SB-2

As filed with the Securities and Exchange Commission on May 17, 2002

Registration No. 333-          

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

NuTECH DIGITAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

California		95-4642831
(State or Other Jurisdiction	(Primary Standard Industrial	(I.R.S. Employer
of Incorporation or Organization)	Classification Code Number)	Identification No.)

7900 Gloria Avenue, Van Nuys, California 91406

Telephone: (818) 994-3831

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

LEE KASPER

President and Chief Executive Officer

NuTech Digital, Inc.

7900 Gloria Avenue, Van Nuys, California 91406

Telephone: (818) 994-3831

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies of communications to:

MARY ANN SAPONE, ESQ.

Pollet, Richardson & Patel, 10900 Wilshire Boulevard, Suite 500

Los Angeles, CA 90024

Telephone: (310) 208-1182

Telecopier: (310) 208-1154

Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered	Proposed maximum offering price per unit	Proposed maximum aggregate offering price(1)	Amount of registration fee
Common stock, no par value	5,226,586	$1.50	$7,839,879	$721.27
Common stock underlying the warrants sold in a private offering dated June 1, 2001	703,444	$3.00	$2,110,332	$194.15

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus may be used only where it is legal to sell these securities. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

[LOGO OF NuTECH DIGITAL TO COME]

NuTECH DIGITAL, INC.

5,930,030 Shares of Common Stock

NuTech Digital, Inc. is registering 2,500,000 shares of its common stock, no par value, for sale to investors at a price of $1.50 per share, or $3,750,000 if the total offering is sold. This is our initial public offering. The shares being sold for the benefit of NuTech Digital, Inc. will be offered by our Chief Executive Officer and President, Mr. Lee Kasper, on a best efforts basis with no minimum. In the event that we elect to sell these securities through an underwriter or broker-dealer, we may pay a cash fee of up to 10% of the proceeds, resulting in proceeds to NuTech Digital, Inc. of $1.35 per share, or $3,375,000 if the total offering is sold. There are no minimum purchase requirements. All proceeds received from the sale of the common stock will be distributed directly to us. We have no arrangements to place the funds in an escrow, trust or similar account. This offering will end on the date that all of the shares of common stock offered are sold.

This prospectus also covers the resale of 2,726,586 shares of our common stock and 703,444 shares of our common stock issuable upon the exercise of warrants. The selling shareholders may offer and sell these shares from time to time on terms, including price per share, to be determined at the time of sale. If all of the selling shareholders exercised their warrants, we would receive $2,110,332. Although we will receive proceeds from the exercise of the warrants, we will not receive any of the proceeds from the sale of the shares sold by the selling shareholders.

The common stock of NuTech Digital, Inc. is not currently listed on any securities exchange.

An investment in our securities involves a high degree of risk. You should purchase our securities only if you can afford a complete loss of your investment. See “Risk Factors” beginning at page 3.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is May             , 2002

NuTECH DIGITAL, INC.

T able of Contents

	Page No.
Prospectus Summary	1
Risk Factors	3
Forward Looking Statements	8
Use of Proceeds	8
Determination of Offering Price	9
Dilution	10
Selling Shareholders	12
Plan of Distribution	14
Legal Proceedings	14
Directors, Executive Officers, Promoters and Control Persons	15
Security Ownership of Certain Beneficial Owners and Management	17
Description of Securities to be Registered	18
Interests of Named Experts and Counsel	19
Disclosure of Commission Position on Indemnification for Securities Act Liabilities	19
Organization	19
Description of Business	20
Description of Property	24
Management’s Discussion and Analysis of Financial Condition	25
Certain Transactions	29
Market for Common Equity and Related Stockholder Matters	29
Executive Compensation	31
Index to Financial Statements	F-1

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PROSPECTUS SUMMARY

This summary highlights important information about our business and about this offering. Because it is a summary, it does not contain all the information you should consider before investing in our securities. Please read the entire prospectus.

NuTech Digital, Inc.

We are engaged in creating, licensing and distributing general entertainment products, most of which are made available through digital versatile discs, which are commonly known as DVDs. Our products include children’s animated films and video games, karaoke software, Japanese anime and late night programming. Our products are sold through retail stores, the Internet, and wholesale distributors.

How to Contact Us

We maintain our principal offices at 7900 Gloria Avenue, Van Nuys, California 91406. Our telephone number at that address is (818) 994-3831 and our facsimile number is (818) 994-1575.

The Offering

The number of shares of common stock outstanding prior to this offering is 10,380,169.

Common Stock offered by NuTech Digital, Inc. (“NuTech’s Offering”):

We are registering to sell to new investors up to 2,500,000 shares of common stock. We will sell the common stock to new investors at $1.50 per share. If we engage the services of an underwriter or broker-dealer, we may pay a cash fee of up to 10% of the proceeds, resulting in proceeds to us of $1.35 per share.

Shares offered by Selling Shareholders:

We are registering 3,430,030 shares of our common stock for sale by selling shareholders identified in the section of this prospectus entitled “Selling Shareholders”, each of whom acquired shares of our common stock from us prior to this offering. The shares included in the table identifying the selling shareholders include 703,444 shares of common stock that have not yet been, but that may be, issued to designated selling shareholders upon the exercise of warrants. These warrants were issued in conjunction with a private offering of units composed of our common stock and warrants to purchase our common stock, which we undertook on June 1, 2001.

After this offering (including the offering made by the selling shareholders), we will have 12,880,169 shares of common stock outstanding. Of this amount, 5,226,586 will be freely tradable shares of common stock. These numbers exclude:

• 703,444 shares of common stock issuable upon the exercise of warrants issued in conjunction with our private offering; and

• 1,705,000 shares of common stock issuable upon the exercise of options issued in connection with our NuTech Digital, Inc. 2001 Equity Incentive Plan.

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Summary of Financial Information

	December 31,				March 31,
Statement of Operations	2001		2000		2002			2001
Sales	$	5,021,232	$	4,186,673	$	1,111,471		$	962,039
Costs of Sales		1,134,862		935,310		308,132			272,385
Gross Profit		3,886,370		3,251,363		803,339			689,654
Selling, General and Administrative Expenses		3,430,563		2,188,096		883,271			580,251
Operating Income (Loss)		455,807		1,063,267		(79,932	)		109,403
Interest Expense		253,717		203,088		66,174			50,914
Income Before Income Taxes (Benefit)		202,090		860,179		(146,106	)		58,489
Income Taxes		34,909		0		(57,426	)		0
Net Income (Loss)	$	167,181	$	860,179	$	(88,680	)	$	58,489
Net Income per Common Share
Basic and Diluted Income Per Share	$	.02	$	.10	$	(.01	)	$	.01
Weighted Average Number of Common Shares Outstanding		8,992,496		8,300,250		10,097,440			8,300,250

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RISK FACTORS

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

We will continue to need money to fund future operations, and we are not sure we can obtain additional financing.

We believe that the proceeds of this offering, together with our current and future available capital resources, including cash flow from operations, will be adequate to fund our working capital requirements in the ordinary course of business for the 12 month period following the date of this prospectus. However, we cannot assure you that future events will not cause us to seek additional capital sooner. To the extent that we need more money, we cannot assure you that funds will be available to us on favorable terms, or at all. To the extent that additional money is raised through the sale of our securities, the issuance of those securities could result in dilution to our shareholders. The unavailability of funds could have a material adverse effect on our ability to expand our operations.

If we are able to borrow money in the future, any such indebtedness could affect our financial health.

It is likely that we will incur indebtedness from time to time to continue expanding our film library. This debt could have adverse consequences for our business, including:

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

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

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

• We could be limited by financial and other restrictive covenants in our credit arrangements in our borrowing of additional funds; or

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

In order to be successful, we must manage our growth. We cannot assure you that we will manage our growth effectively.

We anticipate that we will be entering a period of significant growth. If a period of significant growth occurs, it will expose us to greater overhead, marketing and support costs and other risks associated with the development of new products. To manage our growth effectively, we will need to continue to improve and expand our operational, financial and management information systems and to hire and manage additional personnel. We cannot assure you that we will be able to effectively do this.

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,

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

Our industry is intensely competitive. We cannot guarantee you that we can compete successfully.

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

The market in which we do business may change, decreasing the demand for our products.

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

We rely on sales to key customers, which subjects us to risk if we lose their business.

As a percentage of total revenues, our net sales to our nine largest customers during the fiscal years ended December 31, 2001 and 2000 were approximately 37.6% and 45% respectively. One major customer accounted for approximately 10.4% of our revenues in fiscal 2001 and approximately 23% in fiscal 2000. Although we have long-established relationships with many of our customers, we do not have long-term contractual arrangements with any of them. A decrease in business from any of our major customers could have a material adverse effect on our results of operations and financial condition.

We could become involved in litigation over our rights to use our products, or the rights of others to use our products.

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, result in protracted 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

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litigation or similar adversarial proceedings could subject us to significant liabilities to third parties, require 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. To the extent that we want to or are required to obtain licenses to proprietary rights of others, we cannot assure you that any such licenses will be made available on terms acceptable to us, if at all.

Government regulations could have an adverse effect on a portion of our business.

During 2001, approximately 18.12% of our sales were from late night programming. Although the right to create material containing late night programming is protected by the First and Fourteenth Amendments to the United States Constitution, the First and Fourteenth Amendments do not protect the dissemination of this material, and several states and communities in which our products are distributed have enacted laws regulating the distribution of late night programming with some offenses designated as misdemeanors and others as felonies, depending on numerous factors. The consequences for violating the state statutes are as varied as the number of states enacting them. Similarly, there is a federal prohibition with respect to the dissemination of late night programming, and the potential penalties for individuals (including corporate directors and officers) violating these federal laws include fines, community service, probation, forfeiture of assets and incarceration. Although we undertake to restrict the distribution of our products in order to comply with all applicable statutes and regulations, we cannot assure you that our efforts will be successful and that we will always comply with all applicable state and federal statutes and regulations.

Some of our products include sexually explicit content, which may subject us to additional future regulation or other legal challenges.

Some of our products include sexually explicit material. Many people may regard this division of our business as unwholesome. This may negatively impact the value of our common stock. Federal, state and municipal governments, along with various religious and children’s advocacy groups, consistently propose and pass legislation aimed at restricting provision of, access to, and content of late night entertainment. These groups also may file lawsuits against providers of late night entertainment, encourage boycotts against such providers, and mount negative publicity. We cannot assure you that sales of these products will not be subject to successful legal challenges in the future.

Sales of our common stock by the selling shareholders in a concurrent offering may depress our stock price.

Concurrent with the offer and sale of our common stock, our selling shareholders may offer for sale, from time to time, 3,430,030 shares of our common stock (assuming the full exercise of all warrants). Upon completion of NuTech’s offering and the offering by the selling shareholders, we will have outstanding 5,930,030 freely tradable shares of common stock (assuming the full exercise of all warrants by the selling shareholders) in the public market. Sales of a substantial number of shares of our common stock by the selling shareholders within a relatively short period of time could have the effect of depressing the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

We have not paid cash dividends and it is unlikely that we will pay cash dividends in the foreseeable future.

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

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We have the ability to issue additional shares of our common stock without asking for shareholder approval, which could cause your investment to be diluted.

Our Articles of Incorporation currently authorize the Board of Directors to issue up to 100,000,000 shares of common stock. The power of the Board of Directors to issue shares of common stock or warrants to purchase shares of common stock is generally not subject to shareholder approval. Accordingly, any additional issuance of our common stock may have the effect of further diluting your investment.

If you purchase the securities we are offering, the value of your purchase will be immediately diluted.

You will experience immediate and substantial dilution in the net tangible book value of the securities that you purchase. See the section of this prospectus entitled “Dilution.”

We may raise additional capital through a securities offering that could dilute your ownership interest.

We require substantial working capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, these securities may have rights, preferences or privileges senior to those of the holders of our common stock. The issuance of additional common stock by our management will also have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.

A majority of our capital stock is owned by our executive officers and directors, which will allow them to control the outcome of matters submitted to our stockholders for vote.

As of the date of this prospectus, management owns the majority of our issued and outstanding shares of capital stock. Immediately after the sale of all of the securities offered in NuTech’s offering, management will beneficially own approximately 64% of the issued and outstanding capital stock, and investors and other remaining shareholders will beneficially own approximately 36% of the issued and outstanding capital stock (not including the common stock represented by outstanding warrants and options). Because management owns a majority of the capital stock, even though the holders of common stock are entitled to cumulate their shares when voting for directors, management will retain the ability to elect a majority of the Board of Directors, and thereby control our management. Although they are under no obligation to do so, if our executive officers and directors (and their affiliates) were to vote together, they would also have the ability to control the outcome of corporate actions requiring shareholder approval, including mergers and other changes of corporate control, going private transactions, and other extraordinary transactions. This concentration of ownership may have the effect of delaying or preventing a change of control, even if a change of control would benefit shareholders.

Management will have broad discretion in using the proceeds received from NuTech’s offering. You may not approve of the ways in which management uses those proceeds.

We expect to use the net proceeds of NuTech’s offering primarily for acquiring more licenses for our library of animated works, to begin production of music videos, to retire debt, and for other general corporate purposes. Management will retain broad discretion as to the allocation of the proceeds of NuTech’s offering. You may not approve of the uses to which management allocates the money. Management’s failure to effectively use this money could have a material adverse effect on our business and financial condition. See the section of this prospectus entitled “Use of Proceeds.”

There is no public market for our securities, so you will be unable to liquidate them if you need money.

Prior to this offering there has been no public market for our common stock. It is not likely that an active market for our common stock will develop or be sustained after this offering or in the foreseeable future.

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If a public market for our common stock develops, it may be volatile. This may affect the ability of our investors to sell their shares as well as the price at which they sell their shares.

If a market for our common stock develops, the market price for the shares may be significantly affected by factors such as variations in quarterly and yearly operating results, general trends in the entertainment industry, and changes in state or federal regulations affecting us and our industry. Furthermore, in recent years the stock market has experienced extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of the affected companies. Such broad market fluctuations may adversely affect the market price of our common stock.

We will be subject to the Penny Stock Rules and these rules may adversely affect trading in our common stock.

Our common stock will be considered a “low-priced” security under rules promulgated under the Securities Exchange Act of 1934. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions will likely be a decrease in the willingness of broker-dealers to make a market in our common stock, decrease liquidity of our common stock and increase transaction costs for sales and purchases of our common stock as compared to other securities.

We have arbitrarily determined, without regard to traditional valuation criteria, the price of the common stock we are offering. You may not rely on this price as an indication of the value of the securities you purchase.

The price of the common stock we are offering for sale in NuTech’s offering was arbitrarily determined in order for us to raise a total of $3,750,000. The offering price bears no relationship whatsoever to our assets, earnings, book value or other criteria of value. Among the factors considered by the Board of Directors in setting NuTech’s offering price were the proceeds to be raised in the offering and our cash requirements. The price of our common stock may decline after the offering.

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FORWARD LOOKING STATEMENTS

In addition to historical information, this prospectus contains certain “forward-looking statements”. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and 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, competitive pressures, changes in technology that may render our products less desirable or obsolete, changes in the economy that would leave less disposable income to be allocated to entertainment, the loss of any member of our management team, the loss of certain key customers, the factors more fully discussed in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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.

USE OF PROCEEDS

If we sell all of the 2,500,000 shares of common stock we are offering, we will receive proceeds totaling $3,750,000. (We will not receive any proceeds from the sale of the common stock offered by the selling shareholders.) We expect to use the proceeds as follows:

• $2,587,500 (approximately 69% of the proceeds of NuTech’s offering) will be used to acquire licenses for entertainment products, particularly Japanese anime, and to produce popular music concerts;

• $975,000 (approximately 26% of the proceeds of NuTech’s offering) will be used to retire debt, including our bank line of credit; and

• $187,500 (approximately 5% of the proceeds of NuTech’s offering) will be used as working capital and for our general corporate purposes.

The debt we intend to retire includes the following:

• our bank line of credit in the amount of $650,000, which accrues interest at the rate of prime plus 1.75% and is due to be paid in full on April 30, 2003;

• a loan from Ritek Corporation in the amount of $400,000, which accrues interest at the rate of 8.5% and was due to be paid in full on June 10, 1999;

• a loan from Elynor Kasper in the amount of $60,000, which accrues interest at the rate of 10% and is due to be paid in full on demand;

• a loan from Brandon Kasper in the amount of $7,418, which accrues interest at the rate of 7% and is due to be paid on demand;

• a loan from Ryan Kasper in the amount of $7,467, which accrues interest at the rate of 7% and is due to be paid on demand;

• a loan from Jordan Kasper in the amount of $3,555, which accrues interest at the rate of 7% and is due to be paid on demand.

Proceeds of the above-referenced loans were used to acquire licenses for entertainment products and for working capital purposes. Elynor Kasper is the mother of our President and Chief Executive Officer, Mr. Lee Kasper. Brandon Kasper, Ryan Kasper and Jordan Kasper are Mr. Kasper’s children.

Other than as set forth in this prospectus, we currently have no commitments or agreements and are not involved in any negotiations with respect to any acquisitions or investments. The allocation of the net proceeds of NuTech’s offering discussed above represents management’s current estimates only. We cannot specify with

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certainty the particular uses for the net proceeds to be received upon completion of NuTech’s offering, as the actual allocation will depend upon the licensing or other business opportunities that arise, the amount of our future revenues, any change or inaccuracy in our assumptions about our business or future operations and the other factors described in the section of this prospectus entitled “Risk Factors”. Accordingly, management will have broad discretion in using the net proceeds of NuTech’s offering. Pending such uses, we intend to invest the net proceeds of NuTech’s offering in a money market account.

Working capital and general corporate purposes assumes expenditures for our operations, such as hiring additional personnel and acquiring and enhancing our operating, support and management systems.

If we are unable to raise the entire $3,750,000, we anticipate that we will allocate any money we receive to the categories set forth above, although the percentage allocated will be determined by our needs at the time the funds are received.

DETERMINATION OF OFFERING PRICE

There is no established public market for the shares of common stock that we are registering. Our management has established a price of $1.50 per share based upon management’s estimate of our cash requirements and the price at which potential investors might be willing to purchase the common stock we are offering. The offering price has been arbitrarily determined and does not bear any relationship to our assets, results of operations, or book value, or to any other generally accepted criteria of valuation.

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DILUTION

We are registering for sale to new investors up to 2,500,000 shares of common stock.

On June 18, 1997 our founding shareholder, Mr. Lee Kasper, paid $1.00 per share for 1,000 shares of our common stock and on July 31, 2000 our Board of Directors issued to Mr. Joseph Giarmo, our Vice-President and a director, 50 shares of our common stock as compensation for extraordinary services rendered to us by Mr. Giarmo. The Board of Directors determined that the services had a value of $250.

On May 4, 2001 our Articles of Incorporation were amended to increase the authorized number of shares of our common stock from 2,000,000 to 100,000,000 and to split each share of outstanding common stock from one share into 7,905 shares. After giving effect to the stock split, Mr. Kasper owned 7,905,000 shares of common stock, bringing down the cost of each share of common stock to approximately $ .000127 per share. After giving effect to the stock split, Mr. Giarmo owned 395,250 shares of common stock, bringing down the cost of each share of common stock to approximately $ .000633 per share.

Other of our existing shareholders whose shares are being registered for resale received our common stock in exchange for the surrender of certain contract rights, having a value of $3,000, or for services rendered to us, having a value of $10,500 and $12,000, respectively. The Board of Directors agreed to issue 100,000 shares, 350,000 shares and 400,000 shares, respectively, to these shareholders in exchange for these obligations.

On September 13, 2001 the Board of Directors agreed to convert $100,000 of debt owed to Sarah and LeBron Barkstelle to common stock at the rate of one share of common stock for each $1.00 converted.

Those shareholders who purchased shares in our private offering dated June 1, 2001 paid $1.50 per share for their shares of common stock. Shareholders who purchased shares in our private offering also received a warrant to purchase an identical amount of shares of our common stock at a price of $3.00 per share. The warrants will expire on November 1, 2002. The exercise of the warrants at a time when the exercise price is greater than our net tangible book value per share will result in an immediate increase in the net tangible book value of our existing shareholders. At the same time, new investors will experience immediate dilution in the value of their investment. As of the date of this offering, none of the warrants has been exercised.

On April 15, 2002, we granted options to purchase a total of 1,705,000 shares of our common stock, in accordance with the NuTech Digital, Inc. 2001 Equity Incentive Plan, to many of our employees. Included in this grant was a grant to Mr. Kasper of an option to purchase 500,000 shares and a grant to Mr. Giarmo of an option to purchase 300,000 shares. The exercise price for all grants is $1.50 per share.

The following table sets forth on a pro forma basis at December 31, 2001 the differences between existing shareholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share (assuming a proposed public offering price of $1.50 per share).

	Shares Purchased	% Total Shares Outstanding		Total Consideration			Approximate % of Total Consideration
New Investors	2,500,000	20	%	$	3,750,000		76	%
Existing Shareholders	10,013,551	80	%	$	1,172,131	(1)	24	%

(1) Aside from cash, we issued stock in exchange for services rendered, in cancellation of debt, and in exchange for the cancellation of contract rights. All of these have been included in this figure.

The difference between the public offering price per share of common stock and the net tangible book value per share of common stock after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing the net tangible book value (total assets less total liabilities) by the number of outstanding shares of common stock. The dilution calculations we have set forth in this section reflect an offering price of $1.50 per share.

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As of December 31, 2001, we had a net tangible book value of $1,040,261 or $.10 per share of issued and outstanding common stock. After giving effect to the sale of the common stock offered in NuTech’s offering, the net tangible book value at that date would have been $4,790,261 or $0.38 per share. This represents an immediate increase in net tangible book value of $0.28 per share to existing shareholders and an immediate dilution of $1.12 per share to the investors in this offering.

The following table illustrates the per share dilution.

Offering price per share underlying common stock	$1.50
Net tangible book value per share as of December 31, 2001	$0.10
Pro-forma net tangible book value per share after this offering	$0.38
Pro-forma increase per share attributable to offered shares	$0.28
Pro-forma dilution to new investors	$1.12

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SELLING SHAREHOLDERS

The following table sets forth the names of the selling shareholders who may sell their shares using this prospectus. No selling shareholder has, or within the past three years has had, any position, office or other material relationship with us or any of our predecessors or affiliates, except for Lee Kasper, who is our President, Chief Executive Officer and a director, Joseph Giarmo, who is our Vice-President and a director, Pollet, Richardson & Patel, which serves as our legal counsel and Saratoga Capital Corporation, our distribution agent in Asia.

The following table also sets forth certain information as of the date of this prospectus, to the best of our knowledge, regarding the ownership of our common stock by the selling shareholders. Because the selling shareholders can offer all, some or none of their shares of our common stock, we have no way of determining the number they will hold after this offering. Therefore, we have prepared the table below on the assumption that they will sell all shares covered by this prospectus.

Selling Shareholder	Shares held before the Offering	Shares being Offered	Shares held after the Offering	Percentage Owned after the Offering
Lee Kasper(1)	7,905,000	500,000	7,405,000	54.7	%
Joseph Giarmo(2)	395,250	200,000	195,250	1.4	%
Elynor Kasper(3)	100,000	100,000	0	0
Leora Kimble	350,000	350,000	0	0
Saratoga Capital Corporation(4)	400,000	400,000	0	0
Joseph Rubino(5)	33,332	33,332	0	0
Annamae Kaelber(5)	33,332	33,332	0	0
Jack Strauser and Jean Strauser(6)	133,332	133,332	0	0
William Perry and Lisa Perry(7)	66,666	66,666	0	0
Vern Hollingsworth(8)	13,332	13,332	0	0
Frank P. Parisi and Maria Parisi(5)	33,332	33,332	0	0
Charles Brett Howard(5)	33,332	33,332	0	0
Bernard Saul, Trustee of the Saul Family Trust(5)	33,332	33,332	0	0
Bailey B. Hutchins(8)	13,332	13,332	0	0
Ihab Abboushi(5)	33,332	33,332	0	0
Robert L. Anderson(5)	33,332	33,332	0	0
Robert J. Hillock and M. L. Hillock(5)	33,332	33,332	0	0
Wayne Lindholm(5)	33,332	33,332	0	0
Paul W. Lofholm(5)	33,332	33,332	0	0
Sarah Barkstelle and LeBron Barkstelle	100,000	100,000	0	0
Jeffrey I. Berger(5)	33,332	33,332	0	0
Fernando B. Motas(10)	66,664	66,664	0	0
Loren S. McBride(9)	13,600	13,600	0	0
Wallace S. Dash(8)	13,332	13,332	0	0
W. Steven Heise(10)	66,664	66,664	0	0
Richard B. Mead(8)	13,332	13,332	0	0
Adela P. Pena(11)	16,666	16,666	0	0
Joseph G. Birnbaum(12)	133,328	133,328	0	0
Sidney M. Crain(5)	33,332	33,332	0	0
RBC Dain Rauscher f/b/o Joseph E. Haefele IRA(5)	33,332	33,332	0	0
Victor Tsai and Katty Tsai(7)	66,666	66,666	0	0
Sterling Trust Company, Custodian f/b/o Paul Regnier(13)	20,000	20,000	0	0
Kennebec Resources, Inc.(5)	33,332	33,332	0	0
WCOA Schumann, P.C. Profit Sharing Plan(5)	33,332	33,332	0	0

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Selling Shareholder	Shares held before the Offering	Shares being Offered	Shares held after the Offering	Percentage Owned after the Offering
Sergio I. Trani, Jr. and Marylou C. Trani(13)	20,000	20,000	0	0
James Horalek(8)	13,332	13,332	0	0
Robert E. Dettle, Trustee of the Reboert E. and Rosalie T. Dettle Living Trust u/d/t/ 2-29-80(13)	20,000	20,000	0	0
Larry W. Simpson or Carol C. Simpson, Simpson Trust dated 6-22-01(5)	33,332	33,332	0	0
Pollet, Richardson & Patel, a law corporation(14)	53,333	53,333	0	0
Prechel Family Clinc, PC Profit Sharing Plan(13)	20,000	20,000	0	0
Humberto Corzo and Sylvia Rubio(8)	13,332	13,332	0	0
William N. McLintock, Trustee(14)	10,000	10,000	0	0
Urbach Kahn & Werlin Advisors, Inc.	53,333	53,333	0	0
Advanced Media Post, LLC	165,000	165,000	0	0
Peter Payne and Chiharu Yanai(5)	33,332	33,332	0	0
Camden Securities, Inc.	59,022	59,022	0	0
Scott M. Cooper	20,000	20,000	0	0
Richard A. Andolshek	2,000	2,000	0	0
Carlene F. Cooke	500	500	0	0
Hanover Capital Corp.	126,620	126,620	0	0
TOTAL	11,030,280	3,430,030

(1)   Lee Kasper is our President, Chief Executive Officer, Chief Financial Officer and a director.

(2)   Joesph Giarmo is our Vice-President and a director

(3)   Elynor Kasper is Lee Kasper’s mother.

(4)   Saratoga Capital Corporation is our distributor in Asia.

(5)   Includes shares issuable upon the exercise of warrants to purchase 16,666 shares of our common stock at a purchase price of $3.00 per share.

(6)   Includes shares issuable upon the exercise of warrants to purchase 66,666 shares of our common stock at a purchase price of $3.00 per share.

(7)   Includes shares issuable upon the exercise of warrants to purchase 33,333 shares of our common stock at a purchase price of $3.00 per share.

(8)   Includes shares issuable upon the exercise of warrants to purchase 6,666 shares of our common stock at a purchase price of $3.00 per share.

(9)   Includes shares issuable upon the exercise of warrants to purchase 6,800 shares of our common stock at a purchase price of $3.00 per share.

(10) Includes shares issuable upon the exercise of warrants to purchase 33,332 shares of our common stock at a purchase price of $3.00 per share.

(11) Includes shares issuable upon the exercise of warrants to purchase 8,333 shares of our common stock at a purchase price of $3.00 per share.

(12) Includes shares issuable upon the exercise of warrants to purchase 66,664 shares of our common stock at a purchase price of $3.00 per share.

(13) Includes shares issuable upon the exercise of warrants to purchase 10,000 shares of our common stock at a purchase price of $3.00 per share.

(14) Pollet, Richardson & Patel, a law corporation, is our legal counsel and has rendered an opinion to us regarding the validity of the shares being offered.

(15) Includes shares issuable upon the exercise of warrants to purchase 5,000 shares of our common stock at a purchase price of $3.00 per share.

We will pay all expenses to register the shares. The selling shareholders will pay any underwriting and brokerage discounts, fees and commissions and other expenses to the extent applicable to them.

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PLAN OF DISTRIBUTION

This is our initial public offering. We are registering a total of 5,930,030 shares of our common stock. Of this amount, 2,500,000 shares, referred to in this prospectus as “NuTech’s offering”, are being offered by NuTech and 3,430,030 shares are being offered by the selling shareholders. We will receive the proceeds from the shares offered in NuTech’s offering. We will not receive the proceeds from the sale of the shares by the selling shareholders. However, of the shares offered by the selling shareholders, 703,444 shares are represented by warrants owned by some of the selling shareholders. We will receive proceeds from any selling shareholder who exercises a warrant to purchase our common stock.

We anticipate that a market maker will apply to have our common stock traded on the over-the-counter bulletin board. If successful, the selling shareholders will be able to sell their shares from time to time on the over-the-counter bulletin board, or on other markets, at prevailing market rates. If our common stock is not listed on the over-the-counter bulletin board, the selling shareholders may sell their shares in privately negotiated transactions at any price per share. Any securities sold in brokerage transactions will involve customary brokers’ commissions.

Broker-dealers may charge commissions to both selling shareholders selling common stock, and purchasers buying shares sold by a selling shareholder. Neither the selling shareholders nor NuTech can presently estimate the amount of such compensation. We know of no existing arrangements between the selling shareholders and any other shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares.

We have agreed to bear the expenses of the registration of the shares, including legal and accounting fees. Offers or sales of the shares have not been registered or qualified under the laws of any country other than the United States. To comply with certain states’ securities laws, if applicable, the shares will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. There can be no assurance that the selling shareholders will sell any or all of the shares offered by them in this offering.

The shares to be sold in NuTech’s offering will be offered by our President, Chief Executive Officer and director, Mr. Lee Kasper, on a best efforts basis with no minimum. In the event, however, that we elect to sell these securities through an underwriter or broker-dealer, we may pay a cash fee of up to 10% of the proceeds we receive, resulting in net proceeds to us of $1.35 per share or $3,375,000 if NuTech’s offering is fully sold.

In accordance with Regulation M promulgated under the Securities Exchange Act of 1934, neither NuTech nor the selling shareholders may bid for, purchase or attempt to induce any person to bid for or purchase any of our common stock while we or they are selling stock in this offering. Neither we nor any of the selling shareholders intends to engage in any passive market making or undertake any stabilizing activity for our common stock. To our knowledge, none of the selling shareholders intends to engage in any short selling of our common stock.

LEGAL PROCEEDINGS

We are not a party to any material legal proceeding, nor to the knowledge of management, are any legal proceedings threatened against us. From time to time, we may be involved in litigation relating to claims arising out of operations in the normal course of business.

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The name, age and a description of the positions held by our directors, executive officers and key employees are as follows:

Name	Age	Position(s)
Lee Kasper	56	President, Chief Executive Officer, Chief Financial Officer and director
Joseph Giarmo	34	Vice President and director
Javier Corzo	37	Software Systems Programmer
Yegia Eli Aramyan	49	Accountant

There are no family relationships between any directors and executive officers.

None of our directors or executive officers has, during the past five years,

• had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time,

• been convicted in a criminal proceeding and none of our directors or executive officers is subject to a pending criminal proceeding,

• been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities, or

• been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

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 a division of NuTech. In 1997 Mr. Kasper formed NuTech for the purpose of licensing, manufacturing and distributing DVD products worldwide. In 2001, our gross revenues from all operations, including sales of films, games and karaoke software and providing authoring services, totaled $5,021,232. 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

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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.

Javier Corzo.    Software Systems Programmer.    Prior to joining NuTech in April 2001, Mr. Corzo spent two years as a programmer, systems administrator, and primary troubleshooter at BuroWARE USA. While there, Mr. Corzo designed, developed, implemented and integrated operation and accounting software. Mr. Corzo also supervised, trained and aided other technicians. Mr. Corzo was crucial in modifying and enhancing the BuroWARE software for the United States market. Prior to his employment with BuroWARE USA, Mr. Corzo rendered consulting services to businesses, designing, building and installing network and individual systems using accounting applications. Mr. Corzo will be responsible for automating and interfacing our Internet site with sales and delivery of our products. Mr. Corzo obtained a Bachelor of Science degree in Applied Mathematics from UCLA in 1987.

Yegia Eli Aramyan.    Accountant.    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.

Our directors are elected at each annual meeting of the stockholders, and their term of office runs until the next annual meeting of the stockholders and until their successors have been elected.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

Title of Class of Security	Name and Address(1)	Number of Shares of Common Stock Beneficially Owned(2)	Percentage of Common Stock Before Offering(7)
Common Stock	Lee Kasper(3)(4)(5)(6)	8,405,000	80.9	%
Common Stock	Joseph Giarmo(3)(4)	692,250	6.6	%
	All Officers, Directors and 5% Shareholders	9,097,250	82.1	%

(1) Unless otherwise indicated, the address of the persons named in this column is c/o NuTech Digital, Inc., 7900 Gloria Avenue, Van Nuys, California 91406.

(2) Included in this calculation are shares deemed beneficially owned by virtue of the individual’s right to acquire them within 60 days of the date of this prospectus 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% Stockholder.

(6) Includes shares of our common stock owned by Michele Kasper as her community property.

(7) Does not include shares of stock underlying the warrants issued in the private placement we undertook on June 1, 2001. As of the date of this prospectus, none of the warrants have been exercised.

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DESCRIPTION OF SECURITIES TO BE REGISTERED

Common Stock

The securities being offering in NuTech’s offering and by the selling shareholders are shares of our common stock. We are authorized by our Articles of Incorporation to issue one class of capital stock, namely 100,000,000 shares of common stock, without par value. Prior to this offering there has been no public or private trading market for our common stock.

We presently have issued and outstanding 10,380,169 shares of common stock. Holders of the common stock are entitled to one vote per share on all matters subject to stockholder vote. If the Board of Directors were to declare a dividend out of funds legally available therefore, all of the outstanding shares of common stock would be entitled to receive such dividend ratably. Except for dividends declared to Mr. Lee Kasper, our Chief Executive Officer, we have never declared dividends and we do not intend to declare dividends in the foreseeable future. If NuTech was liquidated or dissolved, holders of shares of common stock would be entitled to share ratably in assets remaining after satisfaction of our liabilities.

Most of our shareholders have signed “Shareholder Buy/Sell” or other purchase agreements that grant a right of first refusal to NuTech and to Mr. Lee Kasper to purchase the shareholder’s common stock upon the occurrence of certain events, such as the shareholder’s desire to transfer his common stock to a third party or upon the shareholder’s death. Most of the shareholders have also granted to NuTech “drag-along” rights in the event that certain kinds of corporate transactions are approved by a majority of the shares entitled to vote. These drag-along rights require the shareholders who did not approve of the transaction to dispose of their common stock in the manner approved by the majority. Our Board of Directors has approved the termination, on the date that this registration statement becomes effective, of all Shareholder Buy/Sell agreements and of these provisions in any purchase agreement as to all shareholders who are bound by them.

Holders of common stock may elect directors using cumulative voting.

Warrants Issued Through Our Private Offering

On June 1, 2001 we began a private offering of units, valued at $25,000 each, consisting of 16,666 shares of common stock and a warrant to purchase a like number of shares of common stock at an exercise price of $3 per share. We sold a total of 703,444 shares of common stock and warrants to purchase an additional 703,444 shares of common stock. The warrants will expire on November 1, 2002. The exercise price and the number of shares issuable upon exercise of the warrants will be adjusted upon the occurrence of certain events, including the issuance of common stock as a dividend on shares of common stock, subdivisions, reclassifications or combinations of the common stock or similar events. The warrants do not contain provisions protecting against dilution resulting from the sale of additional shares of common stock for less than the exercise price of the warrants or the current market price of our securities and do not entitle the warrant holders to any voting or other rights as a shareholder until the warrants are exercised and the common stock is issued.

The shares of common stock issuable on exercise of the warrants will be, when issued in accordance with the warrants, duly and validly issued, fully paid and non-assessable. At all times that the warrants are outstanding, we will authorize and reserve at least that number of shares of common stock equal to the number of shares of common stock issuable upon exercise of all outstanding warrants.

For the term of the warrants, the holders are given the opportunity to profit from an increase in the per share price of our common stock, with a resulting dilution in the interests of all other stockholders.

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INTERESTS OF NAMED EXPERTS AND COUNSEL

The law firm of Pollet, Richardson & Patel, A Law Corporation, owns 53,333 shares of our common stock. Pollet, Richardson & Patel will render an opinion regarding the validity of the securities offered in this offering. Pollet, Richardson & Patel is included as a selling shareholder in this prospectus.

DISCLOSURE OF COMMISSION POSITION ON

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Section 317 of the California General Corporation Law permits the indemnification of a corporation’s agents (which includes officers and directors) because he is a party (or he is threatened to be made a party) to any action or proceeding by reason of the fact that the person is or was an agent of the corporation or because he is a party (or he is threatened to be made a party) to any action or proceeding brought by or on behalf of a corporation. If the agent is successful on the merits in defense of any action or proceeding, the corporation must indemnify the agent against expenses actually and reasonably incurred by the agent in such defense.

Article V of our Articles of Incorporation provides that the liability of directors for monetary damages shall be eliminated to the fullest extent permissible under California law. This provision requires NuTech to indemnify its directors, as permitted by law, in excess of Section 317 of the California General Corporation Law.

Our bylaws permit us to indemnify our officers and directors, to the maximum extent permitted by the California General Corporation Law, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact any person is or was an officer or director of NuTech. In this regard, we have the power to advance to any officer or director expenses incurred in defending any such proceeding to the maximum extent permitted by law.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of NuTech pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

ORGANIZATION

NuTech Digital, Inc. is engaged in creating, licensing and distributing general entertainment products, most of which are made available through digital versatile disc, commonly known as DVDs. Our products include children’s animated films and video games, karaoke software, Japanese anime and late night programming. We distribute our products through retail stores, the Internet, and wholesale distributors.

We were incorporated in California in 1997 for the purpose of licensing, manufacturing and distributing DVD products worldwide. Prior to founding NuTech, Mr. Lee Kasper, our Chief Executive Officer, created NuTech Entertainment, Inc. a producer of karaoke software. In 1999, the assets of NuTech Entertainment, Inc. were transferred to Mr. Kasper, who subsequently transferred them into NuTech Digital, Inc.

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DESCRIPTION OF BUSINESS

Background

DVD Technology

DVD is the next generation of optical disc storage technology. It is a compact disc that can hold high quality video and audio as well as computer data. DVD encompasses home entertainment and computer data with a single digital format. Management believes that DVD will eventually replace audio CD, videotape, laserdisc, CD-ROM, and video game cartridges. DVD has widespread support from electronics and computer hardware companies, as well as from movie and music studios.

DVD has both a physical format, such as DVD-ROM, which is the base format that holds data, and application formats, such as DVD-video, which defines how video programs are stored on disc and played in a DVD-video player or DVD computer. The application formats include DVD-video, DVD-video recording, DVD-audio and DVD-audio recording. There are also special application formats for game consoles such as Sony PlayStation 2.

DVD video discs hold over two hours of high-quality digital video and up to eight tracks of digital audio, each with as many as eight channels. The discs can utilize menus and other simple interactive features. They are durable, not susceptible to magnetic fields, compact in size, and do not show signs of wear after multiple viewings. The discs can incorporate 7 different camera angles, and different viewpoints can be selected during playback. The user can instantly search for title, chapter, music track and timecode. In addition to extras such as trailers, photo galleries and biographical information, DVDs can include documentaries about the making of the film, alternate languages, commentaries from the filmaker, deleted scenes, alternate endings and music videos. Most importantly, if carefully produced, DVDs have the capability to reproduce near-studio-quality video and better-than-CD quality audio. DVD has consistently been rated superior to consumer videotape and laserdisc.

The History of DVD

The original DVD specification was developed by a group of companies and announced in September 1995. DVD was launched in Japan in November 1996. The first titles were released in the United States on March 19, 1997. Through December 1997, approximately 315,000 DVD video players were shipped in the United States and over 1 million individual DVD video discs, from approximately 900 DVD video titles, were shipped. In 2000, approximately 8.5 million DVD video players were shipped in the United States and over 182 million discs. As of June 30, 2001, approximately 151 million discs had been shipped, more than doubling the number shipped as of June 30, 2000.

The Current Market for DVD Products

According to The DVD Statistical Report, sales of DVDs increased from 74.2 million in 1999 to 204.3 million in 2000. This increase is attributed to the increase in the number of titles released for purchase by consumers on DVD and to consumers building DVD libraries. All revenues derived from sales of DVDs totaled approximately $3.41 billion in 2000, representing 32% of the video sell-through market. Concurrent with the increase of sales in the DVD format was the decline, for the second consecutive year, of VHS sales from $7.73 billion in 1999 to $7.38 billion in 2000.

DVD Entertainment Group, an industry funded nonprofit corporation that exists to promote consumer awareness of the benefits of DVD technology, believes that DVD hardware and software sales will continue to grow at accelerated paces. According to DVD Entertainment Group, consumers purchased 16.7 million DVD players in 2001, compared to 9.9 million in 2000, and purchased 364,000,000 movie and music video titles on DVD in 2001, compared to 182,000,000 titles in 2000. In 2001, consumers spent approximately $4.6 billion on DVDs, up from $1.9 billion in 2000.

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The following chart indicates, in millions, the quarterly shipments of DVD video software over the last five years.(1)

Quarter	2001	2000	1999	1998	1997
1st Quarter	69.2	29.0	11.1	3.3	N/A
2nd Quarter	81.7	33.2	13.9	4.1	N/A
3rd Quarter	75.9	42.7	29.0	5.9	2.3
4th Quarter	137.6	77.5	44.0	11.8	3.2
Yearly Total	364.4	182.4	98.0	25.1	5.5

(1) Digital Video Disc News, vol. 6, no. 1, January 14, 2002.

According to DVD Entertainment Group, there are now more than 125 DVD player models marketed under 50 different consumer electronics brands. DVD is becoming the focal point of home entertainment. According to The DVD Statistical Report, DVD households increased by 245.8% to just under 9 million in 2000, up from 2.6 million in 1999. At least one industry source anticipates that DVD spending will reach $10.7 billion in 2003 and $13.2 billion in 2005.

Our Products

We produce and sell high-quality general entertainment products for children and adults in the DVD, VHS and CD + Graphics formats. Our products are sold through the Internet, retailers, and distributors. We also provide authoring services to content providers in the entertainment industry.

Japanese Animated Films

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

We believe that anime has a strong and growing fan base, both in Asia and the United States. For the first time in history, the Academy Awards included an Oscar^™ for best animated feature film. Due to their quality and variety of subject matter, many expected anime features from Japan to be nominated along with those features produced by Disney and Dreamworks. The Cartoon Network announced that it plans to include three new anime series on its network, and in October 2001 the three-day Big Apple Anime Fest, touted as the “Cannes Film Festival of the Anime Manga Culture” was scheduled to be held in New York City. In October 2000, anime represented approximately 3.52% of all titles available in the United States. By April 2001, that percentage had grown to 4.42%.

We believe that anime, and particularly hentai, will continue to grow in popularity, and that this is evidenced by the increase in the number of anime titles now available for purchase or rental. We have invested in licensing rights to 75 anime titles, including erotic feature films, action/adventure films and horror films.

Revenues from sales of anime, including hentai, totaled approximately $1,312,868 in 2000 and $2,456,146 in 2001, which represented approximately 30% and 50% of our total sales, respectively. During the 2000 fiscal year, we licensed only 13 hentai titles, but these titles accounted for $1.1 million in sales, or 26% of all revenues earned that year. During the 2001 fiscal year, we licensed 75 hentai titles, which accounted for over $2 million in sales, or over 42% of all revenues earned that year. For this reason we have continued to license

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hentai anime products, so that we currently have 64 hentai titles, and we intend to use the proceeds of this offering to acquire the rights to an additional 100 hentai animated titles.

Children’s Animated Films and Games

We acquired 27 classic children’s animation titles and produced these in DVD format, including Alice In Wonderland, BlackBeauty, Tom Sawyer and 20,000 Leagues Under the Sea.

We are also a DVD distributor of “Shadoan”, a role-playing game set in a magical kingdom populated by princes, princesses, wizards and dragons. We believe that sales of this game may grow as more DVD players, including the Sony PlayStation 2 platforms, are purchased for family entertainment.

Our children’s products accounted for approximately $392,600 in sales during 2001, which represented approximately 8% of our revenues for that year.

Karaoke

The word “karaoke” is derived from the Japanese words “kara” meaning empty and “oke” which is the translation of the American word “orchestra”. 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.

The popularity of karaoke has risen steadily in the United States since its introduction here in or around 1985. The Singing Machine Company, the largest manufacturer of karaoke hardware, has seen sales increase from $4,000,000 in 1997 to $16,000,000 in 2000. The entire market for karaoke hardware in the United States is approximately $35,000,000, an increase of almost 650% from the market in 1997, which was $5,500,000.

The market for karaoke hardware and software is estimated to be $10 billion in the Far East, but less than $300 million in North America. We believe that there is great potential for expansion in this market, which has grown steadily in the United States. We believe that this growth trend will continue.

We produce and distribute 256 volumes of karaoke software in DVD, CD+G, and V-CD formats for use with karaoke recording equipment. One track of those tapes offers complete music and vocals for practice and the other track is instrumental only for performance by the participant. Most of the audiocassette music sold by us is accompanied by printed lyrics, and our karaoke CDs with graphics (CD+G) contain lyrics, which appear on the video screen. We contract for the reproduction of audiocassette music, which is produced by us or by an independent producer.

During 2001, karaoke products accounted for over $1.5 million in sales, which made up approximately 31.76% of our total revenues.

Late Night and Animated Films

Consumer purchases of adult entertainment products have increased dramatically. In 1999, the total worldwide adult entertainment market was estimated to be $56 billion. The industry that has come to be known broadly as late night entertainment began its transformation about 30 years ago, with the advent of home videos and the VCR. We believe that DVD has had a dramatic impact on late night programming, due to its high video clarity and menu driven features.

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During the 1980s, the availability of late night movies on videocassette and on cable television helped to legitimize the consumption of explicit material by putting it in the home setting. The result has been the legitimization of industry products by other businesses not traditionally associated with the late night entertainment industry. Video stores, long distance telephone carriers, satellite providers, and cable companies earn significant returns by supplying or investing in adult entertainment businesses, either directly or indirectly.

We license over 260 late night films, which are distributed through the Internet as well as through retailers and wholesale outlets. Fans of anime enjoy our collection of “hentai”, a combination of late night programming with animated characters.

Revenues from late night programming (not including hentai) totaled approximately $1,414,666 in 2000 and $887,714.97 in 2001, which represented approximately 33% and 18% of our total sales, respectively.

General Production Services

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

Planned Music Concert Production

It is our goal to produce live music concerts by current, well-known musical artists, which we will sell in DVD format. To date, we have not had sufficient funds to do this.

Our Suppliers and Customers

We replicate our films, music and games on DVD through three suppliers, U-Tech Media, Media Factory and L & M. If all of our replicating suppliers were to become unable to provide the volume of replication services necessary for our business, we believe that we could find other suppliers who would be able to provide these services to us at competitive prices.

During the 2001 fiscal year, sales made to a single distributor of karaoke software represented approximately 23% of all revenues earned from sales for that year. If we were to lose this distributor, we believe that we would be able to find other distributors to sell our karaoke products, or that we would be successful in marketing these products directly.

Generally, we sell all of our non-karaoke DVD and VHS products through more than 300 retail outlets, the Internet, and wholesale distributors.

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.

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Licenses and Other Intellectual Property

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

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

Competition

Nearly all of our products compete with other products and services that utilize free time or disposable income. The businesses in which we compete are, in general, highly competitive and service-oriented. We do not have long-term or exclusive service agreements with our suppliers or our customers. Business generation is based primarily on customer satisfaction with reliability, timeliness, quality and price, which has allowed us to establish long-term relationships with many of our customers.

Although our films are well established and high quality products in the general entertainment industry, we compete with entities selling similar products at retail as well as through wholesale distributors and the Internet. However, we believe that our entry into the anime market is ahead of our competitors, and provides us with a unique product that has the potential of significant growth.

Employees

We have 15 full-time employees including two in administration, two in sales, five in distribution, two in accounting, two in production, one in management information systems and one in customer service.

DESCRIPTION OF PROPERTY

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We believe that consumers like the interactive features of DVD as well as its exceptional video and audio quality, and that DVD products will eventually replace most VHS products. We do not believe that DVD technology is in danger of becoming obsolete in the immediate future. We also believe that the audience for anime will continue to grow worldwide, and that our investment in anime is well-timed. We are not aware of any trends, events or uncertainties that have, or are reasonably likely to have, a material impact on our short-term or long-term liquidity.

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

Other than our belief that DVD products and anime will continue to grow in popularity worldwide, we do not know of any trends, events or uncertainties that have had or that are reasonably expected to have a material impact on our net sales or revenues or on income from our continuing operations.

We cannot generate enough cash solely through our operations to significantly expand our library of anime or to implement our plan to produce musical concerts.

Results of Operations

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Our revenues from operations for the first three months of 2002 were $1,111,471, as compared to revenues of $962,039 for the first three months of 2001, approximately a 13.44% increase. The increase in revenues was due primarily to the overall growth of the DVD market and to the increase in the number of Japanese anime products we added to our film library.

Our gross profit from operations for the first three months of 2002 increased to $803,339 as compared to $689,654 for the first three months of 2001. Our gross margin stayed stable for the first three months of 2002, at approximately 73%, as compared to 72% for the first three months of 2001. Costs of sales increased during the first three months of 2002, to $308,132, as compared to $272,385 for the first three months of 2001. This increase in costs of sales was due to the increase in sales made during the quarter.

Selling, general and administrative costs increased by $303,020, to $883,271 for the first three months of 2002, as compared to $580,251, for the first three months of 2001, approximately a 34.4% increase. This increase is primarily attributable to expenses associated with the growth of our business, including staffing and office leasing costs.

Other income and expenses, including depreciation and amortization expenses, increased by $42,058 in the first three months of 2002, to $145,299, as compared to $103,241 in the first three months of 2001. This increase was primarily due to the fact that we purchased a number of new licenses, which were subsequently released and depreciated.

We recorded a net loss of $88,680 from operations in the first three months of 2002, as compared to net income from operations of $58,489 in the first three months of 2001. The decrease in net income is primarily attributable to expenses associated with the growth of our business that, in the first quarter of 2002, included substantial costs to attend a trade show.

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2001 Fiscal Year Compared to 2000 Fiscal Year

Our revenues from operations for the year ended December 31, 2001 were $5,021,232, as compared to revenues of $4,186,673 for the year ended December 31, 2000, a 20% increase. The increase in revenues was due primarily to the overall growth of the DVD market and to the increase in the number of Japanese anime products we added to our film library.

Our gross profit from operations for fiscal year 2001 increased to $3,886,370 as compared to $3,251,363 in fiscal year 2000. Our gross margin stayed stable in 2001, decreasing slightly to 77.3% in fiscal year 2001 from 77.6% in fiscal year 2000.

Selling, general and administrative costs increased by $1,242,467, to $3,430,563 for the year ended December 31, 2001 as compared to $2,188,096, for the prior fiscal year, a 57% increase. This increase is primarily attributable to expenses associated with the growth of our business, including staffing and office leasing costs.

Other income and expenses, including depreciation and amortization expenses, increased by $138,119 in the 2001 fiscal year, to $539,099, as compared to $400,980 in the 2000 fiscal year. This increase was primarily due to the fact that we purchased a number of new licenses, which were subsequently released and depreciated.

We recorded net income of $167,181 from operations in the 2001 fiscal year as compared to net income from operations of $860,179 in the 2000 fiscal year. The decrease in net income is primarily attributable to an increase in legal and accounting fees, our change of status from an S corporation to a C corporation for tax reporting purposes, which resulted in our paying a salary to our Chief Executive Officer and President, rather than declaring a dividend, depreciation costs associated with new licenses, and income taxes.

2000 Fiscal Year Compared to 1999 Fiscal Year

Our revenues from operations for the year ended December 31, 2000 were $4,186,673, as compared to revenues of $3,223,157 for the year ended December 31, 1999, a 30% increase. The increase in revenues was due primarily to the overall growth of the DVD market and to the addition of Japanese anime products to our film library.

Our gross profit from operations for fiscal year 2000 was $3,251,363 as compared to $2,161,635 in fiscal year 1999. Our gross margin increased to 78% in fiscal year 2000 from 67% in fiscal year 1999. The increase in gross margin was due primarily to a reduction in our replication costs. We were able to reduce our replication costs because the number of films we replicated increased, thereby allowing us to negotiate better pricing.

Selling, general and administrative costs increased by $116,819, to $1,787,116 for the year ended December 31, 2000 as compared to $1,670,297, for the prior fiscal year, a 7% increase. This increase is primarily attributable to expenses associated with the growth of our business, including staffing and office leasing costs.

Other income and expenses, including depreciation and amortization expenses, increased by $70,627 in the 2000 fiscal year, to $400,980, as compared to $330,353 in the 1999 fiscal year. This increase was primarily due to the fact that our licensing activity increased during the 2000 fiscal year.

We recorded net income of $860,179 from operations in the 2000 fiscal year as compared to a net income from operations of $39,133 in the 1999 fiscal year. The increase in net loss is primarily attributable to an increase in product sales and lower production costs.

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Liquidity and Capital Resources

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

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

At March 31, 2002, cash amounted to $34,449 as compared to $0 cash at March 31, 2001.

During the three month period ended March 31, 2002, net cash provided by operating activities was $202,802 as compared to net cash used in operating activities of $342,330 during the three month period ended March 31, 2001.

Net cash used in investing activities was $201,969 for the three month period ended March 31, 2002 as compared to $211,073 for the three month period ended March 31, 2001. These amounts reflect the purchase of property and equipment.

Net cash used by financing activities during the three months ended March 31, 2002 was $49,362 as compared to cash provided by financing activities of $523,477 for the three months ended March 31, 2001. The 2002 amount includes repayments of notes payable and our bank line of credit of $77,996 and changes in loans payable to an officer of $4,116. The 2001 amount includes proceeds from a note payable of $397,276, proceeds from a bank line of credit of $150,964 and changes in loans payable to an officer of $15,000.

2001 Fiscal Year Compared to 2000 Fiscal Year

At December 31, 2001, cash amounted to $82,978. Our primary sources of cash in fiscal 2001 consisted of cash provided by financing activities including $878,093, net of expenses, from the sale of our securities in the private offering undertaken on June 1, 2001. This was the first sale of our securities that we undertook for the purpose of raising capital. We also used our securities to pay for indebtedness incurred for professional and business services.

The primary uses of cash for the fiscal year ended December 31, 2001 consisted of licensing costs, general operating costs and expansion of our facility. We believe that cash generated by our current operations will be sufficient to continue our business for the next 12 months, however cash generated by current operations will not provide the means to allow us to expand operations by licensing a significant number of new works of anime, which are costly to obtain, or to implement our plan to produce musical concerts for the DVD format.

During the 2001 fiscal year, net cash used by operating activities was $221,018 as compared to net cash provided by operating activities of $932,222 during the 2000 fiscal year. Cash was used to increase sales, which resulted in an increase in accounts receivable, inventory and royalty advances.

Net cash used by investing activities was $744,095 for the 2001 fiscal year as compared to $863,526 for the 2000 fiscal year. These amounts reflect the purchase of property and equipment.

Net cash provided by financing activities during the 2001 fiscal year was $1,018,165 as compared to net cash used by financing activities of $96,753 for the 2000 fiscal year. Financing activities in the 2001 fiscal year consisted primarily of proceeds in the amount of $878,093 derived from a private offering of our common stock and proceeds of approximately $496,836 from a bank line of credit. Net cash used in financing activities for the 2000 fiscal year included payment of a dividend in the amount of $222,389 to our stockholders, payment of promissory notes in the amount of $690,541 and changes in loans payable to an officer in the amount of $136,810.

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The net increase in accounts receivable of $532,414 was primarily due to the fact that our sales in the fourth quarter amounted to $1.9 million. Because of our increased sales, accounts payable increased by $191,650, to $1,258,797.

2000 Fiscal Year Compared to 1999 Fiscal Year

At December 31, 2000, cash amounted to $29,976. Our primary sources of cash in the 2000 fiscal year consisted of $932,222 in cash provided by operating activities and net proceeds from a Small Business Administration loan made to us by Imperial Bank of $900,000.

The primary uses of cash for the year ended December 31, 2000 consisted of repayment of debt totaling $827,351 and a dividend to our stockholders of $222,389.

During the 2000 fiscal year, net cash provided by operating activities was $932,222 as compared to net cash provided by operating activities of $186,109 during the 1999 fiscal year.

Net cash used by investing activities was $863,526 for the 2000 fiscal year as compared to $645,085 for the 1999 fiscal year. These amounts reflect the purchase of property and equipment.

Net cash used by financing activities during the 2000 fiscal year was $96,753 as compared to cash provided by financing activities of $445,219 for the 1999 fiscal year. The year 2000 amount includes payment of a dividend in the amount of $222,389 to our stockholders, payment of promissory notes in the amount of $690,541 and changes in loans payable to an officer in the amount of $136,810. The year 1999 amount includes an increase in a loan payable to a shareholder of $189,274 and an increase in our bank line of credit of $255,945.

The net decrease in accounts receivable of $226,167 was primarily due to an increase in the collection of accounts receivable. Accounts payable decreased by $86,087, to $1,067,147, due to repayments from increased earnings.

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CERTAIN 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. As of the date of this prospectus, our unpaid principal indebtedness to these persons is set forth below.

In March 2001, we entered into an arrangement with our Vice-President, Mr. Joseph Giarmo, whereby Mr. Giarmo advanced funds in the amount of $60,000 for the acquisition of licensing rights to certain films. Mr. Giarmo receives $ .25 for each VHS or DVD unit of the films that are sub-licensed by us. Our obligation under this agreement will terminate once it has paid to Mr. Giarmo a total of $120,000. To date, Mr. Giarmo has been paid $10,000 in accordance with this arrangement.

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

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

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

In October 2000, we received an unsecured loan in the amount of $100,000 from Mrs. Elynor Kasper, Mr. Lee Kasper’s mother. Simple interest accrues on this loan at the rate of 10% per year. The unpaid principal balance of this loan is $60,000. We are current on all interest payments.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

At this time there is no public trading market for our common stock.

We currently have a total of 10,380,169 shares of our common stock outstanding.

We also have outstanding warrants that were issued in conjunction with a private offering of our common stock undertaken on June 1, 2001. These warrants, if exercised, would permit shareholders to purchase an additional 703,444 shares of our common stock. These warrants may be exercised until November 1, 2002, at which time they will expire if not exercised. The price for each share of common stock purchased in accordance with the warrants is $3.00.

Upon completion of this offering, assuming all of the warrants are exercised and all of the shares are purchased, we will have outstanding 13,530,280 shares of common stock, of which 5,930,030 will be freely tradable, without restriction, except for restrictions imposed by certain state regulatory authorities. We issued the remaining 7,600,250 shares of outstanding common stock in private transactions in reliance upon exemptions from registration under the Securities Act. Those shares may be sold only if we file a registration statement or if there is an applicable exemption from registration. Rule 144 of the Securities Act of 1933 is not available for the resale of our common stock. Other than the common stock being registered for the selling shareholders in this offering, we have no agreement with any shareholder to register our securities.

In accordance with the NuTech Digital, Inc. 2001 Equity Incentive Plan we have also issued options to employees to purchase a total of 1,705,000 shares of our common stock. The options will expire 10 years from

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the date of grant, with the exception of options granted to our Chief Executive Officer and President, Mr. Lee Kasper, whose options will expire 5 years from the date of grant. The price for each share of common stock purchased pursuant to the options is $1.50.

Holders

We currently have 50 record holders of our common stock.

Dividends

We have not paid any cash dividends (with the exception of dividends paid to our founder and Chief Executive Officer and President, Mr. Lee Kasper, while NuTech was an S corporation for tax reporting purposes) and we currently intend to retain any future earnings to fund the development and growth of our business. Any future determination to pay dividends on our common stock will depend upon our results of operations, financial condition and capital requirements, applicable restrictions under any credit facilities or other contractual arrangements and such other factors deemed relevant by our Board of Directors.

Where You Can Find Further Information About Us

We filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act with respect to the shares being offered in this offering. This prospectus does not contain all of the information set forth in the registration statement, certain items of which are omitted in accordance with the rules and regulations of the Commission. The omitted information may be inspected and copied, at prescribed rates, at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. Statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are not necessarily complete, and in each instance where reference is made to the copy of the document filed as an exhibit to the registration statement, each such statement is qualified in all respects by such reference. For further information with respect to NuTech and the securities being offered in this offering, reference is hereby made to the registration statement, including the exhibits thereto and the financial statements, notes, and schedules filed as a part thereof.

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EXECUTIVE COMPENSATION

The following table shows the compensation paid over the past three fiscal years with respect to our Chief Executive Officer, President and Chief Financial Officer and our Vice President. There are no additional individuals who would be included in this table but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year:

SUMMARY COMPENSATION TABLE

							Long Term Compensation
		Annual Compensation					Awards		Payouts
Name and Principal Position	Year	Salary ($)			Bonus ($)	Other Annual Compen- sation ($)	Restricted Stock Awards ($)	Securities Underlying Options/ SARs(1)	LTIP Payout ($)	All Other Compen- sation ($)
Lee Kasper	2001	$	506,673	(1)		—	—	—	—	$	39,600
Director, CEO,	2000	$	222,389	(1)		—	—	—	—	$	15,048
President, CFO	1999		0			—	—	—	—	$	12,540
Joseph Giarmo	2001	$	131,553			—	—	—	—		—
Vice President	2000	$	135,872			—	—	—	—		—
	1999	$	91,229			—	—	—	—		—

(1) Of the amount shown as compensation paid to Mr. Kasper in 2001, $362,673 was paid to him as a dividend and $180,000 was paid as salary. The amount shown as compensation paid to Mr. Kasper in 2000 was paid as a dividend.

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

Directors are not currently paid compensation for their services. Our bylaws permit us to compensate our directors, however, upon resolution of the Board of Directors.

Employment Agreements

We have no employment agreements with our named executive officers.

Equity Incentive Plan

Our Board of Directors and our stockholders have approved the NuTech Digital, Inc. 2001 Equity Incentive Plan which permits us to grant, for a ten year period, both stock purchase rights and stock options. We have reserved 3,500,000 shares of our common stock for issuance to our directors, employees and consultants under the Plan. The Plan is administered by the Board of Directors, who will be referred to as the “Administrator”. The Administrator has the authority and discretion, subject to the provisions of the Plan, to select persons to whom stock purchase rights or options will be granted, to designate the number of shares to be covered by each option or stock purchase right, to specify the type of consideration to be paid, and to establish all other terms and conditions of each option or stock purchase right. Options granted under the Plan will not have a term that exceeds ten years from date of grant. As of the date of this prospectus, we have granted 1,705,000 awards under the Plan.

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

Option/SAR Grants for Last

Fiscal Year-Individual Grants(1)

Name	Number of Securities Underlying Options/SARs Granted (#)	% of Total Options/SARs Granted to Employees in Fiscal Year	Exercise Price ($/sh)	Expiration Date
Lee Kasper	-0-	-0-	-0-	-0-
Joseph Giarmo	-0-	-0-	-0-	-0-

(1) Although no grants of options were made to Mr. Kasper and Mr. Giarmo during the 2001 fiscal year, in April 2002 the Board of Directors granted to Mr. Kasper an option to purchase 500,000 shares of our common stock at an exercise price of $1.50 and to Mr. Giarmo an option to purchase 300,000 shares of our common stock, also at an exercise price of $1.50. These grants were made through the NuTech Digital, Inc. 2001 Equity Incentive Plan.

Aggregated Option/SAR Exercises in Last Fiscal Year

And FY-End Option/SAR Values(1)

Name	Shares Acquired on Exercise (#)	Value Realized(1) ($)	Number of Unexercised Options/SARs at FY-End (#) Unexercisable/ Exercisable	Value of Unexercised In-the-Money Options/SARs at FY-End ($)(2) Unexercisable/ Exercisable
Lee Kasper	-0-	-0-	0/0	$	0/$0
Joseph Giarmo	-0-	-0-	0/0	$	0/$0

(1) Value Realized is determined by calculating the difference between the aggregate exercise price of the options and the aggregate fair market value of the common stock on the date the options are exercised.

(2) The value of unexercised options is determined by calculating the difference between the fair market value of the securities underlying the options at fiscal year end and the exercise price of the options.

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NOTE RELATING TO OUR FINANCIAL STATEMENTS

On February 12, 2002, we entered into a proposed public offering agreement with Roan/Meyers Associates, L.P. serving as the managing underwriter. The audit of our financial statements was completed on March 12, 2002. Note 21 of our audited financial statements discusses this proposed transaction. In April 2002, the agreement with Roan/Meyers Associates, L.P. was terminated.

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INDEX TO FINANCIAL STATEMENTS

	Page
Independent Auditors’ Report	F-2
Balance Sheets at December 31, 2001 and 2000	F-3
Statements of Income for the years December 31, 2001 and 2000	F-4
Statement of Stockholders’ Equity for the years December 31, 2001 and 2000	F-5
Statements of Cash Flows for the years December 31, 2001 and 2000	F-6
Notes to the Financial Statements	F-7
Independent Accountants’ Review Report	F-16
Balance Sheets at March 31, 2002 and 2001	F-17
Statements of Income for the three months ended March 31, 2002 and 2001	F-18
Statement of Stockholders’ Equity for the three months ended March 31, 2002 and 2001	F-19
Statements of Cash Flows of NuTech Digital, Inc. for the three months ended March 31, 2002 and 2001	F-20
Notes to the Financial Statements	F-21

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

NuTech Digital, Inc.

We have audited the accompanying balance sheets of NuTech Digital, Inc. as of December 31, 2001 and 2000 and the related statements of income, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 NuTech Digital, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

MOFFITT & COMPANY, P.C.

SCOTTSDALE, ARIZONA

March 2, 2002

F-2

NUTECH DIGITAL, INC.

BALANCE SHEETS

FOR DECEMBER 31, 2001 AND 2000

	December 31,
	2001		2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	82,978	$	29,926
Accounts receivable		939,166		416,752
Insurance recovery and other receivables		0		1,300
Advance to officer		0		0
Corporation income tax refund		0		0
Inventory		897,999		616,092
Royalty advances, current portion		627,817		198,482
Prepaid expenses, current portion		49,675		12,436
Deferred Tax Asset		12,200		0
Total current assets		2,609,835		1,274,988
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION		1,803,370		1,598,374
OTHER ASSETS
Royalty advances, net of current portion		258,860		183,000
Prepaid expenses, net of current portion		16,334		19,899
Deposits		7,800		6,600
Total other assets		282,994		209,499
Total assets	$	4,696,199	$	3,082,861
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank overdraft	$	0	$	52,987
Accounts payable
U-Tech Media Corporation		391,295		0
Other		867,502		1,067,147
Loan payable, officer		4,116		0
Customer deposits		0		6,500
Accrued liabilities		135,834		125,601
Corporation income taxes payable		33,509		0
Note payable, line of credit		496,836		258,896
Notes payable, other, current portion		942,913		129,808
Total current liabilities		2,872,005		1,640,939
LONG TERM LIABILITIES
Notes payable, other, long term portion		770,333		1,225,762
Deferred tax liability		13,600		0
Total long term liabilities		783,933		1,225,762
STOCKHOLDERS’ EQUITY
Common Stock
Authorized—100,000,000 shares, no par value
Issued and outstanding:
December 31, 2001—10,013,551 shares	$	984,643	$	0
December 31, 2000—8,300,250 shares		0		1,050
Retained earnings		55,618		215,110
Total stockholders equity		1,040,261		216,160
Total liabilities and stockholders’ equity	$	4,696,199	$	3,082,861

See Accompanying Notes and Independent Auditors’ Report.

F-3

NUTECH DIGITAL, INC.

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

	2001		2000
Sales	$	5,021,232	$	4,186,673
Costs of sales		1,134,862		935,310
Gross profit		3,886,370		3,251,363
Selling, general and administrative expenses		3,430,563		2,188,096
Operating income		455,807		1,063,267
Interest expense		253,717		203,088
Income before corporation income taxes		202,090		860,179
Corporation income taxes		34,909		0
Net income	$	167,181	$	860,179
Net income per common share
Basic and diluted	$	.02	$	.10
Weighted average number of common shares outstanding
Basic and diluted		8,992,496		8,300,250

See Accompanying Notes and Independent Auditors’ Report.

F-4

NUTECH DIGITAL, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

	Common Stock				Retained Earnings			Total
	Shares	Amount
Balance, January 1, 2000	7,905,000	$	1,000		$	(422,680	)	$	(421,680	)
Issuance of common stock for services	395,250		50			0			50
Dividends paid	0		0			(222,389	)		(222,389	)
Net income for the year ended December 31, 2000	0		0			860,179			860,179
Balance, December 31, 2000	8,300,250		1,050			215,110			216,160
Issuance of common stock for:
Cash-private placement	633,446		950,200			0			950,200
Options	100,000		100,000			0			100,000
Services	850,000		25,500			0			25,500
Accounts payable	53,333		80,000			0			80,000
Costs incurred for private placement—paid by:
Cash	0		(172,107	)		0			(172,107	)
Services	76,522		114,783			0			0
			(114,783	)
Dividends paid	0		0			(326,673	)		(326,673	)
Net income for the year ended December 31, 2001	0		0			167,181			167,181
Balance, December 31, 2001	10,013,551	$	984,643		$	55,618		$	1,040,261

See Accompanying Notes and Independent Auditors’ Report.

F-5

NUTECH DIGITAL, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

	2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	167,181		$	860,179
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation		539,099			400,980
Allowance of doubtful accounts		10,000			30,000
Issuance of common stock for services		25,500			50
Deferred tax assets/liabilities		1,400			0
Changes in operating assets and liabilities:
Accounts receivable		(532,414	)		196,167
Insurance recovery and other receivables		1,300			23,700
Inventories		(281,907	)		(319,294	)
Royalty advances		(505,195	)		1,624
Prepaid expenses		(33,674	)		(27,600	)
Deposits		(1,200	)		0
Accounts payable		351,650			(86,087	)
Customer deposits		(6,500	)		(89,226	)
Accrued liabilities		10,233			(58,271	)
Corporation income taxes payable		33,509			0
Net cash provided (used) by operating activities		(221,018	)		932,222
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(744,095	)		(863,526	)
Net cash (used) by investing activities		(744,095	)		(863,526	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft		(52,987	)		52,987
Dividends paid		(326,673	)		(222,389	)
Net proceeds from issuance of common stock		878,093			0
Proceeds from notes payable, other		388,439			900,000
Repayments of notes payable and bank lines of credit		(369,659	)		(690,541	)
Proceeds from bank line of credit		496,836			0
Changes in loans payable, officer		4,116			(136,810	)
Net cash provided (used) by financing activities		1,018,165			(96,753	)
Net increase (decrease) in cash	$	53,052		$	(28,057	)
Cash balance at beginning of year		29,926			57,983
Cash balance at end of year	$	82,978		$	29,926
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest	$	232,849		$	198,966
Taxes	$	5,469		$	0
Non-cash investing and financing activities:
Issuance of common stock for services	$	25,500		$	50
Issuance of common stock for accounts payable	$	80,000		$	0
Issuance of common stock for private placement Costs	$	114,783		$	0

See Accompanying Notes and Independent Auditors’ Report.

F-6

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001 AND 2000

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Restatement of Common Stock

In May, 2001, the Company effected a stock split whereby each stockholder received 7,905 shares for every 1 share owned. The stock split has been retroactively recorded in the financial statements as if it occurred at the date of inception.

Cash and Cash Equivalents

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

Inventories

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

Property and Equipment

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

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

Completed Masters	7 years
Office furniture and equipment	7 years
Computer equipment	5–7 years
Warehouse equipment	7–10 years
Trade show equipment	7 years
Leasehold improvements	3–10 years

Accounting Estimates

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. 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.

See Accompanying Notes and Independent Auditors’ Report.

F-7

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

Revenue Recognition

The Company recognizes revenue from product sales when the goods are shipped and title passes to customers.

Disclosure About Fair Value of Financial Instruments

The Company has financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at December 31, 2001 and 2000 as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. 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 Per Share

The Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings 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 per share are excluded.

Income Taxes

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

Common Stock Issued for Non-Cash Transactions

It is the Company’s policy to value stock issued for non-cash transactions, such as services, at the fair market value at the date the transaction is negotiated. The number of shares issued for the $25,500 of services rendered were negotiated before the private placement.

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

See Accompanying Notes and Independent Auditors’ Report.

F-8

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. This standard did not have a material effect on the Company’s results of operations, cash flows or financial position.

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 income. These costs for the years ended December 31, 2001 and 2000 amounted to $115,133 and $36,618, respectively.

NOTE 2.    ACCOUNTS RECEIVABLE

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

	2001		2000
Accounts receivable	$	979,166	$	446,752
Allowance for doubtful accounts		40,000		30,000
Net accounts receivable	$	939,166	$	416,752

NOTE 3.    INVENTORIES

The inventories are comprised of completed DVDs and karaoke CDs.

NOTE 4.    ADVANCE ROYALTIES

The Company has acquired the licensing, manufacturing and distribution rights to various movies from the owners of the titles. The Company pays royalties from 20%–30% of the net sales proceeds. Royalty costs for the years ended December 31, 2001 and 2000 were $626,577 and $535,746, respectively.

NOTE 5.    PROPERTY AND EQUIPMENT

Property and equipment and accumulated depreciation and amortization consists of :

	2001		2000
Completed masters	$	3,590,602	$	3,123,041
Office furniture and equipment		102,033		51,998
Computer equipment		155,202		97,244
Warehouse equipment		96,086		19,618
Trade show equipment		21,940		16,840
Leasehold improvements		86,972		30,943
		4,052,835		3,339,684
Less accumulated depreciation		2,249,465		1,741,310
	$	1,803,370	$	1,598,374

See Accompanying Notes and Independent Auditors’ Report.

F-9

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

NOTE 6.    LOAN PAYABLE, OFFICER

Periodically, the president of the Company will advance the Company funds to pay corporation obligations. The balance due to the officer is payable on demand, bears interest at 7% and is unsecured. The loan balance at December 31, 2001 was $4,116.

NOTE 7.    CUSTOMER DEPOSITS

In certain circumstances, the Company obtains a portion of the sales price when orders are received. These funds are recorded as customer deposits and are applied to the customer invoices when the merchandise is shipped.

NOTE 8.    INCOME TAXES

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

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

Income tax estimated to be payable currently	$	33,509
Deferred income tax		1,400
Total provision	$	34,909

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

Tax at U.S. federal statutory income tax rates	$	23,987
State income taxes		9,522
Benefits and taxes due to timing differences for expense deductions		1,400
Total income tax	$	34,909

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

Deferred tax assets:
Timing differences for expense deductions	$	12,200
Valuation allowance		0
Deferred tax asset, net of valuation allowance	$	12,200
Deferred tax liabilities:
Depreciation	$	13,600

See Accompanying Notes and Independent Auditors’ Report.

F-10

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

Summary of valuation allowance:
At date converted from S corporation to C corporation	$	0
Addition for C corporation year		0
Valuation allowance at December 31, 2001	$	0

Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that it is more likely than not that the net deferred tax assets will be realized. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future taxable income is lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable temporary differences.

NOTE 9.    NOTES PAYABLE, LINE OF CREDIT

	2001		2000
On January 27, 1998, the Company received a $400,000 line of credit from Pre-Banc Business Credit, Inc. The note was secured by all assets of the Company and accrued interest at  1/12 of 1% per day with a monthly minimum interest charge of $1,000	$	0	$	258,896
On March 20, 2001, the Company received a $500,000 revolving line of credit from U.S. Bank National Association. The loan is secured by a first priority security interest in accounts receivable, inventory, equipment and general intangibles. The note bears interest at 1.75% over prime and requires monthly payments of interest with the principal balance due on April 30, 2002. The note is guaranteed by the principal stockholder of the corporation. The note contains covenants regarding working capital and debt to equity ratios		496,836		0
	$	496,836	$	258,896

See Accompanying Notes and Independent Auditors’ Report.

F-11

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

NOTE 10.    NOTES PAYABLE, OTHER

	2001		2000
RITEK CORP.	$	400,000	$	400,000
In August 1998, the Company received a $400,000 loan from Ritek Corp. The loan is secured by a deed of trust on property owned by the principal stockholder, accrues interest at 8.5% per annum and entitles Ritek Corp. 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 could become 100% owner and license holder of the title “Shadoan”. As of the date of this report, Ritek has not asked for the ownership rights to Shadoan, and Ritek is accepting monthly interest payments on the note.
SMALL BUSINESS ADMINISTRATION LOAN AND COMERICA     BANK LOAN		831,470		880,570
On July 12, 2000, the Company received a $900,000 Small Business Administration loan with Comerica Bank participation. The loan requires monthly payments of $11,569 including interest at 2% over prime. The loan is secured by all assets of the Company and the major stockholder’s personal residence and personal guaranty. The loan matures on July 12, 2010.
ADVANCED MEDIA POST		210,000		0
On March 1, 2001, the Company received a $210,000 loan from Advanced Media Post. The note requires monthly interest payments of $1,750 (10%) and is due on May 1, 2002. The loan is unsecured and is guaranteed by the principal stockholder of the corporation. (See Note 20)
ELYNOR KASPER (MOTHER OF THE PRESIDENT OF THE COMPANY)		60,000		75,000
Unsecured, 10% note with no due date.
ANNABELLE SCHNITMAN		58,337		0
On February 13, 2001, the Company received a $100,000 loan from Annabelle Schnitman. The note is unsecured and does not have a stated interest rate. However, the Company is required to make monthly payments of $16,666 (totaling $200,000) on the loan. The loan is due on July 20, 2002.
JOE GIARMO		55,000		0
On March 5, 2001, the Company received a $60,000 loan from Joe Giarmo. The Company is required to repay this loan on a monthly basis determined by paying $0.25 for each VHS or DVD sold pursuant to the KSS Inc. license until $120,000 is repaid.
URBACH, KAHN & WERLIN		80,000		0
On December 31, 2001, the Company converted an account payable with Urbach, Kahn & Werlin into a note payable. The note is secured by all assets of the Company, requires monthly payments of $6,932 including interest at 7.25% and matures on June 28, 2002. (See Note 20)
OTHER NOTES		18,439		0
The Company has three loans from children of the principal stockholder. The loans are unsecured, bear interest at 7% and are payable on demand.
Total notes		1,713,246		1,355,570
Less current portion		942,913		129,808
Long-term portion	$	770,333	$	1,225,762

See Accompanying Notes and Independent Auditors’ Report.

F-12

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

Maturities on long-term debt are as follows:

December 31, 2002	$	942,913
December 31, 2003		68,211
December 31, 2004		76,105
December 31, 2005		84,912
Thereafter		541,105
	$	1,713,246

NOTE 11.    ADVERTISING

The Company expenses all advertising as incurred. Advertising expenses for the years ended December 31, 2001 and 2000 were $39,954 and $52,898, respectively.

NOTE 12.    REAL ESTATE LEASE

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

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

B. Termination date—July 31, 2006

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

Future minimum lease payments excluding operating expenses are as follows:

December 31, 2002	$	93,600
December 31, 2003		93,600
December 31, 2004		93,600
December 31, 2005		93,600
December 31, 2006		93,600

The rent expense for the years ended December 31, 2001 and 2000 was $68,930 and $48,224, respectively.

NOTE 13.    LEGAL AND ACCOUNTING FEES

Legal and accounting fees for the years ended December 31, 2001 and 2000 were $122,030 and $261,449, respectively.

NOTE 14.    EQUITY INCENTIVE PLAN

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 2,500,000 shares of its common stock for issuance to the directors, employees and consultants under the Plan. The Plan is administered by the Board of Directors. The administrator has the

See Accompanying Notes and Independent Auditors’ Report.

F-13

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

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 the date of this report, the Company has not issued any stock options.

NOTE 15.    COMMON STOCK PURCHASE WARRANTS

The following is a summary of the stock purchase warrants outstanding as of December 31, 2001:

Number of shares	633,446
Price per share	$3.00
Expiration date	May 31, 2011

NOTE 16.    MAJOR CUSTOMERS

	2001		2000
The Company has one customer that accounted for the following percentage of company sales	10	%	23	%

NOTE 17.    MAJOR SUPPLIERS

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

In the year ended December 31, 2000, the Company purchased from 13%–30% of its merchandise from three suppliers.

NOTE 18.    STOCK ACQUISITION AGREEMENT

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

NOTE 19.    PRIVATE PLACEMENT

On May 25, 2001, the Company issued a private placement for 120 units with each unit consisting of 16,666 shares of common stock at a purchase price of $1.50 per share ($25,000 per unit) and a warrant to purchase 16,666 shares of common stock at $3.00 per share.

The total offering was for 1,999,920 shares of which 633,446 shares were issued as of December 31, 2001 and an additional 16,666 shares were issued from January 1, 2002 to the date of this report.

See Accompanying Notes and Independent Auditors’ Report.

F-14

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2001 AND 2000

NOTE 20.    SUBSEQUENT ISSUANCES OF COMMON STOCK

Subsequent to December 31, 2001, the Company issued the following shares of common stock for:

Cash—16,666 shares for	$	25,000
Note payable—Urbach, Kahn & Werlin—53,333 shares for		80,000
Note payable—Advance Media Post—165,000 shares for		247,500

NOTE 21.    PROPOSED PUBLIC OFFERING OF SECURITIES

On February 12, 2002, the Company entered into a proposed public offering agreement with Roan/Meyers Associates, L.P. serving as the managing underwriter.

The terms of the proposed initial public offering are:

A. 1,000,000 units consisting of one share of the Company’s common stock and one class A redeemable common stock purchase warrant.

B. Compensation to underwriter

1. 10% of the proceeds received from the sale of the securities.

2. 3% nonaccountable expense allowance of which the Company will deposit $60,000 as an advance for these proposed costs.

C. Concurrent with the closing of the offering, the Company shall sell to the underwriter warrants covering a number of securities equal to 10% of the number of securities being sold in the offering. The purchase price of the warrants shall be $.001 per warrant. The warrant shall not be exercisable for one year after the date on which the Securities and Exchange Commission declares the Registration Statement for the securities to be effective and will expire four years after such date. The warrants will be exercisable at a price equal to 120% of the public offering price.

D. Enter a consulting agreement whereby Roan/Meyers will receive between 2 ¹/2 to 5% of any future financing obtained by Roan/Meyers.

NOTE 22.    PROFORMA NET INCOME

Proforma net income if the corporation was taxed as a regular corporation for the whole year:

Income before corporation income taxes	$	202,090	$	860,179
Corporation income taxes		73,000		266,600
Proforma net income	$	129,090	$	593,579
Net income per common share:
Basic and diluted
Proforma net income	$	.01	$	.07
Weighted average number of common Shares outstanding		8,992,496		8,300,250

See Accompanying Notes and Independent Auditors’ Report.

F-15

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

To the Board of Directors and Stockholders

NuTech Digital, Inc.

We have reviewed the accompanying balance sheet of NuTech Digital, Inc. as of March 31, 2002 and the related statements of income and cash flows for the three months ended March 31, 2002 and 2001 and the statement of stockholders’ equity for the three months ended March 31, 2002 in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of NuTech Digital, Inc.

A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

We have audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of NuTech Digital, Inc. as of December 31, 2001, and the related statements of income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 2, 2002 we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 2001, is fairly stated in all material respects in relation to the balance sheet from which it has been derived.

MOFFITT & COMPANY, P.C.

SCOTTSDALE, ARIZONA

April 23, 2002

F-16

NUTECH DIGITAL, INC.

BALANCE SHEETS

MARCH 31, 2002 AND DECEMBER 31, 2001

	March 31, 2002			December 31, 2001
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash	$	34,449		$	82,978
Accounts receivable, net		565,213			939,166
Advance to officer		16,237			0
Corporation income tax refund		44,522			0
Inventory		988,227			897,999
Royalty advances, current portion		315,312			627,817
Prepaid expenses, current portion		160,505			49,675
Deferred tax asset		40,017			12,200
Total current assets		2,164,482			2,609,835
Property and equipment, net of accumulated depreciation and amortization		1,860,040			1,803,370
OTHER ASSETS
Royalty advances, net of current portion		792,788			258,860
Prepaid expenses, net of current portion		18,656			16,334
Deposits		7,800			7,800
Total other assets		819,244			282,994
Total assets	$	4,843,766		$	4,696,199
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,587,315		$	1,258,797
Loan payable, officer		0			4,116
Customer deposits		75,512			135,834
Accrued liabilities		9,522			33,509
Corporation income taxes payable		453,000			496,836
Note payable, line of credit		652,593			942,913
Notes payable, other, current portion		2,777,942			2,872,005
Total current liabilities
LONG TERM LIABILITIES
Notes payable, other, long term portion		746,493			770,333
Deferred tax liability		17,500			13,600
Total long term liabilities		763,993			783,933
STOCKHOLDERS’ EQUITY
Common Stock Authorized—100,000,000 shares, no par value issued and outstanding:
March 31, 2002—10,248,550	$	1,334,893		$	0
December 31, 2001—10,013,551 shares		0			984,643
Retained earnings (deficit)		(33,062	)		55,618
Total stockholders’ equity		1,301,831			1,040,261
Total liabilities and stockholders’ equity	$	4,843,766		$	4,696,199

See Accompanying Notes and Independent Accountants’ Review Report.

F-17

NUTECH DIGITAL, INC.

STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

(UNAUDITED)

	2002			2001
Sales	$	1,111,471		$	962,039
Costs of sales		308,132			272,385
Gross profit		803,339			689,654
Selling, general and administrative expenses		883,271			580,251
Operating income (loss)		(79,932	)		109,403
Interest expense		66,174			50,914
Income before corporation income taxes (benefit)		(146,106	)		58,489
Corporation income taxes (benefit)		(57,426	)		0
Net income (loss)	$	(88,680	)	$	58,489
Net income per common share:
Basic and diluted	$	(.01	)	$	.01
Weighted average number of common shares outstanding
Basic and diluted		10,097,440			8,300,250

See Accompanying Notes and Independent Accountants’ Review Report.

F-18

NUTECH DIGITAL, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2002

(UNAUDITED)

	Common Stock				Retained Earnings (Deficit)			Total
	Shares	Amount
Balance, January 1, 2002	10,013,551	$	984,643		$	55,618		$	1,040,261
Issuance of common stock for:
Cash-private placement	16,666		25,000			0			25,000
Notes payable	218,333		327,500			0			327,500
Costs incurred for private placement—paid by cash	0		(2,250	)		0			(2,250	)
Net (loss) for the three months ended March 31, 2002	0		0			(88,680	)		(88,680	)
Balance, March 31, 2002	10,248,550	$	1,334,893		$	(33,062	)	$	1,301,831

See Accompanying Notes and Independent Accountants’ Review Report.

F-19

NUTECH DIGITAL, INC.

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

(UNAUDITED)

	2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(88,680	)	$	58,489
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation		145,299			103,241
Deferred tax assets/liabilities		(23,917	)		0
Changes in operating assets and liabilities:
Accounts receivable		373,953			241,738
Advance to officer		(16,237	)		(52,385	)
Corporation income tax refund		(44,522	)		0
Inventories		(90,228	)		10,250
Royalty advances		(221,423	)		(233,300	)
Prepaid expenses		(113,152	)		(23,466	)
Accounts payable		328,518			(458,260	)
Accrued liabilities		(22,822	)		11,363
Corporation income taxes payable		(23,987	)		0
Net cash provided (used) by operating activities		202,802			(342,330	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(201,969	)		(211,073	)
Net cash (used) by investing activities		(201,969	)		(211,073	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft		0			(39,763	)
Net proceeds from issuance of common stock		22,750			0
Proceeds from notes payable, other		10,000			397,276
Repayments of notes payable and bank lines of credit		(77,996	)		0
Proceeds from bank line of credit		0			150,964
Changes in loans payable, officer		(4,116	)		15,000
Net cash provided (used) by financing activities		(49,362	)		523,477
Net (decrease) in cash		(48,529	)		(29,926	)
Cash balance at beginning of period		82,978			29,926
Cash balance at end of period	$	34,449		$	0
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest	$	101,748		$	232,849
Taxes	$	30,000		$	5,469
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for services	$	0		$	25,500
Issuance of common stock for accounts and notes payable	$	327,500		$	80,000
Issuance of common stock for private placement costs	$	0		$	114,783

See Accompanying Notes and Independent Accountants’ Review Report.

F-20

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2002 AND 2001

(UNAUDITED)

NOTE 1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Restatement of Common Stock

In May, 2001, the Company effected a stock split whereby each stockholder received 7,905 shares for every 1 share owned. The stock split has been retroactively recorded in the financial statements as if it occurred at the date of inception.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are reported at the customers’ outstanding balances less any allowance for doubtful accounts.

Allowance for Doubtful Accounts

The allowance for doubtful accounts on accounts receivables is charged to income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any possible losses.

Inventories

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

Property and Equipment

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

See Accompanying Notes and Independent Accountants’ Review Report.

F-21

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

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
Warehouse equipment	7–10 years
Trade show equipment	7 years
Leasehold improvements	3–10 years

Accounting Estimates

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

Revenue Recognition

The Company recognizes revenue from product sales when the goods are shipped and title passes to customers.

Disclosure About Fair Value of Financial Instruments

The Company has financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at March 31, 2002 and December 31, 2001 as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Net Earnings (Loss) Per Share

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

Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax basis 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.

See Accompanying Notes and Independent Accountants’ Review Report.

F-22

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

Common Stock Issued for Non-Cash Transactions

It is the Company’s policy to value stock issued for non-cash transactions, such as services, at the fair market value at the date the transaction is negotiated.

Long-Lived Assets

Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. This standard did not have a material effect on the Company’s results of operations, cash flows or financial position.

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 income. These costs for the three months ended March 31, 2002 and 2001 amounted to $28,476 and $10,852, respectively.

NOTE 2.    ACCOUNTS RECEIVABLE

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

	2002		2001
Accounts receivable	$	605,213	$	979,166
Allowance for doubtful accounts		40,000		40,000
Net accounts receivable	$	565,213	$	939,166

NOTE 3.    INVENTORIES

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

NOTE 4.    ADVANCE ROYALTIES

The Company has acquired the licensing, manufacturing and distribution rights to various movies from the owners of the titles. The Company pays royalties from 20%-30% of the net sales proceeds. Royalty costs for the three months ended March 31, 2002 and 2001 were $97,394 and $77,879, respectively.

See Accompanying Notes and Independent Accountants’ Review Report.

F-23

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

NOTE 5.    PROPERTY AND EQUIPMENT

Property and equipment and accumulated depreciation and amortization consists of:

	March 31, 2002		December 31, 2001
	(Unaudited)		(Audited)
Completed masters	$	3,786,290	$	3,590,602
Office furniture and equipment		102,033		102,033
Computer equipment		160,901		155,202
Warehouse equipment		96,086		96,086
Trade show equipment		21,940		21,940
Leasehold improvements		87,554		86,972
		4,254,804		4,052,835
Less accumulated depreciation		2,394,764		2,249,465
	$	1,860,040	$	1,803,370

NOTE 6.    INCOME TAXES

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

On June 1, 2001, the corporation became taxed as a C corporation. The provision for income tax for the three months ended March 31, 2002 is estimated as follows:

Income tax estimated to be refunded currently	$	0
Deferred income tax (benefit)		(57,426	)
Total tax (benefit)	$	(57,426	)

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

Tax (benefit) at U.S. federal statutory income tax rates	$	(33,509	)
Benefits and taxes due to timing differences for expense deductions		(23,917	)
Total income tax (benefit)	$	(57,426	)

See Accompanying Notes and Independent Accountants’ Review Report.

F-24

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

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

Deferred tax assets:
Timing differences for expense deductions	$	40,017
Valuation allowance		0
Deferred tax asset, net of valuation allowance	$	40,017
Deferred tax liabilities:
Depreciation	$	17,500

Summary of valuation allowance:

Balance at January 1, 2002	$	0
Addition for the three months ended March 31, 2002		0
Balance at March 31, 2002	$	0

Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that it is more likely than not that the net deferred tax assets will be realized. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future taxable income is lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable temporary differences.

NOTE 7.    NOTES PAYABLE, LINE OF CREDIT

	March 31, 2002		December 31, 2001
	(Unaudited)		(Audited)
On March 20, 2002, the Company received a $650,000 revolving line of credit from U.S. Bank National Association. The loan is secured by a first priority security interest in accounts receivable, inventory, equipment and general intangibles. The note bears interest at 1.75% over prime and requires monthly payments of interest with the principal balance due on April 30, 2003. The note is guaranteed by the principal stockholder of the corporation. The note contains covenants regarding working capital and debt to equity ratios, tangible net worth and matures on April 30, 2003	$	453,000	$	496,836

See Accompanying Notes and Independent Accountants’ Review Report.

F-25

NuTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

NOTE 8.    NOTES PAYABLE, OTHER

	March 31, 2002		December 31, 2001
	(Unaudited)		(Audited)
RITEK CORP.	$	400,000	$400,000
In August 1998, the Company received a $400,000 loan from Ritek Corp. The loan is secured by a deed of trust on property owned by the principal stockholder, accrues interest at 8.5% per annum and entitles Ritek Corp. 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 could become 100% owner and license holder of the title “Shadoan”. As of the date of this report, Ritek has not asked for the ownership rights to Shadoan, and Ritek is accepting monthly interest payments on the note.
SMALL BUSINESS ADMINISTRATION LOAN AND COMERICA BANK LOAN		813,976	831,470
On July 12, 2000, the Company received a $900,000 Small Business Administration loan with Comerica Bank participation. The loan requires monthly payments of $10,582 including interest at 2% over prime. The loan is secured by all assets of the Company and the major stockholder’s personal residence and personal guaranty. The  loan matures on July 12, 2010.
ADVANCED MEDIA POST		0	210,000
On March 1, 2001, the Company received a $210,000 loan from Advanced Media Post. The note requires monthly interest payments of $1,750 (10%) and is due on May 1, 2002. The loan is unsecured and is guaranteed by the principal stockholder of the corporation. The Company paid this note by issuing 165,000 shares of common stock.
ELYNOR KASPER (MOTHER OF THE PRESIDENT OF THE COMPANY)		60,000	60,000
Unsecured, 10% note with no due date.
ANNABELLE SCHNITMAN		41,671	58,337
On February 13, 2001, the Company received a $100,000 loan from Annabelle Schnitman. The note is unsecured and does not have a stated interest rate. However, the Company is required to make monthly payments of $16,666 (totaling $200,000) on the loan. The loan is due on July 20, 2002.
JOE GIARMO		65,000	55,000
On March 5, 2001, the Company received a $60,000 loan from Joe Giarmo. The Company is required to repay this loan on a monthly basis determined by paying $0.25 for each VHS or DVD sold pursuant to the KSS Inc. license until $120,000 is repaid.
URBACH, KAHN & WERLIN		0	80,000
On December 31, 2001, the Company converted an account payable with Urbach, Kahn & Werlin into a note payable. The note is secured by all assets of the Company, requires monthly payments of $6,932 including interest at 7.25% and matures on June 28, 2002. The Company paid this note by issuing 53,333 shares of common stock.

See Accompanying Notes and Independent Accountants’ Review Report.

F-26

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

	March 31, 2002		December 31, 2001
	(Unaudited)		(Audited)
OTHER NOTES	$	18,439	$	18,439
The Company has three loans from children of the principal stockholder. The loans are unsecured, bear interest at 7% and are payable on demand.
Total notes		1,399,086		1,713,246
Less current portion		652,593		942,913
Long-term portion	$	746,493	$	770,333

Maturities on long-term debt are as follows:

March 31, 2003	$	652,593
March 31, 2004		70,105
March 31, 2005		78,217
March 31, 2006		87,268
Thereafter		510,903
	$	1,399,086

NOTE 9.     ADVERTISING

The Company expenses all advertising as incurred. Advertising expenses for the three months ended March 31, 2002 and 2001 were $29,915 and $8,238, respectively.

NOTE 10.    REAL ESTATE LEASE

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

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

B. Termination date—July 31, 2006

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

As of March 31, 2002, future minimum lease payments excluding operating expenses are as follows:

March 31, 2003	$93,600
March 31, 2004	93,600
March 31, 2005	93,600
March 31, 2006	93,600
March 31, 2007	54,600

The rent expense for the three months ended March 31, 2002 and 2001 was $26,426 and $9,900, respectively.

See Accompanying Notes and Independent Accountants’ Review Report.

F-27

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

NOTE 11.    EQUITY INCENTIVE PLAN

The Board of Directors and stockholders approved the NuTech Digital, Inc. 2001 Equity Incentive Plan which permits the Board of Directors to grant, for a ten year period, both stock purchase rights and stock options. The Company has reserved 3,500,000 shares of its common stock for issuance to the directors, employees and consultants under the Plan. The Plan is administered by the Board of Directors. The administrator has the authority and discretion, subject to the provisions of the Plan, to select persons to whom stock purchase rights or options will be granted, to designate the number of shares to be covered by each option or stock purchase right, to specify the type of consideration to be paid, and to establish all other terms and conditions of each option or stock purchase right. Options granted under the Plan will not have a term that exceeds ten years from date of grant. On April 15, 2002, the Company granted 1,745,000 options at $1.50 per share.

NOTE 12.    COMMON STOCK PURCHASE WARRANTS

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

Number of shares		703,444
Price per share	$	3.00
Expiration date		May 31, 2011

NOTE 13.    MAJOR CUSTOMERS

	2002		2001
The Company has one customer that accounted for the following percentage of company sales:	10	%	23	%

NOTE 14.    MAJOR SUPPLIERS

The Company purchased merchandise from several suppliers as follows:

	Percent of Total Purchases
Supplier	2002		2001
A	37	%	77	%
B	22	%	0	%
C	13	%	0	%

NOTE 15.    STOCK ACQUISITION AGREEMENT

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

See Accompanying Notes and Independent Accountants’ Review Report.

F-28

NUTECH DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2002 AND 2001

(UNAUDITED)

NOTE 16.    PROPOSED COMMON STOCK OFFERING

On February 12, 2002, the Company entered into a proposed public offering agreement with Roan/Meyers Associates, L.P. serving as the managing underwriter. In April 2002, the Company canceled the Roan/Meyers agreement and decided to have an initial public offering of 2,500,000 shares of its common stock plus 2,779,919 shares of common stock and warrants to purchase 703,444 shares of common stock which are owned by stockholders of the Company.

NOTE 17.    PROFORMA NET INCOME

Proforma net income if the corporation was taxed as a regular corporation for the whole year:

	For March 31, 2001
Income before corporation income taxes	$	58,489
Corporation income taxes		13,132
Proforma net income	$	45,357
Net income per common share:
Basic and diluted
Proforma net income	$	0
Weighted average number of common shares outstanding:
Basic and diluted		8,300,250

NOTE 18.    UNAUDITED FINANCIAL INFORMATION

The accompanying financial information as of March 31, 2002 and 2001 is unaudited. In managements opinion, such information includes all normal recurring entries necessary to make the financial information not misleading.

See Accompanying Notes and Independent Accountants’ Review Report.

F-29

No person is authorized to give any information or to make any representation other than those contained in this prospectus, and if made such information or representation must not be relied upon as having been given or authorized. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

The delivery of this prospectus shall not, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus. However, in the event of a material change, this prospectus will be amended or supplemented accordingly.

NuTECH DIGITAL, INC.

5,930,030 Shares of Common Stock

Until ___________, 2002, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PROSPECTUS

May    , 2002

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24.    Indemnification of Directors and Officers.

The only statute, charter provision, bylaw, contract, or other arrangement under which any controlling person, director or officer of the Registrant is insured or indemnified in any manner against any liability which he may incur in his capacity as such, is as follows:

a.    Section 317 of the California General Corporation Law permits the indemnification of a corporation’s agents (which includes officers and directors) because the agent is a party (or he is threatened to be made a party) to any action or proceeding by reason of the fact that he is or was an agent of the corporation or because he is a party (or he is threatened to be made a party) to any action or proceeding brought by or on behalf of a corporation. If the agent is successful on the merits in defense of any action or proceeding, the corporation must indemnify the agent against expenses actually and reasonably incurred by the agent in such defense.

b.    Article V of the Registrant’s Articles of Incorporation provides that the liability of directors for monetary damages shall be eliminated to the fullest extent permissible under California law. This provision requires the Registrant to indemnify directors, as permitted by law, in excess of Section 317 of the California General Corporation Law.

c.    Article VI of the Registrant’s bylaws provides that the Registrant shall, to the maximum extent permitted by the California General Corporation Law, have power to indemnify each of its agents (which is defined to include any person who is or was a director, officer or employee of the Registrant) against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding to the maximum extent permitted by law. In this regard, the Registrant has the power to advance to any officer or director expenses incurred in defending any such proceeding to the maximum extent permitted by law.

Item 25.    Other Expenses of Issuance and Distribution.

The estimated expenses of the offering, all of which are to be borne by the Registrant, are as follows:

SEC Filing Fee	$	915.42
Printing Expenses*		35,000.00
Accounting Fees and Expenses*		55,000.00
Legal Fees and Expenses*		100,000.00
Blue Sky Fees and Expenses*		7,500.00
Registrar and Transfer Agent Fee*		5,000.00
Miscellaneous*		1,500.00
Total*	$	204,915.42

* Estimated

Item 26.    Recent Sales of Unregistered Securities.

On July 31, 2000 the Registrant’s Board of Directors issued to Mr. Joseph Giarmo, the Registrant’s Vice-President and a director, 50 shares of the Registrant’s common stock as compensation for extraordinary services rendered by Mr. Giarmo to the Company, such services having a value of $250. The securities were issued in reliance upon the exemption provided in Section 4(2) of the Securities Act.

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

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On May 31, 2000, the Registrant issued 100,000 shares of its common stock to Elynor Kasper in exchange for the release of certain contract rights. The Registrant determined that the value of the contract rights was $3,000. On May 31, 2000, the Registrant also issued 350,000 shares of its common stock to Leora Kimble, in exchange for bookkeeping services rendered to the Registrant having a value of $10,500. Finally, on May 31, 2000, the Registrant issued 400,000 shares of its common stock to Saratoga Capital Corporation, its distributor in Asia, for services rendered to the Registrant having a value of $12,000. The Registrant determined that the value of the common stock on May 31, 2000 was $ .03 per share. The securities were issued in reliance upon the exemption provided in Section 4(2) of the Securities Act.

On June 1, 2001, the Registrant began a private offering of its securities, pursuant to the exemption provided in Section 4(2) of the Securities Act and Regulation D promulgated thereunder. These securities were sold with the assistance of broker-dealers to persons who represented that they were accredited investors, as that term is defined in Rule 501 of Regulation D. Each investor who purchased shares of common stock in this offering received a warrant to purchase a like number of additional shares. The unit price was $1.50 per share. The warrant exercise price is $3.00 per share. The warrants, if not exercised, will expire on November 1, 2002. The Registrant sold a total of 703,444 shares of its common stock in the offering. In addition to the shares sold, the Registrant issued a total of 208,142 shares of common stock to broker-dealers and advisors in connection with the offering. Broker-dealers were also paid a commission of 10%.

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

On March 4, 2002, Urbach Kahn & Werlin, Inc. agreed to convert $80,000 of debt for services rendered to the Registrant to the Registrant’s common stock on the condition that (i) the Registrant file a registration statement which includes Urback Kahn & Werlin, Inc. as a shareholder selling 53,333 shares of common stock, and (ii) the Registration statement is declared effective by the Securities Exchange Commission before October 1, 2002. The conversion was made at $1.50 per share. The securities were issued in reliance upon the exemption provided in Section 4(2) of the Securities Act.

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

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Item 27.    Exhibits.

a.    The following Exhibits are filed as part of this Registration Statement pursuant to Item 601 of Regulation S-B:

Exhibit No.	Title*
3.1	Articles of Incorporation of NuTech, Digital, Inc., as amended.
3.2	Bylaws of NuTech Digital, Inc.
5.0	Legal Opinion from Pollet, Richardson & Patel.
10.1	2001 NuTech Digital Inc. Equity Incentive Plan.
10.2	Business Security Loan Agreement between NuTech Digital, Inc. and U.S. Bank N.A., dated as of March 20, 2002, including the Addendum and Amendment thereto.
10.3	Letter of Intent between NuTech Digital, Inc. and Ritek Corp, dated as of August 6, 1996 (including Letter of Intent A).
10.4	Promissory Note and Commercial Security Agreement memorializing Small Business Administration Loan between NuTech Digital, Inc. and Imperial Bank, SBA Department, dated as of July 12, 2000.
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.
10.6	Joint Venture Agreement by and between NuTech Digital, Inc., and Joseph Anthony Giarmo.
23.0	Consent of Moffitt & Company, P.C.
23.1	Consent of Pollet, Richardson & Patel (included in Exhibit 5.0).

* All exhibits are filed herewith

Item 28.    Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel that the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes:

1.    To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i)   To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii)  To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement;

(iii)  To include any additional or changed material information on the plan of distribution.

2.    That, for the purpose of determining any liability under the Securities Act of 1933, each post–effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3.    To remove from registration by means of a post–effective amendment any of the securities being registered which remain unsold at the termination of the offering.

4.    Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such

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indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the 1933 Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this Registration Statement on Form SB-2 to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Van Nuys, State of California on the 17^th day of May 2002.

NUTECH DIGITAL, INC., a California corporation
By:	/s/      LEE KASPER
	Lee Kasper, President, Chief Executive Officer, and Chief Financial Officer

Pursuant to the requirements of the 1933 Securities Act, this Form SB-2 Registration Statement has been signed by the following persons in the capacities with NuTech Digital, Inc. and on the dates indicated.

Name	Title	Date
/s/    LEE KASPER         Lee Kasper	President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors	May 17, 2000
/S/    JOSEPH GIARMO         Joseph Giarmo	Vice President, Director	May 17, 2000

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3.1	Articles of Incorporation of NuTech, Digital, Inc., as amended.
3.2	Bylaws of NuTech Digital, Inc.
5.0	Legal Opinion from Pollet, Richardson & Patel.
10.1	2001 NuTech Digital Inc. Equity Incentive Plan.
10.2	Business Security Loan Agreement between NuTech Digital, Inc. and U.S. Bank N.A., dated as of March 20, 2002, including the Addendum and Amendment thereto.
10.3	Letter of Intent between NuTech Digital, Inc. and Ritek Corp, dated as of August 6, 1996 (including Letter of Intent A).
10.4	Promissory Note and Commercial Security Agreement memorializing Small Business Administration Loan between NuTech Digital, Inc. and Imperial Bank, SBA Department, dated as of July 12, 2000.
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.
10.6	Joint Venture Agreement by and between NuTech Digital, Inc., and Joseph Anthony Giarmo.
23.0	Consent of Moffitt & Company, P.C.
23.1	Consent of Pollet, Richardson & Patel (included in Exhibit 5.0).

* All exhibits are filed herewith

EX-3.1

EXHIBIT 3.1

ARTICLES OF INCORPORATION

OF

NUTECH DIGITAL, INC.

I.

The name of this corporation is NUTECH DIGITAL, INC.

II.

The purposes of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.

III.

The name and address in the State of California of this corporation’s initial agent for service of process is:

Lee Kasper

3841 Hayvenhurst Drive

Encino, California 91436

IV.

This corporation is authorized to issue one class of stock which shall be designated “Common Stock.” The number of shares of Common Stock authorized to be issued is TWO MILLION (2,000,000) shares.

V.

The liability of directors of this Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.

VI.

This Corporation is authorized to indemnify its agents to the fullest extent permissible under California law. For purposes of this provision, the term “agent” has the meaning set forth from time to time in Section 317 of the California Corporations Code.

Dated: June 10, 1997

/s/     MARY ANN SAPONE

I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed.

/s/     MARY ANN SAPONE

EXHIBIT 3.1

CERTIFICATE OF AMENDMENT

OF THE

ARTICLES OF INCORPORATION

OF

NuTECH DIGITAL, INC.

Lee Kasper certifies that:

1.    He is the duly elected and acting President and Secretary of the corporation named above.

2.    Article IV of the Articles of Incorporation of this corporation is amended to read as follows:

IV

This corporation is authorized to issue one class of shares that shall be designated “Common Stock”. The number of shares of Common Stock authorized to be issued is one hundred million (100,000,000) shares. Each of the issued and outstanding shares of Common Stock held by the corporation’s shareholders on May 2, 2001 shall be split into 7,905 shares of Common Stock.

3.    The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors of the corporation.

4.    The foregoing amendment of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the corporation is 1,050. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%.

I declare under penalty of perjury under the laws of the state of California that the matters set forth in this certificate are true and correct of my own knowledge.

Executed this 2nd day of May 2001.

/s/     LEE KASPER

Le e Kasper, President and Secretary

EX-3.2

EXHIBIT 3.2

BYLAWS

of

NUTECH DIGITAL, INC.

(a California Corporation)

ARTICLE I

OFFICES OF CORPORATION

Section 1.01    Principal Executive or Business Offices.    The Board of Directors shall fix the location of the principal executive office of the Corporation at any place within or outside the State of California. If the principal executive office is located outside California and the Corporation has one or more business offices in California, the Board of Directors shall fix and designate a principal business office in California.

Section 1.02    Other Offices.    Branch of subordinate offices may be established at any time and at any place by the Board of Directors.

ARTICLE II

MEETINGS OF STOCKHOLDERS OF CORPORATION

Section 2.01    Place of Meetings.    Meetings of stockholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation by the Board of Directors, stockholders’ meetings shall be held at the Corporation’s principal executive office.

Section 2.02    Annual Meeting.    The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. The date so designated shall be within five (5) months after the end of the Corporation’s fiscal year, and within fifteen (15) months after the last annual meeting of the stockholders has taken place. At each annual meeting, Directors shall be elected and any other proper business within the power and authority of the stockholders may be transacted.

Section 2.03    Special Meeting.    A special meeting of the stockholders may be called at any time by the Board of Directors, by the chairman of the Board, by the President or Vice President, or by one or more stockholders holding shares which in the aggregate are entitled to cast ten-percent (10%) or more of the votes at that meeting.

If a special meeting is called by anyone other than the Board of Directors, the person or persons calling the meeting shall make a request in writing, delivered personally or sent by registered mail, or by telegraphic or other facsimile transmission, to the chairman of the Board or the President, Vice President, or Secretary, specifying the time and date of the meeting (which shall be scheduled not less than thirty-five (35) nor more than sixty (60) days after receipt of the request) and the general nature of the business proposed to be transacted. Within twenty (20) days after receipt, the chairman or officer receiving such request shall cause notice to be given to the stockholders entitled to vote, in accordance with Sections 2.04 and 2.05 of this Article II, stating that a meeting will be held at the time and location requested by the person(s) calling the meeting, and stating the general nature of the business proposed to be transacted thereat. If notice is not given by the chairman or officer receiving the request within twenty (20) days after receipt thereof, the person or persons requesting the meeting may give the required notice. Nothing contained in this paragraph shall be construed as limiting, fixing, or affecting the date or time when a meeting of stockholders called by action of the Board of Directors may be held.

Section 2.04    Notice of Stockholders’ Meeting.    All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.05 of this Article II not fewer than ten (10) nor more than sixty (60) days before the date of the meeting. Stockholders entitled to notice shall be determined in accordance with Section 2.11 of this Article II. The notice shall specify the location, date and hour of the meeting; or (ii) in the case of an annual meeting, those matters which the Board of Directors, at the time of giving the notice, intend to present for action by the stockholders. In addition, if Directors are to be elected at said meeting, the notice shall include the names of all nominees whom the Board of Directors intends, at the time of the notice, to present for election.

The notice shall also state the general nature of any proposed action to be taken at the meeting to approve any of the following matters:

(i)  A transaction in which a Director has a financial interest, within the meaning of Section 310 of the California Corporations Code (“Code”);

(ii)  An amendment of the Articles of Incorporation of the Corporation under Section 902 of the Code;

(iii)  A reorganization of the Corporation under Section 1201 of the Code;

(iv)  A voluntary dissolution of the Corporation under Section 1900 of the Code; or

(v)  A distribution in dissolution with respect to the Corporation that requires approval of the outstanding shares under Section 2007 of the Code.

The notice of any meeting at which Directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election.

Section 2.05    Manner of Giving Notice: Affidavit of Notice.    Notice of any stockholders’ meeting shall be given either personally or by first-class mail, or telegraphic or other written communication, charges prepaid, addressed to the stockholders at the address appearing on the Corporation’s books or given by the stockholder to the Corporation for the purpose of such notice. If no address appears on the Corporation’s books or has been given as specified herein, notice shall be either, (i) sent by first-class mail addressed to the stockholder at the Corporation’s principal executive office; or (ii) published at least once in a newspaper of general circulation in the county where the Corporation’s principal executive office is located. Notice is deemed to have been given at the time when delivered personally, or deposited in the mail or sent by other means of written communication.

If any notice or report mailed to a stockholder at the address appearing on the Corporation’s books is returned, marked so as to indicate that the United States Postal Service is unable to deliver the document to the stockholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the Corporation holds the document available for the stockholder on written demand at the Corporation’s principal executive office for a period of one (1) year from the date the notice or document was given to all other stockholders.

An affidavit of the mailing, or other authorized means of giving notice or delivering a document, regarding notice of stockholders’ meeting, or other document sent to stockholders, may be executed by the Corporation’s Secretary, assistant Secretary, or transfer agent, and shall be filed and maintained in the minute book of the Corporation.

Section 2.06    Quorum.    The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of the stockholders shall constitute the quorum necessary for the transaction of business. The stockholders present at a duly called or held meeting at which the quorum is present may continue to do business until adjournment, notwithstanding the withdrawal from the meeting of certain stockholders which leave less than a quorum remaining, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

Section 2.07    Meeting Adjournment: Notice.    Any stockholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented at the meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 2.06 of this Article II.

When any meeting of the stockholders, either annual or special, is adjourned to another time or place, notice of such need not be given if the time and place are announced at the meeting at which the adjournment is taken, unless anew record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty–five (45) days from the date set for the original meeting, in which case the Board of Directors shall set a new record date. Notice of any such adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.04 and 2.05 of this Article II. At any adjourned meeting, the stockholders may transact any business which might have been transacted at the original meeting.

Section 2.08    Voting.    The stockholders entitled to vote at any meeting of stockholders with the provisions of Section 2.11 of this Article II, subject to the provisions of Sections 702 through 704 of the California Corporations Code (relating to voting shares held by a fiduciary, in the name of the Corporation, or in joint ownership). The stockholders’ vote may be by a voice vote or by ballot; provided, however, that any election for Directors must be by ballot if demanded by any stockholder before the voting has begun. On any matter other than elections of Directors, any stockholder may vote part of his shares in favor of the proposal and refrain from voting his remaining shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder’s approving vote is cast with respect to all shares which the stockholder is entitled to vote. If a quorum is present (or if a quorum had been present earlier at the meeting but no longer exists because some stockholders have withdrawn), the affirmative vote of the majority of the shares represented and voting, provided such shares voting affirmatively also constitute a majority of the number of shares required for a quorum, shall constitute the act of the stockholders unless the vote of a greater number of those voting by classes is required by law or by the Articles of Incorporation of the Corporation.

At the stockholders’ meeting at which Directors are to be elected, no stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which the stockholder normally would be entitled to cast), unless the candidates’ names have been placed in nomination before commencement of the voting and a stockholder has given notice at the meeting, before the voting has begun, of the stockholder’s intention to cumulate votes. If any stockholder has given such a notice, then all stockholders entitled to vote may cumulate their votes for candidates in nomination, and may give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which that stockholder’s shares are entitled, or distribute the stockholder’s votes on the same principle among any or all the candidates, as the stockholder believes proper. The candidates receiving the highest number of votes, up to the number of Directors to be elected, shall be elected.

Section 2.09    Waiver of Notice or Consent by Absent Stockholder.    The transactions of any meeting of stockholders, either annual or special, however called and noticed and wherever held, shall be as valid as though they were had at a meeting duly held after regular call and notice, if a quorum be present either at such meeting in person or by proxy, and if each person entitled to vote who was not present in person or by proxy, either before or after the meeting, signs a written waiver of notice or consent to a holding of a meeting, or an approval of the minutes of the meeting. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of the stockholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in Section 601(f) of the California Corporations Code, the waiver of notice or consent is required to state the general nature of the action or proposed action. All waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

A stockholder’s attendance at a meeting also constitutes a waiver of notice of that meeting, unless the stockholder at the beginning of the meeting objects to the transaction of any business on the ground that the meeting was not lawfully called or convened. In addition, attendance at a meeting does not constitute a waiver of any rights to object to consideration of matters required by laws to be included in the notice of the meeting which were not so included, if that objection is expressly made at the meeting.

Section 2.10      Stockholder Action by Written Consent Without a Meeting.    Any action that could be taken at an annual or special meeting of the stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted.

Directors may be elected by written consent of the stockholders without a meeting only if the written consent of all outstanding shares entitled to vote are obtained, except that vacancies on the Board of Directors (other than vacancies created by removal) not filled by the Board of Directors itself may be filled by the written consent of the holders of a majority of the outstanding shares entitled to vote.

All consents shall be filed with the Secretary of the Corporation and shall be maintained in the corporate records. Any stockholder or other authorized person who has given a written consent may revoke it by a writing received by the Secretary of the Corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary.

Unless the consents of all stockholders entitled to vote have not been solicited in writing, prompt notice shall be given of any corporate action approved by stockholders

without a meeting by less than unanimous consent, to those stockholders entitled to vote who have not consented in writing. As to approvals required by California Corporation Code, Section 310 (transactions in which a Director has a financial interest), Section 317 (indemnification of corporate agents), Section 1201 (corporate reorganization),or Section 2007 (certain distributions or dissolution), notice of the approval shall be given at least ten (10) days before the consummation of any action authorized by the approval. Notice shall be given in the manner specified in Section 2.05 of this Article II.

Section 2.11    Record Date for Stockholder Notice, Voting, and Giving Consent.

(a)  For purposes of determining the stockholders entitled to receive notice of a vote at a stockholders’ meeting or give written consent to corporate action without a meeting, the Board of Directors may fix in advance a record date that is not more than sixty (60) or less than ten (10) days before the date of a stockholders’ meeting, or not more than sixty (60) days before any other action.

(b)  If no record date is fixed:

(i)  The record date for determining stockholders entitled to receive notice of and vote at a stockholders’ meeting shall be the business day next preceding the day on which notice is given, or if notice is waived as provided in Section 2.09 of this Article II, the business day next preceding the day on which the meeting is held;

(ii)  The record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, if no prior action has been taken by the Board of Directors, shall be the day on which the first written consent is given; and

(iii)  The record date for determining stockholders for any other purpose shall be as set forth in Section 8.01 of Article VIII of these Bylaws.

(c)  A determination of stockholders of record entitled to receive notice of and vote at a stockholders’ meeting shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. However, the Board of Directors shall fix a new record date if the adjournment is to a date more than forty-five (45) days after the date set for the original meeting.

(d)  Only stockholders of record on the Corporation’s books at the close of business on the record date shall be entitled to any of the notice and voting rights listed in subsection (a) of this Section 2.11, notwithstanding any transfer of shares on the Corporation’s books after the record date except as otherwise required by law.

Section 2.12    Proxies.    Every stockholder entitled to vote for Directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by that stockholder and filed with the Secretary of the Corporation. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the stockholder or the stockholder’s attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless, (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the Corporation stating that the proxy is revoked, or by attendance at the meeting and voting in person by the stockholder executing the proxy or by a subsequent proxy executed by the same stockholder and presented at the meeting; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the Corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the California Corporations Code.

Section 2.13    Inspectors of Election.    Before any meeting of stockholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any stockholder or a stockholder’s proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall either be one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If a person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a different person to fill the vacancy.

An inspector shall: (i) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (ii) receive votes, ballots, or consents; (iii) hear and determine all challenges and questions in any way arising in connection with the right to vote; (vi) count and tabulate all votes or consents; (v) determine when the polls shall close; (vi) determine the result; and (vii) do any other acts which may be necessary and proper to conduct the election or vote in a manner fair to all stockholders.

ARTICLES III

BOARD OF DIRECTORS OF CORPORATION

Section 3.01    Powers.    Subject to the provisions of the California General Corporations Law and any limitations in the Articles of Incorporation of the Corporation and these Bylaws relating to actions required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

Section 3.02    Number of Directors.    The authorized number of Directors shall be one until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to these Bylaws adopted by the vote or written consent of a majority of the outstanding shares entitled to vote.

Section 3.03    Election and Term of Office of Directors.    Directors shall be elected at each annual meeting of the stockholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified.

No reduction of the authorized number of Directors shall have the effect of removing any Director before that Director’s term of office expires.

Section 3.04    Vacancies.    A vacancy on the Board of Directors shall be deemed to exist, (i) if a Director dies, resigns, or is removed by the stockholders or an appropriate court, as provided in Sections 303 or 304 of the California Corporations Code; (ii) if the Board of Directors declares vacant the office of a Director who has been convicted of a felony or declared of unsound mind by an order of court; (iii) if the authorized number of Directors is increased; or (iv) if at any stockholders’ meeting at which one or more Directors are elected the stockholders fail to elect the full authorized number of Directors to be voted for at that meeting.

Any Director’s resignation shall be effective on giving written notice of such to the chairman of the Board, the President, the Secretary, or the Board of Directors, unless said notice specifies a later effective date. If the resignation is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective.

Except for a vacancy caused by the removal of a Director, vacancies on the Board of Directors may be filled by a majority of the Directors then in office, whether or not they constitute a quorum, or by a sole remaining Director. A vacancy on the Board of Directors caused by the removal of a Director may be filled only by the stockholders, except that a

vacancy created when the Board of Directors declares the office of a Director vacant as provided in clause (ii) of the first paragraph of this Section 3.04 may be filled by the Board of Directors.

The stockholders may elect a Director at any time to fill a vacancy not filled by the Board of Directors.

The term of office of a Director elected to fill a vacancy shall run until the next annual meeting of the stockholders, and such a Director shall hold office until a successor is elected and qualified.

Section 3.05    Location of Meetings; Telephone Meetings.    Regular meetings of the Board of Directors may be held at any location within or outside the State of California that has been designated from time to time by the Board of Directors. In the absence of such a designation, regular meetings shall be held at the principal executive office of the Corporation. Special meetings of the Board of Directors shall be held at any location, within or outside the State of California designated in the notice of the meeting, or if the notice does not state a location, or if there is no notice, at the principal executive office of the Corporation. Any meeting, regular or special, may be held by telephone conference or similar communications equipment, provided that all Directors participating can hear and communicate with one another.

Section 3.06    Annual Directors’ Meeting.    Immediately after each annual stockholders meeting, the Board of Directors shall hold a regular meeting at the same location, or at any other location that has been designated by the Board of Directors, to consider matters of organization, election of officers, and other business as desired. Notice of this meeting shall not be required unless some location other than that of the annual stockholders’ meeting has been designated.

Section 3.07    Other Regular Meetings.    Other regular meetings of the Board of Directors shall be held without call at times to be fixed by the Board of Directors. Such regular meetings may be held without notice.

Section 3.08    Special Meetings.    Special meetings of the Board of Directors may be called for any purpose or purposes at anytime by the chairman of the Board, the President, any Vice President, the Secretary, or any two (2) Directors.

Special meetings shall be held on four (4) days’ notice by mail or forty-eight (48) hours’ notice delivered personally or by telephone or telegraph. Oral notice given personally or by telephone may be transmitted either to the Director or to a person at the Director’s office who can reasonably be expected to communicate such notice promptly to the Director. Written notice, if used, shall be addressed to each Director at the address

shown on the Corporation’s records. The notice need not specify the purpose of the meeting, nor its location if the meeting is to be held at the principal executive office of the Corporation.

Section 3.09    Quorum.    A majority of the authorized number of Directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.11 of this Article III. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of Section 310 of the California Corporations Code (as to approval of contracts or transactions in which a Director has a direct or indirect material financial interest), and Section 317(e) (as to indemnification of Directors). A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

Section 3.10    Waiver of Notice.    Notice of a meeting, although otherwise required, need not be given to any Director who, (i) either before or after the meeting signs a waiver of notice or a consent to holding the meeting without being given notice; (ii) signs an approval of the minutes of the meeting; or (iii) attends the meeting without protesting the lack of notice before or at beginning of the meeting. Waivers of notice or consent need not specify the purpose of the meeting. All waivers, consents, and approvals of the minutes shall be filed in the corporate records or made a part of the minutes of the meeting.

Section 3.11    Adjournment to Another Time or Location.    Whether or not a quorum is present, a majority of the Directors present may adjourn any meeting to another time or location.

Section 3.12    Notice of Adjourned Meeting.    Notice of the time and location of resuming a meeting which has been adjourned need not be given unless the adjournment is for more than twenty-four (24) hours, in which case notice shall be given, before the time set for resuming the adjourned meeting, to the Directors who were not present at the time of the adjournment. Notice need not be given in any case to Directors who were present at the time of adjournment.

Section 3.13    Action Without a Meeting.    Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors shall individually or collectively consent in writing to that action. Any action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. All written consents shall be filed with the minutes of the proceedings of the Board of Directors.

Section 3.14    Fees and Compensation of Directors.    Directors and members of committees of the Board of Directors may be compensated for their services, and shall be reimbursed for expenses, as fixed or determined by resolution of the Board of Directors. This Section 3.14 shall not be construed to preclude any Director from serving the Corporation in any other capacity, as an officer, agent, employee, or otherwise, and receiving compensation for those services.

ARTICLE IV

COMMITTEES OF CORPORATION

Section 4.01    Executive and Other Committees of the Board.    The Board of Directors may, by resolution adopted by a majority of the authorized number of Directors, designate an executive committee or one or more other committees, each consisting of one or more Directors. The Board may designate one or more Directors as alternate members of any committee, to replace any absent member at a committee meeting. The appointment of committee members or alternate members requires the vote of a majority of the authorized number of Directors. A committee may be granted any or all of the powers and authority of the Board of Directors, to the extent provided in the resolution of the Board of Directors establishing the committee, except with respect to:

(a)  Approving any action for which the California Corporations Code also requires the approval of the stockholders or of the outstanding shares:

(b)  Filling vacancies on the Board of Directors or any committee of the Board;

(c)  Fixing Directors’ compensation for serving on the Board or a committee of the Board of Directors;

(d)  Adopting, amending, or repealing bylaws;

(e)  Amendment or repealing any resolution of the Board of Directors which by its express terms is not so amendable or repealable;

(f) Making distributions to stockholders, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or

(g) Appointing other committees of the Board or their members.

Section 4.02    Meetings and Action of Committees.    Meetings and action of committees shall be governed by, and held and taken in accordance with, provisions of these Bylaws applicable to meetings and actions of the Board of Directors, as provided in

Section 3.05 and Sections 3.07 through 3.13 of Article III of these Bylaws, as to the following matters; place of meetings (Section 3.05); regular meetings (Section 3.07); special meetings and notice (Section 3.08); quorum (Section 3.09); waiver of notice (Section 3.10); adjournment (Section 3.11); notice of adjournment (Section 3.12); and action without meeting (Section 3.13), with such changes in the context of those sections as are necessary to substitute the committee and its members for the Board of Directors and its members, except that (i) the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee; (ii) special meetings of committees may also be called by resolution of the Board of Directors which may adopt rules for the governance of any committee not inconsistent with the provisions of these Bylaws.

ARTICLE V

EXECUTIVE OFFICERS OF CORPORATION

Section 5.01    Officers.    The officers of the Corporation shall be a President, a Secretary, and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board of Directors, a chairman of the Board, one or more Vice Presidents, one or more assistant secretaries, one or more assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.03 of this Article V. Any number of offices may be held by the same person.

Section 5.02    Election of Officers.    The officers of the Corporation, except for subordinate officers appointed in accordance with the provisions of Section 5.03 or Section 5.05 of this Article V, shall be chosen by the Board of Directors, and shall serve at the pleasure of the Board of Directors.

Section 5.03    Subordinate Officers.    The Board of Directors may appoint, and may empower the President to appoint other officers as required by the business of the Corporation, whose duties shall be provided in these Bylaws, or as determined from time to time by the Board of Directors or the President.

Section 5.04    Removal and Resignation of Officers.    Any officer chosen by the Board of Directors may be removed at any time, with or without cause or notice, by the Board of Directors. Subordinate officers appointed by persons other than the Board under Section 5.03 of this Article V may be removed at any time, with or without cause or notice, by the Board of Directors or by the officer by whom appointed. Officers may be employed for a specified term under a contract of employment if authorized by the Board of Directors. Such officers may be removed from office at any time under this Section 5.04, and shall have no claim against the Corporation or individual officers or members of the

Board of Directors because of the removal except any right to monetary compensation to which the officer may be entitled under the contract of employment.

Any officer may resign at any time by giving written notice to the Corporation. Resignations shall take effect on the date of receipt of such written notice, unless a later time is specified in the notice. Unless otherwise specified in the notice, acceptance of the resignation is not necessary to make it effective. Any acceptance of resignation is without prejudice to the rights, if any, of the Corporation to monetary damages under any contract of employment to which the officer is a party.

Section 5.05    Vacancies in Office.    A vacancy in any office resulting from an officer’s death, resignation, removal, disqualification, or from any other cause shall be filled in the manner prescribed in these Bylaws for regular election or appointment to that office.

Section 5.06    Chairman of the Board.    The Board of Directors shall elect a chairman, who shall preside, if present, at Board meetings and shall exercise and perform such other powers and duties as may be assigned from time to time by the Board of Directors. If there is no President, the chairman of the Board shall in addition be the President of the Corporation, and shall have the powers and duties as set forth in Section 5.07 of this Article V.

Section 5.07    President (Chief Executive Officer; Chief Operating Officer).    The President shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and affairs of the Corporation and its officers, and shall have such other functions, authority and duties as may be prescribed by the Board of Directors. These powers and duties of management include, but are not limited to, all the general powers and duties of management usually vested in the office of President. The Board of Directors may, in its discretion, divide and allocate the functions, authority and duties of the President amongst one or more of the following positions: President, Chief Executive Officer and/or Chief Operating Officer. If the Board of Directors, in its discretion, divides and allocates the authority of the President amongst a Chief Executive Officer and Chief Operating Officer without designating either of such positions as President, then the Chief Executive Officer shall also be deemed the President of this Corporation.

Section 5.08    Vice President.    If desired, one or more Vice Presidents may be chosen by the Board of Directors in accordance with the provisions for electing officers set forth in Section 5.02 of this Article V. In the absence or disability of the President, the President’s duties and responsibilities shall be carried out by the highest ranking available Vice President if Vice Presidents are ranked, or if not, by a Vice President designated by the Board of Directors. When so acting, a Vice President shall have all the powers of and

be subject to all the restrictions on the President. Vice Presidents of the Corporation shall have such other powers and perform such other duties as prescribed from time to time by the Board of Directors, these Bylaws, or the President (or chairman of the Board if there is not a President).

Section 5.09    Secretary.

(a)  Minutes.    The Secretary shall be present at all stockholders’ meetings and all Board meetings and shall take the minutes of such meetings. If the Secretary is unable to be present, at such meeting the presiding officer of the meeting shall designate another person to take the minutes of the meeting.

The Secretary shall keep or cause to be kept, at the principal executive office or such other place as designated by the Board of Directors, a book of minutes of all meetings and actions of the stockholders, of the Board of Directors, and of committees of the Board of Directors. The minutes of each meeting shall state the time and place the meeting was held; whether it was regular or special, if special, how it was called or authorized; the names of Directors present at Board or committee meetings; the number of shares present or represented at stockholders’ meetings; and an accurate account of the proceedings.

(b)  Record of Stockholders.    The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation’s transfer agent or registrar, a record or duplicate record of stockholders. This record shall show the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of share certificates issued to each stockholder, and the number and date of cancellation of any certificates surrendered for cancellation.

(c)  Notice of Meeting.    The Secretary shall give notice, or cause notice to be given, of all stockholders’ meetings, Board of Directors meetings, and meetings of committees of the Board of Directors for which notice is required by statute or by these Bylaws. If the Secretary or other person authorized by the Secretary to give notice fails to act, notice of any meeting may be given by any other officer of the Corporation.

(d)  Other Duties.    The Secretary shall keep the seal of the Corporation, if any, in safe custody. The Secretary shall have such other powers and perform such other duties as prescribed by the Board of Directors or by these Bylaws.

Section 5.10    Chief Financial Officer (Treasurer).    The Chief Financial Officer, which shall be synonymous with the position of Treasurer, shall keep or cause to be kept adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts,

disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall be open to inspection by any Director at all reasonable times.

The Chief Financial Officer shall (i) deposit corporate funds and other valuables in the Corporation’s name and to its credit with depositaries designated by the Board of Directors; (ii) make disbursements of corporate funds as authorized by the Board of Directors; (iii) render a statement of the Corporation’s financial condition and an account of all transactions conducted as Chief Financial Officer whenever requested by the President or the Board of Directors; (iv) have other powers and perform other duties as prescribed by the Board of Directors or these Bylaws.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS,

OFFICERS, EMPLOYEES AND OTHER CORPORATE AGENTS

Section 6.01    Indemnification of Directors, Officers, Employees, and Other Agents.    The Corporation shall, to the maximum extent permitted by the California General Corporation Law, have power to indemnify each of its agents against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact any person is or was an agent of the Corporation, and shall have power to advance to each such agent expenses incurred in defending any such proceeding to the maximum extent permitted by law. For purposes of this Article VI, an “agent” of the Corporation includes any person who is or was a Director, officer, employee, or other agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprises, or was a Director, officer, employee, or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

ARTICLE VII

RECORDS AND REPORTS

Section 7.01    Maintenance of Stockholder Record and Inspection by Stockholders.    The Corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, as determined by resolution of the Board of Directors, a record of its stockholders and the number and class of shares held by each stockholder.

A stockholder or stockholders holding at least five percent (5%) in the aggregate of the outstanding voting shares of the Corporation have the right to do either or both the following:

(a)  Inspect and copy the records of stockholders’ names and addresses and stockholdings during usual business hours, on five (5) days’ prior written demand on the Corporation, or

(b)  Obtain from the Corporation’s transfer agent, on written demand and tender of the transfer agent’s usual charges for this service, a list of the names and addresses of stockholders who are entitled to vote for the election of Directors, and their stockholdings, as of the most recent record date for which a list has been compiled or as of a specified date later than the date of demand. This list shall be made available within five (5) days after the date of demand, or the specified later date as of which the list is to be compiled. The record of stockholders shall also be opened to inspection on the written demand of any stockholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder’s interests as a stockholder or holder of a voting trust certificate. Any inspection and copying under this Section 7.01 may be made in person or by an agent or attorney of the stockholder or holder of a voting trust certificate making the demand.

Section 7.02    Maintenance and Inspection of Bylaws.    The Corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in the state, the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the stockholders at all reasonable times during office hours. If the principal executive office of the Corporation is outside the State of California and the Corporation has no principal business office in the state, the Secretary shall, upon the written request of any stockholder, furnish to that stockholder a copy of these Bylaws as amended to date.

Section 7.03    Maintenance and Inspection of Minutes and Accounting Records.    The minutes of proceedings of the stockholders, Board of Directors, and committees of the Board, and the accounting books and records shall be kept at the principal executive office of the Corporation, or at such other place or places as designated by the Board of Directors. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any stockholder or holder of a voting trust certificate reasonably related to the holder’s interests as a stockholder or holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary of the Corporation.

Section 7.04    Inspection by Directors.    Every Director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the Corporation and each of its subsidiary corporations. This inspection by a Director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.

Section 7.05    Annual Report to Stockholders.    Inasmuch as, and for as long as, there are fewer than 100 stockholders, the requirement of an annual report to stockholders referred to in Section 1501 of the California Corporations Code is expressly waived. However, nothing in this provision shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the stockholders, as the Board considers appropriate.

Section 7.06    Financial Statements.    The Corporation shall keep a copy of each annual financial statement, quarterly or other periodic income statement, and accompanying balance sheets prepared by the Corporation on file in the Corporation’s principal executive office for twelve (12) months; these documents shall be exhibited at all reasonable times, or copies provided, to any stockholder on written demand therefor.

If no annual report for the last fiscal year has been sent to stockholders, on written request of any stockholder made more than one hundred twenty (120) days after the close of the fiscal year the Corporation shall deliver or mail to the stockholder, within thirty (30) days after receipt of the request, a balance sheet as of the end of that fiscal year and an income statement and statement of changes in financial position for that fiscal year.

A stockholder or stockholders holding five percent (5%) or more of the outstanding shares of any class of stock of the Corporation may request in writing an income statement for the most recent three-month, six-month, or nine-month period (ending more than thirty (30) days before the date of the request) of the current fiscal year, and a balance sheet of the Corporation as of the end of that period. If such documents are not already prepared, the Chief Financial Officer shall cause them to be prepared and shall deliver the documents personally or mail them to the requesting stockholders within thirty (30) days after receipt of the request. A balance sheet, income statement, and statement of changes in financial position for the last fiscal year shall also be included, unless the Corporation has sent the stockholders an annual report for the last fiscal year.

Quarterly income statements and balance sheets referred to in this Section 7.06 shall be accompanied by the report, if any, of the independent accountants engaged by the Corporation or the certificate of an authorized corporate officer stating that the financial statements were prepared without audit from the Corporation’s books and records.

Section 7.07    Annual Statement of General Information.

(a)  Every year, during the calendar month in which the original Articles of Incorporation of the Corporation were filed with the California Secretary of State, or during the preceding five (5) calendar months, the Corporation shall file a statement with the Secretary of State on the prescribed form, setting forth the authorized number of Directors; the names and complete business or residence addresses of all incumbent Directors; the name and complete business or residence addresses of the President, the Secretary, and the Chief Financial Officer; the street address of the Corporation’s principal executive office or principal business office in this state; a statement of the general type of business constituting the principal business activity of the Corporation; and a designation of the agent of the Corporation for the purpose of service of process, all in compliance with Section 1502 of the California Corporations Code.

(b)  Notwithstanding the provisions of paragraph (a) of this Section 7.07, if there has been no change in the formation contained in the Corporation’s last annual statement on file in the California Secretary of State’s office, the Corporation may, in lieu of filing the annual statement described in paragraph (a) of this Section 7.07, advise the Secretary of State, on the appropriate form, that no changes in the required information have occurred during the applicable period.

ARTICLE VIII

GENERAL CORPORATE MATTERS

Section 8.01    Record Date for Purposes Other Than Notice and Voting.    For purposes of determining the stockholders entitled to receive payment of dividends or other distributions or allotment of rights, or entitled to exercise any rights in respect of any other lawful action (other than voting at and receiving notice of stockholders’ meetings and giving written consent of the stockholders without a meeting), the Board of Directors may fix in advance a record date which shall not be more than sixty (60) days before the date of the dividend payment, distribution, allotment, or other action. If a record date is so fixed, only stockholders of record at the close of business on that date shall be entitled to receive the dividend, distribution, or allotment of rights, or to exercise any other rights, as the case may be, notwithstanding any transfer of shares on the Corporation’s books after the record date, except as otherwise provided by law.

If the Board of Directors does not fix a record date in advance, the record date shall be at the close of business on the later of, (i) the day on which the Board of Directors adopts the applicable resolution or, (ii) the sixtieth (60th) day before the date of the dividend payment, distribution, allotment of rights, or other action.

Section 8.02    Authorized Signatories for Check.    All checks, drafts, other orders for payment of money, notes, or other evidences of indebtedness issued in the name of or payable to the Corporation shall be signed or endorsed by such person or persons in such manner authorized from time to time by resolution of the Board of Directors.

Section 8.03    Executing Corporate Contracts and Instruments.    Except as otherwise provided in the Articles of Incorporation of the Corporation or in these Bylaws, the Board of Directors by resolution may authorize any officer, officers, agents, or agents to enter into any contract or to execute any instrument in the name of and on behalf of the Corporation. This authority may be general or it may be confined to one or more specific matters. No officer, agent, employee, or other person purporting to act on behalf of the Corporation shall have any power or authority to bind the Corporation in any way, to pledge the Corporation’s credit, or to render the corporation liable for any purpose or in any amount, unless that person was acting with authority duly granted by the Board of Directors as provided in these Bylaws, or unless an unauthorized act was later ratified by the corporation.

Section 8.04    Certificates for Shares.    A certificate or certificates for shares of the capital stock of the Corporation shall be issued to each stockholder when any of the shares are fully paid. All certificates shall certify the number of shares and the class or series of shares represented by the certificate. All certificates shall be signed in the name of the Corporation by, (i) either the chairman of the Board of Directors, the Vice chairman of the Board of Directors, the President, or any Vice President, and (ii) either the President, any assistant Treasurer, the Secretary, or any assistant Secretary.

Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall cease to be that officer, transfer agent, or registrar before that certificate is issued, the certificate may be issued by the Corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue.

Section 8.05    Lost Certificates.    Except as provided in this Section 8.05, no new certificates for shares shall be issued to replace an old certificate unless the old certificate is surrendered to the Corporation for cancellation at the same time. If share certificates or certificates for any other security have been lost, stolen, or destroyed, the Board of Directors may authorize the issuance of replacement certificates on terms and conditions as required by the Board of Directors, which may include a requirement that the owner give the Corporation a bond (or other adequate security) sufficient to indemnify the Corporation against any claim which may be made against it (including any expense or liability) on account of the alleged loss, theft, or destruction of the old certificate or the issuance of the replacement certificate.

Section 8.06    Shares of Other Corporations; How Voted.    Shares of other corporations standing in the name of the Corporation shall be voted by one of the following persons, listed in order of preference: (i) chairman of the Board, or person designated by the chairman of the Board; (ii) President, or person designated by the President; (iii) first Vice President, or person designated by the first Vice President; (iv) other person designated by the Board of Directors. The authority to vote shares granted by this Section 8.06 includes the authority to execute a proxy in the name of the Corporation for purposes of voting the shares.

Section 8.07    Reimbursement of Corporation if Payment Not Tax Deductible.    If all or part of the compensation, including expenses, paid by the Corporation to a Director, officer, employee, or agent is finally determined not to be allowable to the Corporation as a federal or state income tax deduction, the Director, officer, employee, or agent to whom the payment was made shall repay to the Corporation the amount disallowed. The Board of Directors shall enforce repayment of each such amount disallowed by the taxing authorities.

Section 8.08    Construction and Definitions.    Unless the context requires otherwise, the general provisions, rules of construction, and definitions in Sections 100 through 195 of the California Corporations Code shall govern the construction of these Bylaws. Without limiting the generality of this Section 8.08, the singular, and the term “person” includes both a corporation and a natural person.

ARTICLE IX

AMENDMENTS TO BYLAWS

Section 9.01    Amendment by Board of Directors or Stockholders.    Except as otherwise required by law or by the Articles of Incorporation of the Corporation, these Bylaws may be amended or repealed, and new Bylaws may be adopted, by the Board of Directors or by the holders of a majority of the outstanding shares entitled to vote.

CERTIFICATE OF SECRETARY

I, the undersigned, do hereby certify:

1.    That I am the duly elected and acting Secretary of NUTECH DIGITAL, INC., a California corporation; and

2.    That the foregoing Bylaws comprising twenty one (21) pages, constitute the Bylaws of the Corporation as duly adopted by action of the Incorporator of the Corporation duly taken on June 18, 1997.

IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said Corporation on June 18, 1997.

/s/    LEE KASPER

Lee Kasper, Secretary

EX-5.0

EXHIBIT 5.0

POLLET, RICHARDSON & PATEL

A Law Corporation

10900 Wilshire Blvd.

Suite 500

Los Angeles, California 90024

Telephone (310) 208-1183

Facsimile (310) 208-1154

May 17, 2002

NuTech Digital, Inc.

7900 Gloria Avenue

Van Nuys, California 91406

Re: NuTech Digital, Inc.

Registration Statement on Form SB-2

Gentlemen:

We have acted as counsel for NuTech Digital, Inc., a California corporation (the “Company”), in connection with the preparation of a Registration Statement on Form SB-2 filed by the Company with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (“Act”), relating to the public sale of 2,500,000 shares of common stock offered by the Company and the public resale by certain Selling Security Holders of 3,430,030 shares of common stock. This opinion is being furnished pursuant to Item 601(b)(5) of Regulation S-B under the Act.

In connection with rendering the opinion as set forth below, we have reviewed (a) the Registration Statement and the exhibits thereto; (b) the Company’s Articles of Incorporation, as amended, (c) the Company’s Bylaws; (d) certain records of the Company’s corporate proceedings as reflected in its minute books, and (e) such statutes, records and other documents as we have deemed relevant.

In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and conformity with the originals of all documents submitted to us as copies thereof. In addition, we have made such other examinations of law and fact as we have deemed relevant in order to form a basis for the opinion hereinafter expressed.

Based upon the foregoing, we are of the opinion that (i) the shares issuable by the Company pursuant to this Registration Statement will be validly issued, fully paid and nonassessable; and (ii) that the outstanding shares of common stock to be sold by the Selling Security Holders will be validly issued, fully paid and non-assessable.

We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the references to this firm in the Registration Statement. In giving this consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder.

POLLET, RICHARDSON & PATEL A LAW CORPORATION
By:	/s/    ERICK E. RICHARDSON
	Erick E. Richardson

EX-10.1

EXHIBIT 10.1

NuTECH DIGITAL, INC.

2001 EQUITY INCENTIVE PLAN

As Adopted May 15, 2001

1.    NAME.

The name of the plan is “NuTech Digital, Inc. 2001 Equity Incentive Plan”.

2.    PURPOSE.

The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, and its Parent and Subsidiaries (if any), by offering them an opportunity to participate in the Company’s future performance through awards of Options, Restricted Stock and Stock Awards. Capitalized terms not defined in the text are defined in Section 3.

3.    DEFINITIONS.

As used in this Plan, the following terms will have the following meanings:

“AWARD” means any award under this Plan, including any Option, Restricted Stock or Stock Award.

“AWARD AGREEMENT” means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

“BOARD” means the Board of Directors of the Company.

“CAUSE” means any cause, as defined by applicable law, for the termination of a Participant’s employment with the Company or a Parent or Subsidiary of the Company.

“CODE” means the Internal Revenue Code of 1986, as amended.

“COMMITTEE” means the Board of Directors.

“COMPANY” means NuTech Digital, Inc., a California corporation, or any successor corporation.

“DISABILITY” means a disability, whether temporary or permanent, partial or total, as determined by the Committee.

“EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended.

“EXERCISE PRICE” means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

“FAIR MARKET VALUE” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

(a)  if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal;

(b)  if such Common Stock is quoted on the NASDAQ National Market, its closing price on the NASDAQ National Market on the date of determination as reported in The Wall Street Journal;

(c)  if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal;

(d)  the price per share at which shares of the Company’s Common Stock are initially offered for sale to the public by the Company’s underwriters in the initial public offering of the Company’s Common Stock pursuant to a registration statement filed with the SEC under the Securities Act if the Award is made on the effective date of such registration statement; or

(e)  if none of the foregoing is applicable, by the Committee in good faith.

“INSIDER” means an officer or director of the Company or any other person whose transactions in the Company’s Common Stock are subject to Section 16 of the Exchange Act.

“OPTION” means an award of an option to purchase Shares pursuant to Section 7.

“PARENT” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“PARTICIPANT” means a person who receives an Award under this Plan.

“PERFORMANCE FACTORS” means the factors selected by the Committee, in its sole and absolute discretion, from among the following measures to determine whether the performance goals applicable to Awards have been satisfied:

(a)  Net revenue and/or net revenue growth;

(b)  Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth;

(c)  Operating income and/or operating income growth;

(d)  Net income and/or net income growth;

(e)  Earnings per share and/or earnings per share growth;

(f)  Total stockholder return and/or total stockholder return growth;

(g)  Return on equity;

(h)  Operating cash flow return on income;

(i)  Adjusted operating cash flow return on income;

(j)  Economic value added; and

(k)  Individual business objectives.

“PERFORMANCE PERIOD” means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Awards.

“PLAN” means this NuTech Digital, Inc. 2001 Equity Incentive Plan, as amended from time to time.

“RESTRICTED STOCK AWARD” means an award of Shares pursuant to Section 8.

“SEC” means the Securities and Exchange Commission.

“SECURITIES ACT” means the Securities Act of 1933, as amended.

“SHARES” means shares of the Company’s Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 4 and 19, and any successor security.

“STOCK AWARD” means an award of Shares, or cash in lieu of Shares, pursuant to Section 9.

“SUBSIDIARY” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“TERMINATION” or “TERMINATED” means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Company, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to a formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “Termination Date”).

4.    SHARES SUBJECT TO THE PLAN.

4.1    Number of Shares Available.    At no time shall the total number of shares issuable upon exercise of all outstanding Awards exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Regulation 260.140.45 of Title 10 of the California Code of Regulations, based on the shares of the Company’s Common Stock which are outstanding at the time the calculation is made. Subject to Sections 4.2 and 19, the total aggregate number of Shares reserved and available for grant and issuance pursuant to this Plan will be 2,500,000 Shares and will include Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but forfeited or repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan.

4.2    Adjustment of Shares.    In the event that the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee.

5.    ELIGIBILITY.

ISOs (as defined in Section 7 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company, provided such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan.

6.    ADMINISTRATION.

6.1    Committee Authority.    This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:

(a)  construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

(b)  prescribe, amend and rescind rules and regulations relating to this Plan or any Award;

(c)  select persons to receive Awards;

(d)  determine the form and terms of Awards;

(e)  determine the number of Shares or other consideration subject to Awards;

(f)  determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other

Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;

(g)  grant waivers of Plan or Award conditions;

(h)  determine the vesting, exercisability and payment of Awards;

(i)  correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;

(j)  determine whether an Award has been earned; and

(k)  make all other determinations necessary or advisable for the administration of this Plan.

6.2    Committee Discretion.    Any determination made by the Committee with respect to any Award will be made at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company.

7.    OPTIONS.

The Committee may grant Options to eligible persons and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ISO”) or Nonqualified Stock Options (“NQSOs”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:

7.1    Form of Option Grant.    Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO (hereinafter referred to as the “Stock Option Agreement”), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.

7.2    Date of Grant.    The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.

7.3    Exercise Period.    Options may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement

governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company (“Ten Percent Stockholder”) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines, provided, however, that in all events a Participant will be entitled to exercise an Option at the rate of at least 20% per year over five years from the date of grant, subject to reasonable conditions such as continued employment; and further provided that an Option granted to a Participant who is an officer, director or consultant may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company.

7.4    Exercise Price.    The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (a) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (b) the Exercise Price of an Option granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 10 of this Plan.

7.5    Method of Exercise.    Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Committee, (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding the Participant’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased.

7.6    Termination.    Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following:

(a)  If the Participant’s service is Terminated for any reason except death or Disability, then the Participant may exercise such Participant’s Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO).

(b)  If the Participant’s service is Terminated because of the Participant’s death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant’s Disability), then the Participant’s Options may be exercised only to the extent that such Options would have

been exercisable by the Participant on the Termination Date and must be exercised by the Participant (or the Participant’s legal representative) no later than twelve (12) months after the Termination Date (or such longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (i) three (3) months after the Termination Date when the Termination is for any reason other than the Participant’s death or Disability, or (ii) twelve (12) months after the Termination Date when the Termination is for Participant’s death or Disability, deemed to be an NQSO).

(c)  Notwithstanding the provisions in paragraph 7.6(a) above, if the Participant’s service is Terminated for Cause, neither the Participant, the Participant’s estate nor such other person who may then hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after Termination, whether or not after Termination the Participant may receive payment from the Company or a Subsidiary for vacation pay, for services rendered prior to Termination, for services rendered for the day on which Termination occurs, for salary in lieu of notice, or for any other benefits. For the purpose of this paragraph, Termination shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is Terminated.

7.7    Limitations on Exercise.    The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent the Participant from exercising the Option for the full number of Shares for which it is then exercisable.

7.8    Limitations on ISO.    The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

7.9    Modification, Extension or Renewal.    The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefore, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however,

that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 7.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price.

7.10    No Disqualification.    Notwithstanding any other provision in this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code.

8.    RESTRICTED STOCK.

A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the “Purchase Price”), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following:

8.1    Form of Restricted Stock Award.    All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement (the “Restricted Stock Purchase Agreement”) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant’s execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise extended by the Committee.

8.2    Purchase Price.    The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted and may not be less than 85% of the Fair Market Value of the Shares on the grant date, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price must be made in accordance with Section 10 of this Plan.

8.3    Terms of Restricted Stock Awards.    Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant’s individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be

used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and have different performance goals and other criteria.

8.4    Termination During Performance Period.    If a Participant is Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee determines otherwise.

9.    STOCK AWARDS.

9.1    Awards of Stock.    A Stock Award is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Award will be awarded pursuant to an Award Agreement (the “Stock Award Agreement”) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Award may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant’s individual Stock Award Agreement (the “Performance Stock Award Agreement”) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Awards may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine.

9.2    Terms of Stock Awards.    The Committee will determine the number of Shares to be awarded to the Participant. If the Stock Award is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Award Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Award; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Award, the Committee shall determine the extent to which such Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Awards that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Awards to take into account changes in law and

accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships.

9.3    Form of Payment.    The earned portion of a Stock Award may be paid to the Participant by the Company either currently or on a deferred basis, with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine.

10.    PAYMENT FOR SHARE PURCHASES.

10.1    Payment.    Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:

(a)  by cancellation of indebtedness of the Company to the Participant;

(b)  by surrender of shares that either: (1) have been owned by the Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by the Participant in the public market;

(c)  by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares;

(d)  by waiver of compensation due or accrued to the Participant for services rendered;

(e)  with respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists:

(1)  through a “same day sale” commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(2)  through a “margin” commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to

pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(f)  by any combination of the foregoing.

10.2    Loan Guarantees.    The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

11.    WITHHOLDING TAXES.

11.1    Withholding Generally.    Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

11.2    Stock Withholding.    When, under applicable tax laws, a participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and will be in writing in a form acceptable to the Committee.

12.    PRIVILEGES OF STOCK OWNERSHIP.

12.1    Voting and Dividends.    No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and will have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock.

12.2    Financial Statements.    The Company will provide financial statements to each Participant prior to such Participant’s purchase of Shares under

this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company will not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information.

13.    NON-TRANSFERABILITY OF AWARDS.

Awards of Stock and Restricted Stock granted under this Plan, and any interest therein, will not be transferable or assignable by the Participant, and may not be made subject to execution, attachment or similar process, other than by will or by the laws of descent and distribution. Awards of Options granted under this Plan, and any interest therein, will not be transferable or assignable by the Participant, and may not be made subject to execution, attachment or similar process, other than by will or by the laws of descent and distribution, by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor, or by gift to “immediate family” as that term is defined in 17 C.F.R. 240.16a-1(e). During the lifetime of the Participant an Award will be exercisable only by the Participant. During the lifetime of the Participant, any elections with respect to an Award may be made only by the Participant unless otherwise determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs.

14.    CERTIFICATES.

All certificates for Shares or other securities delivered under this Plan will be subject to such stop transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.

15.    ESCROW; PLEDGE OF SHARES.

To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of the Participant’s obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the

Participant’s Shares or other collateral. In connection with any pledge of the Shares, the Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.

16.    EXCHANGE OF AWARDS.

The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards.

17.    SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.

An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.

18.    NO OBLIGATION TO EMPLOY.

Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant’s employment or other relationship at any time, with or without cause.

19.    CORPORATE TRANSACTIONS.

19.1    Assumption or Replacement of Awards by Successor.    In the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or

other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a transaction described in this Subsection 19.1, such Awards will expire on such transaction at such time and on such conditions as the Committee will determine. Notwithstanding anything in this Plan to the contrary, the Committee may provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a transaction described in this Section 19. If the Committee exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate at such time as determined by the Committee.

19.2    Other Treatment of Awards.    Subject to any greater rights granted to Participants under the foregoing provisions of this Section 19, in the event of the occurrence of any transaction described in Section 19.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets.

19.3    Assumption of Awards by the Company.    The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain

unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.

20.    ADOPTION AND EFFECTIVE DATE.

This NuTech Digital, Inc. 2001 Equity Incentive Plan is effective as of May 15, 2001, the date it was adopted by the Board.

21.  STOCKHOLDER APPROVAL.

This Plan was approved by the stockholders of the Company on May 15, 2001.

22.    TERM OF PLAN/GOVERNING LAW.

Unless earlier terminated as provided herein, this Plan will terminate on May 15, 2011. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California.

23.    AMENDMENT OR TERMINATION OF PLAN.

The Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval under the Code, if applicable, or by any stock exchange or market on which the Common Stock of the Company is listed for trading.

24.    NONEXCLUSIVITY OF THE PLAN.

Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

25.    ACTION BY COMMITTEE.

Any action permitted or required to be taken by the Committee or any decision or determination permitted or required to be made by the Committee pursuant to this Plan shall be taken or made in the Committee’s sole and absolute discretion.

EX-10.2

Exhibit 10.2

BUSINESS SECURITY AGREEMENT

This Business Security Agreement (“Agreement”) is made and entered into by the undersigned borrower, guarantor and/or other obligor/pledgor (the “Debtor”) in favor of U.S. BANK N.A. (the “ Bank”) as of the date set forth on the last page of this Agreement.

ARTICLE I.    SECURITY INTEREST

1.1    Grant of Security Interest.    Debtor hereby grants a security interest in and collaterally assigns the Collateral (defined below) to Bank to secure all of Debtor’s Obligations (defined below) to Bank. The intent of the parties hereto is that the Collateral secures all Obligations of Debtor to Bank, whether or not such Obligations exist under this Agreement or any other agreements, whether now or hereafter existing, between Debtor and Bank or in favor of Bank, including, without limitation, any note, any loan or security agreement, any lease, any mortgage, deed of trust or other pledge of an interest in real or personal property, any guaranty any letter of credit or banker’s acceptance, any agreement for any other services or credit extended by Bank to Debtor even though not specifically enumerated herein, and any other agreement with Bank (together and individually, the “Loan Documents”).

1.2    “Collateral”    means all of the following whether now owned or existing or hereafter acquired by Debtor (or by Debtor with spouse), wherever located (including all documents, general intangibles, additions and accessions, spare and repair parts, special tools, replacements, returned or repossessed goods and books and records relating to the following; and all proceeds, supporting obligations and products of the following) [check all that apply]:

x All accounts, instruments, documents, chattel paper, general intangibles, contract rights, investment property (including any securities entitlements and/or securities accounts held by Debtor), securities and certificates of deposit, deposit accounts, and letter of credit rights;

x All inventory:

x All equipment;

¨ All fixtures; and

¨ Specific Collateral (the following, whether constituting equipment, inventory, fixtures, or other collateral)                                 

In the event the first four boxes are checked, Debtor acknowledges and agrees that, in applying the law of any jurisdiction that at any time enacts all or

substantially all of the uniform provisions of Revised Article 9 of the Uniform Commercial Code (1999 Official Text), the foregoing collateral description covers all assets of Debtor. Bank may at any time and from time to time file financing and continuation statements and amendments thereto reflecting the same. Unless otherwise defined, the terms set forth in this Agreement shall have the meanings set forth in the Uniform Commercial Code as adopted in the Loan Documents and as amended from time to time. The defined terms hereunder shall be interpreted in a manner most favorable to Bank.

1.3    “Obligations” means all Debtor’s debts (except for consumer credit if Debtor is a natural person), liabilities, obligations, covenants, warranties, and duties to Bank (plus its affiliates including any credit card debt, but specifically excluding any type of consumer credit), whether now or hereafter existing or incurred, whether liquidated or unliquidated, whether absolute or contingent, whether arising out of the Loan Documents or otherwise, and all other debts and obligations due Bank under any lease, agricultural, real estate or other financing transaction and regardless of whether such financing is related in time or type to the financing provided at the time of grant of this security interest, and regardless of whether such Obligations arise out of existing or future credit granted by Bank to any Debtor, to any Debtor and others, to others guaranteed, endorsed or otherwise secured by any Debtor or to any debtor-in-possession or other successor-in-interest of any Debtor, and including principal, interest, fees, expenses and charges relating to any of the foregoing.

ARTICLE II.    WARRANTIES AND COVENANTS

In addition to all other warranties and covenants of Debtor under the Loan Documents which are expressly incorporated herein as, part of this Agreement and while any part of the credit granted Debtor under the Loan Documents is available or any Obligations of Debtor to Bank are unpaid or outstanding, Debtor continuously warrants and agrees as follows:

2.1    Debtor’s Name, Location; Notice of Location Changes.    Except as indicated in the Article 9 Certificate executed by Debtor and made a part hereof, Debtor’s name and organizational structure has remained the same during the past five (5) years. Debtor will continue to use only the name set forth with Debtor’s signature unless Debtor gives Bank prior written notice of any change. Furthermore, Debtor shall not do business under another name nor use any trade name without giving ten (10) days prior written notice to Bank. Debtor will not change its status or organizational structure without the prior written consent of Bank. Debtor will not change its location or registration (if Debtor is a registered organization) to another state without prior written notice to Bank. The address appearing in the Article 9 Certificate is Debtor’s chief executive office (or residence if Debtor is a sole proprietor).

2.2    Status of Collateral.    All Collateral is genuine and validly existing. Except for items of insignificant value or as otherwise reflected in writing by Debtor to Bank under

a borrowing base or otherwise, (i) Collateral constituting inventory, equipment and fixtures is in good condition, not obsolete and is either currently saleable or usable; and (ii) Collateral constituting accounts, contract rights, notes, chattel paper and other third-party obligations to pay is fully enforceable in accordance with its terms and not subject to return, dispute, setoff, credit allowance or adjustment, except for discounts for prompt payment. Unless Debtor provides Bank with written notice to the contrary, Debtor has no notice or knowledge of anything that would impair the ability of any third-party obligor to pay any debt to Debtor when due.

2.3    Ownership; Maintenance of Collateral; Restrictions on Liens and Dispositions.    Debtor is the sole owner of the Collateral free of all liens, claims, other encumbrances and security interests except as permitted in writing by Bank. Debtor shall: (i) maintain the Collateral in good condition and repair (reasonable wear and tear excepted), and not permit its value to be impaired; (ii) not permit waste, removal or loss of identity of the Collateral; (iii) keep the Collateral free from all liens, executions, attachments, claims, encumbrances and security interests (other than Bank’s paramount security interest and those permitted in writing by Bank); (iv) defend the Collateral against all claims and legal proceedings by persons other than Bank; (v) pay and discharge when due all taxes, levies and other charges or fees upon the Collateral except for payment of taxes contested by Debtor in good faith by appropriate proceedings so long as no levy or lien has been imposed upon the Collateral; (vi) not lease, sell or transfer the Collateral to any party nor move it to any new location outside of the ordinary course of business; (vii) not permit the Collateral, without the consent of Bank, to become a fixture or an accession to other goods; (viii) not permit the Collateral to be used in violation of any applicable law, regulation or policy of insurance; and, (ix) as to the Collateral consisting of instruments and chattel paper, preserve Bank’s rights in it against air other parties. Notwithstanding the above, Debtor may sell, lease or transfer inventory in the ordinary course of its business provided that no sale, lease or transfer shall include any transferor sale in satisfaction (partial or complete) of a debt owed by Debtor; title will not pass to buyer until Debtor physically delivers the goods to buyer or Debtor ships the goods F.O.B. to buyer’s destination; and sales and/or leases to Debtor’s affiliates shall be for fair market value, cash on delivery, with the proceeds remitted to Bank.

2.4    Maintenance of Security Interest; Purchase Money Security Interests.    Debtor shall take any action requested by Bank to preserve the Collateral and to establish the value of, the priority of, to perfect, to continue the perfection of or to enforce Bank’s interest in the Collateral and Bank’s rights under this Agreement; and shall pay all costs and expenses related thereto. Debtor shall also cooperate with Bank in obtaining control (for purposes of perfection under the Uniform Commercial Code) of Collateral consisting of deposit accounts, investment property, letter of credit rights, electronic chattel paper and any other collateral where Bank may obtain perfection through control. Debtor hereby authorizes Bank to take any and all actions described above and in place of Debtor with respect to the Collateral and hereby ratifies any such actions Bank has taken prior to the date of this Agreement and hereafter, which actions may include, without limitation, filing UCC financing statements and obtaining or attempting to obtain control

agreements from holders of the Collateral. Debtor and Bank intend to maintain the full effect of any purchase money security interest granted in favor of Bank notwithstanding the fact that the Collateral so purchased is also pledged as security for other Obligations under the Loan Documents.

2.5    Collateral Inspections; Modifications and Changes in Collateral.    At reasonable times, Bank may examine the Collateral and Debtor’s records pertaining to it, wherever located, and make copies of such records at Debtor’s expense; and Debtor shall assist Bank in so doing. Without Bank’s prior written consent, Debtor shall not alter, modify, discount, extend, renew or cancel any Collateral, except for ordinary discounts for prompt payment on accounts, physical modifications to the inventory occurring in the manufacturing process or alterations to equipment which do not materially affect its value. Debtor shall promptly notify Bank in writing of any material change in the condition of the Collateral and of any change in location of the Collateral.

2.6    Collateral Records, Reports and Statements.    Debtor shall keep accurate and complete records respecting the Collateral in such form as Bank may approve. At such times as Bank may require, Debtor shall furnish to Bank any records/information Bank might require, including, without limitation, a statement certified by Debtor and in such form and containing such information as may be prescribed by Bank showing the current status and value of the Collateral.

2.7    Chattel Paper, Instruments, Etc.    Chattel paper, instruments, drafts, notes, acceptances, and other documents which constitute Collateral shall be on forms satisfactory to Bank. Debtor shall promptly mark chattel paper to indicate conspicuously Bank’s security interest therein, shall not deliver any chattel paper or negotiable instruments to any other entity and, upon request, shall deliver any original chattel paper, instruments, drafts, notes, acceptances and other documents which constitute Collateral to Bank.

2.8    United States Government Contracts.    If any accounts or contract rights arose out of contracts with the United States or any of its departments, agencies or instrumentalities, Debtor shall promptly notify Bank and execute any writings required by Bank so that any money due or to become due under such contracts shall be assigned to Bank under the Federal Assignment of Claims Act.

2.9    Environmental Matters.    Except as disclosed in a written schedule attached to this Agreement (if no schedule is attached, there are no exceptions), there exists no uncorrected violation by Debtor of any federal, state or local laws (including statutes, regulations, ordinances or other governmental restrictions and requirements) relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or Hazardous Substances as hereinafter defined, whether such laws currently exist or are enacted in the future (collectively “Environmental Laws’). The term “Hazardous Substances” shall mean any hazardous or toxic wastes, chemicals or other substances, the generation, possession or existence of which is prohibited or governed by any Environmental Laws. Debtor is not subject to any judgment, decree,

order or citation, or a party to (or threatened with) any litigation or administrative proceeding, which asserts that Debtor (i) has violated any Environmental Laws; (ii) is required to clean up, remove or take remedial or other action with respect to any Hazardous Substances (collectively “Remedial Action”); or (iii) is required to pay all or a portion of the cost of any Remedial Action, as a potentially responsible party. There are not now, nor to Debtor’s knowledge after reasonable investigation have there ever been, any Hazardous Substances (or tanks or other facilities for the storage of Hazardous Substances) stored, deposited, recycled or disposed of on, under or at any real estate owned or occupied by Debtor during the periods that Debtor owned or occupied such real estate, which if present on the real estate or in soils or ground water, could require Remedial Action. To Debtor’s knowledge, there are no proposed or pending changes in Environmental Laws which would adversely affect Debtor or its business, and there are no conditions existing currently or likely to exist while the Loan Documents are in effect which would subject Debtor to Remedial Action or other liability. Debtor currently complies with and will continue to timely comply with all applicable Environmental Laws; and will provide Bank, immediately upon receipt, copies of any correspondence, notice, complaint, order or other document from any source asserting or alleging any circumstance or condition which requires or may require a financial contribution by Debtor or Remedial Action or other response by or on the part of Debtor under Environmental Laws, or which seeks damages or civil, criminal or punitive penalties from Debtor for an alleged violation of Environmental Laws.

2.10    Insurance.    Debtor will maintain insurance to such extent, covering such risks and with such insurers as is usual and customary for businesses operating similar properties, and as is satisfactory to Bank, including insurance for fire and other risks insured against by extended or comprehensive coverage, public liability insurance and workers’ compensation insurance; and will designate Bank as loss payee with a “Lender’s Loss Payable” endorsement on any casualty policies and take such other action as Bank may reasonably request to ensure that Bank will receive (subject to no other interests) the insurance proceeds of the Collateral. Debtor hereby assigns all insurance proceeds to and irrevocably directs, while any Obligations remain unpaid, any insurer to pay to Bank the proceeds of all such insurance and any premium refund; and authorizes Bank to endorse Debtor’s name to effect the same, to make, adjust or settle, in Debtor’s name, any claim on any insurance policy relating to the Collateral; and, at the option of Bank, to apply such proceeds and refunds to the Obligations or to restoration of the Collateral, returning any excess to Debtor. In the event of any failure of the Debtor to obtain or maintain any insurance required hereunder, the Bank shall have the authority, but not the obligation, to obtain any such insurance coverage, and the Debtor shall immediately reimburse the Bank for the cost thereof, together with interest on such amount at the highest rate of interest then accruing on any of the Obligations.

ARTICLE III.    COLLECTIONS

3.1    Deposit with Bank.    At any time Bank may require that all proceeds of Collateral received by Debtor shall be held by Debtor upon an express trust for Bank, shall not be commingled with any other funds or property of Debtor and shall be turned over to Bank in precisely the form received (but endorsed by Debtor, if necessary for collection) not

later than the business day following the day of their receipt. All proceeds of Collateral received by Bank directly or from Debtor shall be applied against the Obligations in such order and at such times as Bank shall determine.

ARTICLE IV.    RIGHTS AND DUTIES OF BANK

In addition to all other rights (including setoff) and duties of Bank under the Loan Documents which are expressly incorporated herein as a part of this Agreement, the following provisions shall also apply:

4.1    Authority to Perform for Debtor.    Debtor presently appoints any officer of Bank as Debtor’s attorney-in-fact (coupled with an interest and irrevocable while any Obligations remain unpaid to do any of the following upon default by Debtor hereunder (notwithstanding any notice requirements or grace/cure periods under this or other agreements between Debtor and Bank): (i) to file, endorse or place the name of Debtor on any invoice or document of title relating to accounts, drafts against customers, notices to customers, notes, acceptances, assignments of government contracts, instruments, financing statements, checks, drafts, money orders, insurance claims or payments or other documents evidencing payment or a security interest relating to the Collateral; (ii) to receive, open and dispose of all mail addressed to Debtor and to notify the Post Office authorities to change the address for delivery of mail addressed to Debtor to an address designated by Bank; (iii) to do all such other acts and things necessary to carry out Debtor’s duties under this Agreement and the other loan Documents; and (iv) to perfect, protect and/or realize upon Bank’s interest in the Collateral. If the Collateral includes funds or property in depository accounts, Debtor authorizes each of its depository institutions to remit to Bank, without liability to Debtor, all of Debtor’s funds on deposit with such institution upon written direction by Bank after default by Debtor hereunder. All acts by Bank are hereby ratified and approved, and Bank shall not be liable for any acts of commission or omission, nor for any errors of judgment or mistakes of fact or law.

4.2    Verification and Notification; Bank’s Rights.    Bank may verify Collateral in any manner, and Debtor shall assist Bank in so doing. Upon the occurrence of a default hereunder, Bank may at any time and Debtor shall, upon request of Bank, notify the account debtors to make payment directly to Bank; and Bank may enforce collection of, sell, settle, compromise, extend or renew the indebtedness of such account debtors; all without notice to or the consent of Debtor. Until account debtors are so notified, Debtor, as agent of Bank, shall make collections on the Collateral. Bank may at any time notify any bailee possessing Collateral to turn over the Collateral to Bank.

4.3    Collateral Preservation.    Bank shall use reasonable care in the custody and preservation of any Collateral in its physical possession but in determining such standard of reasonable care, Debtor expressly acknowledges that Bank has no duty to: (i) insure the Collateral against hazards; (ii) ensure that the Collateral will not cause damage to property or injury to third parties; (iii) protect it from seizure, theft or conversion by third parties, third parties’ claims or acts of God; (iv) give to Debtor any notices received by Bank regarding the Collateral; (v) perfect or continue perfection of any security interest in favor of Debtor; (vi) perform any services, complete any work-in-process or take any

other action in connection with the management or maintenance of the Collateral; or (vii) sue or otherwise effect collection upon any accounts even if Bank shall have made a demand for payment upon individual account debtors. Notwithstanding any failure by Bank to use reasonable care in preserving the Collateral, Debtor agrees that Bank shall not be liable for consequential or special damages arising therefrom.

ARTICLE V.    DEFAULTS AND REMEDIES

Bank may enforce its rights and remedies under this Agreement upon default. A default shall occur if Debtor fails to comply with the terms of any Loan Documents (including this Agreement or any guaranty by Debtor) a demand for payment is made under a demand loan, or any other obligor fails to comply with the terms of any Loan Documents for which Debtor has given Bank a guaranty or pledge.

5.1    Cumulative Remedies; Notice; Waiver.    In addition to the remedies for default set forth in the Loan Documents, Bank upon default shall have all other rights and remedies for default provided by the Uniform Commercial Code, as well as any other applicable law and this Agreement, INCLUDING, WITHOUT LIMITATION, THE RIGHT TO REPOSSESS, RENDER UNUSABLE AND/OR DISPOSE OF THE COLLATERAL WITHOUT JUDICIAL PROCESS. The rights and remedies specified herein are cumulative and are not exclusive of any rights or remedies which Bank would otherwise have. With respect to such rights and remedies:

(a)  Assembling Collateral; Storage; Use of Debtor’s Name/Other Property.    Bank may require Debtor to assemble the Collateral and to make it available to Bank at any convenient place designated by Bank. Debtor recognizes that Bank will not have an adequate remedy in law if this obligation is breached and accordingly, Debtor’s obligation to assemble the Collateral shall be specifically enforceable. Bank shall have the right to take immediate possession of said Collateral and Debtor irrevocably authorizes Bank to enter any of the premises wherever said Collateral shall be located, and to store, repair, maintain, assemble, manufacture, advertise and sell, lease or dispose of (by public sale or otherwise) the same on said premises until sold, all without charge or rent to Bank. Bank is hereby granted an irrevocable license to use, without charge, Debtor’s equipment, inventory, labels, patents, copyrights, franchises, names, trade secrets, trade names, trademarks and advertising matter and any property of a similar nature; and Debtor’s rights under all licenses and franchise agreements shall inure to Bank’s benefit. Further, Debtor releases Bank from obtaining a bond or surety with respect to any repossession and/or disposition of the Collateral.

(b)  Notice of Disposition.    Written notice, when required by law, sent to any address of Debtor in this Agreement, at least five (5) calendar days (counting the day of sending) before the date of a proposed disposition of the Collateral is reasonable notice but less notice may be reasonable under the circumstances. Notification to account debtors by Bank shall not be deemed a disposition of the Collateral. Notice of any record shall be deemed delivered when the record has been (a) deposited in the United States Mail, postage pre-paid, (b) received by overnight delivery service, (c) received by telex, (d) received by telecopy, (e) received through the internet, or (f) when personally delivered.

(c)  Possession of Collateral/Commercial Reasonableness.    Bank shall not, at any time, be obligated to either take or retain possession or control of the Collateral. With respect to Collateral in the possession or control of Bank, Debtor and Bank agree that as a standard for determining commercial reasonableness, Bank need not liquidate, collect, sell or otherwise dispose of any of the Collateral if Bank believes, in good faith, that disposition of the Collateral would not be commercially reasonable, would-subject Bank to third-party claims or liability, that other potential purchasers could be attracted or that a better price could be obtained if Bank held the Collateral for up to 2 years. Bank may sell Collateral without giving any warranties and may specifically disclaim any warranties of title or the like. Furthermore, Bank may sell the Collateral on credit (and reduce the Obligations only when payment is received from the buyer), at wholesale and/or with or without an agent or broker; and Bank need not complete, process, repair, clean-up or otherwise prepare the Collateral prior to disposition. If the purchaser fails to pay for the Collateral, Bank my resell the Collateral and Debtor shall be credited with the cash proceeds of the sale. Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

(d)  Waiver by Debtor.    Bank has no obligation and Debtor waives any obligation to attempt to satisfy the Obligations by collecting the obligations from any third parties and Bank may release, modify or waive any collateral provided by any third party to secure any of the Obligations, all without affecting Bank’s rights against Debtor. Debtor further waives any obligation on the part of Bank to marshal any assets in favor of Debtor or in payment of the Obligations. Notwithstanding any provisions in this Agreement or any other agreement between Debtor and Bank, Debtor does not waive any statutory rights except to the extent that the waiver thereof is permitted by law.

(e)  Waiver by Bank.    Bank may permit Debtor to attempt to remedy any default without waiving its rights and remedies hereunder, and Bank may waive any default without waiving any other subsequent or prior default by Debtor. Furthermore, delay on the part of Bank in exercising any right, power or privilege hereunder or at law shall not operate as a waiver thereof, nor shall any single or partial exercise of such right, power or privilege preclude other exercise thereof or the exercise of any other right, power or privilege. No waiver or suspension shall be deemed to have occurred unless Bank has expressly agreed in writing specifying. such waiver or suspension.

ARTICLE VI.    MISCELLANEOUS

All other provisions in the Loan Documents are expressly incorporated as a part of this Agreement.

All documents attached hereto, including any appendices, schedules, riders, and exhibits to this Agreement, are hereby expressly incorporated by reference.

IN WITNESS WHEREOF, the undersigned has/have executed this BUSINESS SECURITY AGREEMENT as MARCH 20, 2002.

(Individual Debtor)			NUTECH DIGITAL, INC.
			Debtor Name (Organization)
		(SEAL)	a	CALIFORNIA Corporation
			By:	/s/    LEE KASPER
Debtor Name	N/A
			Name and Title:		Lee Kasper, President
		(SEAL)
			By:
Debtor Name	N/A		Name and Title:

INSURANCE COVERAGE FOR THE BENEFIT OF THE BANK

TO:    INSURANCE AGENT	OWNER:
PCPP4006078	NUTECH DIGITAL, INC
Policy Number	Name
310-207-7737	15210 KESWICK STREET
Telephone Number	Address
COAST INSURANCE AGENCY	VAN NUYS, CA 91405
Insurance Company Name	City        State        Zip Code
Insurance Agent’s Name

11611 SAN VICENTE BLVD., SUITE 720
Address
LOS ANGELES,	CA	90049
City	State	Zip Code

As set forth below, this is a request and authorization that you name U.S. BANK N.A. (“the Bank”) as “Lenders Loss Payee” and/or “Mortgage Payee” under our property coverage from COAST INSUARANCE AGENCY (insert name of insurance company as follows:

(Fill Out the Appropriate Sections)

x    Lenders Loss Payee on all our tangible personal property (inventory/equipment) in the minimum amount of $50,000.00 and on any Business Interruption Insurance we have bound.

¨    Lenders Loss Payee on that equipment described below or on the attached sheet in the minimum amount of $            

¨    Lenders Loss Payee on motor vehicles up to their insurable value, as described below or on the attached sheet.

Year	Make	Model	VIN/Serial #
Year	Make	Model	VIN/Serial #

¨    Mortgage Payee on real estate at the following locations with coverage in the amounts specified:

	$
Address                                                               City                             State	Amount of Coverage

	$
Address                City                State	Amount of Coverage
	$
Address                City                State	Amount of Coverage

The Bank will require a binder or certificate showing such coverage and listing the Bank as Lenders Loss Payee and/or Mortgage Payee as stated above, or, alternatively, please provide the Bank with language from the policy showing its “Lender Loss Payee” and/or “Mortgage Payee” coverage. Such coverage should insure that the Bank is paid in the event of loss despite any neglect on our part, and that the Bank is given prior notice of cancellation.

Lastly, the Bank requires that there be no other loss payee and/or mortgage payee on its collateral without its consent. If there presently exists any other loss payee and/or mortgage payee on such collateral, please itemize such parties and their insured collateral on a separate attachment.

Please send the binder/certificate and any applicable loss payee/mortgage list to:

U.S. Bank N.A.

Attn:    Corporate Loan Servicing Center

            Commercial Collateral

#651730594318/26

555 SW Oak PD_OR_P7LD

Portland, OR 97204

Please direct any questions regarding this request to: 1-503-275-7136.

Thank you for your assistance.

Nutech Digital, Inc.

(Owner Name)

By:         /s/    LEE KASPER

          (Owner’s Signature)

Name and Title: Lee Kasper, President

(For Company Only)

ADDENDUM TO AMENDMENT TO LOAN AGREEMENT AND NOTE

This Addendum is made part of the Amendment to Loan Agreement and Note (the “Amendment”) made and entered into by and between the undersigned borrower (the “Borrower”) and the undersigned bank (the “Bank”) as of the date identified below. The following provisions are hereby added to the Agreement, (or to the extent such provisions already exist, are hereby modified) as follows.

1)  Borrower agrees with Bank that the section titled “Financial Statements” has been modified and replaced with:

Furnish Bank with, as soon as available, but in no event later than one hundred twenty (120) days after the end of each fiscal year, Borrower’s balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Bank, and, as soon as available, but in no event later than sixty (60) days after the end of each fiscal quarter, Borrower’s balance sheet and profit and loss statement for the period ended, reviewed by a certified public accountant satisfactory to Bank. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.

2)  Borrower agrees with Bank that Borrower shall rest the Line of Credit facility with no outstanding principal balance for a minimum of thirty (30) consecutive days during the term of the loan.

Dated: March 20, 2002

NUTECH DIGITAL, INC.
By:	/s/    LEE KASPER
	Lee Kasper, President

11

Due April 30th 2003

Customer # 6517305943

Loan # 18/26

AMENDMENT TO LOAN AGREEMENT AND NOTE

This amendment (the “Amendment”) dated as of the date specified below, is by and between the borrower (the “Borrower”) and the bank (the “Bank”) identified below.

RECITALS

A.    The Borrower and the Bank have executed a Loan Agreement (the “Agreement”) dated MARCH 20, 2001 and the Borrower has executed a Note (the “Note”), dated MARCH 20, 2001, either or both which may have been amended from time to time, and the Borrower (and if applicable, certain third parties) have executed the collateral documents which may or may not be identified in the Agreement and certain other related documents (collectively the “Loan Documents”), setting forth the terms and conditions upon which the Borrower may obtain loans from the Bank from time to time in the original amount of $ 500,000.00, as may be amended from time to time.

B.    The Borrower has requested that the Bank permit certain modifications to the Agreement and Note as described below.

C.    The Bank has agreed to such modifications, but only upon the terms and conditions outlined in this Amendment.

TERMS OF AGREEMENT

In consideration of the mutual covenants contained herein, and for other good and valuable consideration, the Borrower and the Bank agree as follows:

x  Extension of Maturity Date.    If checked here, any references in the Agreement or Note to the maturity date or date of final payment are hereby deleted and replaced with “APRIL 30, 2003”.

x  Change in Maximum Loan Amount.    If checked here, all references to “$ 500,000.00” in the Agreement and in the Note (whether or not numerically) as the maximum loan amount which may be borrowed from time to time are hereby deleted and replaced with “$ 650.000.00”.

¨  Change in Multiple Advance Termination Date.    If checked here, all references to “ N/A” as the termination date for multiple advances are hereby deleted and replaced with “N/A”.

Change in Financial Covenant(s).

(i)  ¨   If checked here, all references to “$            ” in the Agreement as the minimum Net Working Capital amount are hereby deleted and replaced with “$            ” for the period beginning             and thereafter.

(ii)  x  If checked here, all references to “$400,000.00” in the Agreement as the minimum Tangible Net Worth amount are hereby deleted and replaced with “$1,000,000.00”, for the period beginning 03/20/02 and thereafter.

(iii)  x  If checked here, all references to “4.50 TO 1.00” in the Agreement as the maximum Debt to Worth Ratio are hereby deleted and replaced with “4.00 TO 1.00” for the period beginning 03/20/02 and thereafter.

(iv)  ¨  If checked here, all references to “            ” in the Agreement as the minimum Current Ratio are hereby deleted and replaced with “            “ for the period beginning                  and thereafter.

(v)  ¨  If checked here, all references to “$            ” in the Agreement as the maximum Capital Expenditures amount are hereby deleted and replaced with “$            ” for the period beginning                  and thereafter.

(vi)  ¨  If checked here, all references to “            ” in the Agreement as the minimum Cash Flow Coverage Ratio are hereby deleted and replaced with “            ” for the period beginning                  and thereafter.

(vii)  ¨  If checked here, all references to “$            ” in the Agreement as the maximum Officers, Directors, Partners, and Management Salaries and Other Compensation amount are hereby deleted and replaced with “$            ” for the period beginning                  and thereafter.

¨  Change in Payment Schedule.    If checked here, effective upon the date of this Amendment, any payment terms are amended as follows:

¨  Change in Late Payment Fee.    If checked here, subject to applicable law, if any payment is not made on or before its due date, the Bank may collect a delinquency charge of             % of the unpaid amount. Collection of the late payment fee shall not be deemed to be a waiver of the Bank’s right to declare a default hereunder.

Effectiveness of Prior Documents.    Except as specifically amended hereby, the Agreement, the Note and the other Loan Documents shall remain in full force and effect in accordance with their respective terms. All warranties and representations contained in the Agreement and the other Loan Documents are hereby reconfirmed as of the date hereof All collateral previously provided to secure the Agreement and/or Note continues as security, and all guaranties guaranteeing obligations under the Loan Documents remain in full force and effect. This is an amendment, not a novation.

Preconditions to Effectiveness.    This Amendment shall only become effective upon execution by the Borrower and the Bank, and approval by any other third party required by the Bank.

No Waiver of Defaults; Warranties.    This Amendment shall not be construed as or be deemed to be a waiver by the Bank of existing defaults by the Borrower, whether known or undiscovered. All agreements, representations and warranties made herein shall survive the execution of this Amendment.

Counterparts.    This Amendment may be signed in any number of counterparts, each of which shall be considered an original, but when taken together shall constitute one document.

Authorization.    The Borrower represents and warrants that the execution, delivery and performance of this Amendment and the documents referenced herein are within the authority of the Borrower and have been duly authorized by all necessary action.

Attachments.    All documents attached hereto, including any appendices, schedules, riders, and exhibits to this Amendment, are hereby expressly incorporated herein by reference.

March 20, 2002

Dated as of:                                  

			NUTECH DIGITAL, INC.
(Individual Borrower)			Borrower Name (Organization)
		(SEAL)	a	CALIFORNIA Corporation
			By:	/s/    LEE KASPER
Borrower Name
			Name and Title: Lee Kasper, President
	N/A	(SEAL)
			By:
Borrower Name			Name and Title:
	N/A
Agreed to:
	U.S. BANK N.A.
	(Bank)
By:	/s/    GUS GMUSAYNT
Name and Title: Gus Gmusaynt, Vice President

For additional terms see attached addendum

AUTHORIZATION FOR PREAUTHORIZED

DEBITS FOR PAYMENT OF LOANS

1.    NuTech Digital. Inc.    (“Customer”) hereby authorizes and requests U.S. BANK NATIONAL ASSOCIATION (“U.S. Bank”) to initiate debit entries (“withdrawals”) from the account indicated below and to transfer the withdrawn funds in accordance with the following instructions.

2.    The withdrawals shall be made from:  x  Checking  ¨  Savings  ¨  Money Market

Account Number 1-534-9182-4642

Maintained at X Branch           Bk TR/ABA No.

City Encino State CA Zip 91436

3.    The withdrawn funds shall be transferred to U.S. Bank for application to:

Loan Number                  (the “Loan”)                 

Maintained at                            Bk TR/ABA No.             

City                          State      Zip             .

4.    The amount of each withdrawal shall be:

¨  A fixed amount of $

¨  An amount equal to each scheduled payment periodically due on the Loan of (select only one):

¨  Accrued Interest only  ¨  Designated Principal Payment plus Accrued Interest

¨  Designated Principal Payment only  ¨  Designated Payment of Principal and Interest

U.S. Bank may apply the amount withdrawn as authorized pursuant to the documents governing the Loan.

5.    Withdrawals shall be made on each payment due date of the Loan, which is the:

¨           day of each calendar month

¨           day of each              (list applicable month(s) for quarterly, semi-annual or annual payments)

¨           day of each calendar month beginning                  through and including and on the          day of each (list applicable month(s)) thereafter.

If this box is checked  ¨, notwithstanding the foregoing, Customer acknowledges that U.S. Bank will not make a withdrawal on the final payment due date of the Loan and that U.S. Bank will bill Customer for such final payment.

Withdrawals shall be made on each day indicated above or on the following business day if that day falls on a Saturday, Sunday or legal holiday in the state where the depository account is held.

If there are insufficient funds in the account described above or U.S. Bank is otherwise unable to make any preauthorized debit, U.S. Bank may, at its option, (a) make the

automatic debit notwithstanding insufficient available funds and allow the account to become temporarily overdrawn, or (b) refuse to make the automatic debit, in which case Customer agrees to separately make Customer’s Loan payment. Customer agrees to pay all fees on the account resulting from the automatic debits, including any overdraft/NSF charges, and the amount of any resulting overdraft.

Note: If the account indicated in paragraph 2 above is a Money Market Account, the number and frequency of withdrawals is limited as set out in Customers Agreement with U.S. Bank governing such Money Market Account.

6.    Customer acknowledges and agrees that U.S. Bank may cancel this automatic withdrawal service at any time and will endeavor to give written notice to Customer of such cancellation.

7.    Subject to paragraph 6 above, this authorization shall remain in full force and effect until U.S. Bank has received written notification from Customer that this authorization is terminated in such time as to afford U.S. Bank a reasonable opportunity to act on it.

Customer acknowledges receipt of a signed copy of this authorization.

NAME:  /S/    LEE KASPER	TITLE
BY:	DATE:

EX-10.3

EXHIBIT 10.3

LETTER OF INTENT

NuTech Digital, Inc. 15210 Keswick Street, Van Nuys, CA 91405 a California Corporation U.S.A that licenses distributes and markets movies, games and special projects wishes to enter into a Letter of Intent with Ritek Corp, 42 Kuangfu. N. Road Hsin Chu Industrial Park, Taiwan R.O.C. a Taiwanese Corporation that replicates DVD’S and has a subsidiary named Catalyst Logic that distributes DVD’s.

A.    The Shadoan Letter of Intent is as follows:

1.    NuTech has the licensed rights for Shadoan, an interactive game being formatted for DVD. Ritek wishes to replicate Shadoan, secure the exclusive distribution rights for Taiwan and region 3, and receive a 5% commission for all bundling sales that Ritek secure for Shadoan.

2.    NuTech wants an advance of $400,000 USD from Ritek. $200,000 will be wired within 48 hours of receipt of the Deed of Trust/Personal Property by Ritek. A second payment of $200,000 on or before, Sept 15, 1998 will be wired by Ritek. After wiring the first payment of $200,000 and receipt by NuTech of the funds, NuTech and Ritek both parties own 50%/50% (fifty/fifty) the licensed rights for Shadoan, until repayment as per the terms of this Letter of Intent are completed. (See Letter of Intent A)

NuTech will replicate all Shadoan discs at Ritek’s facilities subject to final pricing competitive with existing prices in the market place approximately in Nov of 1998. The price for DVD 9 could be in the $1.50 range. However, the price will be defined in detail by future formal manufacturer agreement.

NuTech is planning on having all the authoring, DLT and compression done by November 6, 1998, and will plan on sending to Ritek the week of November 6, 1998 the DLT as well as the Purchase Order (PO) at the same time. The amount of the Purchase order will be for approximately 100,000 discs. Discs are scheduled for completion and delivery by Ritek to NuTech around November 27. NuTech will package product for a release date of December 10th. The next production of discs by Ritek will be of approximately 50,000 discs which will occur at the rate of approximately 20 days from then on.

3.    NuTech we will pay Ritek back the $400,000 by the following method. For every unit replicated of Shadoan, NuTech will pay Ritek the replication price as agreed to in Paragraph # 2 plus an additional $2.00 pre payment per unit. For example, in November NuTech orders 100,000 units Ritek will submit an invoice under normal terms for cost of replication

100,000 units × 1.50 or less = 150,000

+ 100,000 units × 2.00 prepayment = 200,000 or $350,000 total due.

4.    In addition, NuTech will pay 8.5 % per annum interest accruing from the first day of receipt of the funds from Ritek. The repayment terms for the loan will be payable monthly on the unpaid balance, beginning 30 days after the first $200,000 has

been dispersed by Ritek. All funds will be paid via Wire transfer. Thereafter-monthly payments will be made for the interest due on the balance until paid in full. For example, if money is received by August 10, 1998 - The 1st payment of $1,417 interest will be paid on Sept 10th, 1998 and then monthly, computed on the average outstanding balance at EOM till balance is paid in full.

5.    After all loan funds are re-paid in full to Ritek, then all rights will revert back to Nutech. However, if after 6 months (June 10, 1999) from release date (Dec 10, 1998) Ritek hasn’t received all $400,000 from NuTech the following will occur: Ritek will send notice to NuTech indicating all monies due have not been paid. NuTech has 10 days to pay the balance due or Ritek becomes 100% owner and license holder of Shadoan.

6.    Ritek gets total replication for Shadoan DVD-ROM through April 1, 2003 the entire duration of the contract between NuTech and TIG Group the copyright holder.

7.    Lee Kasper, President of NuTech will provide Deed of Trust Personal Propertylassets as a Guarantee. Mr. Kasper would file the lien in the name of Ritek Corporation for the amount of $400,000. Mr. Kasper will provide a formal document that has been certified by the court upon signing of the contract herein. Within 48 hours of receipt of the deed, Ritek will wire the first payment of $200,000. If Ritek does not wire the funds as stated herein, then Ritek will return all rights and deeds back to Mr. Kasper, and Nutech Digital.

8.    At the time of placing the first replication order of Shadoan, NuTech will put up a L/C for 50% of that order. This should not be sooner than October 25, 1998

9.    This Letter of Intent shall supercede and become primary to any and all other documents and agreements between the parties with reference to Shadoan. Contract A will become subordinate and secondary to this document and will become invalid in any dispute.

B.    Miscellaneous.

(a)  Preparation of Agreement.    It is acknowledged by each party that such party either had separate and independent advice of counsel or the opportunity to avail itself or himself of same. In light of these facts it is acknowledged that no party shall be construed to be solely responsible for the drafting hereof, and therefore any ambiguity shall not be construed against any party as the alleged draftsman of this Agreement.

(b)  Cooperation.    Each party agrees, without further consideration, to cooperate and diligently perform any further acts, deeds and things and to execute and deliver any documents that may from time to time be reasonably necessary or otherwise reasonably required to consummate, evidence, confirm and/or carry out the intent and provisions of this Agreement, all without undue delay or expense.

(c)  Interpretation.

(i)  Entire Agreement/No Collateral Representations.    Each party expressly acknowledges and agrees that this Agreement, including all exhibits attached hereto: (1) is the final, complete and exclusive statement of the agreement of the parties with respect to the subject matter hereof; (2) supersedes any prior or contemporaneous agreements, promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written (collectively and severally, the “Prior Agreements”), and that any such prior agreements are of no force or effect except as expressly set forth herein; and (3) may not be varied, supplemented or contradicted by evidence of Prior Agreements, or by evidence of subsequent oral agreements. Any agreement hereafter made shall be ineffective to modify, supplement or discharge the terms of this Agreement, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the modification or supplement is sought.

(ii)  Waiver.    No breach of any agreement or provision herein contained, or of any obligation under this Agreement, may be waived, nor shall any extension of time for performance of any obligations or acts be deemed an extension of time for performance of any other obligations or acts contained herein, except by written instrument signed by the party to be charged or as otherwise expressly authorized herein. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or a waiver or relinquishment of any other agreement or provision or right or power herein contained.

(iii)  Remedies Cumulative.    The remedies of each party under this Agreement are cumulative and shall not exclude any other remedies to which such party may be lawfully entitled.

(iv)  Severability.    If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be determined to be invalid, illegal or unenforceable under present or future laws effective during the term of this Agreement, then and, in that event: (A) the performance of the offending term or provision (but only to the extent its application is invalid, illegal or unenforceable) shall be excused as if it had never been incorporated into this Agreement, and, in lieu of such excused provision, there shall be added a provision as similar in terms and amount to such excused provision as may be possible and be legal, valid and enforceable, and (B) the remaining part of this Agreement (including the application of the offending term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable) shall not be affected thereby and shall continue in full force and effect to the fullest extent provided by law.

(v)  No Reliance Upon Prior Representation.    The parties acknowledge that no other party has made any oral representation or promise which would induce them prior to executing this Agreement to change their position to their detriment, partially perform, or part with value in reliance upon such representation or promise; the parties

acknowledge that they have taken such action at their own risk; and the parties represent that they have not so changed their position, performed or parted with value prior to the time of their execution of this Agreement.

(vi)  Headings: References: Incorporation; Gender.    The headings used in this Agreement are for convenience and reference purposes only, and shall not be used in construing or interpreting the scope or intent of this Agreement or any provision hereof. References to this Agreement shall include all amendments or renewals thereof. All cross-references in this Agreement, unless specifically directed to another agreement or document, shall be construed only to refer to provisions within this Agreement, and shall not be construed to be referenced to the overall transaction or to any other agreement or document. Any exhibit referenced in this Agreement shall be construed to be incorporated in this Agreement. As used in this Agreement, each gender shall be deemed to include the other gender, including neutral genders or genders appropriate for entities, if applicable, and the singular shall be deemed to include the plural, and vice versa, as the context requires.

(d)  Enforcement.

(i)  Applicable Law.    This Agreement and the rights and remedies of each party arising out of or relating to this Agreement (including, without limitation, equitable remedies) shall be solely governed by, interpreted under, and construed and enforced in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California, United States of America as if this agreement were made, and as if its obligations are to be performed, wholly within the State of California, United States of America.

(ii)  Consent to Jurisdiction: Service of Process.    Any action or proceeding arising out of or relating to this Agreement shall be filed in and heard and litigated solely before the state courts of California located within the County of Los Angeles, United States of America. Each party generally and unconditionally accepts the exclusive jurisdiction of such courts and to venue therein, consents to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint in accordance with the notice provisions of this Agreement, and waives any defense or right to object to venue in said courts based upon the doctrine of “Forum Non Conveniens”. Each party irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.

(e)  No Assignment of Rights or Delegation of Duties.    Neither party shall assign his or its rights or obligations under this Agreement without the prior written consent of the other party.

(f)  Notices.    Unless otherwise specifically provided in this Agreement, all notices, demands, requests, consents, approvals or other communications (collectively and severally called “Notices”) required or permitted to be given hereunder, or which are given with respect to this Agreement, shall be in writing, and shall be given by: (A)

personal delivery (which form of Notice shall be deemed to have been given upon delivery), (B) by telegraph or by private airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon confirmed delivery by the delivery agency), (C) by electronic or facsimile or telephonic transmission, provided the receiving party has a compatible device or confirms receipt thereof (which forms of Notice shall be deemed delivered upon confirmed transmission or confirmation of receipt), or (D) by mailing in the United States mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the fifth {5th} business day following the date mailed). Each party, and their respective counsel, hereby agree that if Notice is to be given hereunder by such party’s counsel, such counsel may communicate directly with all principals, as required to comply with the foregoing notice provisions. Notices shall be addressed to the address hereinabove set forth in the introductory paragraph of this Agreement, or to such other address as the receiving party shall have specified most recently by like Notice, with a copy to the other parties hereto.

(g)  Counterparts.    This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding on all parties hereto. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto by having attached to it one or more additional signature pages.

(h)  Execution by All Parties Required to be Binding; Electronically Transmitted Documents.    This Agreement shall not be construed to be an offer and shall have no force and effect until this Agreement is fully executed by all parties hereto. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile or similar device, such facsimile document shall for all purposes be treated as if manually signed by the party whose facsimile signature appears.

E.    Wire Transfer Instructions

NuTech Digital, Inc

City National Bank

Encino, California Office

16133 Ventura Blvd.

Phone 818-905-4100

ABA # 122016066

Acct # 024- 774457

Wire Phone 818-905-4106

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

Dated: August 6, 1998		Dated
Signed:	/s/    Lee Kasper	Signed:	/s/    Steven Chang
	Lee Kasper
Title:	President	Title:	Executive Vice President

LETTER OF INTENT A

NuTech Digital, Inc.15210 Keswick Street, Van Nuys, CA 91405 a California Corporation U.S.A that licenses distributes and markets movies, games and special projects wishes to enter into a Letter of Intent with Ritek Corp, 42 Kuangfu. N. Road Hsin Chu Industrial Park, Taiwan R.O.C. a Taiwanese Corporation that replicates DVD’S and has a subsidiary named Catalyst Logic that distributes DVD’s.

The Shadoan Letter of Intent is as follows:

1.    Ritek gets total replication for Shadoan DVD-ROM through April 1, 2003 the entire duration of the contract between NuTech and TIG Group the copyright holder.

NuTech has the worldwide DVD licensed rights for Shadoan from 1998 to April 1, 2003, an interactive game being formatted for DVD. Ritek will replicate Shadoan, and secure the exclusive distribution rights for Taiwan and region 3.

Description of Shadoan

Shadoan is an interactive children’s title which follows the heroics of it’s central character Lathan Kandor, who must reassemble the missing parts of a magic amulet and return them to the beautiful Princess Grace Delight, in order to finally defeat the evil wizard Torloc.

Shadoan features more than 70,000 hand-painted cells of animation and a unique Parental Guidance Mode which enables parents to adjust the level of cartoonish fighting scenes to what they believe to be appropriate for their children. Shadoan took over 9 months to complete using over 300 animators working around the clock.

The sound tract contains 30 original musical scores which were created by authors known for their arrangements for Pocahontas and Beauty and the Beast.

The title was awarded “Best of Show” by MacWorld 1998. It also received the Parent’s Choice Approval Award for excellence in children’s entertainment in 1997.

The DVD-Rom and DVD Console are a one of a kind, brand new undertaking in the formats. It is the first totally Interactive DVD game in the world.

• Dvd Rom

• Dvd Video Consol

• Dts 5.1

• 6 Languages

• IBM Voice

• Score Memory

• Hit Sound Track

• Disney Quality Animation

• Hologram Packaging

• Non-Violent Game

• Approved by 3700 P.T.A. Associations

2.    NuTech wants an advance of $400,000 USD from Ritek. $200,000 will be wired within 48 hours of receipt of the signing of this Letter of Intent by Ritek. A second payment of $200,000 on or before, Sept 15, 1998 will be wired by Ritek. After wiring the first payment of $200,000 and receipt by NuTech of the payment, NuTech and Ritek both parties own 50%/50% (fifty/fifty) the licensed rights for Shadoan.

3.    Nutech can re-purchase Shadoan from Ritek after June 10, 1999 at the rate of $400,000.00 USD.

4.    Applicable Law.    This Agreement and the rights and remedies of each party arising out of or relating to this Agreement (including, without limitation, equitable remedies) shall be solely governed by, interpreted under, and construed and enforced in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California, United States of America as if this agreement were made, and as if its obligations are to be performed, wholly within the State of California, United States of America.

5.    Wire Transfer Instructions

NuTech Digital, Inc

City National Bank

Encino, California Office

16133 Ventura Blvd.

Phone 818-905-4100

ABA # 122016066

Acct # 024-774457

Wire Phone 818-905-4106

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

Dated:  August 6, 1998		Dated:
Signed:	/s/    LEE KASPER	Signed:	/s/    STEVEN CHANG
	Lee Kasper
Title:	President	Title:	EVP

EX-10.4

Exhibit 10.4

[SBA LOGO]	U.S. Small Business Administration
	NOTE

SBA Loan #	PLP-371-663-4006
SBA Loan Name	NuTECH DIGITAL, INC.
Data	July 12, 2000
Loan Amount	$900,000.00
Interest Rate	Variable
Borrower	NuTECH DIGITAL, INC., and NuTECH ENTERTAINMENT
Operating Company	N/A
Lender	IMPERIAL BANK

1.    PROMISE TO PAY:

In return for the Loan, Borrower promises to pay to the order of Lender the amount of Nine Hundred Thousand & 00/100 Dollars, interest on the unpaid principal balance, and all other amounts required by this Note.

2.    DEFINITIONS:

“Collateral” means any property taken as security for payment of this Note or any guarantee of this Note.

“Guarantor” means each person or entity that signs a guarantee of payment of this Note.

“Loan” means the loan evidenced by this Note.

“Loan Documents” means the documents related to this loan signed by Borrower, any Guarantor, or anyone who pledges collateral.

“SBA” means the Small Business Administration, an Agency of the United States of America.

3.    PAYMENT TERMS:

Borrower must make all payments at the place Lender designates. The payment terms for this Note are:

See Payment Addendum attached hereto and by this reference made a part hereof.

4.    RIGHT TO PREPAY:

Borrower may prepay this Note. Borrower may prepay 20 percent or less of the unpaid principal balance at any time without notice. If Borrower prepays more than 20 percent and the Loan has been sold on the secondary market, Borrower must:

A.  Give Lender written notice;

SBA FORM 147 (10/22/98) Previous editions obsolete

1

PROMISSORY NOTE

(Continued)

Page 2

B.  Pay all accrued interest; and

C.  If the prepayment is received less than 21 days from the date Lender receives the notice, pay an amount equal to 21 days’ interest from the date Lender receives the notice, less any interest accrued during the 21 days and paid under subparagraph B.

If Borrower does not prepay within 60 days from the date Lender receives the notice, Borrower must give Lender a new notice.

5.    DEFAULT:

Borrower is in default under this Note if Borrower does not make a payment when due under this Note, or if Borrower or Operating Company:

A.  Fails to do anything required by this Note and other Loan Documents;

B.  Defaults on any other loan with Lender;

C.  Does not preserve, or account to Lender’s satisfaction for, any of the Collateral or its proceeds;

D.  Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA;

E.  Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA;

F.  Defaults on any loan or agreement with another creditor. If Lender believes the default may materially affect Borrower’s ability to pay this Note;

G.  Fails to pay any taxes when due;

H.  Becomes the subject of a proceeding under nay bankruptcy or insolvency law;

I.  Has a receiver or liquidator appointed for any part of their business or property;

J.  Makes an assignment for the benefit of creditors;

K.  Has any adverse change in financial condition or business operation that Lender believes may materially affect Borrower’s ability to pay this Note;

L.  Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior written consent; or

M.  Becomes the subject of a civil or criminal action that Lender believes may materially affect Borrower’s ability to pay this Note.

6.    LENDER’S RIGHTS IF THERE IS A DEFAULT:

Without notice or demand and without giving up any of its rights, Lender may:

A.  Require immediate payment of all amounts owing under this Note;

B.  Collect all amounts owing from any Borrower or Guarantor;

C.  File suit and obtain judgement;

D.  Take possession of any Collateral; or

E.  Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.

7.    LENDER’S GENERAL POWERS:

Without notice and without Borrower’s consent, Lender may:

A.   Bid on or buy the Collateral at its sale or the sale of another lienholder, at any price it chooses;

B.  Incur expenses to collect amounts due under this Note, enforce the terms of this Note or any other Loan Document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance, appraisals, environmental remediation costs, and reasonable attorney’s fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance;

C.  Release anyone obligated to pay this Note;

D.  Compromise, release, renew, extend or substitute any of the Collateral, and

E.  Take any action necessary to protect the Collateral or collect amounts owing on this Note.

8.    WHEN FEDERAL LAW APPLIES:

SBA Form 147 (10/22/98) Previous editions obsolete.

2

PROMISSORY NOTE (Continued) Page 3

When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

9.    SUCCESSORS AND ASSIGNS:

Under this Note, Borrower and Operating Company include the successors of each, and Lender includes its successors and assigns.

10.    GENERAL PROVISIONS:

A. All individuals and entities signing this Note are jointly and severally liable.

B. Borrower waives all suretyship defenses.

C. Borrower must sign all documents necessary at any time to comply with the Loan Documents and to enable Lender to acquire, perfect, or maintain Lender’s liens on Collateral.

D. Lender may exercise any of its rights separately or together, as many times and in any order it chooses. Lender may delay or forgo enforcing any of its rights without giving up any of them.

E. Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Note.

F. If any part of this Note is unenforceable, all other parts remain in effect.

G. To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor. Borrower also waives any defenses based upon any claim that Lender did not obtain any guarantee: did not obtain, perfect, or maintain a lien upon Collateral; impaired Collateral; or did not obtain the fair market value of Collateral at a sale.

11.    STATE—SPECIFIC PROVISIONS:

Borrower acknowledges this Note is secured by a Deed of Trust in favor of Lender on real property located in Los Angeles County, State of California. That Deed of Trust contains the following due-on-sale provision.

DUE ON SALE—CONSENT BY LENDER.    Lender may, at Lender’s option, declare immediately due and payable all sums secured by the Deed Of Trust upon the sale or transfer, without Lender’s prior written consent, of all or any part of the Real Property, or any interest in the Real Property. A “sale or transfer” means the conveyance of Real Property or any right, title or interest in the Real Property; whether legal, beneficial or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interest with a term greater than three (3) years, lease-option contract, or by sale, assignment, or transfer of any beneficial interest in or to any land trust holding title to the Real Property, or by any other method of conveyance of an interest in the Real Property. If any Borrower is a corporation, partnership or limited liability company, transfer also includes any change in ownership of more than twenty-five percent (25%) of the voting stock, partnership interests or limited liability company interests, as the case may be, of such Borrower. However, this option shall not be exercised by Lender if such exercise is prohibited by applicable law.

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PROMISSORY NOTE

(Continued)

Page 4

12.    BORROWER’S NAME(S) AND SIGNATURE(S).

By signing below, each individual or entity becomes obligated under this Note as Borrower.

BORROWER:

NUTECH DIGITAL, INC.
By:	/s/    LEE KASPER
	Lee Kasper, President and Secretary of NuTECH DIGITAL, INC.

NUTECH ENTERTAINMENT
By:	/s/    LEE KASPER	By:	/s/    MICHELE KASPER
	Lee Kasper, President of NuTECH ENTERTAINMENT		Michele Kasper, Secretary of NuTECH ENTERTAINMENT

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PAYMENT ADDENDUM TO PROMISSORY NOTE—(CONTINUED—PAGE 4)

Borrower: NUTECH DIGITAL, INC. NUTECH ENTERTAINMENT 15210 Keswick Van Nuys, CA 91405 Lender: IMPERIAL BANK SBA DEPARTMENT 9920 South La Cienega Boulevard, 12th Floor Inglewood, CA 90301

The interest rate on this Note will fluctuate. The initial interest rate is 11.00% per year. This initial rate is the prime rate on the date SBA received the loan application, plus 2.00%.

Borrower must pay principal and interest payments of $12,398.00 every month, beginning one month from the month of initial disbursement on this. Note: payments must be made on the same day as the date of initial disbursement on this Note in the months they are due.

Lender will apply each installment payment first to pay interest accrued to the day Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal.

The interest rate will be adjusted every calendar quarter (the “change period”).

The “Prime Rate” is the prime rate in effect on the first business day of the month in which an interest rate change occurs, as published in the Wall Street Journal on the next business day.

The adjusted interest rate will be 2.00% above the Prime Rate. Lender will adjust the interest rate on the first calendar day of each change period. The change in interest rate is effective on that day whether or not Lender gives Borrower notice of the change. The initial interest rate must remain in effect until the first change period begins.

Lender must adjust the payment amount at least annually as needed to amortize principal over the remaining term of the note.

If SBA purchases the guaranteed portion of the unpaid principal balance, the interest rate becomes fixed at the rate in effect at the time of the earliest uncured payment default. If there is no uncured payment default, the rate becomes fixed at the rate in effect at the time of purchase.

All remaining principal and accrued interest is due and payable 10 years from date of initial disbursement.

Late Charge: If a payment on this Note is more than 10 days late, Lender may charge Borrower a late fee of up to 5% of the unpaid portion of the regularly scheduled payment.

IMPERIAL BANK

Member FDIC

COMMERCIAL SECURITY AGREEMENT

Grantor:	NuTECH DIGITAL, INC	Lender:	IMPERIAL BANK
	NuTECH ENTERTAINMENT		SBA DEPARTMENT
	15210 Keswick Street		9920 South La Cienega Boulevard, 12th Floor
	Van Nuys, CA 91405		Inglewood, CA 90301

THIS COMMERCIAL SECURITY AGREEMENT dated July 12, 2000, is made and executed between NuTECH DIGITAL, INC.; and NuTECH ENTERTAINMENT (“Grantor”) and IMPERIAL BANK (“Lender”).

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:

        See Exhibit “B” attached hereto and by this reference made a part hereof.

In addition, the word “Collateral” also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

(A) All accessions, attachments, accessories, replacements and additions to any of the collateral described herein, whether added now or later.

(B) All products and produce of any of the property described in this Collateral section.

(C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section.

(D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party’s insurer, whether due to judgment, settlement or other process.

(E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor’s right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

Despite any other provision of this Agreement, Lender is not granted, and will not have, a nonpurchase money security interest in household goods, to the extent such a security interest would be prohibited by applicable law. In addition, if because of the type of any Property, Lender is required to give a notice of the right to cancel under Truth in Lending for the Indebtedness, then Lender will not have a security interest in such Property unless and until such a notice is given.

GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and warrants to Lender that:

Perfection of Security Interest. Grantor agrees to execute financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender’s interest upon any and all chattel paper if not delivered to Lender for possession by Lender.

Notices to Lender. Grantor will notify Lender in writing at Lender’s address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor’s name, (2) change in Grantor’s assumed business name(s), (3) change in the management of Grantor, (4) change in the authorized signer(s), (5) change in Grantor’s principal office address, (6) conversion of Grantor to a new or different type of business entity, or (7) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor’s name will take effect until after Lender has been notified.

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

Location of the Collateral. Except in the ordinary course of Grantor’s business, Grantor agrees to keep the Collateral at Grantor’s address shown above or at such other locations as are acceptable to Lender. Upon Lender’s request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor’s business, Grantor shall not remove the Collateral from its existing location without Lender’s prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor’s business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender’s rights in the Collateral against the claims and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender’s designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized in Lender’s sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys’ fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized.

Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, including without limitation all environmental laws, ordinances, rules and regulations, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender’s interest in the Collateral, in Lender’s opinion, is not jeopardized.

Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor’s due diligence in investigating the Collateral for Hazardous Substances.

Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days’ prior written notice to Lender and not including any disclaimer of the insurer’s liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses “single interest insurance,” which will cover only Lender’s interest in the Collateral.

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, payor reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.

Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor’s sole responsibility.

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.

GRANTOR’S RIGHT TO POSSESSION. Until default, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor’s right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender s security interest in such Collateral. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender’s sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.

LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor’s failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity. The

Collateral also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Grantor fails to make any payment when due under the Indebtedness.

Environmental Default. Failure of any party to comply with or perform when due any term, obligation, convenant or condition contained in any environmental agreement executed in connection with any Indebtedness.

Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.

False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor’s behalf under this Agreement, the Note, or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Insolvency. The dissolution or termination of Grantor’s existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to guarantor, endorser, surety, or accommodation party of any of the Indebtedness or guarantor, endorser, surety, or accommodation party dies or becomes incompetent.

Adverse Change. A material adverse change occurs in Grantor’s financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.

Insecurity. Lender in good faith believes itself insecure.

Cure Provisions. If any default, other than a default in payment, is curable and if Grantor has not been given a notice of a breach of the same provision of this Agreement within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Grantor, after receiving written notice from Lender demanding cure of such default: (1) cures the default within ten (10) days; or (2) if the cure requires more than ten (10) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the California Uniform Commercial Code. In addition and without limitation, Lender may exercise anyone or more of the following rights and remedies:

Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least fifteen (15) days, or such lesser time as required by state law, before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender’s right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender’s discretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and receive the payments, rents, income, and revenues there from and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.

Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy will not bar any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare a default and exercise its remedies.

REFERENCE PROVISION. 1. Other than (i) non-judicial foreclosure and all matters in connection therewith regarding security interests in real or personal property; or (ii) the appointment of a receiver, or the exercise of other provisional remedies (any and all of which may be initiated pursuant to applicable law), each controversy, dispute or claim between the parties arising out of or relating to this document (“Agreement”), which controversy, dispute or claim is not settled in writing within thirty (30) days after the “Claim Date” (defined as the date on which a party subject to the Agreement gives written notice to all other parties that a controversy, dispute or claim exists), will be settled by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure, or their successor section (“CCP”), which shall constitute the exclusive remedy for the settlement of any controversy, dispute or claim concerning this Agreement, including whether such controversy, dispute or claim is subject to the reference proceeding and except as set forth above, the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than the Superior Court in the County where the Real Property, if any, is located or Los Angeles County if none (the “Court”). The referee shall be a retired Judge of the Court selected by mutual agreement of the parties, and if they cannot so agree within forty-five (45) days after the Claim Date, the referee shall be promptly selected by the Presiding Judge of the Court (or his representative). The referee shall be appointed to sit as a temporary judge, with all of the powers for a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of Court (or any subsequently enacted Rule). Each party shall have one peremptory challenge pursuant to CCP 170.6. The referee shall (a) be requested to set the matter for hearing within sixty (60) days after the Claim Date and (b) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive and judgment shall be entered pursuant to CCP 644 in any court in the State California having jurisdiction. Any party

may apply for a reference proceeding at any time after thirty (30) days following notice to any other party of the nature of the controversy, dispute or claim, by filing a petition for a hearing and/or trial. All discovery permitted by this Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party’s refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a witness due to absence or illness. No party shall be entitled to “priority” in conducting discovery. Depositions may be taken by either party upon seven (7) days written notice, and request for production or inspection of documents shall be responded to within ten (10) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding upon the parties. Pending appointment of the referee as provided herein, the Superior Court is empowered to issue temporary and/or provisional remedies, as appropriate.

2.    Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of all hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee. The party making such a request shall have the obligation to arrange for and pay for the court reporter. The costs of the court reporter at the trial shall be borne equally by the parties.

3.    The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding which shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to contest or appeal from the final judgment or any appealable order or appealable judgment entered by the referee. The parties hereto expressly reserve the right to findings of fact, conclusions of law, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.

4.    In the event that the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by the reference procedure herein described will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge of the Court, in accordance with the California Arbitration Act, 1280 through 1294.2 of the amended from time to time. The limitations with respect to discovery as set forth hereinabove shall apply to any such arbitration proceeding.

MISCELLANEOUS PROVISIONS.    The following miscellaneous provisions are a part of this Agreement:

Amendments.    This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys’ Fees; Expenses.    Grantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings.    Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Applicable Law.    The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to enforce this document, then under SBA regulations: (a) When SBA is the holder of the Note, this document and all documents evidencing or securing this Loan will be construed in accordance with federal law. (b) Lender or SBA may use local or state procedures for purposes such as filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA does not waive any federal immunity from local or state control, penalty, tax or liability. No Borrower or Guarantor may claim or assert against SBA any local or state law to deny any obligation of Borrower, or defeat any claim of SBA with respect to this Loan. Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured by this instrument.

Joint and Several Liability.    All obligations of Grantor under this Agreement shall be joint and several, and all references to Grantor shall mean each and every Grantor. This means that each Grantor signing below is responsible for all obligations in this Agreement. Where anyone or more of the parties is a corporation, partnership, limited liability company or similar entity, it is not necessary for Lender to inquire into the powers of any of the officers, directors, partners, members, or other agents acting or purporting to act on the entity’s behalf, and any obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Agreement.

Preference Payments.    Any monies Lender pays because of an asserted preference claim in Grantor’s bankruptcy will become a part of the Indebtedness and, at Lender’s option, shall be payable by Grantor as provided in this Agreement.

No Waiver by Lender.    Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices.    Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

Power of Attorney.    Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender’s security interest in the Collateral.

Waiver of Co-Obligor’s Rights.    If more than one person is obligated for the Indebtedness, Grantor irrevocably waives, disclaims and relinquishes all claims against such other person which Grantor has or would otherwise have by virtue of payment of the Indebtedness or any part thereof, specifically including but not limited to all rights of indemnity, contribution or exoneration.

Severability.    If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any person or circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other person or circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Successors and Assigns.    Subject to any limitations stated in this Agreement on transfer of Grantor’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor’s successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

Survival of Representations and Warranties.    All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor’s Indebtedness shall be paid in full.

Time is of the Essence.    Time is of the essence in the performance of this Agreement.

Waive Jury.    All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

DEFINITIONS.     The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used !n the singular shall include the plural, and the plural shall include the singular, as the context

may require. Words and terms not otherwise defined In this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

Agreement.    The word “Agreement” means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

Borrower.    The word “Borrower” means NuTECH DIGITAL, INC.; and NuTECH ENTERTAINMENT, and all other persons and entities signing the Note in whatever capacity.

Collateral.    The word “Collateral” means all of Grantor’s right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.

Default.    The word “Default” means the Default set forth in this Agreement in the section titled “Default”.

Environmental Laws.    The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No.99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default.    The words “Event of Default” mean any of the Events of Default set forth in this Agreement in the Default section of this Agreement.

Grantor.    The word “Grantor” means NuTECH DIGITAL, INC.; and NuTECH ENTERTAINMENT.

Hazardous Substances.    The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness.    The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents.

Lender.    The word “Lender” means IMPERIAL BANK, its successors and assigns.

Note.    The word “Note” means the Note executed by Grantor in the principal amount of $900,000.00 dated July 12, 2000, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

Related Documents.    The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 12, 2000.

GRANTOR:

NUTECH DIGITAL, INC.
By:	/s/    Lee Kasper
	Lee Kasper, President and Secretary of NuTech Digital, INC.

NUTECH ENTERTAINMENT
By:	/s/    Lee Kasper	By:	/s/    Michele Kasper
	Lee Kasper, President of NuTech Entertainment		Michele Kasper, Secretary of NuTech Entertainment

EXHIBIT “A”

Legal Description

The land referred to herein is situated in the City of Los Angeles, County of Los Angeles, State of California and is described as follows:

Parcel B, in the City of Los Angeles, in the County of Los Angeles, State of California, as shown on Parcel Map L. A. No.2799, filed in Book 55, Page 90 of Parcel Maps, in the office of County Recorder of said County.

Real property commonly known as 15210 KESWICK STREET. VAN NUYS. CALIFORNIA.

EXHIBIT “B”

Borrower:	NuTECH DIGITAL, INC.	Lender:	IMPERIAL BANK
	NuTECH ENTERTAINMENT		SBA DEPARTMENT
	15210 Keswick Street		9920 South La Cienega Boulevard, 12th Floor
	Van Nuys, CA 91405		Inglewood, CA 90301

All of the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

a)  All goods which are used in the construction, occupancy or operation of the real property described in Exhibit “A” attached hereto and incorporated herein by this reference (the “Property”), including but not limited to all appliances, furniture, and furnishings, appliances, machinery and equipment, tools, fittings and parts therefor, building service and maintenance equipment and supplies, building materials and supplies;

b)  All goods now or hereafter located on the Property which are or are to become fixtures;

c)  All inventory, chattel paper, accounts and contract rights, deposit accounts, documents, instruments;

d)  All general intangibles, including but not limited to all governmental permits relating to the property, all names under or by which the Property or any of the present or future improvements located on the Property may at any time be operated or known and all rights to carry on business under any such names or any variant thereof, all trademarks, goodwill, patents and applications therefor, choses in action;

e)  All rights to payment and proceeds, including insurance proceeds, and claims arising on account of any damage to or taking the Property or any improvements thereon or any part thereof, and all causes of action and any recoveries for any loss or diminution in value of the Property.

f)  All rents, revenues, reserves, deferred payments, deposits, royalties, bonuses, refunds, cost savings delay rentals, issues, income, proceeds, profits, security, and other types of deposits, and other benefits, now or hereafter paid or payable for constructing, improving using, leasing, licensing, possessing, operating, residing in, mining, selling, or otherwise enjoying the Property.

g)  All water stock relating to the Property, and all shares of stock or other evidence of ownership of any part of the Property that Is owned by any Grantor in common with others, and all documents of membership in any owners’ or members association or similar group having responsibility for managing or operating any part of the Property;

h)  All proceeds and products of any of the foregoing, including without limitation, all accounts, general intangibles, insurance proceeds and refunds and other rights to payment.

i)  All records and data relating to any of the above, in whatever form, together with the storage media, hardware and software necessary to retrieve and process such records and data.

Collateral includes but is not limited to the following personal property described in Exhibit “C” attached hereto and by this reference made a part hereof.

EXHIBIT “C”

#	QTY	DESC.	Model No./Serial No.	Value Each	Total Value
1	1	Alert Telephone System	SM483C/KAB701343	6,909.25	6,909.25
2	1	Muratec Fax Machine	F95/F9500078010551	1,053.59	1,053.59
3	1	End Table-Oak Finish		149.95	149.95
4	4	Sled Base Arm Chair-Oak Finish		168.53	674.12
5	1	Hot Point Refrigerator	CTX18LYZGRWH/AT79245	361.79	361.79
6	1	Sharp Microwave Oven	R-310AW/232515	129.99	129.99
7	3	Black Formica Desk		227.66	682.98
8	1	Photo Copy Machine	7090S/13110	3,014.76	3,014.76
9	1	5 Piece Credenza Unit		895.95	895.95
10	1	Low Bookcase		949.95	949.95
11	1	Executive Desk		519.95	519.95
12	9	Blk. Adj. Desk Chairs		152.34	1,371.06
13	1	HP LaserJet Printer	C4121A/USEF206994	1,734.93	1,734.93
14	1	HP LaserJet Printer	CF120A/USMB046692	1,699.00	1,699.00
15	1	Hp LaserJet Color Printer	C4568A/US6251413P	1,877.00	1,877.00
16	1	6 Shelf Oak Finish Hutch		980.00	980.00
17	1	Panasonic DVD Player	L10-00516	1,900.00	1,900.00
18	1	Cardscan Executive	4.0/A03640	254.00	254.00
19	1	5 shelf Bookcase		175.12	175.12
20	1	2 drawer 2x4 Crendenza		487.90	487.90
21	1	Front Office Desk-Oak Finish		620.00	620.00
22	5	Exec. Sec Desk-Oak Finish		889.00	4,445.00
23	1	Johnson Lift-Forklift	PS6066/06099112A15100180495	3,697.75	3,697.75
24	1	CAT Pallet Lift	GS/311766	487.13	487.13
25	1	Utility Cart		151.78	151.78
26	1	3 Story Ladder		628.93	628.93
27	1	48’ Mitsubishi Color Television	VS50501A/101798	3,550.00	3,550.00
28	1	Yamaha Speaker	SW-3/205066950	868.00	868.00
29	1	HP Fax/ Printer/Scan/Copier	520/5679UB80BX	1,961.57	1,961.57
30	2	Trade Show Booth & Components		5,821.69	11,643.38
31	1	Wherehouse Shelving		7,920.52	7,920.52
32	1	Mitsubishi VHS	HSU530/	400.00	400.00
33	1	Pioneer DVD LD	DVL700/	1,000.00	1,000.00
34	1	Sony Receiver/Ampliphier	STRDE835/	400.00	400.00
35	1	Pioneer DVD LD	V555	1,200.00	1,200.00
36	1	Laptop Computer	770-ED/9549-78-W9144	4,500.00	4,500.00
37	1	CD Burner	4012CRD/00361016842	400.00	400.00
38	1	BTC-Video CD Player	VCSSE1SBC/S6C230205	500.00	500.00
39	2	Wall Panels		300.00	600.00
40	1	Yamaha CDR	CRW8424SX/ECE0002918	500.00	500.00
41	1	Sherwood Newcastle Audio Video/Receiver	R-945/A98035160196	500.00	500.00
			TOTAL ASSETS		71,795.35

EX-10.5

EXHIBIT 10.5

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE—NET

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1.    Basic Provisions (“Basic Provisions”).

1.1    Parties: This Lease (“Lease”), dated for reference purposes only, March 10, 2001, is made by and between Kathy Schreiber, Todd Lorber and Hiroko Lorber (“Lessor”) and NuTech Digital. Inc., a California Corporation (“Lessee”), (collectively the “Parties,” or individually a “Party”).

1.2    Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 7900 Gloria Avenue, located in the County of Los Angeles, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the “Project”, if the property is located within a Project) +/- 9,200 square foot office/warehouse building situated on M-2 zoned land. (“Premises”). (See also Paragraph 2)

1.3    Term: Five (5) years and Three (3) months (“Original Term”) commencing May 1, 2001 (“Commencement Date”) and ending July 31 , 2006 (“Expiration Date”). (See also Paragraph 3)

1.4    Early Possession: Upon completion of building (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)

1.5    Base Rent: $7,800.00 per month (“Base Rent”), payable on the First day of each month commencing July 1, 2001. (See also Paragraph 4 )

x    If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

1.6    Base Rent: Paid Upon Execution: $7,800.00 as Base Rent for the period June, 2001.

1.7    Security Deposit: $7,800.00 (“Security Deposit”). (See also Paragraph 5)

1.8    Agreed Use: warehousing of electronic components. DVD discs. general office and related lawful uses. (See also Paragraph 6)

1.9    Insuring Party: Lessor is the “Insuring Party” unless otherwise stated herein. (See also Paragraph 8)

1.10    Real Estate Brokers: (See also Paragraph 15)

(a)  Representation: The following real estate brokers (collectively, the “Brokers”) and brokerage relationships exist in this transaction (check applicable boxes):

x    Grubb & Ellis Company represents Lessor exclusively (“Lessor’s Broker”);

x    Capital Commercial Real Estate Services represents Lessee exclusively (“Lessee’s Broker”); or

¨                                              represents both Lessor and Lessee (“Dual Agency”).

(b)  Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of      % of the total Base Rent for the brokerage services rendered by said Broker).

1.11    Guarantor.    The obligations of the Lessee under this Lease are to be guaranteed by                  (“Guarantor”). (See also Paragraph 37)

1.12    Addenda and Exhibits.    Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 56 and Exhibits “A”, all of which constitute a part of this Lease.

2.    Premises.

        2.1    Letting.    Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less.

2.2    Condition.    Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“Start Date”), and, so long as the required service contracts described in Paragraph 7.1 (b) below are obtained by Lessee within thirty (30) days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“HVAC”), loading doors, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building”) shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor’s expense. If, after the Start Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within: (i) one year as to the surface of the roof and the structural portions of the roof, foundations and bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense.

2.3    Compliance.    Lessor warrants that the improvements on the Premises comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances (“Applicable Requirements”) in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of such work as follows:

(a)  Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b)  If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided, however, that if such Capital Expenditure is required during the last two years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon thirty (30) days written notice to Lessor.

(c)  Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease.

2.4    Acknowledgements.    Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee’s intended use; (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefore as the same relate to its occupancy of the Premises; and (c) neither Lessor, Lessor’s agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises; and (b) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5    Lessee as Prior Owner/Occupant.    The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

3.    Term.

3.1    Term.    The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2    Early Possession.    If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including, but not limited to, the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3    Delay In Possession.    Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing within ten (10) days after the end of such sixty (60) day period, cancel this Lease, in which event the Parties shall be

discharged from all obligations hereunder. If such written notice is not received by Lessor within said ten (10) day period, Lessee’s right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within four (4) months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4    Lessee Compliance.    Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4.    Rent.

4.1.    Rent Defined.    All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“Rent”).

4.2.    Payment.    Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating.

5.    Security Deposit.    Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefore deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6.    Use.

6.1    Use.    Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to neighboring properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in use.

6.2    Hazardous Substances.

        (a)  Reportable Uses Require Consent.    The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefore. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b)  Duty to Inform Lessor.    If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c)  Lessee Remediation.    Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d)  Lessee Indemnification.    Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e)  Lessor Indemnification.    Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f)  Investigations and Remediations.    Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in Paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

        (g)  Lessor Termination Option.    If a Hazardous Substance Condition occurs during the term of this Lease, unless Lessee is legally responsible therefore (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within ten (10) days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

6.3    Lessee’s Compliance with Applicable Requirements.     Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee

shall, within ten (10) days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

6.4    Inspection; Compliance.    Lessor and Lessor’s “Lender” (as defined in Paragraph 30 below) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination.

7.    Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1    Lessee’s Obligations.

        (a)  In General.    Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning electrical lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1 (b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.

(b)  Service Contracts.    Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor.

(c)  Replacement.    Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such replacement as such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Lessor’s accountants), with Lessee reserving the right to prepay its obligation at any time.

7.2    Lessor’s Obligations.    Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3    Utility Installations; Trade Fixtures; Alterations.

        (a)  Definitions; Consent Required.    The term “Utility Installations” refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed $50,000 in the aggregate or $10,000 in anyone year.

(b)  Consent.    Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount equal to the greater of one month’s Base Rent, or $10,000, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

(c)  Indemnification.    Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days’ notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4    Ownership; Removal; Surrender; and Restoration.

(a)  Ownership.    Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b)  Removal.    By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c)  Surrender/Restoration.    Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8.    Insurance; Indemnity.

8.1    Payment For Insurance.    Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice.

8.2    Liability Insurance.

(a)  Carried by Lessee.    Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an ‘insured contract’ for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b)  Carried by Lessor.    Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3    Property Insurance—Building, Improvements and Rental Value.

(a)  Building and Improvements.    The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1 ,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

(b)  Rental Value.    The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year’s loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss.

(c)  Adjacent Premises.    If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

8.4    Lessee’s Property/Business Interruption Insurance.

(a)  Property Damage.    Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b)  Business Interruption.    Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c)  No Representation of Adequate Coverage.    Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5    Insurance Policies.    Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least B+, V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6    Waiver of Subrogation.    Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7    Indemnity.    Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8    Exemption of Lessor from Liability.    Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures. or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

9.    Damage or Destruction.

9.1    Definitions.

(a)  “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(b)  “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c)  “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d)  “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e)  “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.

9.2    Partial Damage-Insured Loss.    If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefore. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3    Partial Damage-Uninsured Loss.    If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and

Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4    Total Destruction.    Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

9.5    Damage Near End of Term.    If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6    Abatement of Rent; Lessee’s Remedies.

(a)  Abatement.    In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b)  Remedies.    If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7    Termination-Advance Payments.    Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8    Waive Statutes.    Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10.    Real Property Taxes.

10.1    Definition of “Real Property Taxes.”    As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term “Real Property Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises.

10.2

        (a)  Payment of Taxes.    Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefore upon demand.

(b)  Advance Payment.    In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor’s option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All monies paid to Lessor under this Paragraph may be intermingled with other monies of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, at the option of Lessor, be treated as an additional Security Deposit.

10.3    Joint Assessment.    If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

10.4    Personal Property Taxes.    Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said personal property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within ten (10) days after receipt of a written statement.

11.    Utilities.    Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered.

12.    Assignment and Subletting.

12.1    Lessor’s Consent Required.

(a)  Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b)  A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c)  The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than twenty-five percent (25%) of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d)  An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.

(e)  Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

12.2    Terms and Conditions Applicable to Assignment and Subletting.

(a)  Regardless of Lessor’s consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease; (ii) release Lessee of any obligations hereunder: or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b)  Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c)  Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d)  In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e)  Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or ten percent (10%) of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.

(f)  Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

12.3    Additional Terms and Conditions Applicable to Subletting.    See Addendum for additional provisions. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a)  Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease: provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b)  In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c)  Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d)  No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e)  Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13.    Default; Breach; Remedies.

13.1    Default; Breach.    A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a)  The abandonment of the Premises: or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b)  The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) business days following written notice to Lessee.

        (c)  The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) a Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice to Lessee.

(d)  A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1 (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.

(e)  The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within thirty (30) days, provided, however, in the event that any provision of this subparagraph 13.1 (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f)  The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(g)  If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor; (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty; (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing; (iv) a Guarantor’s refusal to 10 honor the guaranty; or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within sixty (60) days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2    Remedies.    If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefore. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a)  Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b)  Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c)  Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3    Inducement Recapture.    Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of Rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4    Late Charges.    Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any

Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

13.5    Interest.    Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to non-scheduled payments. The interest (“Interest”) charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6    Breach by Lessor.

(a)  Notice of Breach.    Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion.

(b)  Performance by Lessee on Behalf of Lessor.    In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent an amount equal to the greater of one month’s Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee’s right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14.    Condemnation.    If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the Premises, or more than twenty-five percent (25%) of the land area portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefore. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15.    Brokers’ Fee.

15.1    Additional Commission.    In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease.

        15.2    Assumption of Obligations.    Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder. Each Broker shall be a third party beneficiary of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts due as and for commissions pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within ten (10) days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker.

15.3    Representations and Indemnities of Broker Relationships.    Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys’ fees reasonably incurred with respect thereto.

16.    Estoppel Certificates.

(a)  Each Party (as “Responding Party”) shall within ten (10) days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b)  If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such ten day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s Rent has been paid in advance. Prospective purchasers and encumbrances may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c)  If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including, but not limited to, Lessee’s financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17.    Definition of Lessor.    The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor’s interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.

18.    Severability.    The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19.    Days.    Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20.    Limitation on Liability.    Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21.    Time of Essence.    Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22.    No Prior or Other Agreements; Broker Disclaimer.    This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and Attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received

by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

23.    Notices.

23.1    Notice Requirements.    All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2    Date of Notice.    Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24.    Waivers.    No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25.    Recording.    Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto.

26.    No Right To Holdover.    Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27.    Cumulative Remedies.    No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.    Covenants and Conditions; Construction of Agreement.    All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.    Binding Effect; Choice of Law.    This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30.    Subordination; Attornment; Non-Disturbance.

30.1    Subordination.    This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lessor’s Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recording thereof.

30.2    Attornment.    Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor; or (iii) be bound by prepayment of more than one (1) month’s rent.

30.3    Non-Disturbance.    With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee’s option, directly contact Lessor’s lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4    Self-Executing.    The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.    Attorneys’ Fees.    If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.

32.    Lessor’s Access; Showing Premises; Repairs.    Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary “For Sale” signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary “For Lease” signs. Lessee may at any time place on or about the Premises any ordinary “For Sublease” sign.

33.    Auctions.    Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34.    Signs.    Except for ordinary “For Sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements. Lessor shall have sole discretion to approve the method of attachment of any signange.

35.    Termination; Merger.    Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue anyone or all existing subtenancies. Lessor’s failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36.    Consents.    Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including, but not limited to, architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including, but not limited to, consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefore. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party

disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request.

37.    Guarantor.

37.1    Execution.    The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2    Default.    It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect.

38.    Quiet Possession.    Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39.    Options.

39.1    Definition.    “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2    Options Personal To Original Lessee.    Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3    Multiple Options.    In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4    Effect of Default on Options.

(a)  Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option.

(b)  The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c)  An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.

40.    Multiple Buildings.    If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith.

41.    Security Measures.    Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42.    Reservations.    Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43.    Performance Under Protest.    If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

44.    Authority.    If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within thirty (30) days after request, deliver to the other Party satisfactory evidence of such authority.

45.    Conflict.    Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46.    Offer.    Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47.    Amendments.    This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

48.    Multiple Parties.    If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.

49.    Mediation and Arbitration of Disputes.    An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease ¨ is ¨ is not attached to this Lease.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY NY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1.    SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.    RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures

Executed at:			Executed at:
on:	3/15/01		on:	3/14/01
By LESSOR:			By LESSEE:
Kathy Schriber, Todd Lorber and Hiroko Lorber			NuTech Digital, Inc., a California Corporation
By:	/s/    KATHY SCHRIBER		By:	/s/    LEE KASPER
Name Printed:	Kathy Schriber		Name Printed:	Lee Kasper
Title:	K		Title:	President
By:	/s/    TODD LORBER	/s/    HIROKO LORBER	By:
Name Printed:	Todd Lorber	Hiroko Lorber	Name Printed:
Title:			Title:
Address:	16625 Saticoy Street		Address:	15210 Keswick Street
	Van Nuys, CA 91406			Van Nuys, CA 91405
Telephone:	(818) 787-2000		Telephone:	(818) 994-3831
Facsimile:	(818)		Facsimile:	(818) 994-1575
Federal ID No.			Federal ID No.

NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles California 90017. (213) 687-8777. Fax No. (213) 687-8616

ADDENDUM TO LEASE DATED MARCH 10, 2001

BY KATHY SCHREIBER, TODD LORBER AND HIROKO LORBER AS

LESSOR AND NUTECH DIGITAL INC.

A CALIFORNIA CORPORATION AS LESSEE

12.3a cont.)  In the event Lessee subleases the premises for an amount greater than Lessee’ s costs, any overages shall be shared equally after Lessee’s expenses of subleasing have been accounted for.

50)  Abated Rent: Lessee shall pay no base rent for the month of May, 2001. Lessee shall, however be responsible for property insurance, real property taxes, and all utilities during this period.

51)  Lessor’s Construction: Lessor, at Lessor’s sole cost and expense, shall complete the building per the existing plans. In addition, Lessor shall at its cost and expense, partition the upstairs offices as per Exhibit “A” attached hereto.

52)  Lessee’s Construction: As a consideration for the abated rent referenced in paragraph 50, Lessee agrees to construct approximately 1,200 square feet of air-conditioned offices on the ground floor of the building and to construct two (2) additional restrooms on the mezzanine level. All improvements shall be performed in accordance with local building codes and in a workmanlike manner.

53)  Lessee’s Right to Install HVAC: Lessee shall have the right to install HVAC in the warehouse area, provided Lessee installs said equipment according to current building codes. Lessee hereby agrees and acknowledges that it shall not penetrate the roof membrane, nor install equipment on the roof without the prior approval of Lessor, and that any such penetration or installation could violate the roof warranty.

54)  Yard Maintenance: Lessee shall not store any equipment, materials or vehicles in the yard area without Lessor’s consent. Lessee agrees to maintain the yard in a first class condition, free of debris.

TL    KS    HL	/s/    LEE KASPER
LESSOR	LESSEE

RENT ADJUSTMENT(S)

STANDARD LEASE ADDENDUM

Dated    March 10. 2001

By and Between	(Lessor)    Kathy Schreiber, Todd Lorber and Hiroko Lorber
	(Lessee)    NuTech Digital Inc., a California Corporation
	Address of Premises:    7900 Gloria Avenue Van Nuys. CA 91406

Paragraph 55

A.    RENT ADJUSTMENTS:

The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below:

(Check Method(s) to be Used and Fill in Appropriately)

x    I.    Cost of Living Adjustment(s) (COLA)

a.  On (Fill in COLA Dates): May 1, 2002, May 1, 2003, May 1, 2004, May 1, 2005 the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): ¨ CPI W (Urban Wage Earners and Clerical Workers) or þ CPI U (All Urban Consumers), for (Fill in Urban Area): Los Angeles, Anaheim. Riverside,

All Items (1982-1984 =100), herein referred to as “CPI”.

b.  The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is 2 months prior to (select one): þ the first month of the term of this Lease as set forth in paragraph 1.3 (“Base Month”) or ¨ (Fill in Other “Base Month”):        . The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

c.  In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.

C.    BROKER’S FEE:

The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease

NOTE: These forms are often modified to meet changing requirements of law and needs of the industry . Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 S. FLOWER STREET, SUITE 600, Los Angeles, Calif. 90017.

OPTION(S) TO EXTEND

STANDARD LEASE ADDENDUM

Dated    March 10. 2001

By and Between	(Lessor)    Kathy Schreiber, Todd Lorber and Hiroko Lorber
	(Lessee)    NuTech Digital Inc., a California Corporation
Address of Premises:	7900 Gloria Avenue Van Nuys. CA 91406

Paragraph 56

A.    OPTION(S) TO EXTEND:

Lessor hereby grants to Lessee the option to extend the term of this Lease for One ( 1) additional Sixty ( 60) month period(s) commencing when the prior term expires upon each and all of the following terms and conditions:

(i)  In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least 3 but not more than 6 months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire. Options (if there are more than one) may only be exercised consecutively.

(ii)  The provisions of paragraph 39, including those relating to Lessee’s Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.

(iii)  Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option shall apply.

(iv)  This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.

(v)  The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below:

(Check Method(s) to be Used and Fill in Appropriately)

x    I.    Cost of Living Adjustment(s) (COLA)

a.  On (Fill in COLA Dates): August 1, 2006, August 1, 2007, August 1, 2008, August 1, 2009, August 1, 2010 the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): ¨ CPI W (Urban Wage Earners and Clerical Workers) or x CPI U (All Urban Consumers), for (Fill in Urban Area): Los Angeles, Anaheim, Riverside

All Items (1982-1984=100), herein referred to as “CPI”.

b.  The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is 2 months prior to (select one): ¨ the first month of the term of this Lease as set forth in paragraph 1.3 (“Base Month”) or x (Fill in Other “Base Month”): May 1, 2001. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

c.  In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.

C.    BROKER’S FEE:

The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.

NOTE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 S. FLOWER STREET, SUITE 600, Los Angeles, Calif. 90017.

EX-10.6

Exhibit 10.6

JOINT VENTURE AGREEMENT

This Joint venture Agreement (this “Agreement”) is made and entered into on the 5^th day of March 2001 (the “Effective Date”) by and between NuTech Digital, Inc., a California corporation, located at 15210 Keswick, Van Nuys, California 91405 (the “Company”) Joseph Anthony Giarmo, individual, whose address is 3944 Kentucky Drive #9, Los Angeles, California 90068. The Company and Giarmo hereby agree as follows:

1.0    Association as Joint Venturers.    The Company and Giarmo have agreed to associate themselves as joint venturers for the purpose of acquiring, from KSS INC., Agreement 1, a 5 year license to the theatrical rights, non-theatrical rights, television rights and video rights of the animated works listed on Exhibit A to this Agreement and made a part of it (the “Product”).

2.0    Term.    The term of this Agreement shall begin on the Effective Date and shall end on the date provided for in paragraph 8.0 below.

3.0    Ownership of License.    The Company shall take title to the license and shall be the sole licensee of KSS, INC. and the sole sub-licensor of the Product. All revenues paid by third parties for any rights whatsoever relating to the Product, including revenues paid for the sub-license or use of the Product, shall be paid solely to the Company.

4.0    Contributions to Capital.    Giarmo contribution to the capital of this venture shall consist of the sum of $60,000, which amount shall be paid on the Effective Date. The Company’s contribution to the capital of this venture shall consist of the Company’s efforts in negotiating the acquisition of the license for the Product and in the reproduction, sub-licensing and distribution of the Product.

5.0    Authority.    The Company shall have sole authority in negotiating the terms of the license and in determining the manner in which the Product will be reproduced, sub-licensed and distributed.

6.0    Books and Records.    So long as this joint venture is not terminated, the Company shall keep accurate books of account in which all matters relating to the joint venture, including all income, expenditures, assets and liabilities shall be entered. The books of account shall be open to examination by Giarmo on reasonable notice to the Company.

7.0    Payment to Giarmo.

7.1    Cash Payment.    Beginning on the 15th day of October 2001 and through the expiration or termination of this Agreement, the Company shall pay to Giarmo on a monthly basis (see exhibit “B”), the sum of $0.25 for each VHS or DVD unit of the Product sub-licensed by the Company. A Product unit shall be deemed to be sub-licensed once full payment for it is received by the Company. The Company anticipates that it will sub-license no less than 40,000 Product units per month, and therefore

agrees that each monthly payment shall equal or exceed the sum of $10,000. If the Company sub-licenses less than 40,000 Product units in any month, it shall pay the sum of $10,000, and credit any excess amount paid to future Product unit sales.

7.2    Election to Receive Stock.    Irrespective of the foregoing, if the Company’s common stock becomes publicly traded before September 1, 2001, Giarmo may elect, and the Company will agree, subject to paragraph 7.3 below, to issue to Giarmo 60,000 shares of the Company’s restricted common stock in lieu of making the payments set forth in paragraph 7.1 above. This election must be made pursuant to a notice that must be received by the Company no later than August 1, 2001.

7.3    Compliance with Securities Laws.    The Company will not be required to issue shares of its restricted common stock unless the issuance of the stock is in compliance with all applicable federal and state securities laws, the rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system on which the shares may then be listed or quoted, as they are in effect on the date of issuance. Furthermore, the Company will have no obligation to issue or deliver certificates for the stock prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completing any registration or other qualification of such shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. By permitting Giarmo to make the election set forth in paragraph 7.2 above, the Company is not under an obligation to Giarmo to register the shares of common stock Giarmo will receive with the Securities & Exchange Commission or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability to Giarmo for its inability or failure to do so.

8.0    Termination.    This Agreement shall terminate immediately upon Giarmo’s receipt of $120,000 paid pursuant to paragraph 7.1 above or, if the Company’s common stock is publicly traded and Giarmo elects to receive the Company’s restricted common stock pursuant to paragraph 7.2, this Agreement shall terminate upon Giarmo’s receipt of a certificate or certificates registered in their names totaling 100,000 shares of the Company’s restricted common stock. This Agreement shall also terminate upon the written agreement of the parties to it or upon the bankruptcy or insolvency of the Company.

9.0    Miscellaneous.

9.1    Binding Effect.    This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.

9.2    Governing Law.    This Agreement shall be deemed to be made in, and in any and all respects shall be interpreted, construed and governed by and in accordance with, the laws of the State of California.

9.3    Severability.    If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be determined to be invalid, illegal or unenforceable under present or future laws effective during the term of this Agreement, then and, in that event: (a) the performance of the offending term or provision (but only to the extent its application is invalid, illegal or unenforceable) shall be excused as if it had never been incorporated into this Agreement, and, in lieu of such excused provision, there shall be added a provision as similar in terms and amount to such excused provision as may be possible and be legal, valid and enforceable, and (b) the remaining part of this Agreement (including the application of the offending term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable) shall not be affected thereby and shall continue in full force and effect to the fullest extent provided by law.

9.4    Headings.    The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

9.5    Further Assurances.    Each party shall cooperate with the other, and execute and deliver, or cause to be executed and delivered, all such other instruments and take all such other actions as such party may be reasonably requested to take from time to time in order to effectuate the provisions and purposes of this Agreement.

9.6    Entire Agreement.    This Agreement embodies the entire agreement, and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. This Agreement may be modified only by a written instrument signed by each of the parties to this Agreement.

9.7    Waiver.    No breach of any agreement or provision herein contained, or of any obligation under this Agreement, may be waived, nor shall any extension of time for performance of any obligations or acts be deemed an extension of time for performance of any other obligations or acts contained herein, except by written instrument signed by the party to be charged or as otherwise expressly authorized herein. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or a waiver or relinquishment of any other agreement or provision or right or power herein contained.

9.8    Counterpart Execution/Facsimile Signature.    This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding on all parties hereto. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto by having attached to it one or more additional signature pages. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile or similar device, such facsimiled

document shall for all purposes be treated as if manually signed by the party whose facsimile signature appears.

9.9    Notice.    All notices, demands, requests, consents, approvals or other communications (“Notices”) given hereunder shall be in writing, and shall be given by personal delivery or by express mail, Federal Express, DHL or other similar form of recognized airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon delivery), by electronic or facsimile or telephonic transmission, provided the receiving party has a compatible device or confirms receipt thereof (which forms of Notice shall be deemed delivered upon confirmed transmission or confirmation of receipt), or by mailing in the mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the fifth (5th) business day following the date mailed). Notices shall be addressed to the addresses stated in the introductory paragraph of this Agreement.

9.10    Costs and Attorneys’ Fees.    If any dispute should arise out of or concerning this Agreement, the prevailing party in any such dispute or proceeding shall be entitled to recover costs and reasonable attorneys’ fees.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

NuTech Digital, Inc.
By:	/s/    LEE KASPER                        3/14/01
	Lee Kasper, President                        Date

/s/    JOSEPH ANTHONY GIARMO    3/17/01  

Joseph Anthony Giarmo                        Date

EXHIBIT A

EXHIBIT B

Monthly Installment Payments

Monthly Installment payments will be calculated as stated in 7.1 of the “Agreement” with the exception of a monthly advance in the amount of $862.21 payable to Joe Giarmo on the 1st of each month beginning March 12, 2001 (the first advance payment) and ending on September 1st, 2001 (the 7th advance payment).

The total of the advance payments, equal to $6,035.47, shall be subtracted from the 1st installment payment due on this contract beginning on October 15, 2001.

/s/    LEE KASPER                                                     

Lee Kasper                                             

/s/    JOSEPH ANTHONY GIARMO                    

Joseph Anthony Giarmo            

EX-23.0

Exhibit 23

[LETTERHEAD OF MOFFITT & COMPANY, P.C.]

CONSENT OF INDEPENDENT

CERTIFIED PUBLIC ACCOUNTANTS

NuTech Digital, Inc.

Van Nuys, California

We consent to the use in this registration statement on Form SB-2 of our report dated March 2, 2002 relating to the audit of your financial statements as of December 31, 2001 and 2000 and our report dated April 23, 2002 relating to your reviewed financial statement as of March 31, 2002 and for the three months ended March 31, 2002 and 2001.

Moffitt & Company, P.C.

Scottsdale, Arizona

May 16, 2002