,771,803       2,644,457
                                                                           ------------    ------------

EXPENSES
     SELLING EXPENSES ..................................................        435,157         515,095
     CONSULTING FEES ...................................................        564,820         145,634
     GENERAL AND ADMINISTRATIVE EXPENSES ...............................      2,763,932       2,028,424
                                                                           ------------    ------------
     TOTAL EXPENSES ....................................................      3,763,909       2,689,153
                                                                           ------------    ------------
OPERATING (LOSS) .......................................................       (992,106)        (44,696)
                                                                           ------------    ------------

OTHER INCOME (EXPENSE)
   Interest expense ....................................................       (150,824)       (132,695)
   Cost recovery, KSS contract .........................................              0         320,394
   Recovery of bad debts ...............................................          8,260               0
   Litigation settlement on services not provided ......................         25,000               0
   Settlement on royalties .............................................       (125,000)              0
   Cancellation of debt ................................................              0         169,868
   Loss on disposal of asset ...........................................              0          (4,820)
                                                                           ------------    ------------

   TOTAL OTHER INCOME (EXPENSE)                                                (242,564)        352,747
                                                                           ------------    ------------

INCOME (LOSS) BEFORE CORPORATION INCOME TAXES                                (1,234,670)        308,051

CORPORATION INCOME TAXES ...............................................            800             800
                                                                           ------------    ------------
   NET INCOME (LOSS) ...................................................   $ (1,235,470)   $    307,251
                                                                           ============    ============

NET INCOME (LOSS) PER COMMON SHARE
       BASIC ...........................................................   $      (0.06)   $       0.03
                                                                           ============    ============
       DILUTED .........................................................   $      (0.06)   $       0.03
                                                                           ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
       BASIC ...........................................................     19,663,095      11,290,644
                                                                           ============    ============
       DILUTED .........................................................     19,663,095      12,068,727
                                                                           ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>

                              NUTECH DIGITAL, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

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

<TABLE>
<CAPTION>
                                                    PREFERRED STOCK            COMMON STOCK
                                                  --------------------    ------------------------    ACCUMULATED
                                                  SHARES      AMOUNT        SHARES       AMOUNT         DEFICIT         TOTAL
                                                  ------   -----------    ----------   -----------    -----------    -----------
<S>                                              <C>      <C>            <C>          <C>            <C>            <C>
BALANCE, JANUARY 1, 2003                               0   $         0    10,380,169   $ 1,221,323    $  (886,755)   $   344,568

ISSUANCE OF COMMON STOCK FOR:

   SERVICES UNDER 2003 CONSULTANT STOCK
     PLAN                                              0             0     1,315,000       195,300              0        195,300

   OTHER SERVICES                                      0             0       603,079       121,666              0        121,666

   ACCOUNTS PAYABLE                                    0             0       210,000        83,125              0         83,125

   CASH -PRIVATE PLACEMENTS                            0             0       375,000       150,000              0        150,000

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

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

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

   The accompanying notes are an integral part of these financial statements.

                                       F-4

<PAGE>

                              NUTECH DIGITAL, INC.
                 STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

================================================================================
<TABLE>
<CAPTION>
                                                    PREFERRED STOCK            COMMON STOCK
                                                  --------------------    ------------------------    ACCUMULATED
                                                  SHARES       AMOUNT        SHARES       AMOUNT         DEFICIT         TOTAL
                                                  ------    -----------    ----------   -----------    -----------    -----------
<S>                                              <C>      <C>            <C>          <C>            <C>            <C>
ISSUANCE OF COMMON STOCK FOR:

   CASH-PRIVATE PLACEMENTS                              0   $         0     5,875,000     2,252,000              0      2,252,000

   SERVICES AND PREPAID EXPENSES
     UNDER 2003 CONSULTANT STOCK PLAN                   0             0     1,082,223       587,436              0        587,436

   OTHER SERVICES AND PREPAID EXPENSES                  0             0     1,885,473       589,781              0        589,781

   CASH - OPTIONS EXERCISED UNDER THE
     2001 EQUITY INCENTIVE PLAN                         0             0       155,000        17,650              0         17,650

   TRANSFER OF REDEEMABLE COMMONSTOCK                   0             0             0        80,000              0         80,000

NET (LOSS) FOR YEAR ENDED DECEMBER 31, 2004             0             0             0             0     (1,235,470)    (1,235,470)
                                              -----------   -----------   -----------   -----------    -----------    -----------

BALANCE, DECEMBER 31, 2004                              0   $         0    21,880,944   $ 5,046,769    $(1,814,974)   $ 3,231,795
                                              ===========   ===========   ===========   ===========    ===========    ===========

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-5

<PAGE>

                              NUTECH DIGITAL, INC.
                            STATEMENTS OF CASH FLOWS
                  FOR THE YEAR ENDED DECEMBER 31, 2004 AND 2003

================================================================================
<TABLE>
<CAPTION>
                                                                                                 2004           2003
                                                                                                 ----           ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                        <C>            <C>
   Net income (loss) ....................................................................   $(1,235,470)   $   307,251
   Adjustments to reconcile net income (loss) to net cash (used) by operating
   activities:
      Depreciation ......................................................................       354,234        316,649
      Cost recovery, KSS contract .......................................................             0       (320,394)
      Cancellation of debt ..............................................................             0       (169,868)
      Loss on disposal of asset .........................................................             0          4,820
      Provision for doubtful accounts ...................................................        15,000         31,665
      Provision for royalty losses ......................................................        10,000          5,000
      Issuance of common stock for services and consulting fees .........................       951,072        226,966
   Changes in operating assets and liabilities:
      Accounts receivable ...............................................................       100,503       (140,627)
      Other receivables .................................................................         3,250         (3,250)
      Corporation income tax refund .....................................................             0         40,669
      Inventories .......................................................................      (289,040)       238,812
      Reimbursable production costs .....................................................      (404,890)             0
      Prepaid royalties .................................................................    (1,722,591)      (178,475)
      Prepaid consulting ................................................................        44,000              0
      Prepaid expenses ..................................................................       (16,124)       (27,475)
      Accounts payable ..................................................................       851,478       (237,860)
      Accrued liabilities ...............................................................       151,828       (224,828)
      Accrued interest ..................................................................         8,301              0
                                                                                            -----------    -----------
NET CASH (USED) BY OPERATING ACTIVITIES .................................................    (1,178,449)      (130,945)
                                                                                            -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of property and equipment ..................................................      (283,851)      (327,013)
                                                                                            -----------    -----------
NET CASH (USED) BY INVESTING ACTIVITIES .................................................      (283,851)      (327,013)
                                                                                            -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Bank overdraft .......................................................................        42,733              0
   Net proceeds from issuance of common stock - private placement .......................     2,252,000        150,000
   Net proceeds from the issuance of common stock - options exercised ...................        17,650              0
   Proceeds from notes payable, other ...................................................             0        900,000
   Proceeds from notes payable, related parties .........................................       208,766        900,000
   Repayments of notes payable, other ...................................................       (31,297)      (517,590)
   Repayment of notes payable, related parties ..........................................    (1,036,140)             0
   Changes in loans payable, officer ....................................................             0        (33,482)
   Payments on capital leases payable ...................................................       (22,239)       (19,380)
                                                                                            -----------    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES ...............................................     1,431,473        479,548
                                                                                            -----------    -----------

NET INCREASE (DECREASE) IN CASH .........................................................       (30,827)        21,590

CASH BALANCE, AT BEGINNING OF PERIOD ....................................................        30,827          9,237
                                                                                            -----------    -----------
CASH BALANCE, AT END OF PERIOD ..........................................................   $         0    $    30,827
                                                                                            ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-6

<PAGE>


                              NUTECH DIGITAL, INC.

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  FOR THE YEAR ENDED DECEMBER 31, 2004 AND 2003

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

<TABLE>
<CAPTION>

                                                                                     2004        2003
                                                                                     ----        ----
<S>                                                                             <C>          <C>
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
   Interest ..................................................................   $  142,523   $   65,869
                                                                                 ==========   ==========
   Taxes .....................................................................   $      800   $        0
                                                                                 ==========   ==========

NON-CASH INVESTING AND FINANCING ACTIVITIES
   Issuance of common stock for prepaid expenses, services and consulting fees   $1,177,217   $  295,966
                                                                                 ==========   ==========
   Cancellation of debt ......................................................   $        0   $  104,125
                                                                                 ==========   ==========
   Allocation of prepaid offering costs to common stock ......................   $        0   $  459,474
                                                                                 ==========   ==========

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-7

<PAGE>

                              NUTECH DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

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

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS

      NuTech  Digital,  Inc.  is  engaged  in  the  business  of  licensing  and
      distributing  general  entertainment  products,  most of  which  are  made
      available  through digital  versatile  discs,  commonly known as DVDs. Our
      products include Japanese anime, karaoke software, late night programming,
      and children's  animated  films. We own more than 600 exclusive DVD titles
      and a growing  library of high  definition  music  concerts.  We have also
      recently  begun  producing  popular music concerts for  distribution.  Our
      products are  principally  sold through retail stores,  the Internet,  and
      wholesale  distributors.  In January 2004 we  implemented a digital rights
      management  technology  affording  us the ability to offer our products on
      demand over the Internet.  Our digital rights management technology allows
      our  products and  programming  to be accessed  via secure  downloads  and
      included in online  subscription  services.  We also facilitate  authoring
      services to content providers in the entertainment industry.

      BASIS OF PRESENTATION - GOING CONCERN

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

      These financial  statements are presented on the basis that the Company is
      a going concern.  Going concern contemplates the realization of assets and
      the  satisfaction  of  liabilities in the normal course of business over a
      reasonable  length of time. The following  factors raise substantial doubt
      as to the Company's ability to continue as a going concern:

            A.    The  Company has  accumulated  a deficit of  $1,814,974  since
                  inception.

            B.    The Company has a working capital deficit of $1,260,575.

            C.    The Company has begun producing music concerts.  To date, this
                  segment of business has not generated substantial revenues.

      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  doubtful
      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, age, etc).

                                       F-8

<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      PREPAID ROYALTIES

      Royalty  advances  are  stated  at cost,  less  royalties  accrued  on the
      contracts  and less an allowance for  obsolescence  of $15,000 at December
      31, 2004.

      INVENTORIES

      Inventories  are stated at the lower of cost  (determined by the first-in,
      first-out  method) or market.  At  December  31,  2004,  the  Company  had
      $919,779 of completed DVDs and karaoke CDs

      PROPERTY AND EQUIPMENT

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

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

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


      PREPAID PRODUCTION COSTS

      Prepaid production costs are stated at cost, less accumulated amortization
      ($6,881 at December 31, 2004).  The costs are amortized over the estimated
      useful life of the contracts,  five to ten years, from the release date of
      the production. Estimated Amortization is as follows:

                           December 31, 2005                   $61,863
                           December 31, 2006                     70,900
                           December 31, 2007                     70,900
                           December 31, 2008                     70,900
                           December 31, 2009                     70,900
                           Therafter                             139,776
                                                                 -------
                                                                $485,239


                                       F-9
<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      ACCOUNTING ESTIMATES

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

      REVENUE RECOGNITION

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

      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, 2004 as defined in FASB 107,  does not differ
      materially from the aggregate carrying values of its financial instruments
      recorded in the  accompanying  balance  sheet.  The  estimated  fair value
      amounts  have  been  determined  by the  Company  using  available  market
      information and appropriate valuation methodologies. Considerable judgment
      is required in  interpreting  market data to develop the estimates of fair
      value,  and accordingly,  the estimates are not necessarily  indicative of
      the amounts that the Company could realize in a current market exchange.

      NET EARNINGS (LOSS) PER SHARE

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

      Basic and  diluted net loss per share has been  computed  by dividing  net
      loss by the weighted  average number of common shares  outstanding  during
      the fiscal  year.  At December  31,  2004 and 2003,  the Company had stock
      options,  warrants and convertible promissory notes outstanding that could
      potentially be exercised into 21,562,487 and 2,730,000  additional  common
      shares

<TABLE>
<CAPTION>
<S>                                                                            <C>
                 Net (loss) from continuing operations:
                   As reported                                                  $ (1,235,470)
                   Proforma                                                     $ (1,923,917)

                 Income (Loss) per share attributable to common stock
                   As reported - basic and diluted                              $      (0.06)
                   Proforma - basic and diluted                                 $      (0.10)
</TABLE>

                                      F-10
<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      INCOME TAXES

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

      COMMON STOCK ISSUED FOR NON-CASH TRANSACTIONS

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

      STOCK BASED COMPENSATION

      The Company  accounts for its stock option plan using the fair value based
      method of accounting, under which compensation expense has been recognized
      for stock option  awards  granted.  For purposes of pro forma  disclosures
      under FAS 123, Accounting for Stock-Based Compensation,  as amended by FAS
      148, Accounting for Stock-Based  Compensation - Transition and Disclosure,
      the estimated fair value of the stock options is amortized to compensation
      expense over the options'  vesting period.  No pro forma  disclosures have
      been made  since the fair  value  based  method  has been  applied  to all
      outstanding and unvested awards in each period.

      The Black-Scholes option-pricing model was developed for use in estimating
      the fair value of traded  options which have no vesting  restrictions  and
      are fully transferable.  In addition,  option valuation models require the
      input of highly subjective  assumptions including the expected stock price
      volatility.   Because  the  Company's  stock  options  and  warrants  have
      characteristics  different  from  those of  traded  options,  and  because
      changes in the subjective input assumptions can materially affect the fair
      value  estimate,  in  management's  opinion,  the  existing  models do not
      necessarily  provide a reliable  single  measure of the fair value of such
      stock options.

      LONG-LIVED ASSETS

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

      SHIPPING AND HANDLING COSTS

      The Company's policy is to classify shipping and handling costs as part of
      selling, general and administrative costs in the statements of operations.
      These costs for the years  ended  December  31, 2004 and 2003  amounted to
      $78,149 and $68,003, respectively.


                                     F-11
<PAGE>

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      SEGMENT INFORMATION

      The  Company   sells  its  products   primarily   to  retail   stores  and
      distributors. Approximately 3% of the Company's revenues in 2004 and 2003,
      respectively,  were to customers  outside of the United  States of America
      with no specific concentration.

      RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS

      In  November  2004,  the FASB issued  SFAS No.  151,  "Inventory  Costs-an
      amendment of ARB. No. 43, Chapter 4". This  Statement  amends the guidance
      in ARB No. 43, Chapter 4,  "Inventory  Pricing," to clarify the accounting
      for abnormal amounts of idle facility  expense,  freight,  handling costs,
      and  wasted  material  (spoilage).  Paragraph  5 of  ARB  43,  Chapter  4,
      previously stated that "... under some  circumstances,  items such as idle
      facility expense, excessive spoilage, double freight, and rehandling costs
      may be so abnormal as to require treatment as current period  charges...."
      This Statement  requires that those items be recognized as  current-period
      charges regardless of whether they meet the criterion of "so abnormal." In
      addition,  this  Statement  requires that  allocation of fixed  production
      overheads to the costs of  conversion  be based on the normal  capacity of
      the production facilities.

      In December  2004,  the FASB issued  SFAS No.  152,  "Accounting  for Real
      Estate Time-Sharing  Transactions - an amendment of FASB statements no. 66
      and 67". This Statement amends FASB Statement No. 66, Accounting for Sales
      of Real Estate,  to  reference  the  financial  accounting  and  reporting
      guidance  for real estate  time-sharing  transactions  that is provided in
      AICPA  Statement  of  Position  (SOP)  04-2,  Accounting  for Real  Estate
      Time-Sharing  Transactions.  This Statement also amends FASB Statement No.
      67,  Accounting  for Costs and Initial  Rental  Operations  of Real Estate
      Projects, to state that the guidance for (a) incidental operations and (b)
      costs incurred to sell real estate  projects does not apply to real estate
      time-sharing  transactions.  The accounting for those operations and costs
      is subject to the guidance in SOP 04-2.

      In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
      assets - an amendment of APB Opinion No. 29".  This  Statement  amends APB
      Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
      productive  assets and replaces it with a general  exception for exchanges
      of nonmonetary assets that do not have commercial substance. A nonmonetary
      exchange has  commercial  substance if the future cash flows of the entity
      are expected to change significantly as a result of the exchange.


                                     F-12
<PAGE>

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

      In December  2004, the FASB issued SFAS No. 123R,  "Share Based  Payment".
      This  Statement is a revision of FASB  Statement No. 123,  Accounting  for
      Stock-Based  Compensation.  This Statement  supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees,  and its related  implementation
      guidance.  This  Statement  establishes  standards for the  accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or services.  It also  addresses  transactions  in which an entity  incurs
      liabilities  in exchange for goods or services  that are based on the fair
      value of the  entity's  equity  instruments  or that may be settled by the
      issuance of those equity instruments.  This Statement focuses primarily on
      accounting for transactions in which an entity obtains  employee  services
      in share-based  payment  transactions.  This Statement does not change the
      accounting  guidance for  share-based  payment  transactions  with parties
      other than  employees  provided in Statement 123 as originally  issued and
      EITF Issue No. 96-18,  "Accounting for Equity  Instruments That Are Issued
      to Other Than  Employees for Acquiring,  or in  Conjunction  with Selling,
      Goods or Services."  This  Statement  does not address the  accounting for
      employee share  ownership  plans,  which are subject to AICPA Statement of
      Position 93-6,  Employers'  Accounting for Employee Stock Ownership Plans.
      This  statement  will require the Company to  recognize  the fair value of
      employee services received in exchange for awards of equity instruments in
      current  earnings.  The Company will adopt this  pronouncement  January 1,
      2006, as required.

      RECLASSIFICATIONS

      Certain  2003  amounts   have  been   reclassified   to  conform  to  2004
      presentations.

NOTE 2 ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

                  Accounts receivable               $ 400,188

                  Allowance for doubtful accounts     (40,000)
                                                    ---------

                  Net accounts receivable           $ 360,188
                                                    =========

      At December 31, 2004, one customer owed the Company $172,000, which was 48
      % of total accounts receivable.

      Allowance for doubtful accounts:

                     Balance, January 1, 2004     $ 46,733

                     Reduction in allowance        (21,733)

                     Addition to allowance          15,000
                                                  --------

                     Balance, December 31, 2004   $ 40,000
                                                  ========

NOTE 3 MAJOR CUSTOMERS

      For the years  ended  December  31,  2004 and 2003,  the  Company  had one
      customer that accounted for 17% and 14% of total revenue, respectively.


                                     F-13
<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 4 PREPAID PRODUCTION COSTS

      The Company has entered into  various  production  contracts  with certain
      performance  artists to produce the following  events which will enable it
      to receive royalties on future DVD sales from the contracts: In connection
      with filing of these events,  the Company has incurred a total of $686,771
      in production costs.

      J.T. Productions, Inc.

      NuTech  produced a motion  picture in a  high-definition  format of a live
      concert  performance by Jessica  Simpson at the Universal  Amphitheatre in
      Universal City,  California on July 30, 2004.  NuTech has incurred a total
      of $194,650 in production  costs at December 31, 2004 in  connection  with
      this  concert.  After  Sony  Music  receives  a  total  of  $400,000  as a
      recoupment of their incurred production costs, NuTech shall be entitled to
      100% of royalties paid by Sony  thereafter  until such royalties equal the
      sum of the all  production  costs  incurred by NuTech.  After the required
      costs are repaid to NuTech and Sony Music, Nutech is entitled to receive a
      10% royalty from the net sales  revenue of the concert film, as defined in
      the contract. This contract has a 5 year term.

      Ol' Dirty Bastard

      NuTech  entered into an agreement  and had a film  produced by  Juggernaut
      Media,  LLC (the  "Producer")  of a live  concert by Ol' Dirty  Bastard on
      March  16,  2004 in New  Haven,  Connecticut.  NuTech  is the owner of the
      rights to this live concert video. Nutech has incurred a total of $275,240
      in production  costs at December 31, 2004 in connection with this concert.
      NuTech is entitled to keep all revenues  earned as a result of the license
      or sale of this  concert  video  until  their  production  costs have been
      recouped in full. After that event, NuTech will pay a 30% royalty from all
      revenues  earned  from the  license  or sale of the  concert  video to the
      Producer.  The Producer is guaranteed a minimum  royalty of $2 per unit on
      the  wholesale  sale of all DVDs sold.  In addition,  Nutech is entitled a
      distribution  fee of 25% of gross  revenues,  prior to the  calculation of
      royalties. This contract has a 10 year term.

      Macy Gray Touring, Inc.

      NuTech  produced a motion  picture of a live concert  performance  by Macy
      Gray in Las Vegas, Nevada in November 2004. Nutech has incurred a total of
      $216,881 in production  costs at December 31, 2004 in connection with this
      concert.  Nutech borrowed $407,797 from Queenstone  Financial  Corporation
      (see Note 7) in  connection  with  this  production  agreement.  NuTech is
      entitled to receive  $150,000 from the first sales  proceeds of the motion
      picture  in order to recoup  prepaid  royalty  costs  (see Note 5).  After
      NuTech recoups  $150,000,  Queenstone  Financial  Corporation will receive
      100% of all  motion  picture  revenues  paid to  NuTech  until  Queenstone
      recovers  the sum of  $407,797  loaned  to  NuTech.  Thereafter  NuTech is
      obligated to pay a 15% royalty to  Queenstone  on all motion  picure gross
      revenue. The agreement expires on December 31, 2011.

NOTE 5 PREPAID ROYALTIES

      The Company has acquired the  licensing,  manufacturing  and  distribution
      rights to a total of 47 various  movie titles.  In  connection  with these
      agreements,  the  Company has prepaid  various  amounts of  non-refundable
      royalties to the movie title owners in the total amount of $4,402,410. The
      Company  recognizes  a  royalty  expense  of 20% - 30% of  the  net  sales
      proceeds  when the related sale is  recognized.  Royalty  expenses for the
      year  ended  December  31,  2004  and 2003  were  $389,101  and  $305,160,
      respectively.  The  royalties  expire at various  dates thru  February 28,
      2010.


                                     F-14
<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 6 PROPERTY AND EQUIPMENT

      Property and equipment and accumulated depreciation consists of:

                Completed masters                     $4,073,823
                Masters in process                           240
                Office furniture and equipment           111,179
                Computer equipment                       197,194
                Computer software                         48,801
                Warehouse equipment                      121,850
                Trade show equipment                      25,855
                Leasehold improvements                   112,041
                                                      ----------
                                                       4,690,983

                Less accumulated depreciation          3,469,639
                                                      ----------

                                                      $1,221,344
                                                      ==========

NOTE 7 ACCOUNTS PAYABLE

      A summary of the accounts payable at December 31, 2004 is as follows:

                 U-Tech Media Corp.                 $  227,471
                 Ken Groove                            196,000
                 Warner/Chapell Music, Inc.            125,000
                 Queenstone Financial Corporation      407,797
                 Other                                 548,284
                                                    ----------

                                                    $1,504,552
                                                    ==========

NOTE 8 MAJOR SUPPLIERS

      For the year  ended  December  31,  2004 and  2003,  the  Company  had two
      suppliers,  whose purchases exceeded 10% of total inventory purchases(2004
      - 86% and 13%; 2003 - 42%).

NOTE 9 INCOME TAXES

      PROVISION

      The  provision  for income  taxes for the year  ended  December  31,  2004
      represents  primarily  California  franchise  taxes  and  consists  of the
      following:

                                        2004               2003
                                        ----               ----

                  Current               $800              $800

                  Deferred              $  0              $  0



                                     F-15
<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 9 INCOME TAXES (CONTINUED)

      DEFERRED TAX COMPONENTS

      Significant components of the Company's deferred tax assets are as follows
      at December 31, 2004:

                   Net operating loss carryforwards                $605,300
                   Timing difference for expense deductions          33,900
                                                                   --------
                                                                    639,200

                   Less valuation allowance                         639,200
                                                                   --------

                   Net deferred tax assets                         $      0
                                                                   ========

                   Summary of valuation allowance:

                   Balance, January 1, 2004                        $277,800
                   Increase for the year ended December 31, 2004    361,400
                                                                   --------

                   Balance, December 31, 2004                      $639,200
                                                                   ========

      In  assessing  the  realizability  of  deferred  tax  assets,   management
      considers  whether it is more likely than not that some  portion or all of
      the deferred tax assets is dependent upon the generation of future taxable
      income  during  the period in which  those  temporary  differences  become
      deductible.  Management  considers the scheduled  reversal of deferred tax
      liabilities,  projected future taxable income and tax planning  strategies
      in making this assessment.

      NET OPERATING LOSS CARRYFORWARDS

      The Company has the following net operating loss carryforwards:

       YEAR OF LOSS                 EXPIRATION DATE

    December 31, 2003              December 31, 2023              $  653,358

    December 31, 2004              December 31, 2024               1,126,712
                                                                  ----------
                                                                  $1,780,070
                                                                  ==========

NOTE 10 CAPITAL LEASES PAYABLE

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

      December 31, 2004                                           $18,082
      Less amount representing interest                             6,369
                                                                  -------

      Present value of future minimum lease payments               11,713
      Less current portion                                         11,713
                                                                  -------

      Long-term portion                                           $     0
                                                                  =======


                                      F-16

<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 11 LOANS PAYABLE, RELATED PARTY

      Loans payable relating to related parties include the following:

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

                  Mr. Kasper routinely provides the Company with advances and
                  debt payments as necessary. The loan is due upon demand and
                  bears interest at 10% per annum. The principal balance at
                  December 31, 2004 is:                                                 $53,745        $53,745
                                                                                        =======        =======
</TABLE>

                                      F-17

<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 12 NOTES PAYABLE, RELATED PARTY

      Loans payable relating to related parties include the following:

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

                        On November 7, 2000,  U.S. Bank,  N.A. loaned Mr. Kasper
                        $640,000,  which was used to pay-off the Company's  line
                        of credit to U.S. Bank,  N.A. The terms of the loan from
                        Mr.  Kasper to the  Company are the same as the terms of
                        the loan from U.S. Bank, N.A. to Mr. Kasper as follows:

                        1.   The  Company  guaranteed Mr. Kasper's loan from the
                             bank.

                        2.   Security - all of the Company's assets.

                        3.   Interest - 8.00% at December 31, 2004.

                        4.   Twenty-nine  monthly principal payments of $21,333,
                             plus accrued interest beginning  December 15, 2002,
                             plus a final payment equal  to all unpaid principal
                             on May 15, 2005, the maturity date.

                        5.   Principal balance at December 31, 2004 is:                   $ 106,675       $106,675

                        LEE KASPER (PRESIDENT OF THE COMPANY)

                        On February  19, 2003,  Mr. Kasper  received  a $500,000
                        loan from  Skura  Intercontinental  Trading  Company and
                        loaned the $500,000  proceeds  to the Company. The terms
                        of the loan are the  same as  the terms of the loan from
                        Skura  Intercontinental Trading Company to Mr. Kasper as
                        follows:

                        1.   The loan  is  secured  by  a  deed  of  truston Mr.
                             Kasper's personal residence.

                        2.   Interest - 3%.

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

                        4.   Principal balance at December 31, 2004 is:                     227,779        169,978
                                                                                          ---------       --------
                                                                                          $ 334,454       $276,653
                                                                                          =========       ========
</TABLE>

                                      F-18

<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 12 NOTES PAYABLE, RELATED PARTY (CONTINUED)

      Minimum principal payments on the foregoing notes payable are as follows:

                    December 31, 2005              $276,653
                    December 31, 2006                57,801
                                                   --------

                                                   $334,454
                                                   ========


      In 2004,  the Company repaid the following  related party debt:  [should =
      $334,454 above]

<TABLE>
<CAPTION>
                                                   Brandon, Ryan
                                                    and Jordan
                                   Lee Kasper      Kasper Trusts     Joe Giarmo        Total
                                   -----------     -------------     -----------       -----
<S>                               <C>             <C>             <C>             <C>
Balance, January 1, 2004           $ 1,105,933     $   100,000     $    42,250     $ 1,248,183
Additional loans to the Company         14,040               0               0          14,040
Repayment of loans                    (785,519)       (100,000)        (42,250)       (927,769)
                                   -----------     -----------     -----------     -----------
Balance, December 31, 2004         $   334,454     $         0     $         0     $   334,454
                                   ===========     ===========     ===========     ===========
</TABLE>

NOTE 13 NOTES PAYABLE, OTHER

<TABLE>
<CAPTION>
                                                                                                            CURRENT
                                                                                          TOTAL             PORTION
                                                                                          -----             -------
<S>                                                                                    <C>                 <C>
                        RITEK CORP

                        In August,  1998,  the Company  received a $400,000 loan
                        from Ritek Corp.  The loan accrues  interest at 8.5% per
                        annum and entitles  Ritek Corp.  to 50% ownership in the
                        licensing  rights  in the  Shadoan  DVD  Game.  The loan
                        requires monthly payments of interest and principal with
                        the agreement that the total loan and interest was to be
                        paid on June 10, 1999.  If the loan was not paid on that
                        date,  then Ritek  would  become  100% owner and license
                        holder of the Title "Shadoan" should the Company fail to
                        make payment within 10 days of notice of default.  As of
                        December  31,  2004,  Ritek  has not  issued  notice  of
                        default.                                                        $ 400,000           $400,000

                        SMALL BUSINESS ADMINISTRATION AND COMERICA BANK LOAN

                        On July 12, 2000, the Company  received a $900,000 Small
                        Business   Administration   loan  with   Comerica   Bank
                        participation.  The loan  requires  monthly  payments of
                        $6,414, including interest at 2% over prime. The loan is
                        secured  by all  assets  of the  Company  and the  major
                        stockholder's  personal residence and personal guaranty.
                        The loan  matures on July 14, 2018.  Effective  interest
                        rate at December 31, 2004 was 7.25%.                              702,768             26,206
                                                                                       ----------          ---------
                                                                                       $1,102,768          $ 426,206
                                                                                       ==========          =========
</TABLE>

                                      F-19

<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 13 NOTES PAYABLE, OTHER (CONTINUED)

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

                   December 31, 2005              $  426,206

                   December 31, 2006                  26,206

                   December 31, 2007                  26,206

                   December 31, 2008                  26,206

                   Thereafter                        597,944
                                                  ----------
                                                  $1,102,768
                                                  ==========



NOTE 14 CONVERTIBLE PROMISSORY NOTES

      The Company issued two convertible promissory notes totaling $137,566. The
      notes can be converted after July 7, 2004 into common stock of the Company
      at a conversion price of $0.25 per share (550,264 total shares). The notes
      are unsecured  and bear interest at the minimum rate  permitted by the IRS
      (4.0% @ December 31, 2004).

NOTE 15 ADVERTISING

      The Company expenses all advertising as incurred. Advertising expenses for
      the year  ended  December  31,  2004  and 2003  were  $7,306  and  $5,611,
      respectively.

NOTE 16 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:

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

            2.    Termination date - July 31, 2006

            3.    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, 2004, future minimum lease payments excluding operating
      expenses are as follows:

                    December 31, 2005              $ 96,312

                    December 31, 2006                56,182
                                                   --------

                                                   $152,494
                                                   ========


      The rent  expense  for the  years  ended  December  31,  2004 and 2003 was
      $109,342 and $109,471, respectively.


                                      F-20
<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 17 INCENTIVE 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  3,752,747 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  administrators  have the  authority  and  discretion,  subject to the
      provisions of the Plan, to select persons to whom stock purchase rights or
      options will be granted,  to designate  the number of shares to be covered
      by  each  option  or  stock  purchase   right,  to  specify  the  type  of
      consideration  to be paid, and to establish all other terms and conditions
      of each option or stock  purchase  right.  Options  granted under the Plan
      will not have a term that exceeds ten years from date of grant.

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

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

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

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

      A summary of the option  activity  for the year ended  December  31, 2004,
      pursuant to the terms of the plan is as follows:

<TABLE>
<CAPTION>
                                                                                             WEIGHTED
                                                                       SHARES                 VERAGE
                                                                        UNDER                EXERCISE
                                                                       OPTION                 PRICE
                                                                       ------                --------
<S>                                                                <C>                     <C>
Options outstanding at January 1, 2004                               2,610,000               $   0.34

    Granted                                                          1,020,000                   0.19

    Exercised                                                         (155,000)                  0.15

    Cancelled and expired                                             (760,000)                  0.83
                                                                    ----------               --------

Options outstanding at December 31, 2004                             2,715,000               $   0.59
                                                                    ==========               ========

 2,700,000 shares are exercisable at December 31, 2004
</TABLE>

                                      F-21
<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 17 INCENTIVE STOCK OPTIONS (CONTINUED)

      Information regarding stock options outstanding as of December 31, 2004 is
      as follows:

  Price range                                              $ 0.11 - $ 0.66
  Weighted average exercise price                          $ 0.59
  Weighted average remaining contractual life              7 years, 10 months
  Options exercised
      Price range                                          $ 0.11 - $ 0.12
      Shares                                               155,000
      Weighted average exercise price                      $ 0.15

NOTE 18 ADDITIONAL STOCK OPTIONS

      The Company, from time to time, grants stock options approved by the Board
      of Directors to employees as incentives  and awards  outside of the NuTech
      Digital,  Inc. 2001 Equity  Incentive  Plan. The stock options grants have
      been approved by stockholders.

      On June 18, 2004,  Lee Kasper was granted an option to purchase  2,000,000
      shares of common  stock at a price of $0.385 per  share,  110% of the fair
      market  value on the date of grant.  The term of the option is five years.
      Mr. Kasper will have the right to purchase 1,000,000 shares if the Company
      earns at least  $2,000,000 in any calendar  quarter during the 2004 fiscal
      year.  Mr.  Kasper's  right to purchase an additional  500,000 shares will
      vest if the Company earns at least  $5,000,000 in revenues during the 2004
      fiscal year. The right to purchase 500,000 shares will vest if the Company
      successfully  produces at least two major music  concerts  during the 2004
      fiscal  year.  A major  music  concert is  defined  as a concert  having a
      production  budget  that  is  no  less  that  $250,000.  The  Company  has
      successfully  produced  two major  music  concerts  during the 2004 fiscal
      year.

      On June 18, 2004,  Joseph Giarmo was granted an option to purchase 300,000
      shares of  common  stock at a price of $0.35 per  share,  the fair  market
      value on the date of grant. The term of the option is ten years. The right
      to  purchase  150,000  shares  vest  immediately,  in  recognition  of Mr.
      Giarmo's efforts in filming our first music concert.  Mr. Giarmo will have
      the  right  to  purchase  50,000  shares  if the  Company  earns  at least
      $2,000,000  in any  calendar  quarter  during the 2004  fiscal  year.  Mr.
      Giarmo's  right to purchase an  additional  50,000 shares will vest if the
      Company earns at least $5,000,000 in revenues during the 2004 fiscal year.
      The right to purchase 50,000 shares will vest if the Company  successfully
      produces at least two major music concerts  during the 2004 fiscal year. A
      major music  concert is defined as a concert  having a  production  budget
      that is no less that $250,000.  The Company has successfully  produced two
      major music concerts during the 2004 fiscal year.

      On June 18,  2004,  Yegia Eli  Aramyan  was  granted an option to purchase
      100,000  shares of common  stock at a price of $0.35 per  share,  the fair
      market  value on the date of grant.  The term of the  option is ten years.
      The right to purchase  25,000 shares vest  immediately,  in recognition of
      Mr.  Aramyan's  past  service to the  Company.  The right to purchase  the
      remaning  75,000 shares vests over a three year period,  25,000 shares per
      year, on the anniversary date of the date of grant.

      On  September  1, 2004,  Joseph  Giarmo was  granted an option to purchase
      1,000,000  shares of common stock at a price of $0.26 per share,  the fair
      market  value on the date of grant.  The term of the  option is ten years.
      The right to purchase 500,000 shares vested on the date of grant while the
      right to purchase the remaining 500,000 shares vested on October 1, 2004.


                                      F-22

<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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

NOTE 18 ADDITIONAL STOCK OPTIONS (CONTINUED)

      On September 1, 2004, Jay Hergott was granted an option to purchase 40,000
      shares of  common  stock at a price of $0.26 per  share,  the fair  market
      value on the date of  grant.  The term of the  option  is ten  years.  The
      option vested immediately.

NOTE 19 COMMON STOCK PURCHASE WARRANTS

      On February 18,  2004,  the Company  issued a series of three  warrants to
      acquire up to 100,000 shares of common stock each at the exercise price of
      $1.15, $1.50 and $1.80 per share,  respectively,  for consulting fees. The
      warrants  expire on February 18,  2006,  are fully  vested.  On August 23,
      2004, the warrants were  cancelled by mutual  agreement of the Company and
      the consultant.

      On  February  24,  2004,  the  Company  issued  warrants  to acquire up to
      12,500,000  shares  of  common  stock  at the  exercise  price of $0.75 in
      agreement with a private offering on the same date. The warrants expire on
      February 24, 2014 and are fully vested.

      The following  table  summarizes  information  about fixed stock  warrants
      outstanding at December 31, 2004:

                 DATE          NUMBER OF SHARES     TERM      EXERCISE PRICE
                 ----          ----------------     ----      --------------
           February 24, 2004      12,500,000      10 years      $   0.75
                                  ----------

NOTE 20 2003 CONSULTANT STOCK PLAN

      In July 2003,  the  Company  adopted  the 2003  Consultant  Stock Plan and
      reserved  5,000,000 shares of common stock for issuance to consultants for
      the  Company.  The purpose of the plan is to advance the  interests of the
      Company by helping the Company  obtain and retain the  services of persons
      providing  consulting  service upon whose  judgment,  initiative,  efforts
      and/or service the Company is substantially  dependent,  by offering to or
      providing  those persons with  incentives or  inducements  affording  such
      persons an  opportunity  to become  owners of common stock in the Company.
      The plan  term is for ten  years  and the  shares  are  issued at the fair
      market value on the date the shares are awarded.

      The  following  is a  summary  of the  shares  covered  by the  plan as of
      December 31, 2004:

<TABLE>
<CAPTION>
<S>                                                                              <C>
Total shares authorized                                                           5,000,000

Shares issued during the year ended December 31, 2003 ($0.12 - $1.20 per share)   1,315,000

Shares issued during the year ended December 31, 2004 ($0.24 - $1.20 per share)   1,082,223
                                                                                  ---------

Shares available for future issuance                                              2,602,777
                                                                                  =========
</TABLE>

                                      F-23

<PAGE>

NOTE 21 LITIGATION

      In July 2003 we initiated an  arbitration  proceeding  against Roan Meyers
      Associates LP before the National  Association  of  Securities  Dealers in
      connection  with  $35,000 we paid to Roan Meyers  Associates  for services
      that we allege were never provided. The parties settled the claims on June
      10, 2004 and the Company  received a $25,000  payment  from Roan Meyers in
      settlement.

      In December  2004,  the  Company  settled a dispute  with  Warner/Chappell
      Music,  Inc.,  ("Warner/Chappell").  Warner/Chappell  alleged  the Company
      manufactured,  distributed  and  sold  compact  disks  containing  certain
      musical compositions controlled,  in whole or in part, by Warner/Chappell,
      these compact disks are used in karaoke and/or similar  sing-along devices
      and   accompanying   software,   without   the  prior   authorization   of
      Warner/Chappell.  The Company  agreed to pay $125,000 over the next twelve
      months in full settlement of the dispute.

NOTE 22 4TH QUARTER INTERIM RESULTS OF OPERATIONS (UNAUDITED)

    Sales                                                         $ 502,705

    Costs of sales                                                  206,307
                                                                  ---------

    Gross profit                                                    296,398

    Selling, general and administrative expenses                    752,332
                                                                  ---------

    Operating (loss)                                               (455,934)

    Interest expense                                                 46,478

    Other income (expense)                                         (127,843)
                                                                  ---------

    (Loss) before corporation income taxes                         (630,255)

    Corporation income taxes                                              0
                                                                  ---------

    Net (loss)                                                    $(630,255)
                                                                  =========


                                      F-24

<PAGE>

                              NUTECH DIGITAL, INC.
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2004

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


NOTE 23 BUSINESS SEGMENTS

      FASB  Statement  No.131  "Disclosures  About Segments of an Enterprise and
      Related  Information,"  requires companies to provide certain  information
      about their operating  segments.  The Company has two operating  segments:
      revenues  derived  from  purchasing   licensing  rights  to  entertainment
      products and revenue from the sales derived from product of live concerts.

      Summarized  financial  information  concerning  the  Company's  reportable
      segments is shown on the following table:


                                    PURCHASING     PRODUCTION OF
     2004                            LICENSES      LIVE CONCERTS       TOTAL
     ----                            --------      -------------       -----
Sales, net                        $ 4,122,859      $    57,717     $ 4,180,576
Operating income (loss)            (1,036,176)          44,070        (992,106)
Total assets                        6,071,583          679,890       6,751,473
Depreciation and amortization         354,234                0         354,234
Capital expenditures                  283,851                0         283,851


                                    PURCHASING     PRODUCTION OF
     2003                            LICENSES      LIVE CONCERTS       TOTAL
     ----                            --------      -------------       -----
Sales, net                        $ 3,745,297      $         0     $ 3,745,297
Operating income (loss)               (44,696)               0         (44,696)
Total assets                        4,366,646                0       4,366,646
Depreciation and amortization         316,649                0         316,649
Capital expenditures                  327,013                0         327,013


NOTE 24 MANAGEMENT PLANS

      Management's plans to eliminate the going concern situation  include,  but
      are not limited to:

            A.    Reduce legal,  consulting and public relation expenses through
                  the  approval   and   acceptance   of  contracts   with  these
                  professional  that place a limit on the amount of expenses the
                  Company will incur for their services.

            B.    The  release of the  Company's  first live music  concert  DVD
                  occurred  in November of 2004.  It is  anticipated  that this,
                  along with two  additional  DVDs  scheduled for release in the
                  first quarter of 2005,  will increase the revenue  stream from
                  this business segment.

            C.    Management  is presently  negotiating  with  additional  major
                  artists for exclusive  rights to produce and distribute  their
                  live music concerts worldwide.


                                      F-25