##### Table of Contents



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

|        |  |                                                                                            
|------- |  | -------------------------------------------------------------------------------------------
|(X BOX) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934    
|       
|       
|       
|       
|        |  |                                                                                            
|       
|       
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|        |  | For the quarterly period ended March 31, 2002                                              
|       
|       
|       
|       
|        |  |                                                                                            
|       
|       
|       
|       
|(BOX)   |  | TRANSITION REPORT PURSUANT OR TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|       
|       
|       
|       
|        |  |                                                                                            
|       
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|        |  | For the transition period _______________ to _______________                               

Commission File Number: 1-10916

INTERVISUAL BOOKS, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 95-2929217                          
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other jurisdiction of
incorporation or organization) |  | (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 BOX) No (BOX)

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practical date. As of March 31, 2002, there
were 7,301,332 shares of common stock outstanding.





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TABLE OF CONTENTS



|                               |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Consolidated Financial Statements                                                    
|                               |                                                                                               | Consolidated Balance Sheets               
|                               |                                                                                               | Statements of Operations                  
|                               |                                                                                               | Consolidated Statements on 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 10.1                  



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##### Table of Contents



INTERVISUAL BOOKS, INC.

TABLE OF CONTENTS

|                               |  |                                                                                               |  |                                                                       |  |     
|------------------------------ |  | --------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | ----
|                               |  |                                                                                               |  |                                                                       |  | Page
|                               |  |                                                                                               |  |                                                                       |  |     
|PART I  FINANCIAL INFORMATION |  |                                                                                              
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|                               |  |                                                                                               |  |                                                                       |  |     
|                              
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|                              
|                              
|                               |  | Item 1. Consolidated Financial Statements                                                     |  |                                                                      
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  |                                                                       |  |     
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  | Balance Sheets  March 31, 2002, and December 31, 2001                |  | 1   
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  |                                                                       |  |     
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  | Statements of Operations  Three months ended March 31, 2002 and 2001 |  | 2   
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  |                                                                       |  |     
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  | Statements of Cash Flows Three months ended March 31, 2002 and 2002  |  | 3   
|                              
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|                               |  |                                                                                               |  |                                                                       |  |     
|                              
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|                               |  |                                                                                               |  | Notes to Financial Statements  March 31, 2002                        |  | 4   
|                              
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|                               |  |                                                                                               |  |                                                                       |  |     
|                              
|                              
|                              
|                              
|                               |  | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 10                                                                   
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  |                                                                       |  |     
|                              
|                              
|                              
|                              
|                               |  | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |  | 13                                                                   
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  |                                                                       |  |     
|                              
|                              
|                              
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|PART II  OTHER INFORMATION    |  |                                                                                              
|                              
|                              
|                              
|                              
|                               |  |                                                                                               |  |                                                                       |  |     
|                              
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|                               |  | Item 6. Exhibits and Reports on Form 8-K                                                      |  | 14                                                                   
|                              
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|                              
|                               |  |                                                                                               |  |                                                                       |  |     
|                              
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|SIGNATURES                     |  |                                                                                               |  | 14                                                                   

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

|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |        |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------- | ----- | -------- | ----------- | - | ----- | ------ | ------ | - | 
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          | (unaudited) |   |       |        |       
|ASSETS                                                                                                                                                                    |                                                                                                                                                        | 3/31/02                     |       | 12/31/01
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |         
|Current Assets:                                                                                                                                                           |                                                                                                                                                        |                             |       |          |             |   |       |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Cash and cash equivalents                                                                                                                              |                             | $     | 2,517    |             |   | $     | 1,266  |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Accounts receivable, less allowances
of $877 and $1,000                                                                                                |                             |       | 1,777    |             |   |       | 2,032  |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Inventories                                                                                                                                            |                             |       | 1,505    |             |   |       | 1,341  |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Prepaid expenses                                                                                                                                       |                             |       | 231      |             |   |       | 271    |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Commission & royalty advances                                                                                                                          |                             |       | 81       |             |   |       | 74     |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Other current assets                                                                                                                                   |                             |       | 10       |             |   |       | 3      |       
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|                                                                                                                                                                          |                                                                                                                                                        | Total current assets        |       |          | 6,121       |   |       |        | 4,987  |  
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Production costs, net of accumulated
amortization of $20,520 and $20,329                                                                                                  |                                                                                                                                                        |                             | 2,919 |          |             |   | 2,944 |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Property and equipment, net of accumulated
depreciation of $1,134 and $1,131                                                                                              |                                                                                                                                                        |                             | 71    |          |             |   | 57    |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Deferred income taxes                                                                                                                                                     |                                                                                                                                                        |                             | 250   |          |             |   | 250   |       
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|                                                                                                                                                                          |                                                                                                                                                        | $                           | 9,361 |          |             | $ | 8,238 |       
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                            |                                                                                                                                                        |                             |       |          |             |   |       |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Current Liabilities:                                                                                                                                                      |                                                                                                                                                        |                             |       |          |             |   |       |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Accounts payable                                                                                                                                       |                             | $     | 4,250    |             |   | $     | 6,144  |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Term loan with bank                                                                                                                                    |                             |       | 1,555    |             |   |       | 1,630  |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Line of credit with private party                                                                                                                      |                             |       | 817      |             |   |       | 660    |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Accrued royalties                                                                                                                                      |                             |       | 171      |             |   |       | 258    |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Accrued expenses                                                                                                                                       |                             |       | 221      |             |   |       | 279    |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Customer deposits                                                                                                                                      |                             |       | 375      |             |   |       | 166    |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Net liabilities on discontinued operations                                                                                                             |                             |       | 359      |             |   |       | 427    |       
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|                                                                                                                                                                          |                                                                                                                                                        | Total current liabilities   |       |          | 7,748       |   |       |        | 9,564  |  
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Term loan with bank, less current portion                                                                                                                                 |                                                                                                                                                        |                             |      |          |             |   |      |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Line of credit with private party, less current portion                                                                                                                   |                                                                                                                                                        |                             | 833   |          |             |   | 1,390 |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Other liabilities-long term                                                                                                                                               |                                                                                                                                                        |                             |      |          |             |   | 25    |       
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|                                                                                                                                                                          |                                                                                                                                                        | TOTAL LIABILITIES           |       |          | 8,581       |   |       |        | 10,979 |  
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|Convertible
preferred stock, shares authorized 3,000,000,
Series A 1,825,397 authorized and 1,666,666
issued and outstanding at March 31, 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 7,301,332 at March 31,
2002 and 6,031,490 at December 31, 2001 |                             |       | 6,271    |             |   |       | 5,471  |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Additional paid in capital                                                                                                                             |                             |       | 1,246    |             |   |       | 806    |       
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                          | Accumulated deficit                                                                                                                                    |                             |       | (8,942   | )           |   |       | (9,018 | )     
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|                                                                                                                                                                          |                                                                                                                                                        | TOTAL STOCKHOLDERS DEFICIT |       |          | (1,425      | ) |       |        | (2,741 | )
|                                                                                                                                                                          |                                                                                                                                                        |                             |       |          |             |   |       |        |       
|                                                                                                                                                                          |                                                                                                                                                        | $                           | 9,361 |          |             | $ | 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 March 31
|                                                                                             |                   |   |                            
|                                                                                             |                   |   | 2002                        |       | 2001
|                                                                                             |                   |   |                             |       |     
|Net sales                                                                                    |                   | $ | 2,216                       |       |      | $ | 2,648 |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Rights income                                                                                |                   |   | 1                           |       |      |   | 36    |      
|                                                                                             |                   |   |                             |       |      |   |       |      
|Total revenues                                                                               |                   |   | 2,217                       |       |      |   | 2,684 |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cost of sales                                                                                |                   |   | 1,370                       |       |      |   | 1,788 |      
|                                                                                             |                   |   |                             |       |      |   |       |      
|Gross profit                                                                                 |                   |   | 847                         |       |      |   | 896   |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Selling, general and
administrative expense                                                  |                   |   | 1,123                       |       |      |   | 857   |      
|                                                                                             |                   |   |                             |       |      |   |       |      
|Income(loss) from operations                                                                 |                   |   | (276                        | )     |      |   | 39    |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest expense                                                                             |                   |   | (65                         | )     |      |   | (171  | )    
|                                                                                             |                   |   |                             |       |      |   |       |      
|Net
loss before extraordinary income
and discontinued operations                             |                   |   | (341                        | )     |      |   | (132  | )    
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Extraordinary income                                                                         |                   |   | 1,130                       |       |      |   | 0     |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Loss from discontinued operations                                                            |                   |   | 0                           |       |      |   | (33   | )    
|                                                                                             |                   |   |                             |       |      |   |       |      
|Net income (loss)                                                                            |                   | $ | 789                         |       |      | $ | (165  | )    
|Less:
Beneficial conversion and option value on convertible preferred stock                  |                   |   | (713                        | )     |      |   |      |      
|                                                                                             |                   |   |                             |       |      |   |       |      
|Net
income (loss) available to common shareholders                                           |                   | $ | 76                          |       |      | $ | (165  | )    
|                                                                                             |                   |   |                             |       |      |   |       |      
|Income
(loss) per common share  basic and diluted:                                          |                   |   |                             |       |      |   |       |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Loss
applicable to common shareholders before extraordinary item and
discontinued operations |                   | $ | (0.15                       | )     |      | $ | (0.02 | )    
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Extraordinary income                                                                         |                   | $ | 0.16                        |       |      | $ | 0.00  |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Loss from discontinued operations                                                            |                   | $ | 0.00                        |       |      | $ | (0.01 | )    
|                                                                                             |                   |   |                             |       |      |   |       |      
|Net
income (loss) available to common shareholders                                           |                   | $ | 0.01                        |       |      | $ | (0.03 | )    
|                                                                                             |                   |   |                             |       |      |   |       |      
|Weighted average number of common shares
and equivalents outstanding:                        |                   |   |                             |       |      |   |       |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Basic and Diluted |   |                             | 6,864 |      |   |       | 5,955 | 
|                                                                                             |                   |   |                             |       |      |   |       |      

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)

|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |        |      |      |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------- | --------------------------------------------------- | ------ | ---------------------------- | ----- | ---- | ------ | ---- | ---- | -
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        | Three Months Ended March 31,
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        | 2002                         |       | 2001
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |     
|Cash flows from operating activities:                |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net
income (loss) available to common shareholders                                                      |                                                                       | $                    | 76                                                  |        |                              | $     | (165 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments
to reconcile net income (loss) loss to net cash
provided by (used in) operating activities: |                                                                       |                      |                                                     |        |                              |       |      |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         | Beneficial
conversion and option value on convertible preferred stock |                      |                                                     | 713    |                              |       |      |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         | Depreciation and amortization                                         |                      |                                                     | 194    |                              |       |      | 267    |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         | Provision for losses on accounts receivable                           |                      |                                                     | 6      |                              |       |      |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         | Provision for abandoned titles                                        |                      |                                                     | 6      |                              |       |      | 6      |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         | Discontinued operations                                               |                      |                                                     | (68    | )                            |       |      | (1,074 | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         | Extraordinary income  printer discounts                              |                      |                                                     | (1,130 | )                            |       |      |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         | Increase (decrease) from changes in:                                  |                      |                                                     |        |                              |       |      |        |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Accounts receivable  |                                                     |        | 249                          |       |      |        | 842  |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Inventories          |                                                     |        | (164                         | )     |      |        | (153 | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Prepaid expenses     |                                                     |        | 39                           |       |      |        | (11  | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Royalty advances     |                                                     |        | (6                           | )     |      |        | 14   |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Other current assets |                                                     |        | (8                           | )     |      |        | (8   | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Accounts payable     |                                                     |        | (364                         | )     |      |        | 217  |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Accrued royalties    |                                                     |        | (86                          | )     |      |        | (133 | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Accrued expenses     |                                                     |        | (57                          | )     |      |        | (40  | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Customer deposits    |                                                     |        | 208                          |       |      |        | 480  |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                         |                                                                       | Other liabilities    |                                                     |        | (25                          | )     |      |        | (12  | )   
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|                                                     |                                                                                                         |                                                                       |                      | Net cash provided by (used in) operating activities |        |                              | (417  | )    |        |      | 230  |  
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|Cash flows from investing activities:                |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Additions to property and equipment                                                                     |                                                                       |                      | (17                                                 | )      |                              |       | (3   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Additions to production costs                                                                           |                                                                       |                      | (172                                                | )      |                              |       | (256 | )     
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|                                                     |                                                                                                         |                                                                       |                      | Net cash used in investing activities               |        |                              | (189  | )    |        |      | (259 | )
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|Cash flows from financing activities:                |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from investor                                                                                  |                                                                       |                      | 1,932                                               |        |                              |       |     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayment to bank line of credit                                                                        |                                                                       |                      | (75                                                 | )      |                              |       |     |       
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|                                                     |                                                                                                         |                                                                       |                      | Net cash provided by financing activities           |        |                              | 1,857 |      |        |      |     |  
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                         |                                                                       | 1,251                |                                                     |        |                              | (29   | )   
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                                                                         |                                                                       | 1,266                |                                                     |        |                              | 396   |     
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|Cash and cash equivalents, end of period             |                                                                                                         | $                                                                     | 2,517                |                                                     |        | $                            | 367   |     
|                                                     |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |      |       
|Supplemental disclosures of cash flow information:   |                                                                                                         |                                                                       |                      |                                                     |        |                              |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid during the period for interest expense                                                        |                                                                       | $                    | 78                                                  |        |                              | $     | 139  |       

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 2002, and
the results of operations and cash flows for the three month period ended March
31, 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 month period ended March 31,
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. As of March 31, 2002, FFM was reflected as a
discontinued operation for all periods presented.

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. Also in the first
quarter of 2002, the Company negotiated a reduction in its subordinated debt
totalling $400,000 (See Note 8) and received discounts on accounts payable of
$1,130,000 (See Note 6). As of March 31, 2002 the Companys indebtedness with
its bank was $1,555,000. 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 will 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 in
consideration the

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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.

As a result of these transactions, the Company has a cash balance of $2,517,000
and reported net income before beneficial conversion and option value
on convertible preferred stock of $789,000 for the quarter ended March 31, 2002. The
Company also expects positive cash flow from operations for 2002. As a result
of the above, the Company believes it can operate for at least one year and one
day.

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 March 31, 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 832,452 shares was included in the weighted
average shares to calculate the income (loss) per share. The
following calculates the income (loss) per share available to common
shareholders:

|                                                                      |  |                |        |                |  |        |       |           |  |   |       |   |  |  |       |  
|--------------------------------------------------------------------- |  | -------------- | ------ | -------------- |  | ------ | ----- | --------- |  | - | ----- | - |  |  | ----- | -
|For the three months ended:                                           |  | March 31, 2002 |        | March 31, 2001
|                                                                      |  |                |        |               
|                                                                      |  | Amount         |        | Per Share      |  | Amount |       | Per Share
|                                                                      |  |                |        |                |  |        |       |          
|Net loss before extraordinary
items and discontinued operations       |  | $              | (341   | )              |  |        | (0.05 | )         |  | $ | (132  | ) |  |  | (0.02 | )
|Beneficial
conversion and option
value on convertible preferred stock |  |                | (713   | )              |  |        | (0.10 | )         |  |   | 0     |   |  |  | 0.00  |  
|                                                                      |  |                |        |                |  |        |       |           |  |   |       |   |  |  |       |  
|                                                                      |  |                | (1,054 | )              |  |        | (0.15 | )         |  |   | (132  | ) |  |  | (.02  | )
|Extraordinary income                                                  |  |                | 1,130  |                |  |        | 0.16  |           |  |   | 0     |   |  |  | 0.00  |  
|Los from discontinued operations                                      |  |                | 0      |                |  |        | 0.00  |           |  |   | (33   | ) |  |  | (0.01 | )
|                                                                      |  |                |        |                |  |        |       |           |  |   |       |   |  |  |       |  
|Net loss available to common
shareholders                             |  | $              | 76     |                |  |        | 0.01  |           |  | $ | (165  | ) |  |  | (.03  | )
|                                                                      |  |                |        |                |  |        |       |           |  |   |       |   |  |  |       |  
|Weighted
average number of
common shares                              |  |                | 6,864  |                |  |        |       |           |  |   | 5,955 |   |  |  |       |  
|                                                                      |  |                |        |                |  |        |       |           |  |   |       |   |  |  |       |  



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 of which
the Company received $500,000 and the second closing was on January 31, 2002
and 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, the 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 and 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. 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 convertible preferred stock at a purchase price ranging from
$1.26 to $1.32. The Company valued this option for $273,000 and
recorded it as a deemed dividend during the three months ended
March 31, 2002. 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

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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, 2002.

Note 6  Extraordinary Income

During the first quarter of 2002, the Company finalized negotiations with its
major printers and recorded $1,130,000 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 Republic Credit Corporation. 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 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 March 31, 2002, the Company had an
outstanding indebtedness of $1,555,000 and was in compliance with all financial
covenants.

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

As of March 31, 2002, the Company has a subordinated credit facility with
Zindart Limited. The credit facility is subordinated to the asset-based line
of credit 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 in consideration the

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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 March 31, 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 has been experiencing deteriorating sales and profits from its
video division since its acquisition. As a result of the deteriorating sales
and 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 subsidary 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. 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, 2001 to conform to
the amounts presented for March 31, 2002.

Note 10  New Accounting Pronouncements

In September 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method
of accounting for business combinations initiated after September 30, 2001.
SFAS 141 also requires that the Company recognize acquired intangible assets
apart from goodwill if the acquired intangible assets meet certain criteria.
SFAS 141 applies to all business combinations initiated after September 30,
2001 and for purchase business combinations completed on or after July 1, 2001.
It also requires, upon adoption of SFAS 142, that the Company reclassify the
carrying amounts of intangible assets and goodwill based on the criteria in
SFAS 141. The adoption of this Statement has no impact on its
financial statements.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An
intangible asset with an indefinite useful life should be tested for impairment
in accordance with the guidance in SFAS 142. SFAS 142 is required to be
applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date,

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regardless of when those
assets were initially recognized. SFAS 142 requires the Company to complete a
transitional goodwill impairment test nine months from the date of adoption.
The Company is also
required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. The adoption of this Statement has no impact on its financial statements.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The adoption of this Statement will have
no material impact on its financial statements.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFASB 144 requires that those long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred.
SFASB 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally, are to be applied
prospectively. The adoption of this Statement has no material impact on its financial statements.

Note 11  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 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
$670,000 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 evaluation the adequacy of the allowance for doubtful
accounts. The Companys allowance for doubtful accounts balance at March 31,
2002 was approximately $207,000. The accounts receivable balance at March 31,
2002 was approximately $1,777,000, net of sales returns of $670,000 and
allowance for doubtful accounts of $207,000.

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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 three months
of 2002 and 2001, the Company capitalized $256,000 and $172,000, and the
balance is $2,919,000 and $2,944,000, 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 inventory is valued at the lower of cost or market and 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 determined that cost
is less than market value, then cost is used for inventory valuation. If
market values 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 March 31, 2002 are approximately $898,000.

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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 and produces interactive and
three-dimensional childrens educational novelty books. These products
include picture books, playsets, board books and gift 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 language to the book trade for
generally a two to four year period.

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 merchandise, specialty/gift markets and book clubs based on the
success of the Piggy Toes moderately priced line, including such titles
as Ten Little Ladybugs and What Makes a
Rainbow. 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 warehousing and order fulfillment for the
publishing business is being handled by an independent company located in
University Park, Illinois.

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.

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RESULTS OF OPERATIONS

Net sales for the three period ended March 31, 2002 were $2,216,000 as compared
to $2,648,000 for the prior year. This decrease of $432,000 for the first
quarter of 2002 resulted from a decrease of $638,000 in packaging sales offset
by an increase of $206,000 in self-publishing sales. Packaging sales in the
first quarter of 2002 were lower than expected mainly due to certain orders
that were to ship in late March moving to the second quarter of 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 month period ended March 31, 2002 was 38.2%
as compared to 33.4% for the same period of the prior year. The gross profit
margin last year included an adjustment to the reserve for slow moving
inventory that was not duplicated in 2002. The margin for the first quarter of
2001 without this adjustment was 30.8%. This rise in gross profit margin for
the three month period was due mainly to an increase in self-publishing sales
which historically have a higher margin, lower prices from printers and an
effort by the sales department to sell at better profit margins. 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 month period ended
March 31, 2002 were $1,123,000 as compared to $857,000 for the comparable
period of the prior year, an increase of $266,000. Personnel expenses were
$561,000 for the three month period ended March 31, 2002 as compared to
$426,000 for the comparable period of 2001. This increase of $135,000 for the
first quarter of 2002 resulted mainly due to higher salaries, contract services
and to inclusion of non-reoccuring bonuses related to the completion of the
preferred stock financing. Selling expenses were $246,000 for the quarter ended
March 31, 2002 as compared to $253,000 for the prior year. Administrative
expenses were $316,000 for the three month period ended March 31, 2002 as
compared to $178,000 for the same period of 2001 for an increase of $138,000.
The increase for the quarter was primarily a result of increased insurance
expense, moving related expenses and accounting fees. The administrative
expenses for the first quarter last year included adjustments to the reserve
for bad debts and officers insurance expenses totaling $63,000 that were not
duplicated this year. Without this adjustment, administrative expenses would
have been $241,000 for the first quarter of last year.

Interest expense for the three month period ended March 31, 2002 was $65,000 as
compared to $171,000 for the prior year. The decrease of $106,000 for the
quarter 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.

The Company is currently in a loss carry-forward position; therefore, the
Company has not recorded an income tax provision for the three months ended
March 31, 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 expired on various dates beginning in 2018 through 2021.

Net loss before extraordinary item and discontinued operations for the three
month period ended March 31, 2002 was $341,000 as compared to a loss of
$131,000 for the same period of the previous year. The loss for the quarter
as compared to the prior year resulted primarily from lower sales and higher

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overhead costs.

The Company recorded net income available to common
shareholders of $76,000 for the first
quarter of 2002 versus net
loss of $165,000 for the same period of 2001. The net income for 2002 included
extraordinary income of $1,130,000 relating to accounts payable discounts from
its printers and a deemed dividend of $713,000. The Company recorded
a deemed dividend of $713,000 during the three months ended
March 31, 2002, 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 $1,251,000 to $2,517,000
at March 31, 2002 from $1,266,000 at December 31, 2001. At March 31, 2002,
working deficit was $(1,627,000) compared to $(4,577,000) at December 31, 2001.
Working capital, excluding the Companys bank debt and net liabilities from
discontinued operations which were assumed by the acquirer of FFM subsequent to
March 31, 2002, was $287,000 as compared to a deficit of $(2,520,000) 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.

Net cash used in operations was $417,000 for the three months ended March 31,
2002 as compared to $230,000 provided by operations for the corresponding
period of the previous year. The $647,000 change in cash from operations
compared to the corresponding period was primarily attributable to net income
versus loss in the prior year and an increase in customer deposits offset by
decreases in accounts receivable and in accounts payable. Net cash used in
investing activities amounted to $189,000 as compared to $259,000 during the
same period in 2001. This decrease in cash used is primarily from a decrease in
production costs for the three months of 2002 versus the same period of 2001.
Net cash provided by financing activities for the first quarter of 2002 was
$1,857,000 versus none in 2001. The majority of this cash was related to the
net proceeds from the preferred stock financing arrangement completed in
January 2002.

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 Republic Credit Corporation. 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 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 March 31, 2002, the Company had an outstanding
indebtedness of $1,555,000 and was in compliance with all financial covenants.

As of March 31, 2002, the Company has a subordinated credit facility with
Zindart Limited. The credit facility is subordinated to the asset-based line
of credit 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

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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 March 31,
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 of which
the Company received $500,000 and the second closing was on January 31, 2002
and 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, the 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. 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 for $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 May 1, 2002, the Company did not have commitments for any material
capital expenditures for 2002 or beyond.

We may face interruption of production and services due to increased security
measures in response to terrorism. Our business depends on the free flow of
products and services through the channels of commerce. Recently, in response
to terrorists activities and threats aimed at the United States,
transportation, mail, financial and other services have been slowed or 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 the activities and potential activities. We may also experience
delays in receiving payments from payers that have been affected by the
terrorist activities and potential activities. The US economy in general is
being adversely affected by the terrorist activities and potential activities
and any economic downturn 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                 
|--- |  | ----------------------------------------------------------------
|   
|    |  | 10.1 Consent and Waiver Agreement with LINC Acquisition One, LLC
|   
|(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: May 20, 2002

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