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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

|      |  |                                                                                            
|----- |  | -------------------------------------------------------------------------------------------
|/X/   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934    
|     
|      |  | For the quarterly period ended June 30, 2002                                               
|     
|/   / |  | TRANSITION REPORT PURSUANT OR TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|     
|      |  | For the transition period __________ to __________                                         

Commission File Number: 1-10916

INTERVISUAL BOOKS, INC.
(Exact name of registrant as specified in its charter)

|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization) |  | 95-2929217
(I.R.S. Employer
Identification No.)

|                                                        |  |         
|------------------------------------------------------- |  | --------
|12910 Culver Boulevard, Suite C
Los Angeles, California |  | 90066   
|                                                        |  |         
|Address of principal executive offices                  |  | Zip Code

Registrants telephone number, including area code: (310) 302-0600



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.           Yes  [X]     No  [   ]



Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practical date. As of July 31, 2002, there
were 7,378,922 shares of common stock outstanding.





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TABLE OF CONTENTS



|                            |                                                                                               |                                            |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|                            |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                            |                                                                                               | STATEMENTS OF OPERATIONS                  
|                            |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                            |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II  OTHER INFORMATION
|                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                 
|EXHIBIT 99.1               
|EXHIBIT 99.2               



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##### Table of Contents



INTERVISUAL BOOKS, INC.

TABLE OF CONTENTS

|                               |    |         |  |                                                                                       |  |     
|------------------------------ | -- | ------- |  | ------------------------------------------------------------------------------------- |  | ----
|                               |    |         |  |                                                                                       |  | Page
|                               |    |         |  |                                                                                       |  |     
|PART I - FINANCIAL INFORMATION
|                              
|                               |    | Item 1. |  | Consolidated Financial Statements                                                     |  |     
|                              
|                               |    |         |  | Balance Sheets  June 30, 2002, and December 31, 2001                                 |  | 1   
|                              
|                               |    |         |  | Statements of Operations  Three and six months ended
June 30, 2002 and 2001          |  | 2   
|                              
|                               |    |         |  | Statements of Cash Flows  Six months ended
June 30, 2002 and 2001                    |  | 3   
|                              
|                               |    |         |  | Notes to Financial Statements  June 30, 2002                                         |  | 4   
|                              
|                               |    | Item 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 9   
|                              
|                               |    | Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 14  
|                              
|PART II - OTHER INFORMATION   
|                              
|                               |    | Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 15  
|                              
|SIGNATURES                     | 15

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INTERVISUAL BOOKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |        |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----- | ------ | ----------- | - | -------- | ------ | ------ | - | 
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        | (unaudited) |   |          |        |       
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        | 6/30/02     |   | 12/31/01
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |         
|ASSETS                                                                                                                                                                   |                                                                                                                                                       |                             |       |        |             |   |          |       
|Current Assets:                                                                                                                                                          |                                                                                                                                                       |                             |       |        |             |   |          |       
|                                                                                                                                                                         | Cash and cash equivalents                                                                                                                             |                             | $     | 1,378  |             |   | $        | 1,266  |       
|                                                                                                                                                                         | Accounts receivable, less allowances
of $922 and $1,000                                                                                               |                             |       | 2,388  |             |   |          | 2,032  |       
|                                                                                                                                                                         | Inventories                                                                                                                                           |                             |       | 1,893  |             |   |          | 1,341  |       
|                                                                                                                                                                         | Prepaid expenses                                                                                                                                      |                             |       | 162    |             |   |          | 271    |       
|                                                                                                                                                                         | Commission & royalty advances                                                                                                                         |                             |       | 108    |             |   |          | 74     |       
|                                                                                                                                                                         | Deferred income taxes                                                                                                                                 |                             |       | 250    |             |   |          | 250    |       
|                                                                                                                                                                         | Other current assets                                                                                                                                  |                             |       |       |             |   |          | 3      |       
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|                                                                                                                                                                         |                                                                                                                                                       | Total current assets        |       |        | 6,179       |   |          |        | 5,237  |  
|Production costs, net of accumulated
amortization of $20,811 and $20,329                                                                                                 |                                                                                                                                                       |                             | 2,870 |        |             |   | 2,944    |       
|Property and equipment, net of accumulated
depreciation of $1,142 and $1,131                                                                                             |                                                                                                                                                       |                             | 85    |        |             |   | 57       |       
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|                                                                                                                                                                         |                                                                                                                                                       | $                           | 9,134 |        |             | $ | 8,238    |       
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                           |                                                                                                                                                       |                             |       |        |             |   |          |       
|Current Liabilities:                                                                                                                                                     |                                                                                                                                                       |                             |       |        |             |   |          |       
|                                                                                                                                                                         | Accounts payable                                                                                                                                      |                             | $     | 3,909  |             |   | $        | 6,144  |       
|                                                                                                                                                                         | Term loan with bank                                                                                                                                   |                             |       | 1,245  |             |   |          | 1,630  |       
|                                                                                                                                                                         | Line of credit with private party                                                                                                                     |                             |       | 973    |             |   |          | 660    |       
|                                                                                                                                                                         | Accrued royalties                                                                                                                                     |                             |       | 255    |             |   |          | 258    |       
|                                                                                                                                                                         | Accrued expenses                                                                                                                                      |                             |       | 197    |             |   |          | 279    |       
|                                                                                                                                                                         | Customer deposits                                                                                                                                     |                             |       | 159    |             |   |          | 166    |       
|                                                                                                                                                                         | Net liabilities on discontinued operations                                                                                                            |                             |       |       |             |   |          | 427    |       
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|                                                                                                                                                                         |                                                                                                                                                       | Total current liabilities   |       |        | 6,738       |   |          |        | 9,564  |  
|                                                                                                                                                                        
|Line of credit with private party, less current portion                                                                                                                  |                                                                                                                                                       |                             | 677   |        |             |   | 1,390    |       
|Other liabilities-long term                                                                                                                                              |                                                                                                                                                       |                             |      |        |             |   | 25       |       
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|                                                                                                                                                                         |                                                                                                                                                       | TOTAL LIABILITIES           |       |        | 7,415       |   |          |        | 10,979 |  
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|                                                                                                                                                                        
|Convertible preferred stock, shares authorized
3,000,000, Series A 1,825,397 authorized and
1,666,666 issued and outstanding at June 30,
2002; none at December 31, 2001 |                                                                                                                                                       |                             | 1,932 |        |             |   |         |       
|Option to purchase convertible preferred stock                                                                                                                           |                                                                                                                                                       |                             | 273   |        |             |   |         |       
|                                                                                                                                                                        
|Stockholders Equity (Deficit):                                                                                                                                          |                                                                                                                                                       |                             |       |        |             |   |          |       
|                                                                                                                                                                         | Common stock, no par value; shares
authorized 12,000,000, shares issued and
outstanding 7,378,922 at June 30,
2002 and 6,031,490 at December 31, 2001 |                             |       | 6,329  |             |   |          | 5,471  |       
|                                                                                                                                                                         | Additional paid in capital                                                                                                                            |                             |       | 1,246  |             |   |          | 806    |       
|                                                                                                                                                                         | Accumulated deficit                                                                                                                                   |                             |       | (8,061 | )           |   |          | (9,018 | )     
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|                                                                                                                                                                         |                                                                                                                                                       | TOTAL STOCKHOLDERS DEFICIT |       |        | (486        | ) |          |        | (2,741 | )
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       
|                                                                                                                                                                         |                                                                                                                                                       | $                           | 9,134 |        |             | $ | 8,238    |       
|                                                                                                                                                                         |                                                                                                                                                       |                             |       |        |             |   |          |        |       

See notes to consolidated financial statements.

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INTERVISUAL BOOKS, INC.
STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)

|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |       |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | - | -------------------------- | ----- | ------------------------ | - | ----- | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|                                                                            |                                                                                                         |   | Three Months ended June 30 |       | Six Months ended June 30
|                                                                            |                                                                                                         |   |                            |       |                         
|                                                                            |                                                                                                         |   | 2002                       |       | 2001                     |   | 2002  |       | 2001
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |     
|Net sales                                                                   |                                                                                                         | $ | 3,425                      |       |                          | $ | 3,659 |       |      | $ | 5,641 |       |   | $ | 6,307 |      
|Rights income                                                               |                                                                                                         |   | 0                          |       |                          |   | 14    |       |      |   | 1     |       |   |   | 50    |      
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Total revenues                                                              |                                                                                                         |   | 3,425                      |       |                          |   | 3,673 |       |      |   | 5,642 |       |   |   | 6,357 |      
|Cost of sales                                                               |                                                                                                         |   | 2,072                      |       |                          |   | 2,745 |       |      |   | 3,442 |       |   |   | 4,533 |      
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Gross profit                                                                |                                                                                                         |   | 1,353                      |       |                          |   | 928   |       |      |   | 2,200 |       |   |   | 1,824 |      
|Selling, general and
administrative expense                                 |                                                                                                         |   | 1,189                      |       |                          |   | 1,097 |       |      |   | 2,312 |       |   |   | 1,954 |      
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Income(loss) from operations                                                |                                                                                                         |   | 164                        |       |                          |   | (169  | )     |      |   | (112  | )     |   |   | (130  | )    
|Interest expense                                                            |                                                                                                         |   | (54                        | )     |                          |   | (149  | )     |      |   | (119  | )     |   |   | (320  | )    
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Net income (loss) before extraordinary
income and discontinued operations   |                                                                                                         |   | 110                        |       |                          |   | (318  | )     |      |   | (231  | )     |   |   | (450  | )    
|Extraordinary income                                                        |                                                                                                         |   | 273                        |       |                          |   | 0     |       |      |   | 1,403 |       |   |   | 0     |      
|Discontinued operations (Note 9):                                           |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Loss from discontinued operations                                                                       |   |                            | 0     |                          |   |       | (14   | )    |   |       | 0     |   |   |       | (47   | )
|                                                                            | Gain on disposal of video division                                                                      |   |                            | 497   |                          |   |       | 0     |      |   |       | 497   |   |   |       | 0     |  
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Total gain (loss) discontinued operations                                                               |   |                            | 497   |                          |   |       | (14   | )    |   |       | 497   |   |   |       | (47   | )
|Net income (loss)                                                           |                                                                                                         |   | 880                        |       |                          |   | (332  | )     |      |   | 1,669 |       |   |   | (497  | )    
|Less: Beneficial conversion and option
value on convertible preferred stock |                                                                                                         |   | 0                          |       |                          |   | 0     |       |      |   | (713  | )     |   |   | 0     |      
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Net income (loss) available to
common shareholders                          |                                                                                                         | $ | 880                        |       |                          | $ | (332  | )     |      |   | 956   |       |   |   | (497  | )    
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Income (loss) per common share-basic:                                       |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Income (loss) applicable to common
shareholders before extraordinary
income and discontinued operations |   | $                          | 0.02  |                          |   | $     | (0.05 | )    |   | $     | (0.13 | ) |   | $     | (0.07 | )
|                                                                            | Extraordinary income                                                                                    |   | $                          | 0.04  |                          |   | $     | 0.00  |      |   | $     | 0.20  |   |   | $     | 0.00  |  
|                                                                            | Gain (loss) on discontinued operations                                                                  |   | $                          | 0.06  |                          |   | $     | 0.00  |      |   | $     | 0.06  |   |   | $     | (0.01 | )
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Net income (loss) available to
common shareholders                                                      |   | $                          | 0.12  |                          |   | $     | (0.05 | )    |   | $     | 0.13  |   |   | $     | (0.08 | )
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Income (loss) per common share-diluted:                                     |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Income (loss) applicable to common
shareholders before extraordinary
income and discontinued operations |   | $                          | 0.02  |                          |   | $     | (0.05 | )    |   | $     | (0.13 | ) |   | $     | (0.07 | )
|                                                                            | Extraordinary income                                                                                    |   | $                          | 0.04  |                          |   | $     | 0.00  |      |   | $     | 0.20  |   |   | $     | 0.00  |  
|                                                                            | Gain (loss) on discontinued operations                                                                  |   | $                          | 0.06  |                          |   | $     | 0.00  |      |   | $     | 0.06  |   |   | $     | (0.01 | )
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Net income (loss) available to
common shareholders                                                      |   | $                          | 0.12  |                          |   | $     | (0.05 | )    |   | $     | 0.13  |   |   | $     | (0.08 | )
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|Weighted average number of common
shares and equivalents outstanding:       |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Basic                                                                                                   |   |                            | 7,349 |                          |   |       | 5,958 |      |   |       | 7,108 |   |   |       | 5,957 |  
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      
|                                                                            | Diluted                                                                                                 |   |                            | 7,550 |                          |   |       | 5,958 |      |   |       | 7,108 |   |   |       | 5,957 |  
|                                                                            |                                                                                                         |   |                            |       |                          |   |       |       |      |   |       |       |   |   |       |      

See notes to consolidated financial statements.

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INTERVISUAL BOOKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)

|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |   |      |       |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | - | --------------------------------------------------------------------- | --------------------------------------------------- | - | ------------------------- | ------ | ---- | - | ---- | ----- | -
|                                                     |                                                                                                    |   |                                                                       |                                                     |   | Six Months Ended June 30,
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                          
|                                                     |                                                                                                    |   |                                                                       |                                                     |   | 2002                      |        | 2001
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |     
|Cash flows from operating activities:                |                                                                                                    |   |                                                                       |                                                     |   |                           |        |     
|                                                     | Net income (loss) available to common shareholders                                                 |   | $                                                                     | 956                                                 |   |                           | $      | (497 | )
|                                                     | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |   |                                                                       |                                                     |   |                           |        |      |  
|                                                     |                                                                                                    |   | Beneficial conversion and option value of
convertible preferred stock |                                                     |   | 713                       |        |      |   |     |      
|                                                     |                                                                                                    |   | Depreciation and amortization                                         |                                                     |   | 493                       |        |      |   | 683  |      
|                                                     |                                                                                                    |   | Provision for losses on accounts receivable                           |                                                     |   | 12                        |        |      |   | (18  | )    
|                                                     |                                                                                                    |   | Provision for abandoned titles                                        |                                                     |   | 16                        |        |      |   | 16   |      
|                                                     |                                                                                                    |   | Discontinued operations                                               |                                                     |   | (841                      | )      |      |   | (743 | )    
|                                                     |                                                                                                    |   | Extraordinary income  printer discounts                              |                                                     |   | (1,403                    | )      |      |   |     |      
|                                                     |                                                                                                    |   | Increase (decrease) from changes in:                                  |                                                     |   |                           |        |      |   |      |      
|                                                     |                                                                                                    |   |                                                                       | Accounts receivable                                 |   |                           | (367   | )    |   |      | 836   |  
|                                                     |                                                                                                    |   |                                                                       | Inventories                                         |   |                           | (552   | )    |   |      | (414  | )
|                                                     |                                                                                                    |   |                                                                       | Prepaid expenses                                    |   |                           | 108    |      |   |      | (75   | )
|                                                     |                                                                                                    |   |                                                                       | Royalty advances                                    |   |                           | (34    | )    |   |      | (5    | )
|                                                     |                                                                                                    |   |                                                                       | Other current assets                                |   |                           | 3      |      |   |      | 181   |  
|                                                     |                                                                                                    |   |                                                                       | Accounts payable                                    |   |                           | (374   | )    |   |      | 705   |  
|                                                     |                                                                                                    |   |                                                                       | Accrued royalties                                   |   |                           | (2     | )    |   |      | (38   | )
|                                                     |                                                                                                    |   |                                                                       | Accrued expenses                                    |   |                           | (82    | )    |   |      | (6    | )
|                                                     |                                                                                                    |   |                                                                       | Customer deposits                                   |   |                           | (7     | )    |   |      | 413   |  
|                                                     |                                                                                                    |   |                                                                       | Other liabilities                                   |   |                           | (25    | )    |   |      | (27   | )
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|                                                     |                                                                                                    |   |                                                                       | Net cash provided by (used in) operating activities |   |                           | (1,386 | )    |   |      | 1,011 |  
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|Cash flows from investing activities:                |                                                                                                    |   |                                                                       |                                                     |   |                           |        |     
|                                                     | Additions to property and equipment                                                                |   |                                                                       | (40                                                 | ) |                           |        | (23  | )
|                                                     | Additions to production costs                                                                      |   |                                                                       | (423                                                | ) |                           |        | (555 | )
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|                                                     |                                                                                                    |   |                                                                       | Net cash used in investing activities               |   |                           | (463   | )    |   |      | (578  | )
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|Cash flows from financing activities:                |                                                                                                    |   |                                                                       |                                                     |   |                           |        |     
|                                                     | Proceeds from investor                                                                             |   |                                                                       | 1,932                                               |   |                           |        |     |  
|                                                     | Repayment to bank line of credit                                                                   |   |                                                                       | (385                                                | ) |                           |        | (250 | )
|                                                     | Repayment to Zindart line of credit                                                                |   |                                                                       |                                                    |   |                           |        | (255 | )
|                                                     | Proceeds from sale of video division                                                               |   |                                                                       | 414                                                 |   |                           |        |     |  
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|                                                     |                                                                                                    |   |                                                                       | Net cash provided by (used in) financing activities |   |                           | 1,961  |      |   |      | (505  | )
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|Net increase (decrease) in cash and cash equivalents |                                                                                                    |   | 112                                                                   |                                                     |   |                           | (72    | )   
|Cash and cash equivalents, beginning of period       |                                                                                                    |   | 1,266                                                                 |                                                     |   |                           | 396    |     
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|Cash and cash equivalents, end of period             |                                                                                                    | $ | 1,378                                                                 |                                                     |   | $                         | 324    |     
|                                                     |                                                                                                    |   |                                                                       |                                                     |   |                           |        |      |  
|Supplemental disclosures of cash flow information:   |                                                                                                    |   |                                                                       |                                                     |   |                           |        |     
|                                                     | Cash paid during the period for interest expense                                                   |   | $                                                                     | 170                                                 |   |                           | $      | 276  |  

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(unaudited)

Note 1  Statement of Information Furnished

In the opinion of management the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position as of June 30, 2002, and the
results of operations and cash flows for the three and six month periods ended
June 30, 2002 and 2001. These results have been determined on the basis of
accounting principles and practices generally accepted in the United States of
America and were applied consistently with those used in the preparation of the
Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2001. The results of operations for the three and six month periods ended June
30, 2002, are not necessarily indicative of the results to be expected for any
other period or for the entire year.

Certain information and footnote disclosures normally included in financial
statements presented in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. The
accompanying financial statements should be read in conjunction with the
Companys audited financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2001.

At December 31, 2001, Fast Forward Marketing (FFM) was classified as a
discontinued operation and all prior periods have been restated. The sale of
FFM was completed on April 8, 2002.

Note 2  Liquidity

In January 2002, the Company completed a convertible preferred stock financing
(See Note 4) which raised cash totalling $2,100,000, net of costs to raise the
capital of $168,000 for net proceeds of $1,932,000. Under this agreement, the
company issued 1,666,666 shares of its Series A convertible preferred stock.
During the first six months of 2002, the Company negotiated a reduction in its
subordinated debt totalling $400,000 (See Note 8) and received discounts on
accounts payable of $1,403,000 (See Note 6). As of June 30, 2002 the Companys
indebtedness with its bank was $1,245,000. The Company was also in compliance
with the financial covenants on this term loan.

On December 31, 2001 the Company signed an amendment to the Zindart Loan and
Security Agreement, which was contingent upon the closing of an equity
investment by January 31, 2002, under which Zindart would allow $400,000 (See
Note 8) of the outstanding balance to be converted to common stock of the
Company. This contingency was met and the Company recorded the conversion in
January 2002. Additionally, under this amended agreement, Zindart will cancel
$400,000 of the outstanding principal loan in the quarter ending September 30,
2002, contingent upon the Companys satisfactory payment performance. Under
this agreement there has been a change in the repayment terms, commencing
August 31, 2002, the remaining balance of $1,250,000 (after taking into
consideration the conversion and cancellation) will bear interest at 5% above
LIBOR and will be repaid in 24 equal installments, with final payment due on
July 31, 2004.

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As a result of these transactions, the Company has a cash balance of $1,378,000
and reported net income before beneficial conversion and option value on
convertible preferred stock of $1,669,000 for the six months ended June 30,
2002.

Note 3  Income (Loss) Per Common Share

The Company computes income (loss) per common share under SFAS No. 128,
Earnings Per Share, which requires presentation of basic and diluted earnings
(loss) per share. Basic earnings (loss) per common share is computed by
dividing income or loss available to common shareholders by the weighted
average number of common shares outstanding for the reporting period. Diluted
earnings (loss) per common share reflects the potential dilution that could
occur if securities or other contracts, such as stock options, to issue common
stock were exercised or converted into common stock. Included in the shares
outstanding and the weighted average number of common shares at June 30, 2002,
were 1,269,842 shares to be issued to Zindart Limited, as a result of debt and
payables being converted into common stock per the financial statements.
Pursuant to the Amendment to Zindart Loan and Security Agreement dated December
31, 2001, the Company will issue these shares once its Articles of
Incorporation are amended to increase its authorized capital stock. The
weighted average share portion of 1,052,355 shares was included in the weighted
average shares for the six month period to calculate the income (loss) per
share. The following calculates the income (loss) per share available to
common shareholders:

|                                                                      |  |               |       |               |  |        |       |           |  |   |       |   |  |  |       |  
|--------------------------------------------------------------------- |  | ------------- | ----- | ------------- |  | ------ | ----- | --------- |  | - | ----- | - |  |  | ----- | -
|                                                                      |  | June 30, 2002 |       | June 30, 2001
|For the six months ended:                                             |  |               |       |              
|                                                                      |  | Amount        |       | Per Share     |  | Amount |       | Per Share
|Net loss before extraordinary
item and discontinued operations        |  | $             | (231  | )             |  |        | (0.03 | )         |  | $ | (450  | ) |  |  | (0.07 | )
|Beneficial conversion and option
value on convertible preferred stock |  |               | (713  | )             |  |        | (0.10 | )         |  |   | 0     |   |  |  | 0.00  |  
|                                                                      |  |               |       |               |  |        |       |           |  |   |       |   |  |  |       |  
|                                                                      |  |               | (944  | )             |  |        | (0.13 | )         |  |   | (450  | ) |  |  | (0.07 | )
|Extraordinary income                                                  |  |               | 1,403 |               |  |        | 0.20  |           |  |   | 0     |   |  |  | 0.00  |  
|Gain (loss) on discontinued operations                                |  |               | 497   |               |  |        | 0.06  |           |  |   | (47   | ) |  |  | (0.01 | )
|                                                                      |  |               |       |               |  |        |       |           |  |   |       |   |  |  |       |  
|Net income (loss) available to
common shareholders                    |  | $             | 956   |               |  |        | 0.13  |           |  | $ | (497  | ) |  |  | (0.08 | )
|                                                                      |  |               |       |               |  |        |       |           |  |   |       |   |  |  |       |  
|Weighted average number of
common shares                              |  |               | 7,108 |               |  |        |       |           |  |   | 5,957 |   |  |  |       |  
|                                                                      |  |               |       |               |  |        |       |           |  |   |       |   |  |  |       |  

Note 4  Preferred Stock

On December 31, 2001, the Company signed a financing agreement with Intervisual
Partners LLC to issue up to 1,825,397 shares of Series A convertible preferred
stock for an aggregate purchase price of $2,100,000 of cash. This financing
agreement had several contingencies and was subject to two closings. The cash
was received in two closings, the first closing was on January 8, 2002 upon
which the Company received $500,000 and the second closing was on January 31,
2002 upon which the Company received $1,600,000. Following the first and
second closings, 396,825 and 1,269,841 shares, respectively, of convertible
preferred stock were issued. The preferred stock is convertible at an initial
price of $.63 subject to adjustments based on the agreement. In connection
with this agreement,

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Intervisual Partners LLC was entitled to appoint a majority of the Companys
Board of Directors. The Company recorded a beneficial conversion on the
convertible preferred stock of $440,000. This amount was recorded as a deemed
dividend and is included in earnings per share. The preferred stock agreement
has a clause which requires the Company to issue up to 158,730 additional
shares depending on the final adjusted audited loss for the year ended December
31, 2001. The Company is currently evaluating the number of shares required to
be issued. Intervisual Partners LLC also has the option to purchase up to an
additional 2,049,804 shares of Series A preferred stock at a purchase price
ranging from $1.26 to $1.32. The Company valued this option at $273,000 and
recorded it as a deemed dividend. Finally, Intervisual Partners LLC received a
warrant to purchase additional shares of the Companys common stock. The
number of shares which Intervisual Partners LLC shall be entitled to purchase
upon exercise of the warrant shall be determined in five separate tranches; one
tranche at each of the next five anniversary dates of the First Closing. The
number of shares Intervisual Partners LLC shall be entitled to purchase under
each warrant is determined by dividing (i) an amount equal to eight percent
(8%) of the aggregate purchase price paid by Intervisual Partners for the
shares of the Companys Series A Preferred Stock acquired by Intervisual
Partners which are then still held of record by Intervisual Partners on the
applicable Anniversary Date, by (ii) the exercise price which is the average of
the bid and asked price for such common stock reported for a period of thirty
(30) trading days immediately before each applicable Anniversary Date. The
exercise price with respect to the common stock issuable upon the exercise of
each tranche of the Warrant will be determined in five separate tranches, one
tranche at each of the Anniversary Dates, and shall be equal to eighty percent
(80%) of the fair market value of one share of common stock on the applicable
Anniversary Date. The Company will value these warrants at the time the
tranche is granted.

Note 5  Equity

On December 31, 2001, the Company signed the Amendment to Zindart Loan and
Security Agreement with Zindart Limited (See Note 8) which, upon closing of the
preferred stock financing transaction, provided for $400,000 of the principal
balance of the loan and $400,000 of the payables of HuaYang Printing, a
wholly-owned subsidiary of Zindart, to be converted to 1,269,842 of the
Companys common stock shares, based on $.63 per share. As discussed in Note
3, these shares are to be issued once its Articles of Incorporation are amended
to increase its authorized capital stock. These shares have been included in
the outstanding shares at March 31 and June 30, 2002.

Note 6  Extraordinary Income

During the first half of 2002, the Company finalized negotiations with its
major printers and recorded $1,403,000 in income relating to discounts on the
printers accounts payable balances. This amount is classified as an
extraordinary item and excluded from loss from continuing operations.

Note 7  Term Loan With a Bank

As of December 31, 2001, the Company signed an amendment to its bank loan
agreement. Under this amendment, the Company paid a principal payment of
$500,000 on December 31, 2001 and agreed to an increase in monthly principal
payments to $25,000 per month. Under this amendment, the outstanding principal
amount is due on December 31, 2002 and certain financial covenants were
amended. On March 22, 2002, this Company was notified that its bank loan
agreement had been assigned to Linc Acquisition One, LLC. On April 4, 2002,
the Company signed a Consent and Waiver Agreement with the lender giving it
authorization to complete the sale of the Companys video division, Fast
Forward

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Marketing. Under this agreement, the Company on April 8, 2002 paid the Lender
$175,000 as a reduction to its outstanding indebtedness. This agreement also
requires that as the Company is paid additional cash from the collection of
FFMs receivables, it will pay the Lender 45% of each dollar received up to a
maximum of $112,500 (See Note 9). As of June 30, 2002, the Company has paid
the Lender $59,672 from the collection of FFMs receivables. As of June 30,
2002, the Company had an outstanding indebtedness of $1,245,000 and was in
compliance with all financial covenants.

Note 8  Credit Facility with a Zindart Limited (Zindart)

As of June 30, 2002, the Company has a subordinated credit facility with
Zindart Limited. The credit facility is subordinated to the term loan
discussed in Note 7 and is secured by the Companys assets. On December 31,
2001 the Company signed an amendment to the Zindart Loan and Security
Agreement, which was contingent upon the closing of an equity investment by
January 31, 2002, under which Zindart will allow $400,000 of the outstanding
balance to be converted to common stock of the Company. This contingency was
met and the Company recorded the conversion in January 2002. Additionally,
under this amended agreement, Zindart will cancel $400,000 of the outstanding
principal loan in the quarter ending September 30, 2002, contingent upon the
Companys satisfactory payment performance. Under this agreement there has
been a change in the repayment terms, commencing August 31, 2002, the remaining
balance of $1,250,000 (after taking into consideration the conversion and
cancellation) will bear interest at 5% above LIBOR and will be repaid in 24
equal installments, with final payment due on July 31, 2004. At June 30, 2002,
the Company had an outstanding indebtedness of $1,650,000 and was in compliance
with all financial covenants.

Note 9  Discontinued Operations

The Company had been experiencing deteriorating sales and profits from its
video division since its acquisition. As a result of the deteriorating sales
and a change in business goals, the Company evaluated the future viability of
its video division. On February 12, 2002, the board of directors approved a
formal plan to discontinue the operations of FFM by either sale or abandonment
within 90 days. On April 8, 2002, the Company closed the sale of FFM in
accordance with the terms of an asset purchase agreement, dated March 29, 2002,
with the FFM Acquisition Corp (FFMAC), a wholly owned subsidiary of Kanakaris
Wireless. At the closing, FFMAC acquired all the assets, excluding cash on
hand, and assumed the liabilities of FFM. At the closing, the Company received
$255,000 with the balance of $261,000 to be paid contingent on the collection
of FFMs accounts receivables outstanding at the time of closing. As these
receivables are collected, the Company will receive 42.5% of each dollar up to
a maximum of $261,000. As of June 30, 2002, the Company has received $159,000
towards the outstanding FFM accounts receivables. The Company has recorded the
discontinued operation as of December 31, 2001 and restated all prior periods
in accordance with EITF 95-18. The Company included in Note 19 of Notes to
Consolidated Financial Statements in its Form 10K filing for the year ended
December 31, 2001 quarterly results restated as to reflect discontinued
operations. Certain reclassifications have been made to March 31, and June 30,
2001 figures to conform to the amounts presented for March 31 and June 30,
2002.

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Note 10  New Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, which rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. A
principal effect will be the prospective characterization of gains and losses
from debt extinguishments used as part of an entitys risk management strategy.
Under SFAS No. 4, all gains and losses from early extinguishment of debt were
required to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. SFAS No. 145 eliminates SFAS No. 4.
As a result, most gains and losses from extinguishment of debt will not be
classified as extraordinary items unless they meet much more narrow criteria in
APB Opinion No. 30. SFAS No. 145 may be adopted early, but is otherwise
effective for fiscal years beginning after May 15, 2002, and must be adopted
with retroactive effect. The Company is determining the effect of SFAS No.
145.

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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

This Report on Form 10-Q contains forward-looking statements and includes
assumptions concerning the Companys operations, future results and prospects.
These forward-looking statements are based on current expectations and are
subject to a number of risks, uncertainties and other factors. In connection
with the Private Securities Litigation Reform Act of 1995, the Company provides
the following cautionary statements identifying important factors which, among
other things, could cause the actual results and events to differ materially
from those set forth in or implied by the forward-looking statements and
related assumptions contained in this Section and in this entire Report. Such
factors include, but are not limited to: product demand and market acceptance
risks; the effect of economic conditions; the impact of competitive products
and pricing; changes in foreign exchange rates; product development and
commercialization difficulties; capacity and supply constraints or
difficulties; the Companys ability to obtain additional financing; the
Companys working capital difficulties; the Companys ability to modify,
restructure or replace its debt facilities when they come due; general business
and economic conditions; and changes in government laws and regulations,
including taxes.

GENERAL

Intervisual Books, Inc. (the Company) creates, produces and distributes
interactive and three-dimensional childrens education novelty books. These
products include picture books, playsets, board books, lift-a-flap, story and
series books. The Companys books incorporate dimensional and moveable features
which require hand-assembly in the manufacturing process. Some titles require
the incorporation of such materials as plush, plastic novelty elements and
electronic audio chips into the finished books.

In our packaging segment, the majority of the Companys concepts and ideas for
books and formats are generated internally by the in house creative and
editorial departments. We also leverage our vast experience and external talent
pool to augment our core creative group, which is comprised of designers, paper
engineers and illustrators. After the Company conceives a new book format, the
creative team builds a selling sample which is offered for sale by the
Company to partner US and international publishers. If an agreement is
reached, the Company and the publisher sign a co-publishing contract which
stipulates that the publisher will purchase the title with exclusive rights to
sell books in the English and foreign languages to the book trade for generally
a two to four year period. Foreign publishers will also have similar rights to
sell books to the book trade in their language within their country. Under the
terms of the contract, the Company manufactures these titles for both domestic
and international publishers in approximately 25 countries and 18 different
languages.

The Company is also building its educational novelty imprint, Piggy Toes Press.
The Company creates and distributes interactive childrens novelty books
through domestic and international sales channels using a combination of
in-house sales management and an independent representative network. The
Company has been successful in increasing market penetration and building long
term distribution or planogram space, in the mass merchant, specialty/gift
markets and book clubs. This is based on the success of the Piggy Toes
moderately priced line, which includes such titles as Ten Little Ladybugs,
What Makes a Rainbow, the Shimmery series, and the Icky Sticky series.
The goal is to create a strong front and backlist with a combination of generic
series books and strategic licensed properties. The Companys self-publishing
program is in its fifth year and the results continue to improve. The

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warehousing and order fulfillment for the publishing business is being handled
by independent companies located in University Park, Illinois, and Chino,
California.

The Company does not engage in any of its own printing, binding, hand assembly,
or manufacturing. These services are contracted for with independent printers
in Hong Kong, Singapore, and Thailand. The Company supplies its printers with
artwork, color-separated materials and complete sample materials to serve as
guides for hand-assembly.

CRITICAL ACCOUNTING POLICIES

The Company believes the following represent its critical accounting policies:

Sales Returns and Allowance for Doubtful Accounts

The preparation of financial statements requires our management to make
estimates and assumptions that affect the reported amount of assets at the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Specifically, our management must make estimates
of potential future product returns related to current period product revenue.
Management analyzes historical returns, current economic trends, and changes in
customer demand and acceptance of our products when evaluating the adequacy of
the sales returns. Significant management judgments and estimates must be made
and used in connection with establishing the sales returns in any accounting
period. Material differences may result in the amount and timing of our
revenue for any period if management made different judgments or utilized
different estimates. The provision for sales returns amounted to approximately
$717,000 in 2002. Similarly, our management must make estimates of the
uncollectability of our accounts receivables. Management specifically analyzes
accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit-worthiness, current economic trends and changes in our customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts. The Companys allowance for doubtful accounts balance at June 30,
2002 was approximately $205,000. The accounts receivable balance at June 30,
2002 was approximately $2,388,000, net of sales returns of $717,000 and
allowance for doubtful accounts of $205,000.

Capitalized Production Costs

The Company capitalizes production costs by title. Production costs include
costs for design, art, editorial services, paper engineering, dies and color
separation associated with books. The Company amortizes these costs using the
sum-of-the-years-digits method over a five year projected sales life.
Annually, the Company evaluates these accumulated costs for recoverability
against estimated future sales of the related product. For first six months of
2002 and 2001, the Company capitalized $423,000 and $555,000, and the balance
is $2,870,000 and $3,623,000, net of accumulated amortization. To the extent
that the actual sales life of a title differs from projected sales life,
amortization expense may be understated or overstated.

Inventories

The Companys inventory is valued at the lower of cost or market. The Company
continually reviews the book value of discontinued books to determine if these
items are properly valued. The Company identifies these items and assesses the
ability to dispose of them at a price greater than cost. If it is

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determined that cost is less than market value, then cost is used for inventory
valuation. If market value is less than cost, then the Company writes down the
related inventory to that value. The Company also continually evaluates the
composition of its inventory and identifies slow-moving inventories. Inventory
items identified as slow-moving are evaluated to determine if reserves are
required. Generally, the Company does not experience issues with obsolete
inventory due to the nature of its products. If the Company is not able to
achieve its expectations of the net realizable value of the inventory at its
current value, the Company would have to adjust its reserves accordingly. The
reserves on inventory at June 30, 2002 are approximately $537,000.

RESULTS OF OPERATIONS

Net sales for the three and six month periods ended June 30, 2002 were
$3,425,000 and $5,641,000 as compared to $3,659,000 and $6,307,000 for the
prior year. This decrease of $234,000 for the second quarter of 2002 resulted
from a decrease of $534,000 in packaging sales partially offset by an increase
of $300,000 in self-publishing sales. The decrease for the six month period can
be attributed to a $1,172,000 decrease in packaging sales partially offset by a
$506,000 increase in self-publishing sales. The lower packaging sales for the
three and six months resulted mainly from approximately $1 million in Harry
Potter sales in the second quarter of 2001 not duplicated in 2002.
Self-publishing sales were higher mainly due to increased results from key
titles with certain mass market retailers.

Gross profit margin for the three and six month periods ended June 30, 2002 was
39.5% and 39.0% as compared to 25.3% and 28.7% for the same periods of the
prior year. This rise in gross profit margin for both periods resulted from a
9% increase in profit margin on packaging sales and an 8% increase in profit
margin on self-publishing sales. Increased margins resulted primarily from
improved pricing from printers and increased selling prices. Cost of sales
relating to the book sales consists primarily of manufacturing, book
development amortization and royalties.

Selling, general and administrative expenses for the three and six month
periods ended June 30, 2002 were $1,189,000 and $2,312,000 as compared to
$1,097,000 and $1,954,000 for the comparable periods of the prior year,
increases of $92,000 for the quarter and $358,000 for the six months.
Personnel expenses were $585,000 and $1,146,000 for the three and six month
periods ended June 30, 2002 as compared to $483,000 and $908,000 for the
comparable periods of 2001. The increases of $102,000 and $238,000 for the
second quarter and six months of 2002 resulted mainly due to higher salaries,
contract services and to inclusion of non-recurring bonuses related to the
completion of the preferred stock financing, as well as accruals for year end
bonuses. Selling expenses were $285,000 and $532,000 for the three and six
month periods ended June 30, 2002 as compared to $268,000 and $521,000 for the
prior year. Administrative expenses were $319,000 and $634,000 for the three
and six month periods ended June 30, 2002 as compared to $346,000 and $525,000
for the same periods of 2001. Administrative expenses were down $27,000 for
the quarter and up $109,000 for the six months period. The increase for the six
month period was primarily a result of increased insurance expense, moving
related expenses, accounting fees, and bad debt expenses partially offset by a
decrease in rent.

Interest expense for the three and six month periods ended June 30, 2002 was
$54,000 and $119,000 as compared to $149,000 and $320,000 for the prior year.
The decreases of $95,000 for the quarter and $201,000 for the six months was
primarily attributable to lower average outstanding balances this year as
compared to last year due to principal payments made to the Companys lenders.

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The Company is currently in a loss carry-forward position; therefore, the
Company has not recorded an income tax provision for the six months ended June
30, 2002. At December 31, 2001, the Company had federal net operating loss
carryforward available to offset future taxable income of approximately
$5,926,000 that expire on various dates beginning in 2018 through 2021.

Net income (loss) before extraordinary items and discontinued operations for
the three and six month periods ended June 30, 2002 were $110,000 income and
$231,000 loss as compared to net losses of $318,000 and $450,000 for the same
periods of the previous year. The net income for the quarter as compared to
the prior year resulted primarily from higher profit margins on both packaging
and self-publishing sales. The reduction in the net loss for the six month
period was also primarily a result of higher profit margins. Lower interest
expense also affected both periods.

The Company recorded net income available to common shareholders of $880,000
and $956,000 for the three and six month periods of 2002 versus net losses of
$332,000 and $497,000 for the same periods of 2001. The net income for 2002
included extraordinary income of $1,403,000 relating to accounts payable
discounts from its printers and a deemed dividend of $713,000. The Company
recorded a deemed dividend of $713,000, which related to the beneficial
conversion of the convertible preferred stock and the option value. (See Note
4)

LIQUIDITY AND CAPITAL RESOURCES

The Companys cash and cash equivalents increased by $112,000 to $1,378,000 at
June 30, 2002 from $1,266,000 at December 31, 2001. At June 30, 2002, working
capital deficit was $(559,000) compared to $(4,327,000) at December 31, 2001.
The increase in cash was primarily from financing activities as a result of the
close of the preferred stock financing transaction and the sale of the
Companys video division offset by cash used in operating and investing
activities.

Net cash used in operations was $1,386,000 for the six months ended June 30,
2002 as compared to $1,011,000 provided by operations for the corresponding
period of the previous year. The $2,397,000 change in cash from operations
compared to the corresponding period was primarily attributable to increases in
accounts receivable and inventory offset by a decrease in accounts payable.
Net cash used in investing activities amounted to $463,000 as compared to
$578,000 during the same period in 2001. This decrease in cash used is
primarily from a decrease in production costs for the six months of 2002 versus
the same period of 2001. Net cash provided by financing activities for the six
months of 2002 was $1,961,000 versus $505,000 used in 2001. The majority of
the cash provided was related to the net proceeds from the preferred stock
financing arrangement completed in January 2002. Additional cash was received
upon the sale of the Companys video division in April 2002. These cash
proceeds were partially offset by payments on the Companys bank line of
credit.

As of December 31, 2001, the Company signed an amendment to its bank loan
agreement. Under this amendment, the Company paid a principal payment of
$500,000 on December 31, 2001 and agreed to an increase in monthly principal
payments to $25,000 per month. Under this amendment, the outstanding principal
amount is due on December 31, 2002 and certain financial covenants were
amended. On March 22, 2002, this Company was notified that its bank loan
agreement had been assigned to Linc Acquisition One, LLC. On April 4, 2002,
the Company signed a Consent and Waiver Agreement with the lender giving it
authorization to complete the sale of the Companys video division, Fast
Forward Marketing. Under this agreement, the Company on April 8, 2002 paid the
Lender $175,000 as a

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reduction to its outstanding indebtedness. This agreement also requires that
as the Company is paid additional cash from the collection of FFMs
receivables, it will pay the Lender 45% of each dollar received up to a maximum
of $112,500. As of June 30, 2002, the Company has paid the Lender $59,672 from
the collection of FFMs receivables. As of June 30, 2002, the Company had an
outstanding indebtedness of $1,245,000 and was in compliance with all financial
covenants.

As of June 30, 2002, the Company has a subordinated credit facility with
Zindart Limited. The credit facility is subordinated to the term loan
discussed in Note 7 and is secured by the Companys assets. On December 31,
2001 signed an amendment to the Zindart Loan and Security Agreement, which was
contingent upon the closing of an equity investment by January 31, 2002, under
which Zindart will allow $400,000 of the outstanding balance to be converted to
common stock of the Company. This contingency was met and the Company recorded
the conversion in January 2002. Additionally, under this amended agreement,
Zindart will cancel $400,000 of the outstanding principal loan in the quarter
ending September 30, 2002, contingent upon the Companys satisfactory payment
performance. Under this agreement there has been a change in the repayment
terms, commencing August 31, 2002, the remaining balance of $1,250,000 (after
taking in consideration the conversion and cancellation) will bear interest at
5% above LIBOR and will be repaid in 24 equal installments, with final payment
due on July 31, 2004. At June 30, 2002, the Company had an outstanding
indebtedness of $1,650,000 and was in compliance with all financial covenants.

On December 31, 2001, the Company signed a financing agreement with Intervisual
Partners LLC to issue up to 1,825,397 shares of Series A convertible preferred
stock for an aggregate purchase price of $2,100,000 of cash. This financing
agreement had several contingencies and was subject to two closings. The cash
was received in two closings, the first closing was on January 8, 2002 upon
which the Company received $500,000 and the second closing was on January 31,
2002 upon which the Company received $1,600,000. Following the first and
second closings, 396,825 and 1,269,841 shares, respectively, of preferred stock
were issued. The preferred stock is convertible at an initial price of $.63
subject to adjustments based on the agreement. In connection with this
agreement, Intervisual Partners LLC was entitled to appoint a majority of the
Companys Board of Directors. The Company recorded a beneficial conversion on
the convertible preferred stock of $440,000. This amount was recorded as a
deemed dividend at March 31, 2002. The preferred stock agreement has a clause
which requires the Company to issue up to 158,730 additional shares depending
on the final adjusted audited loss for the year ended December 31, 2001.
Intervisual Partners LLC also has the option to purchase up to an additional
2,049,804 shares of Series A preferred stock at a purchase price ranging from
$1.26 to $1.32. The Company valued this option at $273,000 and recorded it as
a deemed dividend. Finally, Intervisual Partners LLC received a warrant to
purchase additional shares of the Companys common stock. The warrant shall be
determined in five separate tranches; one tranche at each of the next five
anniversary dates of the First Closing. (See Note 4)

As of August 1, 2002, the Company did not have commitments for any material
capital expenditures for 2002 or beyond.

We may face disruption in the flow of our products to customers based upon
labor unrest threatened on the West Coast of the United States. Our business
depends on the free flow of products and services through the channels of
commerce. We may also face interruption of production and services due to
increased security measures in response to terrorism. Recently, in response to
terrorists activities and threats aimed at the United States, transportation,
mail, financial and other services have been slowed or

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stopped altogether. Further delays or stoppages in transportation, mail,
financial or other services could have a material adverse effect on our
business, results of operations and financial condition. Furthermore, we may
experience an increase in operating costs, such as costs for transportation,
insurance and security as a result of these activities and other potential
activities. We may also experience delays in receiving payments from customers
and others that have been affected by terrorist and other activities.
Currently the US is being adversely affected by an economic downturn which
could adversely impact our results of operations, impair our ability to raise
capital or otherwise adversely affect our ability to grow our business.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

All sales by the Company are denominated in US dollars and, accordingly, the
Company does not enter into hedging transactions with regard to any foreign
currencies. Currency fluctuations can, however, increase the price of the
Companys products to its foreign customers which can adversely impact the
level of the Companys export sales from time to time. The majority of the
Companys cash equivalents are bank accounts and money markets, and all of the
Companys debt is variable rate. Therefore, the Company does not believe it
has significant market risk exposure with regard to its financial instruments.

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PART II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

|    |  |                                                 
|--- |  | ------------------------------------------------
|(a) |  | Exhibits required by Item 601 of Regulation S-K 
|    |  | 99.1  Certification of Chief Executive Officer 
|    |  | 99.2  Certification of Chief Accounting Officer
|   
|(b) |  | Reports on Form 8-K                             
|    |  | None                                            




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| | INTERVISUAL BOOKS, INC.
| | -----------------------





|    |  |                                                    
|--- |  | ---------------------------------------------------
|BY: |  | /s/  Laurence Nusbaum                              
|    |  |                                                    
|    |  | Laurence Nusbaum, President
Chief Executive Officer
|   
|   
|   
|BY: |  | /s/  Gail A. Thornhill                             
|    |  |                                                    
|    |  | Gail A. Thornhill
Chief Accounting Officer         

Date:August 14, 2002

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