<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               ------------------

                                   Form 10-K
                               ------------------
                                   (Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   For the fiscal year ended October 31, 2001

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission File Number 0-21785

                             NEW VISUAL CORPORATION
             (Exact name of registrant as specified in its charter)

           Utah                                                   95-4545704
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


   5920 Friars Road
     Suite 104
San Diego, California                                              92108
(Address of principal                                           (Zip Code)
  executive offices)


       Registrant's telephone number, including area code: (619) 692-0333

        Securities registered pursuant to section 12(b) of the Act: None
          Securities registered pursuant to section 12(g) of the Act:

                         Common Stock, $.001 Par Value
                         -----------------------------
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of January 17, 2002, 31,395,789 shares of common stock were outstanding. The
aggregate market value of the common stock held by non-affiliates on January 17,
2002 was approximately $13,016,178.

                   Documents incorporated by reference: None
<PAGE>

                                     PART I

ITEM 1. BUSINESS.

OVERVIEW

         New Visual Corporation ("New Visual," the "Company," "we," "our" or
"us") is developing advanced transmission technology to enable data to be
transmitted across copper telephone wire at speeds and over distances that
exceed those offered by industry-leading DSL technology providers. We intend to
market this pioneering technology to leading chipmakers, equipment makers, and
service providers (such as telephone companies) in the telecommunications
industry. Our technology is designed to dramatically increase the capacity of
the copper telephone network, allowing these entities to provide enhanced video,
data and voice services over the existing copper telecommunications
infrastructure.

         Through our NV Technology, Inc. subsidiary ("NV Technology"), we intend
to design, develop, manufacture and license products based upon our technology.
We believe that products using this technology will have a significant advantage
over existing broadband technologies, such as asynchronous digital subscriber
line ("ADSL"), by providing faster transmission speed capability, and very high
bit-rate digital subscriber line ("VDSL"), by increasing the transmission
distance capability.

         During the 2000 fiscal year, we entered into a joint venture to produce
a feature length, surfing adventure film for mainstream theatrical release. This
film has the working title of LIQUID and is almost completed. We anticipate that
LIQUID will be released in the Summer of 2002.

         Our executive offices are located at 5920 Friars Road, Suite 104, San
Diego, California, and our telephone number at that address is (619) 692-0333.

OUR TELECOMMUNICATIONS BUSINESS

         THE BROADBAND BOTTLENECK

         In recent years, demand has increased significantly for high-speed
access to multimedia information and entertainment content, consisting of voice,
video and data. Both consumers and businesses are increasingly seeking
high-speed broadband access in order to take advantage of the dramatic growth of
the Internet and increased use of the World Wide Web for communicating and
accessing information, e-commerce, and bandwidth-intensive applications such as
video-conferencing, gaming, data-mining, image processing, distance learning,
streaming audio/video, multimedia broadcasting, telecommuting and networking
between branch offices. Rapid growth in the number of Internet users and the
demand for this type of content has created bottlenecks on existing
communications networks, especially over the "last mile" of the legacy
communications infrastructure. The last mile is defined as the distance or
connection between the edge of the high-capacity network and the device or
premises of the end user. Generally speaking, the last mile challenge refers to
the bottleneck that occurs where the high-speed capability of the fiber optic
network meets the low-speed capacity of the local loop telephone network.

                                       2
<PAGE>

         As the volume of traffic has increased, consumers have become
increasingly frustrated with the performance of telephone dial-up connections
that are typically limited to data rates of 28.8 kilobits per second ("kbps") to
56 kbps. At the same time, network providers and content developers are offering
more and more data-hungry applications, driving demand for bandwidth. Businesses
also are seeking faster access to broadband content as the convergence of voice,
video and data, and increasing volumes of electronic traffic, have placed new
demands on existing LAN technologies and infrastructures.

         In response to the challenge to provide high-speed access for both
consumers and businesses, telecommunications service providers have been
significantly increasing the data transmission speed and capacity of the core
infrastructure, or "backbone," that links their central office locations. Over
the last few years, service providers also have begun to make progress in
improving speed and capacity along the local loop, where end users connect to
the local networks' central office. The local loop continues to limit high-speed
data transmission because the twisted pair copper wires that comprise the local
loop were designed for lower speed analog voice traffic, rather than high-speed
digital transmission.

         Because it is extremely expensive and impractical to replace the
existing copper wire infrastructure with fiber optic technology to every home or
office, many companies are promoting solutions to enable broadband
communications over the local loop, such as the various digital subscriber line
("DSL") technologies. Still others are sponsoring alternative means for
providing high-speed data communications such as wireless, satellite, fiber
optic and cable modem technologies.

         BROADBAND OPPORTUNITIES OVER METALLIC MEDIA

         We believe the value of the existing telephone wire network is directly
related to the amount of bandwidth at its disposal. We also believe there are
substantial business opportunities for companies that can develop technologies
that increase the bandwidth of this network, enabling telephone network
operators to increase their offering of services and reduce the cost of network
upgrades. Worldwide, this network contains over 750 million copper lines, and
currently delivers to end users most of the world's telephone traffic and much
of its broadband access. Virtually every home and business in the United States
is served with an existing copper wire connection. There are approximately 170
million U.S. telephone lines in service, while approximately 75 million homes
are "passed" by digital broadband technology. North American DSL deployments by
the end of 2001, however, totaled only approximately 4 million subscribers,
compared to more than 7.5 million cable modem subscribers.

         Additional pressures have been placed on telephone service providers by
telecommunications deregulation, which has enabled cable and alternative network
operators to capture telephony market share by offering voice and long distance
services over different types of networks such as cable or IP (Internet
protocol).

         We believe that the existing worldwide copper wire base offers
significant advantages over alternative networks as a medium for providing
broadband access:

         o    LOW COST DEPLOYMENT. First, these solutions enable the service
              provider to leverage a huge existing infrastructure, avoiding the
              high costs associated with replacing the local loop with fiber,
              laying new cable or upgrading existing cable connections, or
              deploying relatively new wireless or satellite communications
              technologies. Because DSL uses the existing local loop, it can be
              less expensive to deploy than other high-speed data transmission
              technologies.

                                       3
<PAGE>

         o    LIMITED SERVICE DEGRADATION AND IMPROVED SECURITY OVER ALTERNATIVE
              TECHNOLOGIES. In contrast to cable delivery systems, DSL is a
              point-to-point technology that connects the end user to the
              service provider's central office or to an intermediate hub over
              copper telephone wire. DSL therefore does not encounter service
              degradation as other subscribers are added to the system, and
              allows a higher level of security. Alternative technologies, such
              as cable, are shared systems and may suffer degradation and
              increased security risk as the number of end users on the system
              increases.

         o    RAPID DEPLOYMENT. Because virtually every home and business in the
              United States, and many throughout the world, have installed
              copper telephone wire connections, copper wire-based broadband
              solutions can be rapidly deployed to a large number of potential
              end users.

         NV TECHNOLOGY'S SOLUTION

         We are developing an advanced transmission technology to enable data to
be transmitted across copper telephone wire at faster speeds and over greater
distances than is presently offered by leading DSL technology providers. Our
technology offers significant improvements over existing technologies by
optimizing the bandwidth used and taking advantage of dynamic changes in the
available signal to noise ratio ("SNR"). Bandwidth is maximized by dynamically
operating as close as possible to the available bandwidth, specifically by
taking advantage of dynamic improvements in the SNR. Telephone wiring has a
static, known function of attenuation versus frequency, while there are dynamic
characteristics that present both significant and exploitable dynamic changes
during transmission. The NV Technology solution takes advantage of these
exploitable characteristics, resulting in dramatically improved achievable
throughput.

         We intend to develop core technology and chip level solutions to be
licensed or sold to chipmakers, equipment makers and service providers that
serve the following markets:

         o    SME: small to mid-sized enterprises (i.e., businesses with 20-99
              employees)
         o    Enterprise: multi-tenant units and multi-hotel units (also known
              as the MTU and MHU markets)
         o    Residential: home broadband (high-speed access) consumers

         We believe that products based upon our technology will enable
providers of broadband services to these markets to:

         o    ENHANCE THEIR OFFERING OF CONVERGENT SERVICES. We believe that
              deployment of our technology would permit the transmission of
              television, telephone and Internet access services over existing
              telephone lines to a large number of consumers.

         o    REACH MORE CUSTOMERS. The technology could permit service
              providers such as telephone companies and other DSL providers to
              reach more customers as a result of the extended range of their
              data transmissions. For example, VDSL services are presently
              unavailable to a large number of potential residential and
              business class consumers that reside more than 1,000 feet at
              52Mbps or 13Mbps at 4,500 feet from the central office. Similarly,
              while standard ADSL services have a range of 12,000 feet-18,000
              feet, capacity decreases the farther the end user is from the
              central office.

         o    LOWER COSTS BY USING EXISTING INFRASTRUCTURE. By deploying
              products built upon our technology, we believe that service
              providers will be able to reduce their technology investment and
              shorten the length of time it takes to recover initial capital
              outlay. Because our technology will increase the range of
              transmission over copper, providers could provide enhanced
              broadband services to larger markets, yet continue to utilize the
              existing copper infrastructure and existing technologies.

                                       4
<PAGE>

         OUR BUSINESS STRATEGY

         Our objective is to initially deploy our technology in the SME and
Enterprise business markets, and to subsequently expand into the Residential
market. We believe business class markets offer the nearest revenue opportunity
for commercial applications of our technology because:

         o    many businesses already have existing applications that require
              greater bandwidth,
         o    businesses have demonstrated the ability and willingness to pay
              for premium broadband services,
         o    spending by the business class markets significantly exceeds
              spending by the residential market, and is projected to continue
              to do so for the foreseeable future,
         o    residential offerings have become commoditized, and
         o    the return on investment for service providers is a more
              attractive model (e.g., lower cost of deployment and customer
              acquisition vs. revenue).

         Residential broadband demand and DSL deployment is increasing rapidly,
however, and we intend to deploy our technology in the Residential market as
that market matures and new applications continue to drive demand for greater
bandwidth.

         We believe that the most prudent strategy for deploying our technology
will involve licensing, equipment sales in the form of evaluation units for
field trials, and integrated circuit ("IC") sales in the form of Application
Specific Integrated Circuits ("ASICs"). We intend to ultimately produce a small,
inexpensive chipset design that can be mass-produced with a high degree of
economic reliability. We expect to benefit from the following revenue models:

         o    joint venture manufacturing relationships with equipment makers
              and/or chip makers;
         o    manufacture and sale of ICs; and/or
         o    licensing our IC "recipe" to chip makers.

Out of these models, we anticipate future revenues will take the form of license
fees and royalty payments, development and support fees, and product sales of
ASICs.

         COMPETITION

         The market for high-speed telecommunications products is highly
competitive, and we expect that it will become increasingly competitive in the
future. Our potential competitors consist of some of the largest, most
successful domestic and international telecommunications companies, such as
Texas Instruments, Inc., and other companies with well-established reputations
in the broadband telecommunications industry, such as Infineon Technologies.
These and our other potential competitors possess substantially greater name
recognition, financial, sales and marketing, manufacturing, technical,
personnel, and other resources than we have.

                                       5
<PAGE>

         We believe we will be able to compete with these companies because our
products will provide advantages not otherwise available, most notably the
ability to significantly increase the speed and extend the range of broadband
transmission over copper telephone wire. It is therefore possible that our
products will enhance the broadband solutions of some of our competitors, and
that these competitors could become our customers or business partners.

         Although we believe we will be able to compete based on the special
features of our products, our products will incorporate new concepts and may not
be successful even if they are superior to those of our competitors. In addition
to facing competition from providers of DSL-based products, our products will
compete with products using other broadband technologies, such as cable modems,
wireless, satellite and fiber optic telecommunications technology. Commercial
acceptance of any one of these competing solutions could decrease demand for our
products.

        We also face competition from new technologies that are currently under
development that may result in new competitors entering the market with products
that may make ours obsolete. We cannot entirely predict the competitive impact
of these new technologies and competitors.

         MANUFACTURING AND SUPPLIERS

         We intend to contract with third party manufacturers to produce our
products and will rely on third party suppliers to obtain the raw materials
essential to our products' production. Manufacturing our products will be a
complex process and we cannot assure you that we will not experience production
problems or delays. Any interruption in operations could materially and
adversely affect our business and operating results.

         There may be a limited number of suppliers of some of the components
necessary for the manufacture of our products. The reliance on a limited number
of suppliers, particularly if such suppliers are foreign, poses several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over pricing, quality and timely delivery of
components. We cannot assure you that we will be able to obtain adequate
supplies of raw materials. Certain key components of our products may involve
long lead times, and in the event of an unanticipated increase in the demand for
our products, we could be unable to manufacture certain products in a quantity
sufficient to satisfy potential demand. If we cannot obtain adequate deliveries
of key components, we may be unable to ship products on a timely basis. Delays
in shipment could damage our relationships with customers and could harm our
business and operating results.

         GOVERNMENT REGULATION

         The telecommunications industry is subject to extensive regulation by
federal and state agencies, including the Federal Communications Commission, or
FCC, and various state public utility and service commissions. Although such
regulation does not presently affect us directly, it may negatively impact our
business to the extent it adversely affects our customers, manufacturers or
suppliers. Regulations affecting the availability of broadband access services
generally, the terms under which telecommunications service providers conduct
their business, and the competitive environment among service providers, for
example, could have a negative impact on our business.

OUR LEGACY FILM PRODUCTION BUSINESS

         From 1996 through February 1999, our business focused on the production
and distribution of 3-D films for special venue markets, such as theme parks,
amusement parks, family entertainment centers and casinos. In April 2000, we
entered into a joint venture with Dana Brown, Bruce Brown, and John-Paul Beeghly
to produce a feature length, surfing adventure film for mainstream theatrical
release. The film has the working title "LIQUID" and is being written, produced
and directed by Dana Brown, Bruce Brown and John-Paul Beeghly. LIQUID continues
the tradition of Academy Award-nominated director Bruce Brown's classic surf
documentary film, ENDLESS SUMMER, which is the second highest grossing
documentary film of all time, and Bruce and Dana Brown's mainstream sequel,
ENDLESS SUMMER 2. Bruce Brown is one of our directors. See Item 13 -- "Certain
Relationships and Related Transactions."

         LIQUID features over 50 surfers from around the world. LIQUID features
long-board legends, short-board pros, aerial fanatics, tow-in heroics,
hydro-foil gliders, and supertanker sliders. LIQUID tells tales from local
shores to far away lands -- from Wisconsin to Rapa Nui, Costa Rica to Ireland,
Texas to Hawaii, Vietnam to San Onofre, Western Australia to Tahiti, and Japan
to the Cortez Banks. The film is nearing completion on time and on budget and is
expected to be released in the Summer of 2002.

         Under the terms of our joint venture, we agreed to finance the
production of the film for up to $2,250,000. Upon its release, we will receive
all revenues generated by the film until we recover 100% of our initial
investment. After we recoup our investment in the venture, 50% of the net
profits generated by the film will be paid to us.

OUR EMPLOYEES

         We currently have eight full-time employees and one part-time employee.
We also have five independent contractors engaged in research and development.
We may, from time to time, supplement our regular work force as necessary with
temporary and contract personnel. None of our employees are represented by a
labor union. We believe we have a good relationship with our employees.

A NOTE ABOUT FORWARD-LOOKING STATEMENTS

         This report (including the foregoing "Business" section and the section
below entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations") contains forward-looking statements that involve risks
and uncertainties. You should exercise extreme caution with respect to all
forward looking statements contained in this report. Specifically, the following
statements are forward-looking:

         o    statements regarding our overall strategy for developing and
              deploying our technology, including, without limitation our
              intended markets and future projects;
         o    statements regarding our research and development efforts;
         o    statements regarding the plans and objectives of our management
              for future operations, the production of products incorporating
              our technology and the size and nature of the costs we expect to
              incur and the people and services we may employ;
         o    statements regarding the future of broadband communications and
              opportunities therein, our competition or regulations that may
              affect us;
         o    statements regarding our ability to compete with third parties;
         o    any statements using the words "anticipate," "believe,"
              "estimate," "expect," "intend," and similar words; and
         o    any statements other than historical fact.

                                       7
<PAGE>

        We believe that it is important to communicate our future expectations
to our shareholders. Forward-looking statements reflect the current view of
management with respect to future events and are subject to numerous risks,
uncertainties and assumptions, including, without limitation, the factors listed
in "Risks Associated with Our Business." Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to be correct. Should any
one or more of these or other risks or uncertainties materialize or should any
underlying assumptions prove incorrect, actual results are likely to vary
materially from those described in this report. There can be no assurance that
the projected results will occur, that these judgments or assumptions will prove
correct or that unforeseen developments will not occur.

ITEM 2. PROPERTIES.

         Our corporate headquarters are located at 5920 Friars Road, Suite 104,
San Diego, California. This property is occupied under a five-year lease that
commenced on February 1, 2000. We believe that this space will meet our needs
for at least the next 12 months.

         We also lease space for our wholly-owned subsidiary, NV Technology,
Inc. in Pleasanton, California. This property is located at 1024 Serpentine
Lane, Pleasanton, California and includes 2,251 square feet of research and
development space, which is utilized by our consultants. This property is
occupied under a lease that commenced on May 4, 2001 and which was amended on
September 12, 2001. The lease expires on May 31, 2004. We believe that this
space will meet our needs for at least the next 12 months.

ITEM 3. LEGAL PROCEEDINGS.

         The Company is not currently a party to any pending legal proceedings.

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

         There were no matters submitted to a vote of security holders during
the three months ended October 31, 2001.

                                    PART II

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

         Our common stock is currently traded on the Nasdaq Stock Market's
over-the-counter bulletin board (the "OTC Bulletin Board") under the trading
symbol "NVEI."

         The following table shows the quarterly high and low bid prices and
high and low ask prices for our common stock over the last three fiscal years,
as reported on the OTC Bulletin Board. The prices represent quotations by
dealers without adjustments for retail mark-ups, mark-downs or commission and
may not represent actual transactions. All prices have been adjusted to give
effect to the 1-for-4 reverse stock split we effected in June 2000.

                                       8
<PAGE>

                                                Bid                  Ask
                                                ---                  ---

                                           High       Low       High       Low
                                           ----       ---       ----       ---
November 2000 through October 2001
    First Quarter                        $  7.38    $ 2.25    $  7.63    $ 2.63
    Second Quarter                          6.44      2.34       6.47      2.69
    Third Quarter                           3.62       .97       3.80      1.05
    Fourth Quarter                          1.50       .34       1.64       .38

November 1999 through October 2000
    First Quarter                        $  3.69    $  .63    $  4.00    $  .88
    Second Quarter                         30.88      2.69      31.00      3.25
    Third Quarter                          19.75      5.63      20.13      6.00
    Fourth Quarter                         13.56      6.88      13.69      7.25

November 1998 through October 1999
    First Quarter                        $   .07    $  .03    $   .13    $  .03
    Second Quarter                           .06       .03        .06       .03
    Third Quarter                            .22       .03        .32       .03
    Fourth Quarter                          1.08       .19       1.48       .24

HOLDERS

         As of January 17, 2002 the approximate number of record holders of our
Common Stock was 770, an undetermined number of which represent more than one
individual participant in securities positions with us.

DIVIDENDS

         We have not declared or paid any cash dividends on our capital stock
and do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. Payment of dividends on the common stock is within the
discretion of our Board of Directors. The Board currently intends to retain
future earnings, if any, to finance our business operations and fund the
development and growth of our business. The declaration of dividends in the
future will depend upon our earnings, capital requirements, financial condition,
and other factors deemed relevant by the Board.

RECENT SALES OF UNREGISTERED SECURITIES

         During our past two fiscal years, we sold unregistered securities and
issued unregistered securities in consideration for services rendered and in
connection with acquisitions as described in Note 9 to our audited Consolidated
Financial Statements appearing in this report.

         We have disclosed sales of unregistered securities in our prior filings
with the Commission, including our quarterly reports for fiscal year 2001.
During the fourth quarter of 2001, we issued the following unregistered
securities:

         In August 2001, we issued an aggregate of 221,966 shares of common
stock to eight investors for total proceeds of $166,474.75.

                                       9
<PAGE>

         In September 2001, we issued 25,000 shares of our common stock, valued
at $23,750, to Tribe Communications, as payment for services rendered.

         In October 2001, we issued the following unregistered securities:

         o    an aggregate of 756,384 shares of common stock to thirteen
              investors for total proceeds of $207,250;
         o    100,000 shares to Carl Kruse, valued at $45,000, which were issued
              pursuant to the terms of a consulting agreement with New Visual;
              and
         o    an aggregate of $615,000 principal amount of convertible
              promissory notes to three investors, which notes are convertible
              into our common stock at a conversion price of $0.40 per share,
              and are due and payable upon the receipt by us of certain proceeds
              from our motion picture currently in production.

         In addition, during November 2001, we issued 100,000 shares of common
stock to Rogallo Management, valued at $66,000, as payment for services
rendered. In December 2001, we issued an aggregate of $250,000 principal amount
of convertible promissory notes to three investors, which notes are convertible
into our common stock at a conversion price of $0.40 per share, and are due and
payable upon the receipt by us of certain proceeds from our motion picture
currently in production.

        All transactions described above were deemed to be exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2) of
such Securities Act as transactions by an issuer not involving any public
offering. All of the securities issued in these transactions contained a
restrictive legend to the effect that they could not be sold or transferred
without registration or an applicable exemption.

ITEM 6. SELECTED FINANCIAL DATA.

         The selected consolidated financial data set forth below for the five
years in the period ended October 31, 2001 has been derived from the Company's
audited consolidated financial statements. This information should be read in
conjunction with the audited consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
                                                                 Year Ended October 31,
                                       ----------------------------------------------------------------------------
                                          2001             2000            1999            1998            1997
                                       ------------    ------------    ------------    ------------    ------------
<S>                                    <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Revenues                               $         --    $     12,200    $    129,845    $     16,696    $     61,504
Cost of sales                                    --          21,403          81,159          26,988          20,302
Selling, general and administrative
   expenses                               4,086,795       2,041,942         811,703       1,454,061       3,389,452
Total operating expenses                  9,492,584      12,301,869       2,174,360       3,128,282       5,622,299
Net loss                                (11,875,915)    (12,725,316)     (2,044,515)     (3,111,586)     (5,560,795)
Basic and diluted net loss per share           (.46)           (.59)           (.14)           (.28)           (.92)
Weighted average number of
  common shares outstanding              25,988,990      21,579,916      15,130,000      10,956,750       6,026,500

                                       10
<PAGE>
                                                                 Year Ended October 31,
                                       ----------------------------------------------------------------------------
                                          2001             2000            1999            1998            1997
                                       ------------    ------------    ------------    ------------    ------------

BALANCE SHEET DATA AT PERIOD-END:
Current assets                         $    560,109    $    247,024    $     94,294    $     23,072    $     67,931
Property, plant and equipment, net          284,896         393,787         102,530         163,391         228,768
Projects under development, net           1,912,650         638,707          32,883          60,124       1,515,563
Total assets                              2,791,297       1,432,662         335,264         251,587       1,865,081
Accounts payable and accrued
  expenses                                1,435,024         446,921         420,699         325,430         252,176
Total liabilities                         2,306,910       1,203,807         420,699         610,930         546,676
Total stockholders' equity (deficit)        484,387         228,855         (85,435)       (359,343)      1,318,405
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION.

         The following discussion should be read in conjunction with our
Financial Statements appearing in this report.

RESULTS OF OPERATION

COMPARISON OF THE YEAR ENDED OCTOBER 31, 2001 AND THE YEAR ENDED OCTOBER 31,
2000

         REVENUES. Revenues for the fiscal year ended October 31, 2001 were
$0.00. Revenues for the fiscal year ended October 31, 2000 were approximately
$12,200 due to revenue recognized from our Impact Multimedia, Inc. subsidiary.

         OPERATING EXPENSES. Operating expenses include amortization of project
costs, write down of project costs, compensatory element of stock issuances,
acquired in-process research and development expenses, research and development
expenses, and selling, general and administrative costs. Total operating
expenses decreased to approximately $9,493,000 for fiscal 2001 from $12,302,000
for fiscal 2000. The decrease was principally related to acquired in-process
research and development costs associated with our fiscal 2000 acquisitions of
New Wheel Technology, Inc. and Impact Multimedia, Inc., which together amounted
to $6,050,000 in fiscal 2000. We had no such charge during 2001. This reduction
was offset by increases from 2000 to 2001 in the compensatory element of stock
issuances and selling, general and administrative expenses. Compensatory element
of stock issuances and selling, general and administrative expenses over these
periods increased by approximately $300,000 and $2,045,000, respectively, due
to increases in technology development activities and administrative
infrastructure.

         The acquired in-process research and development costs in fiscal 2000
were associated with the acquisitions of New Wheel Technology and Impact
Multimedia, and represent the value of the common stock issued in connection
with the acquisitions. The acquisition of Impact Multimedia was in exchange for
12,500 shares of common stock valued at $50,000. The acquisition of New Wheel
Technology included 3,000,000 shares of restricted common stock, valued at
$6,000,000.

         OTHER EXPENSES. Other expenses increased from approximately $436,000 in
fiscal 2000 to approximately $2,383,000 in fiscal 2001. The increase was
principally related to amortization of unearned financing costs of approximately
$2,046,000 associated with a financing arrangement. Interest expense increased
from approximately $19,000 in fiscal 2000 to approximately $337,000 in fiscal
2001, resulting primarily from interest obligations associated with convertible
notes payable transactions during fiscal 2001.

                                       11
<PAGE>

COMPARISON OF THE YEAR ENDED OCTOBER 31, 2000 AND THE YEAR ENDED OCTOBER 31,
1999

         REVENUES. Revenues for the fiscal year ended October 31, 2000 were
approximately $12,200, and were derived from our Impact Multimedia, Inc.
subsidiary. Revenues for the fiscal year ended October 31, 1999 were
approximately $130,000, due to revenue from film and video library productions.

         OPERATING EXPENSES. Total operating expenses increased to approximately
$12,301,000 for fiscal 2000, from $2,174,000 for fiscal 1999. The compensatory
element of stock issuances increased from approximately $1,106,000 in fiscal
1999 to $3,259,000 in fiscal 2000. Selling, general and administrative expenses
increased from approximately $812,000 in fiscal 1999 to approximately $2,042,000
in fiscal 2000. Both of these increases resulted from significant increases in
technology development activities and increases in administrative
infrastructure. In fiscal 2000, the Company realized a $6,050,000 charge to
earnings for acquired in-process research and development costs connected with
its acquisition of New Wheel Technology, Inc. Research and development costs
amounted to approximately $815,000 for 2000 as compared to $0.00 in 1999.

         The acquired in-process research and development costs in fiscal 2000
were associated with the acquisitions of New Wheel and Impact Multimedia, and
represent the value of the common stock issued in connection with the
acquisitions. The acquisition of Impact Multimedia was in exchange for 12,500
shares of common stock valued at $50,000. The acquisition of New Wheel included
3,000,000 shares of restricted common stock, valued at $6,000,000.

         OTHER EXPENSES. Other expenses increased from $0.00 in fiscal 1999 to
approximately $436,000 in fiscal 2000. In fiscal 2000 other expenses included
interest expense of approximately $19,000 and amortization of unearned financing
costs of approximately $417,000.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating activities was approximately $5,519,000 in
fiscal 2001, $3,556,000 in fiscal 2000 and $800,000 in fiscal 1999. We had
approximately $295,000 in cash at October 31, 2001.

         Our operations over the last three years have been financed principally
through private sales of common stock, loans and the issuance of convertible
notes. Net proceeds from financing activities amounted to approximately
$5,642,000 in fiscal 2001, $4,071,000 in fiscal 2000 and $863,000 in fiscal
1999. In fiscal 2001 and fiscal 2000, proceeds from the exercise of options and
warrants amounted to $100,000 and $165,000, respectively.

         Stock was issued in payment of expenses amounting to approximately
$3,559,000 in fiscal 2001, $3,259,000 in fiscal 2000 and $1,106,000 in fiscal
1999. In addition, stock valued at $1,000,000 was issued in connection with a
litigation settlement in fiscal 2001.

                                       12
<PAGE>

         In April 2000, we entered into a joint venture production agreement to
produce a feature length film for theatrical distribution. Under the agreement,
we are providing the funding for the production in the amount of $2,250,000 and,
in exchange, will receive a 50% share in all net profits from worldwide
distribution and merchandising. Prior to that division of net profits, we are
entitled to recover funds equal to our initial investment of up to $2,250,000.
As of October 31, 2001, we had funded approximately $1,913,000 of the production
costs towards this project. The film is nearing completion and is expected to be
released in the summer of 2002.

         In October 2001, we raised a total of $615,000 through the issuance of
convertible promissory notes. We agreed to pay the principal and an amount equal
to 50% of the principal if we reach certain milestones from the distribution of
our feature length film currently in production. The promissory notes are
convertible at any time, in whole or in part, into shares of our common stock at
a conversion price of $0.40 per share. In December 2001, we raised an additional
$250,000 through the issuance of convertible notes on these terms.

        In June 2000, we entered into five credit facilities, pursuant to which
we borrowed $756,886. We repaid $500,000 of these borrowings during fiscal 2001.
The remaining principal and interest at 6% per annum will be due in June 2003.

         Research and development expenses related to the operations of our NV
Technology subsidiary totaled $839,000 for fiscal 2001 and $815,000 for 2000.

         Management believes funds on hand and available sources of financing
will enable us to meet our liquidity needs for at least the next three months.
We need to raise additional cash, however, in order to continue to meet our
liquidity needs, satisfy our proposed business plan and expand our operations.
Management is presently investigating potential financing transactions that
management believes can provide additional cash for our operations and be
profitable in both the short and long-term. Management also intends to attempt
to raise funds through private sales of our common stock and borrowings.
Although management believes these efforts will enable us to meet our liquidity
needs in the future, there can be no assurance that these efforts will be
successful.

GOING CONCERN CONSIDERATION

         We have continued losses in each of our years of operation, negative
cash flow and liquidity problems. These conditions raise substantial doubt about
our ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability of reported assets or liabilities should we be unable to continue
as a going concern.

         We have been able to continue based upon our receipt of funds from the
issuance of equity securities and borrowings, and by acquiring assets or paying
expenses by issuing stock. Our continued existence is dependent upon our
continued ability to raise funds through the issuance of our securities or
borrowings, and our ability to acquire assets or satisfy liabilities by the
issuance of stock. Management's plans in this regard are to obtain other debt
and equity financing until profitable operation and positive cash flow are
achieved and maintained. Although management believes, based on the fact that it
raised approximately $8,576,000 through sales of common stock and $1,372,000
from borrowings in the last two fiscal years, that it will be able to secure
suitable additional financing for the company's operations, there can be no
guarantee that such financing will continue to be available on reasonable terms,
or at all.

                                       13
<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board recently issued FASB 139, which
requires that all producers or distributors that own or hold rights to
distribute or exploit films follow the guidance in AICPA Statement of Position
00-2, "Accounting by Producers or Distributors of Films." FASB 139 shall be
effective for financial statements for fiscal years beginning after December 15,
2000.

SOP-002 requires that film costs be capitalized and reported as a separate asset
on the balance sheet. Film costs include all direct negative costs incurred in
the production of a film, as well as allocations of production overhead and
capitalized interest. Direct negative costs include cost of scenario, story,
compensation of cast, directors, producers, writers, extras and staff, cost of
set construction, wardrobe, accessories, sound synchronization, rental of
facilities on location and post production costs. SOP-002 also requires that
film costs be amortized and participation costs accrued, using the
individual-film-forecast-method-computation method, which amortizes or accrues
such costs in the same ratio that the current period actual revenue (numerator)
bears to the estimated remaining unrecognized ultimate revenue as of the
beginning of the fiscal year (denominator).

In addition, SOP-002 also requires that if an event or change in circumstances
indicates that an entity should assess whether the fair value of a film is less
than its unamortized film costs, then an entity should determine the fair value
of the film and write off to the statement of operations the amount by which the
unamortized capital costs exceeds the firm's fair value. The Company expects to
adopt the new standard effective November 1, 2002, and is evaluating the effect
that it may have on its consolidated results of operations and financial
position.

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations,"
which supercedes Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations." SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The provisions of SFAS 141 have been adopted as of
July 1, 2001. The adoption of SFAS 141 has not changed the method of accounting
used in previous business combinations initiated prior to July 1, 2001.

In July 2001, the FASB also issued Statement of Financial Accounting Standards
No. 142 (SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
for fiscal years beginning after December 15, 2001. Certain provisions shall
also be applied to acquisitions initiated subsequent to June 30, 2001. SFAS 142
supercedes APB Opinion No. 17, "Intangible Assets," and requires, among other
things, the discontinuance of amortization related to goodwill and indefinite
lived intangible assets. These assets will then be subject to an impairment test
at least annually. Management's believes that the implementation of this
standard will have no impact on the Company's results of operations and
financial position.

In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supercedes Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and certain provisions of APB Opinion No.
30, "Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 144 requires that long-lived assets to be
disposed of by sale, including discontinued operations, be measured at the lower
of carrying amount or fair value, less cost to sell, whether reported in
continuing operations or in discontinued operations. SFAS 144 also broadens the
reporting requirements of discontinued operations to include all components of
an entity that have operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
The provisions of SFAS 144 are effective for fiscal years beginning after
December 15, 2001. Management believes that the implementation of this standard
will have no impact on the Company's results of operations and financial
position.

                                       14
<PAGE>

RISKS ASSOCIATED WITH OUR BUSINESS

         WE HAVE A LIMITED OPERATING HISTORY IN THE TELECOMMUNICATIONS INDUSTRY.

         We did not begin the telecommunications business conducted through our
NV Technology, Inc. subsidiary until February 2000. Since that time, we have
been engaged principally in completing the development and testing of our
proprietary broadband technology and developing our plan of operation. As a
result, we have a limited operating history as a telecommunications company that
you can use to evaluate our prospects. Our prospects must therefore be
considered in light of the risks, uncertainties, expenses, delays and
difficulties usually associated with a new business.

         WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT.

         Since inception, we have incurred significant operating losses. We
incurred operating losses of $9,493,000, $12,290,000 and $2,044,515 for the
years ending October 31, 2001, 2000 and 1999, respectively. As of October 31,
2001, we had an accumulated deficit of $36,901,000. We cannot assure you that we
will achieve or sustain profitability or that our operating losses will not
increase in the future. If we do achieve profitability, we cannot be certain
that we can sustain or increase profitability on a quarterly or annual basis in
the future. We expect to expend substantial financial resources on research and
development, engineering, manufacturing, marketing, sales and administration as
we continue to develop and begin to deploy our products. These expenditures will
necessarily precede the realization of substantial revenues from sales of our
products, which may result in future operating losses.

         WE WILL NEED ADDITIONAL CAPITAL FINANCING IN THE FUTURE.

         We anticipate that our available sources of financing will be
sufficient to fund our current level of operations and capital requirements for
at least the next three months. Thereafter, implementation of our business plan,
or acceleration of such implementation, is likely to require funds not currently
available to us. We also may be required to seek additional financing in the
future to respond to increased expenses or shortfalls in anticipated revenues,
accelerate product development and deployment, respond to competitive pressures,
develop new or enhanced products, or take advantage of unanticipated acquisition
opportunities. We cannot be certain we will be able to find such additional
financing on reasonable terms, or at all. If we are unable to obtain additional
financing when needed, we could be required to modify our business plan in
accordance with the extent of available financing. We also may not be able to
accelerate the development and deployment of our products, respond to
competitive pressures, develop or enhance our products or take advantage of
unanticipated acquisition opportunities.

         WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR MAY BE
SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS.

         Our success depends significantly on our ability to obtain and maintain
patent, trademark and copyright protection for our intellectual property, to
preserve our trade secrets and to operate without infringing the proprietary
rights of third parties. If we are not adequately protected, our competitors
could use the intellectual property that we have developed to enhance their
products and services, which could harm our business.

                                       15
<PAGE>

         We will rely on patent protection, as well as a combination of
copyright and trademark laws, trade secrets, confidentiality provisions and
other contractual provisions, to protect our proprietary rights, but these legal
means afford only limited protection. Despite any measures taken to protect our
intellectual property, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries may not protect our proprietary
rights as fully as do the laws of the United States. If we litigated to enforce
our rights, it would be expensive, divert management resources and may not be
adequate to protect our intellectual property rights.

         The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of trade
secret, copyright or patent infringement. We may inadvertently infringe a patent
of which we are unaware. In addition, because patent applications can take many
years to issue, there may be a patent application now pending of which we are
unaware that will cause us to be infringing when it is issued in the future.
Although we are not currently involved in any intellectual property litigation,
we may be a party to litigation in the future to protect our intellectual
property or as a result of our alleged infringement of another's intellectual
property, forcing us to do one or more of the following:

         o    Cease selling, incorporating or using products or services that
              incorporate the challenged intellectual property;
         o    Obtain from the holder of the infringed intellectual property
              right a license to sell or use the relevant technology, which
              license may not be available on reasonable terms; or
         o    Redesign those products or services that incorporate such
              technology.

         A successful claim of infringement against us, and our failure to
license the same or similar technology, could adversely effect our business,
asset value or stock value. Infringement claims, with or without merit, would be
expensive to litigate or settle, and would divert management resources.

         OUR MARKET IS HIGHLY COMPETITIVE AND OUR PRODUCTS, TECHNOLOGY AND
BUSINESS MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH OTHER PRODUCTS OR
TECHNOLOGIES.

        The market for high-speed telecommunications products is highly
competitive, and we expect that it will become increasingly competitive in the
future. Our potential competitors possess substantially greater name
recognition, financial, sales and marketing, manufacturing, technical,
personnel, and other resources than we have. We will compete with numerous
companies with well-established reputations in the broadband telecommunications
industry, such as Texas Instruments, Inc. and Infineon Technologies. Although we
believe we will be able to compete based on the special features of our
products, our products incorporate new concepts and may not be successful even
if they are superior to those of our competitors.

         In addition to facing competition from providers of xDSL-based
products, our products will compete with products using other broadband
technologies, such as cable modems, wireless, satellite and fiber optic
telecommunications technology. Commercial acceptance of any one of these
competing solutions could decrease demand for our products.

         THE BROADBAND TELECOMMUNICATIONS INDUSTRY IS UNDERGOING RAPID
TECHNOLOGICAL CHANGES.

                                       16
<PAGE>

         The broadband telecommunications industry is subject to rapid and
significant technological change, including continuing developments in
networking and xDSL technologies, and alternative technologies for providing
high speed data communications such as wireless, satellite, fiber optic and
cable modem technologies. The industry is marked by frequent new product
introductions and technology enhancements, uncertain product life cycles,
changes in client demands and evolving industry standards. As a consequence, our
success will depend on our ability to anticipate or adapt to new technology on a
timely basis. If we fail to adapt successfully to technological changes or
obsolescence or fail to obtain access to important new technologies, our
business, prospects, financial condition and results of operations could be
materially adversely affected.

         WE WILL DEPEND ON OUTSIDE MANUFACTURING SOURCES AND SUPPLIERS.

         Upon completion of our technology, we may contract with third party
manufacturers to produce our products and we will depend on third party
suppliers to obtain the raw materials necessary for the production of our
products. We do not know what type of contracts we will have with such third
party manufacturers and suppliers. In the event we outsource the manufacture of
our products, we will have limited control over the actual production process.
Moreover, difficulties encountered by any one of our third party manufacturers,
which result in product defects, delayed or reduced product shipments, cost
overruns or our inability to fill orders on a timely basis, could have an
adverse impact on our business. Even a short-term disruption in our relationship
with third party manufacturers or suppliers could have a material adverse effect
on our operations. We do not intend to maintain an inventory of sufficient size
to protect ourselves for any significant period of time against supply
interruptions, particularly if we are required to obtain alternative sources of
supply.

        OUR STOCK PRICE MAY BE VOLATILE.

        The market price of our common stock will likely fluctuate significantly
in response to the following factors, some of which are beyond our control:

         o    Variations in our quarterly operating results;
         o    Changes in financial estimates of our revenues and operating
              results by securities analysts;
         o    Changes in market valuations of telecommunications equipment
              companies;
         o    Announcements by us of significant contracts, acquisitions,
              strategic partnerships, joint ventures or capital commitments;
         o    Additions or departures of key personnel;
         o    Future sales of our common stock;
         o    Stock market price and volume fluctuations attributable to
              inconsistent trading volume levels of our stock;
         o    Commencement of or involvement in litigation; and
         o    Announcements by us or our competitors of technological
              innovations or new products.

         In addition, the equity markets have experienced volatility that has
particularly effected the market prices of equity securities issued by high
technology companies and that often has been unrelated or disproportionate to
the operating results of those companies. These broad market fluctuations may
adversely effect the market price of our common stock.

                                       17
<PAGE>

         WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS ON OUR COMMON STOCK.

         We have not paid any dividends on our Common Stock since our inception
and do not anticipate paying any dividends on our Common Stock in the
foreseeable future. Instead, we intend to retain any future earnings for use in
the operation and expansion of our business.

         BECAUSE WE ARE SUBJECT TO SEC REGULATIONS RELATING TO LOW-PRICED
STOCKS, THE MARKET FOR OUR COMMON STOCK COULD BE ADVERSELY EFFECTED.

         The Securities and Exchange Commission has adopted regulations
concerning low-priced (or "penny") stocks. The regulations generally define
"penny stock" to be any equity security that has a market price less than $5.00
per share, subject to certain exceptions. If our shares continue to be offered
at a market price less than $5.00 per share, and do not qualify for any
exemption from the penny stock regulations, our shares will continue to be
subject to these additional regulations relating to low-priced stocks.

         The penny stock regulations require that broker-dealers who recommend
penny stocks to persons other than institutional accredited investors make a
special suitability determination for the purchaser, receive the purchaser's
written agreement to the transaction prior to the sale and provide the purchaser
with risk disclosure documents that identify risks associated with investing in
penny stocks. Furthermore, the broker-dealer must obtain a signed and dated
acknowledgment from the purchaser demonstrating that the purchaser has actually
received the required risk disclosure document before effecting a transaction in
penny stock. These requirements have historically resulted in reducing the level
of trading activity in securities that become subject to the penny stock rules.

         The additional burdens imposed upon broker-dealers by these penny stock
requirements may discourage broker-dealers from effecting transactions in the
common stock, which could severely limit the market liquidity of our common
stock and our shareholders' ability to sell our common stock in the secondary
market.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         We do not currently have any indebtedness or income from foreign
sources that would subject us to market risk. We do not engage in commodity
futures trading or hedging activities and do not participate in derivative
financial instrument transactions for trading or other speculative purposes. In
addition, we do not engage in interest rate swap transactions that could expose
us to market risk. However, to the extent that changes in interest rates and
currency exchange rates affect general economic conditions, we may be affected
by such changes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Our audited Consolidated Financial Statements as of and for the years
ended October 31, 2001 and 2000 are included in this Annual Report on Form 10-K.

                                       18
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

        None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS AND EXECUTIVE OFFICERS

         The individuals who serve as our executive officers and directors are:

NAME                        AGE       POSITION(S) HELD
----                        ---       ----------------
Ray Willenberg, Jr.         50        President, Chief Executive Officer and
                                      Chairman of the Board
C. Rich Wilson III          33        Vice President, Secretary and Director
John Howell                 56        Executive Vice President and Director
Thomas J. Sweeney           51        Chief Financial Officer
Ivan Berkowitz              55        Director(1)
Lilly Beter                 67        Director (1)
Bruce Brown                 64        Director
Celso B. Suarez, Jr.        45        Director (1)
--------------

(1)     Member of the Audit Committee and the Compensation Committee.

         RAY WILLENBERG, JR. Mr. Willenberg has served as our President, Chief
Executive Officer and Chairman of the Board since April 1997, and was elected a
director in October 1996. Mr. Willenberg joined us as Vice President and
Corporate Secretary in 1996. From 1972 to 1995, Mr. Willenberg was Chief
Executive Officer of Mesa Mortgage Company in San Diego, California.

         C. RICH WILSON III. Mr. Wilson has served as Vice President, Secretary
and a member of our Board of Directors since April 2000. He was recently invited
to sit on the City of San Diego's Internet and Technology Committee, which
collaborates with regional technology leaders in the growth of San Diego's
technology sector. From July 1995 until 1999, Mr. Wilson served as an employee
or independent contractor of New Visual, providing marketing, sales and business
development services. Since June 1998, Mr. Wilson has also served as the
President of Impact Pictures, Inc., which we acquired in December of 1999 and
now operates as one of our wholly-owned subsidiaries under the name Impact
Multimedia, Inc. In addition to serving as our Vice President and corporate
Secretary, Mr. Wilson is Vice President of Marketing for our wholly-owned
subsidiary, NV Technology, Inc., where he is responsible for technical research
and marketing, strategic alliances and business development. From March 1993
through July 1995, Mr. Wilson was National Marketing Manager for Spevco, Inc., a
special events marketing firm. Mr. Wilson holds a B.A. in English from the
University of North Carolina at Charlotte.

                                       19
<PAGE>

         JOHN HOWELL. Mr. Howell has served as a member of our Board of
Directors since April 2000 and as our Executive Vice President since July 2000.
Mr. Howell also serves on the Board of Directors of Legends of the Faith, Inc.,
a manufacturer and distributor of Christian gift products. From January 1998
until October 1998, Mr. Howell served as Vice President of TeraGLOBAL
Communications Corp., a manufacturer of hardware for the convergence of voice,
video and data. From 1997 to 1998, Mr. Howell was Chief Executive Officer of
EVERSYS Corporation, a manufacturer of computer equipment. From 1993 to 1996,
Mr. Howell served as Chief Executive Officer of Polar Bear Station No. 1, Inc.,
an operator of sport fishing boats that did business under the name "Paradise
Sport Fishing." Mr. Howell has a B.S. in Aerospace Engineering from Oregon State
University.

         THOMAS J. SWEENEY. Mr. Sweeney has served as our Chief Financial
Officer since April 2001. He holds a B.B.A. in Accounting and a M.B.A. from The
University of Texas at Austin. He is also a Certified Public Accountant licensed
in the state of Texas. Since July of 2000, Mr. Sweeney has been a partner in
Tatum CFO Partners LLP. From November 2000 through March 2001 he served as Chief
Financial Officer of Mitchell International, a provider of data and software for
the insurance and automotive collision repair industries. During 2000, Mr.
Sweeney served as Chief Financial Officer of Edapta, Inc. an Internet startup
company providing personalized graphical user interfaces for special
applications. From February 1994 through 1999, Mr. Sweeney served as Chief
Financial Officer of Coral Biotechnology, Inc., a company that he co-founded,
which manufactures and sells a line of automated diagnostics products to the
clinical laboratory market.

         IVAN BERKOWITZ. Mr. Berkowitz has served as a member of our Board of
Directors since August 2000 and was named Vice Chairman of the Board in June
2001. Since 1993, Mr. Berkowitz has served as the managing general partner of
Steib & Company, a privately held New York-based investment company. Currently,
Mr. Berkowitz serves on the Board of Directors of the following public
companies: ConnectivCorp, a deep content provider that facilitates online
connections between consumers and health-oriented companies and NetCurrents,
Inc., an Internet intelligence company. Since 1989, Mr. Berkowitz has served as
President of Great Court Holdings Corporation, a privately held New York-based
investment company. Mr. Berkowitz holds a B.A. from Brooklyn College, an MBA
from Baruch College, City University of New York, and a Ph.D. in International
Law from Cambridge University. He is Chairman of the Audit Committee and a
member of the Compensation Committee of our Board of Directors.

         LILLY BETER. Ms. Beter has served as a member of our Board of Directors
since May 2000. For at least the five years prior to her retirement in June
1999, Ms. Beter was President of Lilly Beter Capital Group, Ltd., a financial
advisory firm with offices in Washington, D.C., New York, California, Florida,
Minnesota, Illinois, Gibraltar, and the Turks and Caicos Islands (British West
Indies). Ms. Beter is no longer an officer or employee of Lilly Beter Capital
Group, Ltd. and holds no economic interest in the firm. Ms. Beter is a member of
the American League of Lobbyists and the American Arbitration Association. She
is a member of the Audit and Compensation Committees of the Board of Directors
of New Visual. Ms. Beter is also a director of SATX, Inc., an operator of inmate
telephone systems and developer of GPS-based tracking, locating and control
products, and USIP.com, Inc., an owner and operator of privately-owned public
payphones.

         BRUCE BROWN. Mr. Brown has served as a member of our Board of Directors
since June 2000. Over the past 30 years, Mr. Brown has been an independent
director and producer of motion pictures. He was nominated for an Academy Award
in 1971 for directing "On Any Sunday," a motorcycle adventure film starring
Steve McQueen. Mr. Brown has earned worldwide distinction as the director and
producer of the first of its kind documentary, "Endless Summer," which is the
second highest grossing documentary film of all time. Its sequel, "Endless
Summer 2," also directed by Mr. Brown, grossed more than $10 million in its
first year of theatrical distribution. In association with New Visual, Mr. Brown
has begun filming a new surfing adventure film for mainstream theatrical
release. Mr. Brown's other movie credits include "Slippery When Wet," "Surfin'
Shorts," "Surf Crazy," "Surfin' Hollow Days," "Barefoot Adventure" and
"Waterlogged."

                                       20
<PAGE>

         CELSO B. SUAREZ, JR. Mr. Suarez has served as a member of our Board of
Directors since May 2000. Since October 1999, Mr. Suarez has been a practicing
attorney in Houston, Texas. From March 1999 to September 1999, Mr. Suarez was
Assistant General Counsel of OCS, Inc., a manufacturer of waste processing
plants. From January 1997 to March 1999, Mr. Suarez served as Assistant General
Counsel and as a director of ZEROS USA, Inc., a licensor of energy-efficient
waste processing systems and equipment. From 1987 to 1997, Mr. Suarez was
engaged in the private practice of law in Houston, Texas. Mr. Suarez earned his
B.A. in Cultural Anthropology from the University of Houston and a J.D. from
Drake University College of Law. He is Chairman of the Compensation Committee
and a member of the Audit Committee of our Board of Directors. Mr. Suarez is
also a director and secretary of SATX, Inc., an operator of inmate telephone
systems and developer of GPS-based tracking, locating and control products, and
a director of 3eee, Inc., a telecommunications company.

BOARD OF DIRECTORS; ELECTION OF OFFICERS

         All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Any vacancy occurring
in the Board of Directors may be filled by the shareholders, the Board of
Directors, or if the Directors remaining in office constitute fewer than a
quorum of the Board of Directors, they may fill the vacancy by the affirmative
vote of a majority of the Directors remaining in office. A director elected to
fill a vacancy is elected for the unexpired term of his predecessor in office.
Any directorship filled by reason of an increase in the number of directors
shall expire at the next shareholders' meeting in which directors are elected,
unless the vacancy is filled by the shareholders, in which case the term shall
expire on the later of (i) the next meeting of the shareholders or (ii) the term
designated for the director at the time of creation of the position being
filled.

         Our executive officers are elected by and serve at the pleasure of our
Board of Directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires each of our officers and directors and each person who owns more than
10% of a registered class of our equity securities to file with the Securities
and Exchange Commission (the "SEC") an initial report of ownership and
subsequent reports of changes in such ownership. Such persons are further
required by SEC regulation to furnish us with copies of all Section 16(a) forms
(including Forms 3, 4 and 5) that they file. Based solely on our review of the
copies of such forms received by us with respect to fiscal year 2001, or written
representations from certain reporting persons, we believe the following persons
filed late Form 5's for fiscal year 2001: Ivan Berkowitz, Lilly Beter, Bruce
Brown, Celso B. Suarez, Jr., C. Rich Wilson III and Ray Willenberg, Jr. Each of
these late Form 5's reported a single transaction, with the exception of Mr.
Berkowitz's Form 5, which reported two transactions. In addition, Thomas J.
Sweeney, who joined us as Chief Financial Officer in April of 2001, filed a late
Form 3. Finally, John Howell filed a Form 4 during fiscal year 2001 reporting
six transactions, one of which should have been reported earlier.

                                       21
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

         For services rendered during the fiscal year ended October 31, 2001,
four executive officers received cash compensation in excess of $100,000. The
following table sets forth information regarding all annual cash compensation
paid to such individuals, including our Chief Executive Officer, for the fiscal
years ended October 31, 1999, 2000 and 2001.
<TABLE>

                               SUMMARY COMPENSATION TABLE
<CAPTION>
                                                                             SECURITIES
                                                               OTHER ANNUAL  UNDERLYING
NAME AND PRINCIPAL POSITION(S)   YEAR      SALARY       BONUS  COMPENSATION  OPTIONS (#)
------------------------------   ----      ------       -----  ------------  -----------
<S>                               <C>    <C>        <C>        <C>             <C>
Ray Willenberg, Jr.,              2001   $229,167   $     --   $     --        20,000
Chairman of the Board,            2000    190,417         --    112,500(1)    750,000
  Chief Executive Officer,        1999     62,500         --    127,500(2)         --
  and President

C. Rich Wilson III                2001    149,580         --         --        20,000
  Vice President, Secretary and   2000     62,500         --         --       125,000
  Director                        1999         --         --         --            --

Allan Blevins (3)                 2001    156,575         --         --            --
Chief Operating Officer           2000    148,933     12,500         --            --
                                  1999         --         --         --            --

Michael Shepperd (4)              2001    156,575         --         --            --
Chief Technology Officer          2000    148,933     12,500         --            --
                                  1999         --         --         --            --
</TABLE>

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

(1)    Represents the issuance to Mr. Willenberg in November 1999 of 562,500
       shares of common stock valued at $0.20 per share.
(2)    Represents the issuance to Mr. Willenberg of 796,875 shares of common
       stock valued at $0.16 per share.
(3)    Mr. Blevins' employment with us began in February 2000 and ended in
       August 2001.
(4)    Mr. Shepperd's employment with us began in February 2000 and ended in
       August 2001.

         In accordance with the rules of the SEC, other compensation in the form
of perquisites and other personal benefits has been omitted for the named
executive officers because the aggregate amount of these perquisites and other
personal benefits was less than the lesser of $50,000 or 10% of annual salary
and bonuses for the named executive officers.

         STOCK OPTIONS GRANTED DURING THE YEAR ENDED OCTOBER 31, 2001. Ray
Willenberg, Jr. and C. Rich Wilson III were each granted stock options to
purchase 20,000 shares of our common stock at an exercise price of $3.92 per
share. Of the options granted to Mssrs. Willenberg and Wilson, 12,500 vested
immediately and the remainder vest annually over three years in installments of
2,500 shares. The options expire on March 5, 2011. The shares underlying the
stock options are registered under our 2000 Omnibus Securities Plan. The
following table sets forth information with respect to the stock options granted
in the last fiscal year to the persons set forth in the Summary Compensation
Table (the "named executive officers").

                                       22
<PAGE>
<TABLE>

                             OPTION GRANTS IN THE LAST FISCAL YEAR
<CAPTION>

                         NUMBER OF
                         SECURITIES   PERCENT OF TOTAL
                         UNDERLYING  OPTIONS GRANTED TO    EXERCISE OR             GRANT DATE
                          OPTIONS        EMPLOYEES IN      BASE PRICE   EXPIRATION   PRESENT
NAME                     GRANTED (#)      FISCAL YEAR       ($/SHARE)      DATE      VALUE(1)
----                     -----------      -----------       ---------      ----      --------

<S>                        <C>               <C>            <C>           <C> <C>    <C>
Ray Willenberg, Jr         20,000            21.97%         $   3.92      3/5/11     $75,600
C. Rich Wilson III         20,000            21.97%         $   3.92      3/5/11      75,600
Allan Blevins                  --               --                --       --             --
Michael Shepperd               --               --                --       --             --
</TABLE>



(1)    In accordance with the Securities and Exchange Commission Rules, the
       Black-Scholes option pricing model was chosen to estimate the grant date
       present value of the options set forth in this table. New Visual's use of
       this model should not be construed as an endorsement of its accuracy at
       valuing options. All stock option valuation models, including the
       Black-Scholes model, require a prediction about the future movement of
       the stock price. The following assumptions were made for purposes of
       calculating the grant date present value for the options granted:
       expected life of this option of three years, volatility at 33.0%,
       dividend yield of 0.0% and discount rate of 5.5%.

         YEAR-END OPTION VALUES. The named executive officers did not exercise
any stock options during the year ended October 31, 2001. The following table
sets forth information concerning the value of unexercised options as of October
31, 2001 held by the named executive officers.
<TABLE>

                                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                        AND FISCAL YEAR-END OPTION VALUES
<CAPTION>

                                                       NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                                                      UNDERLYING UNEXERCISED               IN-THE-MONEY
                                                       OPTIONS AT FY-END (#)            OPTIONS AT FY-END
                                                    ----------------------------    ---------------------------
                    ACQUIRED ON       VALUE
NAME                 EXERCISE (#)   REALIZED ($)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERISABLE
----                 ------------   ------------    -----------    -------------    -----------    ------------
<S>                      <C>            <C>           <C>             <C>               <C>             <C>
Ray Willenberg, Jr.      --             --            387,500         382,500           $0              $0
C. Rich Wilson III       --             --             75,000          70,000            0               0
Allan Blevins            --             --               --              --             --              --
Michael Shepperd         --             --               --              --             --              --
</TABLE>

COMPENSATION OF DIRECTORS

         Each outside director is paid $2,000 for each meeting of our Board of
Directors attended and for each committee meeting attended. In addition, we have
granted stock and stock options to the directors to compensate them for their
services. Our directors are eligible to receive stock option grants under our
2000 Omnibus Securities Plan and our 2001 Stock Incentive Plan. During fiscal
2001, we granted 10,000 options to acquire common stock under our 2000 Omnibus
Securities Plan to each of Lilly Beter, Bruce Brown and Celso B. Suarez, Jr. for
their services as directors. All of the options, which have an exercise price of
$3.92, vested immediately. We also granted 20,000 options to acquire common

                                       23
<PAGE>

stock under our 2000 Omnibus Securities Plan to each of Ray Willenberg, Jr., C.
Rich Wilson III and John Howell for their respective services as directors. Of
the options granted to Messrs. Willenberg and Wilson, 12,500 vested immediately
and the remainder vest annually over three years in installments of 2,500
shares. Of the options granted to Mr. Howell, 5,000 vested immediately and the
remainder vest annually over three years in installments of 5,000 shares. These
options also have an exercise price of $3.92. Lastly, in consideration for his
services to the Board, we issued to Ivan Berkowitz 260,000 options to acquire
shares of common stock under our 2000 Omnibus Securities Plan and granted to Mr.
Berkowitz 500,000 unregistered shares of our common stock. Mr. Berkowitz's
options have an exercise price of $3.92 and were fully vested on the date of
grant. Mr. Berkowitz also receives $2,000 per week for his service as our Vice
Chairman. All of the options granted during 2001 to our directors expire on
March 5, 2011. We reimburse our directors for reasonable expenses incurred in
traveling to and from board meetings (or a committee thereof).

EMPLOYMENT AGREEMENT WITH RAY WILLENBERG, JR.

         On February 11, 2000, we entered into an employment agreement with Ray
Willenberg, Jr. to serve as our Chief Executive Officer. The agreement became
effective April 1, 2000, is effective through April 1, 2003, and will
automatically renew for successive one-year periods unless either Mr. Willenberg
or New Visual gives written notice of termination at least 60 days prior to the
expiration date of the agreement. Under the agreement, Mr. Willenberg receives a
base salary of $250,000 per year plus an annual increase of $50,000 effective
each April 1st. Mr. Willenberg agreed to forego this increase in 2001. Mr.
Willenberg is also eligible to receive other salary increases and bonus awards
at the discretion of the board.

         Mr. Willenberg may be terminated by us at any time for "cause," as
defined in the agreement. In the event Mr. Willenberg is terminated "without
cause" or leaves New Visual for "good reason," each as defined in the agreement,
then Mr. Willenberg will receive a severance payment equal to his salary for the
lesser of the remainder of his term of employment or two years.

         If Mr. Willenberg is terminated without cause or with good reason
within one year after a "change of control," as defined in the agreement, then
Mr. Willenberg will receive a severance payment equal to two times the sum of
his salary in effect at the time of his termination plus any annual bonus he
would have received for such period.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         There are no compensation committee interlocks between the members of
our Compensation Committee and any other entity. At present, Lilly Beter, Celso
B. Suarez, Jr. and Ivan Berkowitz are the members of the Compensation Committee.
None of the members of the Board's Compensation Committee (a) was an officer or
employee of ours or any of our subsidiaries during the last fiscal year; (b) was
formerly an officer of ours or any of our subsidiaries; or (c) had any
relationship with us or any of our subsidiaries requiring disclosure under Item
404 of Regulation S-K.

                                       24
<PAGE>

COMPENSATION COMMITTEE REPORT

         The Compensation Committee of the Board of Directors consists of Lilly
Beter, Ivan Berkowitz and Celso B. Suarez, Jr., none of whom are employees or
officers of New Visual. Mr. Suarez serves as the Committee's Chairman. The
Committee sets the policy and administers New Visual's cash and equity incentive
programs for the purpose of attracting and retaining skilled executives who will
promote New Visual's business goals and build stockholder value. The Committee
is also responsible for reviewing and making recommendations to the Board
regarding all forms of compensation to be provided to the Company's named
executive officers, including stock compensation and bonuses.

COMPENSATION PHILOSOPHY AND POLICIES

        The policy of the Committee is to attract and retain key personnel
through the payment of competitive base salaries and to encourage and reward
performance through bonuses and stock ownership. The Committee's objectives are
to ensure that:

         o    there is an appropriate relationship between executive
              compensation and the creation of stockholder value;

         o    the total compensation program will motivate, retain and attract
              quality executives; and

         o    current cash and equity incentives are competitive with comparable
              companies.

         ELEMENTS OF COMPENSATION

         Compensation for officers and key executives includes:

         o    Annual cash compensation in the form of base salary;

         o    Discretionary bonuses;

         o    Equity elements through the issuance of stock and stock options;
              and

         o    Employee benefits, such as health insurance.

         Salary and Bonus
         ----------------

         Cash compensation consists of base salary, which is determined based
upon the level of responsibility, expertise and experience of the executive and
the competitive conditions of the industry.

         Equity Elements
         ---------------

         Ownership of New Visual's common stock is a key element of executive
compensation. The Committee believes that a significant portion of executive
compensation should be dependent upon the value created for the stockholders.
Officers and other employees of New Visual are eligible to participate in the
Company's 2000 Omnibus Securities Plan, as well as its 2001 Stock Incentive
Plan. These plans allow the Board or the Committee to grant stock options to
employees on such terms as the Board or the Committee may determine. In
addition, employees may be granted stock awards or stock options outside of
these plans. In fiscal year 2001, the Board of Directors granted a total of
60,000 options to key executives of the Company with an exercise price of $3.92,
the fair market value of our common stock on the grant date.

                                       25
<PAGE>

         Benefits
         --------

         Executive officers also receive benefits generally available to all
employees of the Company (such as health insurance). Our executive officers
receive only the benefits that are available to all of New Visual's employees.

2001 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER

         The Company's Chief Executive Officer, Ray Willenberg, Jr., entered
into an employment agreement with the Company in 2000, which provides for a base
salary of $250,000 in 2000, and annual increases to this base of $50,000 per
year. Mr. Willenberg's employment agreement also provides that the Board of
Directors may grant to Mr. Willenberg a bonus for each year of his employment
under the employment agreement. In light of the Company's financial condition
and results of operations, the Committee determined not to grant cash bonuses to
any of the named executive officers, including Mr. Willenberg, for 2001, and
asked Mr. Willenberg to forego the $50,000 annual pay increase provided for in
his employment agreement. Mr. Willenberg agreed to forego his pay increase for
2001. Options to purchase 20,000 shares of our common stock were granted to Mr.
Willenberg by the entire Board of Directors in March 2001 with an exercise price
of $3.92 per share, which represented the market price of the Company's common
stock on the date of grant.

Lilly Beter              Ivan Berkowitz           Celso B. Suarez, Jr., Chairman

STOCK PERFORMANCE GRAPH

         The graph below compares the cumulative total shareholder return on New
Visual Entertainment's common stock for the period commencing on October 31,
1997 through October 31, 2001 with the cumulative total return of the S&P Small
Cap 600 Index, the Russell 2000 Index, and the Wilshire 5000 Index over the same
time period. Assuming that the value of the investment in our common stock and
each index was $100 on October 31, 1997, and that all dividends were reinvested,
the graph compares our cumulative total return with each of these referent
indices plotted on an annual basis.).

                                           Cumulative Total Return
                            ----------------------------------------------------
                                10/31/97  10/31/98  10/31/99  10/31/00  10/31/01
          NVEI                    100        24       258       798        57
          S&P SMALL CAP 600       100        88        98       122       113
          WILSHIRE 5000           100       113       156       150       111
          RUSSELL 2000            100        84       109       126        92


                                       26
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth information, as of January 17, 2002
concerning all persons known by us to own beneficially more than 5% of our
common stock and concerning shares beneficially owned by each director and
executive officer and by all directors and executive officers as a group. Unless
expressly indicated otherwise, each stockholder exercises sole voting and
investment power with respect to the shares beneficially owned. The address for
each of our executive officers and directors is 5920 Friars Road, Suite 104, San
Diego, CA 92108.

         In accordance with the rules of the SEC, the table gives effect to the
shares of common stock that could be issued upon the exercise of outstanding
options and common stock purchase warrants within 60 days of January 17, 2002.
Unless otherwise noted in the footnotes to the table and subject to community
property laws where applicable, the following individuals have sole voting and
investment control with respect to the shares beneficially owned by them. The
address of each executive officer and director is c/o New Visual Corporation,
5920 Friars Road, Suite 104, San Diego, California 92108. We have calculated the
percentages of shares beneficially owned based on 31,395,789 shares of common
stock outstanding at January 17, 2002.

                                                SHARES BENEFICIALLY OWNED (1)
                                          --------------------------------------
          PERSON OR GROUP                      NUMBER            PERCENT (2)
---------------------------------------   -----------------   ------------------
Ray Willenberg, Jr. ...................      1,975,780 (3)          6.18%
C. Rich Wilson III ....................        170,150 (4)             *
Lilly Beter ...........................         10,000 (5)             *
John Howell ...........................        172,650 (6)             *
Celso B. Suarez, Jr. ..................         22,500 (7)             *
Bruce Brown ...........................         25,250 (8)             *
Ivan Berkowitz ........................        910,000 (9)          2.86%
Allan Blevins .........................      1,500,000 (10)         4.78%
Michael Shepperd ......................      1,500,000 (11)         4.78%
All named executive officers and
  directors as a group (9 persons) ....      6,299,305 (12)        19.28%
Advisor Associates, Inc. .............       2,000,000 (13)         5.99%
----------------
*      Less than 1%.
(1)    Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
       ownership of any securities as to which such person, directly or
       indirectly, through any contract, arrangement, undertaking, relationship
       or otherwise has or shares voting power and/or investment power or as to
       which such person has the right to acquire such voting and/or investment
       power within 60 days.
(2)    Percentage of beneficial ownership as to any person as of a particular
       date is calculated by dividing the number of shares beneficially owned by
       such person by the sum of the number of shares outstanding as of such
       date and the number of unissued shares as to which such person has the
       right to acquire voting and/or investment power within 60 days. The
       number of shares shown includes outstanding shares of common stock owned
       as of January 17, 2002 by the person indicated and shares underlying
       options owned by such person on January 17, 2002 that were exercisable
       within 60 days of that date. Our total issued and outstanding stock as of
       January 17, 2002 was 31,395,789 shares.
(3)    Includes options to purchase 577,500 shares of common stock.
(4)    Includes options to purchase 108,750 shares of common stock.
(5)    Includes options to purchase 10,000 shares of common stock.
(6)    Includes options to purchase 152,500 shares of common stock.
(7)    Includes options to purchase 10,000 shares of common stock.
(8)    Includes options to purchase 10,000 shares of common stock.
(9)    Includes options to purchase 410,000 shares of common stock
(10)   Mr. Blevins' address is 1207 Soda Canyon Road, Napa, CA 94558.
(11)   Mr. Shepperd's address is 624 Oriole Ave, Livermore, CA 94550.
(12)   Includes options to purchase 1,278,750 shares of common stock.
(13)   The address of Advisor Associates, Inc. is 1575 45th Street, Brooklyn, NY
       11219. Includes warrants to purchase 2,000,000 shares of common stock.

                                       27
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         OPTION AND STOCK GRANTS TO DIRECTORS. On March 5, 2001, we issued to
our directors options to acquire an aggregate of 350,000 shares of our common
stock at an exercise price of $3.92. The options were all granted under our 2000
Omnibus Securities Plan. In June 2001, we granted our current Vice Chairman,
Ivan Berkowitz, 500,000 restricted shares of our common stock. See Item 11
"Compensation of Directors."

         JOHN HOWELL. In January 2002, we entered into an employment agreement
with John Howell to serve as our Executive Vice President. The agreement became
effective January 1, 2002 and is for a one year term. Under the agreement, Mr.
Howell receives an annual base salary of $125,000 per year.

         In September 2001 and January 2002, we issued promissory notes to Mr.
Howell (the "Howell Notes"), whereby Mr. Howell agreed to pay us a total of
$160,214.72. The Howell Notes are payable on demand; however, pursuant to the
terms of Mr. Howell's employment agreement, as an annual bonus, one-fourth of
the principal and accrued interest owed on the Howell Notes will be forgiven on
each anniversary of Mr. Howell's employment under the employment agreement.
Pursuant to the employment agreement, Mr. Howell may be terminated by us at any
time for "cause," as defined in the agreement. In the event Mr. Howell is
terminated for "cause," leaves for "good reason," or is terminated as a result
of a "Change in Control," each as defined in the agreement, any amounts owed by
Mr. Howell under the Howell Note will be forgiven by New Visual. In the event
Mr. Howell is terminated or leaves our employment for any other reason, the
Howell Note will be due and payable in full, upon demand.


                                    PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.

(a)     Exhibits
        --------

Exhibit No.                   Description

2.1    Agreement and Plan of Merger by and among New Visual Entertainment, Inc.,
       Astounding Acquisition Corp. and Allan Blevins, Michael Shepperd and New
       Wheel Technology, Inc. (incorporated by reference to Exhibit 2.1 of the
       Company's Current Report on Form 8-K filed with the Securities and
       Exchange Commission (the "Commission") on February 14, 2000).

3.1    Restated Articles of Incorporation (incorporated by reference to Exhibit
       3.1 of the Company's Annual Report on Form 10-KSB/A for the fiscal year
       ended October 31, 1999 (the "1999 10- KSB/A").

3.2    Articles of Amendment to the Articles of Incorporation of New Visual
       Entertainment, Inc. (incorporated by reference to Exhibit 3.1 of the
       Company's Report on Form 10-Q for the period ended July 31, 2001).

3.3    Bylaws, as amended.*

4.1    Specimen Stock Certificate (incorporated by reference to Exhibit 3.1 of
       the 1999 10-KSB/A).

                                       28
<PAGE>

4.2    Rights Agreement by and between New Visual Entertainment, Inc. and First
       Union National Bank, dated August 9, 2000 (incorporated by reference to
       Exhibit 4.2 of the 1999 10-KSB/A).

10.1   Employment Agreement by and between New Visual Entertainment, Inc. and
       Ray Willenberg, Jr. dated February 11, 2000 (incorporated by reference to
       Exhibit 10.3 of the Company's 2000 10- KSB).

10.2   Agreement to Produce Film, dated April 9, 2000 between New Visual
       Entertainment, Inc., Bruce Brown, Dana Brown and John-Paul Beeghly
       (incorporated by reference to Exhibit 10.2 of the Company's Annual Report
       on Form 10-KSB for the period ended October 31, 2000 (the "2000
       10-KSB")).

10.3   2000 Omnibus Securities Plan of New Visual Entertainment, Inc.
       (incorporated by reference to Appendix A of the Company's definitive
       Proxy Statement filed with the Commission on May 2, 2000).

10.4   Client Services Agreement by and between New Visual Entertainment, Inc.
       and Continental Capital & Equity Corporation, dated June 7, 2000
       (incorporated by reference to Exhibit 10.1 of the July 2000 10-QSB).

10.5   Form of Credit Agreement dated June 29, 2000 by the Company and each of
       the following trusts: Epics Events Trust, Ltd.; Exodus Systems Trust,
       Ltd.; Prospect Development Trust, Ltd.; Pearl Street Investments Trust,
       Ltd.; and Riviera Bay Holdings Trust, Ltd. (incorporated by reference to
       Exhibit 10.3 of the Company's Report on Form 10-Q for the period ended
       July 31, 2000 (the "July 2000 10-QSB").

10.6   Form of Amendment to Credit Agreement dated November 13, 2000 by New
       Visual Entertainment, Inc. and each of the following trusts: Epic Events
       Trust, Ltd.; Exodus Systems Trust, Ltd.; Prospect Development Trust,
       Ltd.; Pearl Street Investments Trust, Ltd.; and Riviera Bay Holdings
       Trust (incorporated by reference to Exhibit 10.9 of the Company's 2000
       10-KSB).

10.7   Securities Purchase Agreement dated November 17, 2000 by and among New
       Visual Entertainment, Inc., Lilly Beter Capital Group, Ltd.,
       International Caribbean Trust Limited, Cutting Edge Trust Limited, Wind &
       Sea Trust Limited, Montgomery Landing Trust Limited, Quail Run Trust
       Limited, and Tru Color Trust Limited (incorporated by reference to
       Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
       Commission on November 27, 2000).

10.8   First Amendment to Securities Purchase Agreement dated January 22, 2001
       by and among New Visual Entertainment, Inc., Lilly Beter Capital Group,
       Ltd., International Caribbean Trust Limited, Cutting Edge Trust Limited,
       Wind & Sea Trust Limited, Montgomery Landing Trust Limited, Quail Run
       Trust Limited, and Tru Color Trust Limited. (incorporated by reference to
       Exhibit 10.11 of the Company's 2000 10-KSB).

10.9   Consulting Agreement dated as of March 6, 2001, by and between New Visual
       Entertainment, Inc. and Strategica Services Corporation.*

10.10  Consulting Agreement dated as of May 1, 2001, by and between New Visual
       Entertainment, Inc. and Advisor Associates Inc. (incorporated by
       reference to the Company's Report on Form 10-Q for the period ended April
       30, 2001).

10.11  Office Building Lease dated May 4, 2001, by and between Valley Park
       Associates LLC and New Wheel Technology, Inc., a subsidiary of New Visual
       Entertainment, Inc.*

10.12  2001 Stock Incentive Plan for New Visual Corporation (incorporated by
       reference to Exhibit 4.1 of the Company's Registration Statement on Form
       S-8 (No. 333-68716), as filed with the Commission on August 30, 2001).

10.13  Consulting Agreement dated August 30, 2001, by and between New Visual
       Corporation and Jack Burstein.*

                                       29
<PAGE>

10.14  Stock Option Agreement dated August 30, 2001, by and between New Visual
       Corporation and Jack Burstein.*

10.15  Promissory Note dated September 6, 2001 by John Howell in favor of New
       Visual Corporation.*

10.16  First Amendment to Office Building Lease dated September 12, 2001, by and
       between Valley Park Associates, LLC and New Wheel Technology, Inc., a
       subsidiary of New Visual Entertainment, Inc.*

10.17  Technology Planning and Assistance Agreement dated September 28, 2001, by
       and between New Visual Corporation and Adaptive Networks, Inc.*

10.18  Convertible Promissory Note dated October 10, 2001 by New Visual
       Corporation in favor of Nellie Streeter Crane, Ltd.*

10.19  Convertible Promissory Note dated October 15, 2001 by New Visual
       Corporation in favor of Quail Run Trust Limited.*

10.20  Convertible Promissory Note dated October 23, 2001 by New Visual
       Corporation in favor of Charles R. Cono.*

10.21  Convertible Promissory Note dated December 14, 2001 by New Visual
       Corporation in favor of the Gerald and Judith Handler Living Trust.*

10.22  Convertible Promissory Note dated December 14, 2001 by New Visual
       Corporation in favor of W.P. Lill Jr. Trust dated 12/22/99.*

10.23  Convertible Promissory Note dated December 14, 2001 by New Visual
       Corporation in favor of the Handler Children Trust.*

10.24  Employment Agreement dated as of January 1, 2002 by and between New
       Visual Corporation and John Howell.*


10.25  Promissory Note dated as of January 1, 2002, by John Howell in favor of
       New Visual Corporation.*

21.1   Subsidiaries of the Registrant*

23.1   Consent of Grassi & Co., CPAs, P.C., Independent Auditors*
---------------
*      Filed herewith.

(b)     Reports on Form 8-K
        --------------------

         Form 8-K dated September 28, 2001, was filed pursuant to Item 5 (Other
         Events).


                                       30
<PAGE>

                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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.


Date: January 29, 2002                NEW VISUAL CORPORATION

                                      By: /s/ Ray Willenberg, Jr.
                                         ---------------------------------------
                                         Ray Willenberg, Jr.
                                         President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

      SIGNATURE                              TITLE                                  DATE
      ---------                              -----                                  ----
<S>                           <C>                                               <C>

/s/ Ray Willenberg, Jr.       President, Chief Executive Officer and            January 29, 2002
--------------------------    Chairman of the Board (Principal Executive
Ray Willenberg, Jr.           Officer)


/s/ Thomas J. Sweeney         Chief Financial Officer (Principal Financial      January 29, 2002
--------------------------    Officer and Principal Accounting Officer)
Thomas J. Sweeney


/s/ C. Rich Wilson III        Vice President, Secretary and Director            January 29, 2002
--------------------------
C. Rich Wilson III


/s/ John Howell               Executive Vice President and Director             January 29, 2002
--------------------------
John Howell


/s/ Lilly Beter               Director                                          January 29, 2002
--------------------------
Lilly Beter


                              Director
--------------------------
Ivan Berkowitz


/s/ Bruce Brown               Director                                          January 29, 2002
--------------------------
Bruce Brown


/s/ Celso B. Suarez, Jr.      Director                                          January 29, 2002
--------------------------
Celso B. Suarez, Jr.

</TABLE>


                                       31
<PAGE>

                                 EXHIBIT INDEX
                                 -------------

Exhibit No.                      Description

2.1    Agreement and Plan of Merger by and among New Visual Entertainment, Inc.,
       Astounding Acquisition Corp. and Allan Blevins, Michael Shepperd and New
       Wheel Technology, Inc. (incorporated by reference to Exhibit 2.1 of the
       Company's Current Report on Form 8-K filed with the Securities and
       Exchange Commission (the "Commission") on February 14, 2000).

3.1    Restated Articles of Incorporation (incorporated by reference to Exhibit
       3.1 of the Company's Annual Report on Form 10-KSB/A for the fiscal year
       ended October 31, 1999 (the "1999 10- KSB/A").

3.2    Articles of Amendment to the Articles of Incorporation of New Visual
       Entertainment, Inc. (incorporated by reference to Exhibit 3.1 of the
       Company's Report on Form 10-Q for the period ended July 31, 2001).

3.3    Bylaws, as amended.*

4.1    Specimen Stock Certificate (incorporated by reference to Exhibit 3.1 of
       the 1999 10-KSB/A).

4.2    Rights Agreement by and between New Visual Entertainment, Inc. and First
       Union National Bank, dated August 9, 2000 (incorporated by reference to
       Exhibit 4.2 of the 1999 10-KSB/A).

10.1   Employment Agreement by and between New Visual Entertainment, Inc. and
       Ray Willenberg, Jr. dated February 11, 2000 (incorporated by reference to
       Exhibit 10.3 of the Company's 2000 10- KSB).

10.2   Agreement to Produce Film, dated April 9, 2000 between New Visual
       Entertainment, Inc., Bruce Brown, Dana Brown and John-Paul Beeghly
       (incorporated by reference to Exhibit 10.2 of the Company's Annual Report
       on Form 10-KSB for the period ended October 31, 2000 (the "2000
       10-KSB")).

10.3   2000 Omnibus Securities Plan of New Visual Entertainment, Inc.
       (incorporated by reference to Appendix A of the Company's definitive
       Proxy Statement filed with the Commission on May 2, 2000).

10.4   Client Services Agreement by and between New Visual Entertainment, Inc.
       and Continental Capital & Equity Corporation, dated June 7, 2000
       (incorporated by reference to Exhibit 10.1 of the July 2000 10-QSB).

10.5   Form of Credit Agreement dated June 29, 2000 by the Company and each of
       the following trusts: Epics Events Trust, Ltd.; Exodus Systems Trust,
       Ltd.; Prospect Development Trust, Ltd.; Pearl Street Investments Trust,
       Ltd.; and Riviera Bay Holdings Trust, Ltd. (incorporated by reference to
       Exhibit 10.3 of the Company's Report on Form 10-Q for the period ended
       July 31, 2000 (the "July 2000 10-QSB").

10.6   Form of Amendment to Credit Agreement dated November 13, 2000 by New
       Visual Entertainment, Inc. and each of the following trusts: Epic Events
       Trust, Ltd.; Exodus Systems Trust, Ltd.; Prospect Development Trust,
       Ltd.; Pearl Street Investments Trust, Ltd.; and Riviera Bay Holdings
       Trust (incorporated by reference to Exhibit 10.9 of the Company's 2000
       10-KSB).

10.7   Securities Purchase Agreement dated November 17, 2000 by and among New
       Visual Entertainment, Inc., Lilly Beter Capital Group, Ltd.,
       International Caribbean Trust Limited, Cutting Edge Trust Limited, Wind &
       Sea Trust Limited, Montgomery Landing Trust Limited, Quail Run Trust
       Limited, and Tru Color Trust Limited (incorporated by reference to
       Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
       Commission on November 27, 2000).


<PAGE>

10.8   First Amendment to Securities Purchase Agreement dated January 22, 2001
       by and among New Visual Entertainment, Inc., Lilly Beter Capital Group,
       Ltd., International Caribbean Trust Limited, Cutting Edge Trust Limited,
       Wind & Sea Trust Limited, Montgomery Landing Trust Limited, Quail Run
       Trust Limited, and Tru Color Trust Limited. (incorporated by reference to
       Exhibit 10.11 of the Company's 2000 10-KSB).

10.9   Consulting Agreement dated as of March 6, 2001, by and between New Visual
       Entertainment, Inc. and Strategica Services Corporation.*

10.10  Consulting Agreement dated as of May 1, 2001, by and between New Visual
       Entertainment, Inc. and Advisor Associates Inc. (incorporated by
       reference to the Company's Report on Form 10-Q for the period ended April
       30, 2001).

10.11  Office Building Lease dated May 4, 2001, by and between Valley Park
       Associates LLC and New Wheel Technology, Inc., a subsidiary of New Visual
       Entertainment, Inc.*

10.12  2001 Stock Incentive Plan for New Visual Corporation (incorporated by
       reference to Exhibit 4.1 of the Company's Registration Statement on Form
       S-8 (No. 333-68716), as filed with the Commission on August 30, 2001).

10.13  Consulting Agreement dated August 30, 2001, by and between New Visual
       Corporation and Jack Burstein.*

10.14  Stock Option Agreement dated August 30, 2001, by and between New Visual
       Corporation and Jack Burstein.*

10.15  Promissory Note dated September 6, 2001 by John Howell in favor of New
       Visual Corporation.*

10.16  First Amendment to Office Building Lease dated September 12, 2001, by and
       between Valley Park Associates, LLC and New Wheel Technology, Inc., a
       subsidiary of New Visual Entertainment, Inc.*

10.17  Technology Planning and Assistance Agreement dated September 28, 2001, by
       and between New Visual Corporation and Adaptive Networks, Inc.*

10.18  Convertible Promissory Note dated October 10, 2001 by New Visual
       Corporation in favor of Nellie Streeter Crane, Ltd.*

10.19  Convertible Promissory Note dated October 15, 2001 by New Visual
       Corporation in favor of Quail Run Trust Limited.*

10.20  Convertible Promissory Note dated October 23, 2001 by New Visual
       Corporation in favor of Charles R. Cono.*

10.21  Convertible Promissory Note dated December 14, 2001 by New Visual
       Corporation in favor of the Gerald and Judith Handler Living Trust.*

10.22  Convertible Promissory Note dated December 14, 2001 by New Visual
       Corporation in favor of W.P. Lill Jr. Trust dated 12/22/99.*

10.23  Convertible Promissory Note dated December 14, 2001 by New Visual
       Corporation in favor of the Handler Children Trust.*

10.24  Employment Agreement dated as of January 1, 2002, by and between New
       Visual Corporation and John Howell.*

10.25  Promissory Note dated as of January 1, 2002, by John Howell in favor of
       New Visual Corporation.*

21.1   Subsidiaries of the Registrant*

23.1   Consent of Grassi & Co., CPAs, P.C., Independent Auditors*

---------------
*      Filed herewith.

<PAGE>


                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                       Page Nos.
                                                                       --------

INDEPENDENT AUDITORS' REPORT                                              F-1


CONSOLIDATED BALANCE SHEETS                                               F-2
  At October 31, 2001 and 2000


CONSOLIDATED STATEMENTS OF OPERATIONS                                     F-3
  For the Years Ended October 31, 2001, 2000 and 1999
  For the Period from November 1, 1999 to October 31, 2001


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)           F-4 - 10
  For the Years Ended October 31, 1999, 2000 and 2001


CONSOLIDATED STATEMENTS OF CASH FLOWS                                 F-11 - 12
  For the Years Ended October 31, 2001, 2000 and 1999
  For the Period from November 1, 1999 to October 31, 2001


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            F-13 - 39

<PAGE>


Board of Directors and Stockholders
New Visual Corporation and Subsidiaries


                     INDEPENDENT AUDITORS' REPORT
                     ----------------------------


We have audited the accompanying consolidated balance sheets of New Visual
Corporation and Subsidiaries (formerly New Visual Entertainment, Inc. and
Subsidiaries) (a development stage company commencing November 1, 1999) (the
"Company") as of October 31, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity (deficiency), and cash flows for
the years ended October 31, 2001, 2000 and 1999 and for the period from November
1, 1999 to October 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New Visual
Corporation and Subsidiaries (formerly New Visual Entertainment, Inc. and
Subsidiaries)(a development stage company commencing November 1, 1999) at
October 31, 2001 and 2000 and the results of its operations and its cash flows
for each of the three years ended October 31, 2001, 2000 and 1999 in conformity
with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred net losses of approximately
$11,876,000, $12,725,000 and $2,045,000 during the years ended October 31, 2001,
2000 and 1999, respectively. The Company incurred losses from operations since
inception and, as of October 31, 1999, had an accumulated deficit of $12,300,033
and a deficit accumulated during the development-stage of $24,601,231 as of
October 31, 2001. Those conditions raise substantial doubt about the Company's
ability to continue as a going-concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.






                                                        GRASSI & CO., CPAs, P.C.

New York, New York
January 23, 2002

                                       F-1
<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                     (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                      (A Development-Stage Company Commencing November 1, 1999)

                                       CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                     ASSETS
                                                     ------
                                                                             At October 31,
                                                                    --------------------------------
                                                                        2001                2000
<S>                                                                 <C>                <C>
Current Assets:
  Cash                                                              $    294,802       $    189,234
  Note receivable from related party                                     100,708                  -
  Other receivable from officers                                          70,183             27,563
  Other current assets                                                    94,416             30,227
                                                                    -------------      -------------
      Total Current Assets                                               560,109            247,024

Property and equipment - net of accumulated depreciation                 284,896            393,787
Other assets                                                              33,642            117,200
Film and video library                                                         -             35,944
Projects under development                                             1,912,650            638,707
                                                                    -------------      -------------
     Total Assets                                                   $  2,791,297       $  1,432,662
                                                                    =============      =============

                                    LIABILITIES AND STOCKHOLDERS' EQUITY
                                    ------------------------------------

Current Liabilities:
  Convertible notes payable                                         $    615,000       $          -
  Accounts payable and accrued expenses                                1,435,024            446,921
                                                                    -------------      -------------
     Total Current Liabilities                                         2,050,024            446,921
                                                                    -------------      -------------
Long-term debt                                                           256,886            756,886
                                                                    -------------      -------------
     Total Liabilities                                                 2,306,910          1,203,807
                                                                    -------------      -------------
Commitments, Contingencies and Other Matters


Stockholders' Equity:
  Preferred stock - $0.01 par value; 15,000,000 shares
    authorized; Series A junior participating preferred
    stock; -0- shares issued and outstanding at
    October 31, 2001 and 2000                                                  -                  -
  Common stock - $0.001 par value; 100,000,000 shares
    authorized; 30,003,681 and 24,072,455 shares issued
    and outstanding at October 31, 2001 and 2000,
    respectively                                                          30,003             24,072
  Additional paid-in capital                                          38,478,279         27,813,465
  Subscription receivable                                               (103,500)                 -
  Unearned financing fees                                               (537,380)        (2,583,333)
  Unearned compensation                                                 (481,751)                 -
  Accumulated deficit at October 31, 1999                            (12,300,033)       (12,300,033)
  Deficit accumulated during development stage                       (24,601,231)       (12,725,316)
                                                                    -------------      -------------
     Total Stockholders' Equity                                          484,387            228,855
                                                                    -------------      -------------
     Total Liabilities and Stockholders' Equity                     $  2,791,297       $  1,432,662
                                                                    =============      =============
</TABLE>

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

                                                F-2
<PAGE>
<TABLE>

                                    NEW VISUAL CORPORATION AND SUBSIDIARIES
                          (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                          (A Development-Stage Company Commencing November 1, 1999)

                                     CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
                                                                                             For the Period
                                                                                                  from
                                                   For the Years Ended October 31,           November 1, 1999
                                            ---------------------------------------------           to
                                                2001           2000             1999         October 31, 2001
                                            -------------   -------------    -------------     -------------
                                                                (1)
<S>                                         <C>             <C>              <C>               <C>
REVENUES                                    $     -         $     12,200     $    129,845      $     12,200
                                            -------------   -------------    -------------     -------------
OPERATING EXPENSES:
  Cost of sales                                   -               21,403           81,159            21,403
  Projects written off                            -              114,613          175,000           114,613
  Research and development                       839,402         815,362           -              1,654,764
  Acquired in-process research
    and development                               -            6,050,000           -              6,050,000
  Compensatory element of stock
    issuances for selling,
    general and administrative
    expenses                                   3,558,887       3,258,549        1,106,498         6,817,436
  Selling, general and
    administrative expenses                    4,086,795       2,041,942          811,703         6,128,737
  Litigation settlement                        1,000,000          -                -              1,000,000
  Loss on disposal of equipment                    7,500          -                -                  7,500
                                            -------------   -------------    -------------     -------------
    TOTAL OPERATING EXPENSES                   9,492,584      12,301,869        2,174,360        21,794,453
                                            -------------   -------------    -------------     -------------
OPERATING LOSS                                (9,492,584)    (12,289,669)      (2,044,515)      (21,782,253)
                                            -------------   -------------    -------------     -------------
OTHER EXPENSES:
  Interest expense                               337,378         18,980            -                356,358
  Amortization of unearned
    financing costs                            2,045,953         416,667           -              2,462,620
                                            -------------   -------------    -------------     -------------
    TOTAL OTHER EXPENSES                       2,383,331         435,647           -              2,818,978
                                            -------------   -------------    -------------     -------------
NET LOSS                                    $(11,875,915)   $(12,725,316)    $ (2,044,515)     $(24,601,231)
                                            =============   =============    =============     =============

BASIC AND DILUTED NET LOSS PER
  COMMON SHARE                              $       (.46)   $       (.59)    $       (.14)
                                            =============   =============    =============

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING                          25,988,990      21,579,916       15,130,000
                                            =============   =============    =============

</TABLE>

(1) Effective November 1, 1999, the Company became a development stage company
(Note 1).


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

                                                     F-3
<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                     (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                     (A Development-Stage Company Commencing November 1, 1999)

                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                          FOR THE YEARS ENDED OCTOBER 31, 1999, 2000 AND 2001
<CAPTION>

                                                               Common Stock             Additional
                                                         ---------------------------      Paid-in
                                                           Shares          Amount         Capital
                                                         -----------     -----------    ------------
                                                            (1)
<S>                                                      <C>             <C>            <C>
Balance - October 31, 1998                               12,966,532      $   12,966     $ 9,883,209

Issuance of common stock for services:
  ($.16 per share at December 1998)                          25,000              25           3,975
  ($.16 per share at July 1999)                             625,000             625          99,375
  ($.20 - $4.00 per share at August 1999)                   574,161             574         123,112
  ($1.40 - $2.00 per share at September 1999)               433,817             434         609,628
Issuance of common stock for cash
  (November 1, 1998 - October 31, 1999)                   1,849,592           1,850         861,200
Issuance of common stock for compensation and directors
  fees and consulting
  ($1.00 per share at August 1999)                           93,750              94          93,656
  ($1.40 per share at September 1999)                       125,000             125         174,875
Issuance of common stock in settlement of debt
  ($.20 per share at December 1998)                         250,000             250          49,750
  ($1.12 - $1.40 per share at August 1999)                  182,322             182         207,068
  ($.48 - $2.00 per share at September 1999)                 98,875              99          91,526
Net loss                                                      -               -              -
                                                         -----------     -----------    ------------
Balance - October 31, 1999                               17,224,049      $   17,224     $12,197,374
                                                         ===========     ===========    ============
</TABLE>

(1) Share amounts have been restated to reflect the 1-for-4 reverse stock-split
effected on June 22, 2000.


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

                                                 F-4
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

               FOR THE YEARS ENDED OCTOBER 31, 1999, 2000 AND 2001


                                                                      Total
                                                  Accumulated      Stockholders'
                                                    Deficit           Equity
                                                 -------------     ------------

Balance - October 31, 1998                       $(10,255,518)     $  (359,343)

Issuance of common stock for services:
  ($.16 per share at December 1998)                    -                 4,000
  ($.16 per share at July 1999)                        -               100,000
  ($.20 - $4.00 per share at August 1999)              -               123,686
  ($1.40 - $2.00 per share at September 1999)          -               610,062
Issuance of common stock for cash
  (November 1, 1998 - October 31, 1999)                -               863,050
Issuance of common stock for compensation and
  directors fees and consulting
  ($1.00 per share at August 1999)                     -                93,750
  ($1.40 per share at September 1999)                  -               175,000
Issuance of common stock in settlement of debt
  ($.20 per share at December 1998)                    -                50,000
  ($1.12 - $1.40 per share at August 1999)             -               207,250
  ($.48 - $2.00 per share at September 1999)           -                91,625
Net loss                                           (2,044,515)      (2,044,515)
                                                 -------------     ------------
Balance - October 31, 1999                       $(12,300,033)     $   (85,435)
                                                 =============     ============


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

                                      F-5
<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                     (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                     (A Development-Stage Company Commencing November 1, 1999)

                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                         FOR THE YEARS ENDED OCTOBER 31, 1999, 2000 AND 2001
<CAPTION>

                                                          Common Stock                Additional
                                                  -------------------------------       Paid-in
                                                     Shares          Amount             Capital
                                                  -------------     -------------    -------------
                                                       (1)
<S>                                                 <C>             <C>              <C>
Balance - October 31, 1999                          17,224,049      $     17,224     $ 12,197,374

Issuance of common stock for cash
  ($1.00 to $4.00 per share for year ended
   October 31)                                         805,994               805        2,733,583
Issuance of common stock for services:
  ($1.00 to $1.40 per share for quarter ended
     January 31)                                        29,765                30           34,020
  ($1.20 to $12.00 per share for quarter ended
     April 30)                                       1,161,065             1,161        1,813,568
  ($3.00 to $7.88 per share for quarter ended
     July 31)                                          109,000               109          619,541
  ($.25 to $12.50 per share for quarter ended
October 31)                                             84,084                84           28,038
Acquisition of Impact Pictures, Inc.
  ($4.00 per share)                                     12,500                13           49,987
Acquisition of New Wheel Technology, Inc.
  ($2.00 per share)                                  3,000,000             3,000        5,997,000
Issuance of common stock under consulting
  agreement ($2.00 per share)                        1,500,000             1,500        2,998,500
Issuances of stock for exercise of warrants
  ($2.40 per share)                                     68,750                69          164,931
Issuance of stock in connection with private
 placement ($5.00 to $5.50 per share)                   77,248                77          414,923
Value assigned to issuance of 200,000 warrants          -                 -               762,000
Amortization of unearned financing costs                -                 -                -
Net loss                                                -                 -                -
                                                  -------------     -------------    -------------
Balance - October 31, 2000                          24,072,455      $     24,072     $ 27,813,465
                                                  =============     =============    =============

</TABLE>

(1) Share amounts have been restated to reflect the 1-for-4 reverse stock split
effected on June 22, 2000.


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

                                                F-6
<PAGE>
<TABLE>
                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                     (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                     (A Development-Stage Company Commencing November 1, 1999)

                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                         FOR THE YEARS ENDED OCTOBER 31, 1999, 2000 AND 2001

<CAPTION>

                                                        Unearned                             Total
                                                        Financing        Accumulated      Stockholders'
                                                          Costs            Deficit           Equity
                                                       -------------     -------------    -------------
<S>                                                    <C>               <C>              <C>
Balance - October 31, 1999                             $     -           $(12,300,033)    $    (85,435)

Issuance of common stock for cash
  ($1.00 to $4.00 per share for the year ended
  October 31)                                                -                 -             2,734,388
Issuance of common stock for services:
  ($1.00 to $1.40 per share for the quarter ended
   January 31)                                               -                 -                34,050
  ($1.20 to $12.00 per share for the quarter ended
   April 30)                                                 -                 -             1,814,729
  ($3.00 to $7.88 per share for the quarter ended
   July 31)                                                  -                 -               619,650
  ($.25 to $12.50 per share for the quarter ended
   October 31)                                               -                 -                28,122
Acquisition of Impact Pictures, Inc.
  ($4.00 per share)                                          -                 -                50,000
Acquisition of New Wheel Technology, Inc.
  ($2.00 per share)                                          -                 -             6,000,000
Issuance of common stock under consulting
  agreement ($2.00 per share)                            (3,000,000)           -                -
Issuances of stock for exercise of warrants
  ($2.40 per share)                                          -                 -               165,000
Issuance of stock in connection with private
  placement ($5.00 to $5.50 per share)                       -                 -               415,000
Value assigned to issuance of 200,000 warrants               -                 -               762,000
Amortization of unearned financing costs                    416,667            -               416,667
Net loss                                                     -            (12,725,316)     (12,725,316)
                                                       -------------     -------------    -------------
Balance - October 31, 2000                             $ (2,583,333)     $(25,025,349)    $    228,855
                                                       =============     =============    =============


Accumulated deficit as of October 31, 1999                               $(12,300,033)

Accumulated deficit during development stage
 (year ended October 31, 2000)                                            (12,725,316)
                                                                         -------------
Total Accumulated Deficit as of October 31, 2000                         $(25,025,349)
                                                                         =============
</TABLE>

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

                                                 F-7
<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                     (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                     (A Development-Stage Company Commencing November 1, 1999)

                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                         FOR THE YEARS ENDED OCTOBER 31, 1999, 2000 AND 2001
<CAPTION>

                                                          Common Stock                Additional
                                                   ---------------------------         Paid-in
                                                     Shares          Amount            Capital
                                                   ----------     -----------        ------------
                                                      (1)
<S>                                                <C>              <C>              <C>
Balance - October 31, 2000                         24,072,455       $   24,072       $ 27,813,465

Issuance of common stock for cash
  ($.25 to $5.00 per share)                         1,212,254            1,212          1,075,763
Issuance of common stock with attached
  warrants ($4.02 per share for quarter ended
  January 31)                                         174,714              175            489,024
Issuance of common stock with attached
  warrants ($5.10 per share for quarter ended
  January 31)                                          30,600               31             85,649
Issuance of common stock with attached
  warrants ($2.80 to $5.10 per share for
  quarter ended April 30)                             104,571              105            292,695
Issuance of common stock in connection with
  Private Placement
    ($4.35 to $5.50 per share for quarter ended
      January 31)                                      32,445               32            151,968
    ($2.60 to $3.37 per share for quarter ended
      April 30)                                       207,307              207            619,793
    ($1.74 to $2.80 per share for quarter ended
      July 31)                                      1,446,355            1,446          2,742,008
Issuance of common stock in connection with
  litigation settlement                               250,000              250            999,750
Issuance of stock to Vice-Chairperson of Board
  of Directors for services ($1.8984 per share
  at June 11)                                         500,000              500            948,700
Issuance of stock under consulting agreement
  ($2.90 to $3.90 per share at July 31)                50,960               51            171,693
Issuance of stock under consulting agreements
  ($.41 to $.95 per share at October 31)            1,175,000            1,175            558,075
Issuance of stock in connection with exercising
  of option ($.27 at September 30)                    750,000              750            199,250
 Value assigned to warrants issued to
  consultants at quarter ended July 31                 -                 -              1,289,250
Value assigned to options issued to consultants
  at August 30                                         -                 -                540,000
Value assigned to warrants issued to
  consultants at quarter ended October 31              -                 -                380,000
Value assigned to options issued to advisory
  board members at quarter ended October 31            -                 -                151,194
Cancellation of common stock issued for cash           (2,980)              (3)           (29,998)
Amortization of unearned financing costs               -                 -                -
Amortization of unearned compensation expenses         -                 -                -
Net loss                                               -                 -                -
                                                   -----------      -----------      -------------
Balance - October 31, 2001                         30,003,681       $   30,003       $ 38,478,279
                                                   ===========      ===========      =============
</TABLE>

(1) Share amounts have been restated to reflect the 1-for-4 reverse stock split
effected on June 22, 2000.


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

                                                F-8
<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                     (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                     (A Development-Stage Company Commencing November 1, 1999)

                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                         FOR THE YEARS ENDED OCTOBER 31, 1999, 2000 AND 2001
<CAPTION>

                                                                          Unearned         Unearned
                                                      Subscription        Financing      Compensation
                                                       Receivable           Costs           Expense
                                                       -----------      -----------       -----------
<S>                                                    <C>              <C>               <C>
Balance - October 31, 2000                             $    -           $ (2,583,333)     $    -

Issuance of common stock for cash
  ($.25 to $5.00 per share)                                (3,500)           -                 -
Issuance of common stock with attached
  warrants ($4.02 per share for quarter ended
  January 31)                                               -                -                 -
Issuance of common stock with attached
  warrants ($5.10 per share for quarter ended
  January 31)                                               -                -                 -
Issuance of common stock with attached
  warrants ($2.80 to $5.10 per share for
  quarter ended April 30)                                   -                -                 -
Issuance of common stock in connection with
  Private Placement
    ($4.35 to $5.50 per share for quarter ended
      January 31)                                           -                -                 -
    ($2.60 to $3.37 per share for quarter ended
      April 30)                                             -                -                 -
    ($1.74 to $2.80 per share for quarter ended
      July 31)                                              -                -                 -
Issuance of common stock in connection with
  litigation settlement                                     -                -                 -
Issuance of stock to Vice-Chairperson of Board
  of Directors for services ($1.8984 per share
  at June 11)                                               -                -                 -
Issuance of stock under consulting agreement
  ($2.90 to $3.90 per share at July 31)                     -                -                 -
Issuance of stock under consulting agreements
  ($.41 to $.95 per share at October 31)                    -                -                 -
Issuance of stock in connection with exercising
  of option ($.27 at September 30)                       (100,000)           -                 -
Value assigned to warrants issued to
  consultants at quarter ended July 31                      -                -                 -
Value assigned to options issued to consultants at
  August 30                                                 -                -              (540,000)
Value assigned to warrants issued to
  consultants at quarter ended October 31                   -                -                 -
Value assigned to options issued to advisory
  board members at quarter ended October 31                 -                -              (151,194)
Cancellation of common stock issued for cash                -                -                 -
Amortization of unearned financing costs                    -            2,045,953             -
Amortization of unearned compensation expenses              -                -               209,443
Net loss                                                    -                -                 -
                                                       -----------      -----------       -----------
Balance - October 31, 2001                             $ (103,500)      $ (537,380)       $ (481,751)
                                                       ===========      ===========       ===========
</TABLE>

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

                                                F-9
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
            (A Development-Stage Company Commencing November 1, 1999)

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

               FOR THE YEARS ENDED OCTOBER 31, 1999, 2000 AND 2001

                                                                      Total
                                                   Accumulated     Stockholders'
                                                     Deficit          Equity
                                                   -------------   ------------

Balance - October 31, 2000                         $(25,025,349)    $  228,855

Issuance of common stock for cash
  ($.25 to $5.00 per share)                              -           1,073,475
Issuance of common stock with attached
  warrants ($4.02 per share for quarter ended
  January 31)                                            -             489,199
Issuance of common stock with attached
  warrants ($5.10 per share for quarter ended
  January 31)                                            -              85,680
Issuance of common stock with attached
  warrants ($2.80 to $5.10 per share for
  quarter ended April 30)                                -             292,800
Issuance of common stock in connection with
  Private Placement
    ($4.35 to $5.50 per share for quarter ended
      January 31)                                        -             152,000
    ($2.60 to $3.37 per share for quarter ended
      April 30)                                          -             620,000
    ($1.74 to $2.80 per share for quarter ended
      July 31)                                           -           2,743,454
Issuance of common stock in connection with
  litigation settlement                                  -           1,000,000
Issuance of stock to Vice-Chairperson of Board
  of Directors for services ($1.8984 per share
  at June 11)                                            -             949,200
Issuance of stock under consulting agreement
  ($2.90 to $3.90 per share at July 31)                  -             171,744
Issuance of stock under consulting agreements
  ($.41 to $.95 per share at October 31)                 -             559,250
Issuance of stock in connection with exercising
  of option ($.27 at September 30)                       -             100,000
Value assigned to warrants issued to
  consultants at quarter ended July 31                   -           1,289,250
Value assigned to options issued to consultants at
  August 30                                              -               -
Value assigned to warrants issued to
  consultants at quarter ended October 31                -             380,000
Value assigned to options issued to advisory
  board members at quarter ended October 31              -               -
Cancellation of common stock issued for cash             -             (30,001)
Amortization of unearned financing costs                 -           2,045,953
Amortization of unearned compensation expenses           -             209,443
Net loss                                            (11,875,915)   (11,875,915)
                                                   -------------   ------------
Balance - October 31, 2001                         $(36,901,264)   $   484,387
                                                   =============   ============
Accumulated deficit as of October 31, 1999
                                                   $(12,300,033)

Accumulated deficit during development stage        (24,601,231)
                                                   -------------
Total Accumulated Deficit as of October 31, 2001   $(36,901,264)
                                                   =============



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

                                       F-10
<PAGE>
<TABLE>

                                    NEW VISUAL CORPORATION AND SUBSIDIARIES
                          (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                          (A Development-Stage Company Commencing November 1, 1999)

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                                                       For the Period
                                                                                                            from
                                                          For the Years Ended October 31,             November 1, 1999
                                               ---------------------------------------------------           to
                                                   2001               2000               1999         October 31, 2001
                                               -------------      -------------      -------------      -------------
                                                                      (1)
<S>                                            <C>                <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                     $(11,875,915)      $(12,725,316)      $ (2,044,515)      $(24,601,231)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
      Consulting fees and other
        compensatory elements of stock
        issuances                                 3,558,887          3,258,549          1,106,498          6,817,436
      Stock issued for litigation
        settlement                                1,000,000             -                  -               1,000,000
      Loss on disposal of equipment                   7,500             -                  -                   7,500
      Projects written-off                            -                114,613            175,000            114,613
      Amortization of unearned
        financing costs                           2,045,953            416,667             -               2,462,620
      Depreciation                                  118,693             97,172             60,860            215,865
      Amortization of video library                   -                 -                  81,159            -
      Stock issued for acquired in-
        process research and
        development                                   -              6,050,000             -               6,050,000
      (Increase) decrease from changes
       in:
        Other current assets                       (106,809)           (30,227)            -                 (94,416)
        Due from related parties                   (100,708)             3,859             (8,350)          (139,469)
        Projects under development               (1,237,999)          (655,519)          (329,475)        (1,893,518)
        Other assets                                 83,558           (112,200)            -                 (28,642)
      Increase (decrease) from changes
       in:
        Accounts payable and accrued
          expenses                                  988,103             26,223            158,645          1,014,326
                                               -------------      -------------      -------------      -------------
      NET CASH USED IN OPERATING
          ACTIVITIES                             (5,518,737)        (3,556,179)          (800,178)        (9,074,916)
                                               -------------      -------------      -------------      -------------
CASH USED IN INVESTING ACTIVITIES
  Acquisition of property and
    equipment                                       (17,302)          (388,733)            -                (406,035)
                                               -------------      -------------      -------------      -------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common
    stock                                         5,426,607          3,149,388            863,050          8,575,995
  Proceeds from note payable                          -                756,886             -                 756,886
  Proceeds from convertible notes
    payable                                         615,000             -                  -                 615,000
  Repayments of long-term debt                     (500,000)            -                  -                (500,000)
  Proceeds from exercise of options and
    warrants                                        100,000            165,000             -                 265,000
                                               -------------      -------------      -------------      -------------
      NET CASH PROVIDED BY FINANCING
        ACTIVITIES                                5,641,607          4,071,274            863,050          9,712,881
                                               -------------      -------------      -------------      -------------
INCREASE IN CASH                                    105,568            126,362             62,872            231,930

CASH AND CASH EQUIVALENTS - BEGINNING               189,234             62,872             -                  62,872
                                               -------------      -------------      -------------      -------------
CASH AND CASH EQUIVALENTS - ENDING             $    294,802       $    189,234       $     62,872       $    294,802
                                               =============      =============      =============      =============

(1) Effective November 1, 1999, the Company became a development stage company
(Note 1).


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

                                                      F-11
<PAGE>

                                    NEW VISUAL CORPORATION AND SUBSIDIARIES
                          (Formerly New Visual Entertainment, Inc. and Subsidiaries)
                          (A Development-Stage Company Commencing November 1, 1999)

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (Continued)




   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   ------------------------------------------------


                                                                                                       For the Period
                                                                                                            from
                                                          For the Years Ended October 31,             November 1, 1999
                                               ---------------------------------------------------           to
                                                   2001               2000               1999         October 31, 2001
                                               -------------      -------------      -------------      -------------
Cash paid during the period for:
  Interest                                     $    -             $        526       $     -            $        526
                                               =============      =============      =============      =============
  Income taxes                                 $     -            $      -           $     -            $     -
                                               =============      =============      =============      =============
   NON-CASH INVESTING AND FINANCING ACTIVITIES:
   -------------------------------------------


Notes, interest and accounts payable
  satisfied by issuance of stock               $     -            $      -           $    348,875       $     -
                                               =============      =============      =============      =============

</TABLE>

(1) Effective November 1, 1999, the Company became a development stage company
(Note 1).


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

                                                     F-12
<PAGE>

<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
            (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BUSINESS AND CONTINUED OPERATIONS
--------------------------------------------------------------------------

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of New Visual
Corporation and its wholly-owned operating subsidiaries, NV Entertainment, Inc.,
Impact Multimedia, Inc. and NV Technology, Inc. (formerly New Wheel Technology,
Inc.) ("New Wheel") (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated.

New Visual Corporation was incorporated under the laws of the State of Utah on
December 5, 1985.

In November of 1999, the Company began to focus its business activities on the
development of new content telecommunications technologies. Pursuant to such
plan, in February of 2000, the Company acquired New Wheel Technology, Inc., a
development stage, California-based, technology company, which now operates as
the Company's wholly-owned subsidiary, NV Technology, Inc., a Delaware
corporation. As a result of the change in business focus, the Company became a
development stage entity commencing November 1, 1999. The Company also produces
and distributes 2-D and 3-D filmed entertainment.

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern.
However, for the years ended October 31, 2001, 2000 and 1999, the Company
incurred net losses of approximately $11,876,000, $12,725,000 and $2,045,000,
respectively, and as of October 31, 2001 and 2000, had a working capital
deficiency of approximately $1,490,000 and $200,000, respectively. The Company
has limited finances and requires additional funding in order to accomplish its
growth objectives and marketing of its products and services. There is no
assurance that the Company can reverse its operating losses, or that it can
raise additional capital to allow it to expand its planned operations. There is
also no assurance that even if the Company manages to obtain adequate funding to
complete any contemplated acquisition, such acquisition will succeed in
enhancing the Company's business and will not ultimately have an adverse effect
on the Company's business and operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern.

The Company operates in two business segments, the production of motion
pictures, films and videos (entertainment segment) and development of new
content telecommunications technologies (telecommunication segment). The success
of the Company's entertainment business is dependent on future revenues from the
Company's current joint venture production agreement to produce a feature-length
film for theatrical distribution.

The success of the Company's telecommunication segment is dependent upon the
successful completion of development and testing of its broadband technology
currently under development by its wholly-owned subsidiary, NV Technology, Inc.
No assurance can be given that the Company can complete development of such
technology, or that with respect to such technology that is fully developed, it
can be commercialized on a large scale basis or at a feasible cost. No assurance
can be given that such technology will receive market acceptance.

Until the commencement of sales from either segment, the Company will have no
operating revenues, but will continue to incur substantial operating expenses,
capitalized costs and operating losses.

                                      F-13
<PAGE>


                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BUSINESS AND CONTINUED OPERATIONS
         (Continued)
--------------------------------------------------------------------------

The Company funded its operations during 2001, 2000 and 1999 through sales of
its common stock, resulting in approximate net proceeds to the Company of
$5,427,000, $3,149,000 and $863,000, respectively. In addition, during 2001, the
Company received proceeds of $615,000 from sale of convertible debentures. The
Company is exploring other financing alternatives, including private placements
and public offerings.

The Company's ability to continue as a going concern is dependent upon obtaining
additional financing. These financial statements do not include any adjustments
relating to the recoverability of recorded asset amounts that might be necessary
as a result of the above uncertainty.

NOTE 2- SUMMARY OF ACCOUNTING POLICIES

Concentration of Credit Risk
----------------------------

Financial instruments, which potentially subject the Company to concentrations
of credit risks, are principally trade accounts receivable. The Company
maintains an allowance for uncollectible accounts receivable and generally does
not require collateral. At October 31, 2001 and 2000, no allowance for
uncollectible accounts was deemed necessary by management.

Cash and Cash Equivalents
-------------------------

The Company considers all short-term highly liquid investments with a maturity
of three months or less when purchased to be cash or cash equivalents.

Property and Equipment
----------------------

Property and equipment are stated at cost. Depreciation is computed on a
straight-line method over the estimated useful lives of the assets which
generally range from five to seven years. Maintenance and repair expenses are
charged to operations as incurred.

Film and Video Library and Projects Under Development
-----------------------------------------------------

Film and video library and projects under development are stated at the lower of
amortized cost or market. Upon completion, costs are amortized on an individual
production basis in the proportion that current gross revenues bear to
management's estimate of total gross revenues, with such estimates being
reviewed at least quarterly. In each of the three years ended October 31, 2001,
2000 and 1999, several projects under development were determined to have no
estimated realizable value and were accordingly written-off. Project costs
written-off during the years ended October 31, 2001, 2000 and 1999 were $-0-,
$114,613 and $175,000, respectively.

                                      F-14
<PAGE>


                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
            (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 -  SUMMARY OF ACCOUNTING POLICIES (Continued)
----------------------------------------------------

Income Taxes
------------

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS
No. 109 employs an asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to the difference between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Under SFAS No. 109, the effect on deferred income taxes of a change in tax rates
is recognized income in the period that includes the enactment date.

Accounting Estimates
--------------------

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments
-----------------------------------

The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts payable, accrued expenses, amounts due from related
parties and convertible notes approximate fair value because of their immediate
or short-term nature. The fair value of long-term notes payable approximates
their carrying value because the stated rates of the debt either reflect recent
market conditions or are variable in nature.

Revenue Recognition
-------------------

Substantially all past revenues were derived from the production of multimedia
content, videos and commercial films. Revenue is recognized over the shorter of
the license term or the expected revenue term.

Research and Development
------------------------

Research and development costs are charged to expense as incurred. Amounts
allocated to acquired-in-process research and development costs, from business
combinations, are charged to earnings at the consummation of the acquisition.

Advertising
-----------

Advertising costs are charged to operations when incurred. Advertising expense
was $942, $71,528 and $-0-, respectively, for the years ended October 31, 2001,
2000 and 1999, respectively.

                                      F-15
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 -  SUMMARY OF ACCOUNTING POLICIES (Continued)
----------------------------------------------------

Loss Per Common Share
---------------------

Basic loss per common share is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted loss per share reflects
the potential dilution from the exercise or conversion of all dilutive
securities into common stock based on the average market price of common shares
outstanding during the period. No effect has been given to outstanding options,
warrants or convertible debentures in the diluted computation, as their effect
would be antidilutive.

The number of potentially dilutive securities excluded from computation of
diluted loss per share was approximately 9,821,000, 1,764,000 and -0- for the
years ended October 31, 2001, 2000 and 1999, respectively.

Reverse Stock Splits
--------------------

On June 22, 2000, the Company effected a one-for-four reverse split of its
issued and outstanding common stock. The accompanying consolidated financial
statements, notes and other references to share and per share data have been
retroactively restated to reflect the reverse stock splits for all periods
presented.

Stock-Based Compensation
------------------------

The Company follows Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation". SFAS 123 establishes
accounting and reporting standards for stock-based employee compensation plans.
This statement allows companies to choose between the "fair value-based method
of accounting" as defined in this statement and the "intrinsic value-based
method of accounting" as prescribed by Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees". The Company has elected
to continue to follow the accounting guidance provided by APB 25, as permitted.

Impairment of Long-Lived Assets
-------------------------------

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". The Company evaluates its long-lived assets for financial
impairment, and continues to evaluate them as events or changes in circumstances
indicate that the carrying amount of such assets may not be fully recoverable.

The Company evaluates the recoverability of long-lived assets by measuring the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values.



                                      F-16
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 -  SUMMARY OF ACCOUNTING POLICIES (Continued)
----------------------------------------------------

Segment Reporting
-----------------

Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". SFAS No.
131 establishes standards for the way public enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to stockholders. Adoption of SFAS No. 131 did not have
a material effect on the Company's financial position or results of operations.

Impact of Recently Issued Accounting Standards
----------------------------------------------

The Financial Accounting Standards Board recently issued FASB 139, which
requires that all producers or distributors that own or hold rights to
distribute or exploit films follow the guidance in AICPA Statement of Position
00-2, "Accounting by Producers or Distributors of Films." FASB 139 shall be
effective for financial statements for fiscal years beginning after December 15,
2000.

SOP-002 requires that film costs be capitalized and reported as a separate asset
on the balance sheet. Film costs include all direct negative costs incurred in
the production of a film, as well as allocations of production overhead and
capitalized interest. Direct negative costs include cost of scenario, story,
compensation of cast, directors, producers, writers, extras and staff, cost of
set construction, wardrobe, accessories, sound synchronization, rental of
facilities on location and post production costs. SOP-002 also requires that
film costs be amortized and participation costs accrued, using the
individual-film-forecast-method-computation method, which amortizes or accrues
such costs in the same ratio that the current period actual revenue (numerator)
bears to the estimated remaining unrecognized ultimate revenue as of the
beginning of the fiscal year (denominator).

In addition, SOP-002 also requires that if an event or change in circumstances
indicates that an entity should assess whether the fair value of a film is less
than its unamortized film costs, then an entity should determine the fair value
of the film and write off to the statement of operations the amount by which the
unamortized capital costs exceeds the firm's fair value. The Company expects to
adopt the new standard effective November 1, 2002, and is evaluating the effect
that it may have on its consolidated results of operations and financial
position.

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations,"
which supercedes Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations." SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The provisions of SFAS 141 have been adopted as of
July 1, 2001. The adoption of SFAS 141 has not changed the method of accounting
used in previous business combinations initiated prior to July 1, 2001.

In July 2001, the FASB also issued Statement of Financial Accounting Standards
No. 142 (SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
for fiscal years beginning after December 15, 2001. Certain provisions shall
also be applied to acquisitions initiated subsequent to June 30, 2001. SFAS 142
supercedes APB Opinion No. 17, "Intangible Assets," and requires, among other
things, the discontinuance of amortization related to goodwill and indefinite
lived intangible assets. These assets will then be subject to an impairment test
at least annually. Management's believes that the implementation of this
standard will have no impact on the Company's results of operations and
financial position.

                                      F-17
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 -  SUMMARY OF ACCOUNTING POLICIES (Continued)
----------------------------------------------------

Impact of Recently Issued Accounting Standards (Continued)
----------------------------------------------

In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supercedes Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and certain provisions of APB Opinion No.
30, "Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 144 requires that long-lived assets to be
disposed of by sale, including discontinued operations, be measured at the lower
of carrying amount or fair value, less cost to sell, whether reported in
continuing operations or in discontinued operations. SFAS 144 also broadens the
reporting requirements of discontinued operations to include all components of
an entity that have operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
The provisions of SFAS 144 are effective for fiscal years beginning after
December 15, 2001. Management believes that the implementation of this standard
will have no impact on the Company's results of operations and financial
position.

Comprehensive Income
--------------------

The Company has no material components of other comprehensive income and,
accordingly, net income approximates comprehensive income for all periods
presented.

NOTE 3 - ACQUISITIONS
---------------------

Impact Pictures, Inc.
---------------------

In January 2000, the Company completed the acquisition of 100% of the common
stock of Impact Pictures, Inc. ("Impact"), a small development-stage, San
Diego-based multi-media production firm, for 12,500 shares of the Company's
common stock, valued at $50,000. The Company has accounted for this acquisition
under the purchase method of accounting. As of the acquisition date, Impact had
no tangible assets and its intangible assets were in the development stage.
Accordingly, the $50,000 was charged to operations, under the caption "Acquired
in-process research and development expenses", during the year ended October 31,
2000. Revenues from Impact business totalled approximately $-0- and $12,200,
respectively, for the years ended October 31, 2001 and 2000.

Historical and proforma information have not been provided because the
operations of the acquired business were not material.


                                      F-18
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - ACQUISITIONS (Continued)
---------------------------------

NV Technology, Inc.
-------------------

In February 2000, the Company completed the acquisition of New Wheel Technology,
Inc. ("New Wheel"), a development-stage, California-based, technology company,
for 500,000 restricted shares of New Visual common stock. New Wheel was merged
with Astounding Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of New Visual, which following the merger changed its name to New
Wheel Technology, Inc. On July 13, 2001, New Wheel changed its name to NV
Technology, Inc., which the Company now uses to conduct the development of its
broadband technology ("NV Technology"). An aggregate of 3,000,000 restricted
shares of common stock were issued to the New Wheel stockholders in
consideration of the merger. The merger agreement also provides that additional
compensation may be payable to the New Wheel stockholders if New Wheel's high
speed digital transmission technology generates revenues for the Company in
excess of $1 billion, or if there is a sale of assets or stock, or a merger of
New Visual or any of its affiliates, in which the New Wheel technology comprises
at least 15% of the consideration. As of April 30, 2000, the Company recorded
the issuance of the full 3,000,000 shares, which were valued at $6,000,000. The
Company has accounted for this acquisition under the purchase method of
accounting. As of the acquisition date, NV Technology had no tangible assets and
its intangible assets were in the development stage. Accordingly, the $6,000,000
was charged to operations under the caption "Acquired in-process research and
development expenses", during the year ended October 31, 2000.

Historical and proforma information have not been provided because the
operations of the acquired business were not material.

NOTE 4 - NOTE RECEIVABLE FROM RELATED PARTIES
---------------------------------------------

On September 6, 2001, the Company converted advances of $99,656 to an officer to
a promissory note payable on demand, at a rate of 7.0% per annum. As of October
31, 2001, the outstanding amount from this note was $100,708, of which $1,052
represented accrued interest.

NOTE 5 - PROPERTY AND EQUIPMENT
-------------------------------

Property and equipment, consists of the following:

                                                            At October 31,
                                                      ------------------------
                                                         2001          2000
                                                      ----------    ----------

        Furniture and fixtures                        $   51,584    $   51,584
        Camera equipment                                 544,664       544,664
        Office equipment                                 109,460        99,658
                                                      ----------    ----------
                                                         705,708       695,906
        Less: Accumulated depreciation                   420,812       302,119
                                                      ----------    ----------
                Total                                 $  284,896    $  393,787
                                                      ==========    ==========

For the years ended October 31, 2001, 2000 and 1999, depreciation expense was
$118,693, $97,172 and $60,860, respectively.


                                      F-19
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------

Accounts payable and accrued liabilities consist of the following:

                                                          At October 31,
                                                    ------------------------
                                                       2001          2000
                                                    ----------    ----------

         Professional fees                          $  606,807    $  300,000
         Interest payable                              356,601        47,511
         Consulting fees                               204,192        25,400
         Miscellaneous                                 267,424        74,010
                                                    ----------    ----------
                                                    $1,435,024    $  446,921
                                                    ==========    ==========

NOTE 7 - CONVERTIBLE NOTES PAYABLE
----------------------------------

In October 2001, the Company entered into three convertible promissory note
agreements with one individual and two companies, totalling $615,000. The
Company agreed to pay the principal and an amount equal to 50% of the principal
sum if the Company reaches certain milestone from the distribution of its motion
picture, which is currently in production. The notes may be converted at any
time, in whole or in part, into that number of fully paid and non-assessable
shares of common stock at a conversion price of $.40. The additional payment of
50% of the principal, or $307,500, was recorded as interest expense during the
quarter ended October 31, 2001.

NOTE 8 - LONG-TERM DEBT
-----------------------

On June 29, 2000, the Company entered into five credit agreements, each of which
granted the Company a credit facility of up to $300,000. As of October 31, 2000,
the Company borrowed $756,886 under these facilities, which are each payable in
full on June 29, 2003, together with all accrued and unpaid interest at 6% per
annum. On November 13, 2000, the above five credit agreements were amended,
reducing the Company's credit facility to $756,886. The credit agreements
terminate on June 29, 2003, at which time all accrued interest and unpaid
interest, along with the principal, is due in full.

During the year ended October 31, 2001, the Company repaid $500,000 under the
above five credit agreements.


                                      F-20
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - STOCKHOLDERS' EQUITY
-----------------------------

Preferred Stock and Rights Dividend
-----------------------------------

Effective June 22,2000, the Company amended its articles of incorporation to
decrease the number of authorized shares of preferred stock from 200,000,000 to
15,000,000, and to decrease the par value of the preferred stock from $30.00 to
$0.01 per share.

The Company adopted a shareholder rights plan, in which one right was
distributed on August 21,2000 as a dividend on each outstanding share of common
stock to shareholders of record on that date. Each right will entitle the
shareholders to purchase 1/1000th of a share of a new series of junior
participating preferred stock of the Company at an exercise price of $200 per
right. The rights will be exercisable only if another person acquires or
announces its intention to acquire beneficial ownership of 20% or more of the
Company's common stock. After any such acquisition or announcement, the
Company's shareholders, other than the acquirer, could then exercise each right
they hold to purchase the Company's common stock at a 50% discount from the
market price. In addition, if, after another person becomes an acquiring person,
the Company is involved in a merger or other business combination in which it is
not the surviving corporation, each right will entitle its holder to purchase a
number of shares of common stock of the acquiring company having a market value
equal to twice the exercise price of the right. Prior to the acquisition by a
person or group of beneficial ownership of 20% or more of the Company's common
stock, at the option of the Board of Directors, the rights are redeemable for
$0.001 per right. The rights will expire on August 21,2004.

On July 27, 2000, the Company created a series of preferred stock, par value
$0.01 per share, designated as "Series A Junior Participating Preferred Stock".
200,000 shares of the Series A Junior Participating Preferred Stock are
initially reserved for issuance upon exercise of the Rights. Subject to the
rights of the holders of any shares of any series of preferred stock ranking
prior and superior to the Series A Preferred Stock with respect to dividends,
the holders of shares of Series A Preferred Stock, in preference to the holders
of common stock, shall be entitled to receive, when, as and if declared by the
Board of Directors, quarterly dividends payable in cash on the last day of each
quarter in each year, commencing on the first quarterly dividend payment date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share equal to the greater of $1.00 or 1,000 times the
aggregate per share amount of all cash and non-cash dividends or other
distributions, other than a dividend payable in shares of common stock. Each
share of Series A Preferred Stock shall entitle the holder to 1,000 votes. Upon
any liquidation, no distribution shall be made to the holders of shares of stock
ranking junior to the Series A Preferred, unless the holders of shares of Series
A Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon. The shares of Series A
Preferred Stock shall not be redeemable. No Series A Preferred Stock was issued
during the years ended October 31, 2001 and 2000, respectively.


                                      F-21
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Common Stock
------------

On April 30, 2000, the Board of Directors authorized, and on May 31, 2000, a
majority vote of the shareholders approved, a one-for-four reverse stock-split
of the Company's outstanding common stock. The reverse stock-split was effected
on June 22, 2000.

Common Stock Issuances During the Year Ended October 31, 2001:
-------------------------------------------------------------

- Private Placement:

On November 17, 2000, and as amended on January 22, 2001, the Company entered
into a private placement agreement with various investors to sell $5,000,000 of
the Company's common stock in several tranches at a purchase price equal to 87%
of the average market price of the Company's common stock over the five days
preceding the closing of each drawdown.

The Company can sell stock to the investors in five-day intervals not to exceed
$500,000 per sale. The investor may refuse to purchase the stock in the event
the average purchase price is below $2.00 per share, or if the trading volume is
below a certain number of shares within the period, or if the Company sells
capital stock in excess of $5,000,000.

The Company may not apply any portion of the drawdowns towards payment of any
costs related to its production of the Company's pending motion picture project.

In addition, the investors received warrants to purchase 4,000,000 shares of
common stock to be issued in two series (3,000,000 Series A warrants and
1,000,000 Series B warrants). Each Series A warrant can be exercised at a price
per share equal to the lesser of $6.00 or 50% of the average of the closing
sales price of the Company's common stock over the five consecutive trading days
immediately preceding the date of the exercise of the warrants. Each Series B
warrant can be exercised at a price per share of $6.00. The Series B warrants
have a cashless exercise provision. Both the Series A and Series B warrants
expire on November 17, 2003.

For the years ended October 31, 2001 and 2000, the Company has sold 1,686,107
and 77,248 of its common stock, respectively, under the above agreement and
received proceeds of $3,515,454 and $415,000, respectively. As of October 31,
2001, this private placement was terminated. The Company does not expect any
future proceeds from this private placement.

                                      F-22
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Common Stock Issuances During the Year Ended October 31, 2001: (Continued)
-------------------------------------------------------------

-  Other:

During the year ended October 31, 2001, the Company issued 1,212,254 shares of
restricted common stock to investors for cash proceeds of $1,073,475, as
indicated below. Such sales were sold in private transactions in reliance on
various exemptions from the registration requirements of the Securities Act.

o     During December 2000, the Company sold 219,904 shares of common stock for
      $600,000.

o     During January 2001, the Company sold 21,000 shares of common stock for
      $105,000.

o     In August of 2001, the Company issued 221,966 shares of common stock for
      $166,475.

o     In October of 2001, the Company issued 749,384 shares of common stock for
      $205,500. The Company received $202,000 in October of 2001 and the
      remaining $3,500 was recorded as a subscription receivable and collected
      subsequent to October 31, 2001.

In February of 2001, the Company issued 250,000 shares of common stock valued at
$1,000,000 pursuant to a litigation settlement agreement with Astounding.com,
Inc. and Jack Robinson. This settlement has been recorded during the three
months ended January 31, 2001.

During January 2001, the Company issued 30,600 shares of common stock with
15,300 attached warrants for $85,680. The attached warrants have an exercise
price of $5.10 per share and expire in January 2004.

During January 2001, the Company issued 174,714 shares of common stock with
87,357 attached warrants for $489,199. The warrants have an exercise price of
$4.02 per share and expire in January 2004.

In April of 2001, the Company cancelled 2,980 shares for which the Company was
to receive $30,001. The shares issued were recorded by the Company but never
issued to the investor.

During March and April 2001, the Company issued 104,571 shares of common stock
with 52,286 attached warrants for total proceeds of $292,800. The warrants have
an exercise price of $5.10 per share and expire in 3 years from the date of
their respective issuances.

In May of 2001, the Company issued 500,000 shares to its Board of Directors'
Vice Chairperson for past services, which were valued at $1.89 per share, or
$949,200, and all of which was charged to operations during the year ended
October 31, 2001.

During the quarter ended July 31, 2001, the Company issued 50,960 shares of
common stock between $2.90 and $3.90 per share for consulting services, valued
at $171,744 and all of which was charged to operations during the year ended
October 31, 2001.

During September and October of 2001, the Company issued to various consultants
1,175,000 shares of common stock for consulting services valued at $559,250 and
all of which was charged to operations during the year ended October 31, 2001.

                                      F-23
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Common Stock Issuances During the Year Ended October 31,2000:
------------------------------------------------------------

During the year ended October 31, 2000, the Company issued 805,994 shares of
restricted common stock to investors for cash proceeds of $2,734,388, as
indicated below. Such sales were sold in private transactions in reliance on
various exemptions from the registration requirements of the Securities Act.

o     During the three months ended January 31, 2000, the Company sold 177,463
      shares of common stock for $211,909.

o     During the quarter ended April 2000, the Company sold 278,699 shares of
      common stock for $1,318,079.

o     During the quarter ended July 31, 2000, the Company sold 314,832 shares of
      common stock for $1,064,400.

o     During the quarter ended October 31, 2000, the Company sold 35,000 shares
      of common stock for $140,000.

During the three months ended January 31, 2000, the Company issued 29,765 shares
of common stock between $1.00 and $1.40 for consulting services totalling
$34,050.

During the three months ended January 31, 2000, the Company issued 12,500 shares
of common stock valued at $4.00 per share for the acquisition of Impact
Pictures, Inc.

On February 17, 2000, the Company issued 3,000,000 shares of common stock valued
at $2.00 per share for the acquisition of New Wheel Technology, Inc.

In connection with the acquisition of New Wheel, the Company entered into an
agreement with lenders to provide loans of up to $1.5 million. As consideration
for these loans and other services under the agreement, in April of 2000 the
Company issued 1,500,000 shares of its common stock to the lenders valued at
$3,000,000. The Company accounted for the $3,000,000 as unearned financing costs
reducing stockholders' equity as of April 30, 2000. During the quarter ended
July 31, 2000, the Company began to draw money down from the credit facilities
and accordingly, the Company at such time, began to amortize the unearned
financing costs over the three-year period ending June of 2003. Amortization of
the unearned financing costs for the years ended October 31, 2001 and 2000 was
$2,045,953 and $416,667, respectively.

During the quarter ended April 2000, the Company issued 1,161,065 shares of
common stock between $1.20 and $12.00 for consulting and professional services
totalling $1,814,729.


                                      F-24
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Common Stock Issuances During the Year Ended October 31,2000: (Continued)
------------------------------------------------------------

During the quarter ended July 31, 2000, the Company issued 109,000 shares of
common stock between $3.00 and $7.88 for consulting and professional services
totalling $619,650.

On June 12, 2000, 68,750 warrants were exercised at $2.40 per share totalling
$165,000.

During the quarter ended October 31, 2000, the Company issued 84,084 shares of
common stock between $.25 and $12.50 for consulting services, totalling $28,122.

On October 31, 2000, the Company issued 77,248 shares of common stock between
$5.00 and $5.50 per share pursuant to the Company's November 17, 2000 private
placement agreement.

Common Stock Issuances During the Year Ended October 31, 1999:
-------------------------------------------------------------

For the period from November 1, 1998 to October 31, 1999, the Company issued
1,849,592 shares of common stock, at prices ranging from $.08 to $1.64 per
share, totalling $863,050, pursuant to Rule 144.

On December 15, 1998, the Company issued 25,000 shares of common stock ,at $.16
per share, for professional services, totalling $4,000.

On December 28, 1998, the Company issued 250,000 shares of common stock, at $.20
per share, in settlement of debt, totalling $50,000.

On July 23, 1999, the Company issued 625,000 shares of common stock, at $.16 per
share, for professional services, totalling $100,000.

During August 1999, the Company issued 574,161 shares of common stock, between
$.20 and $4.00 per share, for professional services, totalling $123,686.

On August 13, 1999, the Company issued 93,750 shares of common stock, at $1.00
per share, for director fees totalling $93,750.

On August 20, 1999, the Company issued 182,322 shares of common stock, between
$1.12 and $1.40 per share, in settlement of debt, totalling $207,250.

During September 1999, the Company issued 98,875 shares of common stock, between
$0.48 and $2.00 per share, in settlement of debt, totalling $91,625.

During September 1999, the Company issued 433,817 shares of common stock,
between $1.40 and $2.00 per share, for professional services, totalling
$610,062.

On September 27, 1999, the Company issued 125,000 shares of common stock at
$1.40 per share, for consulting fees, totalling $175,000.


                                      F-25
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Stock Option Plans
------------------

-  Stock Options

During 2000, the Board of Directors and the stockholders of the Company approved
the 2000 Omnibus Securities Plan (the "2000 Plan"), which provides for the
granting of incentive and nonstatutory options and restricted stock for up to
2,500,000 shares of common stock to officers, employees, directors and
consultants of the Company.

During August of 2001, the Board of Directors of the Company approved the 2001
Stock Incentive Plan (the "2001 Plan"), which provides for the granting of
incentive and nonstatutory options, restricted stock, dividend equivalent rights
and stock appreciation rights for up to 2,500,000 shares of common stock to
officers, employees, directors, advisors and consultants of the Company.

Options granted under the Plans are exercisable for a period of up to 10 years
from date of grant at an exercise price, which is not less than the fair value
of the common stock on date of grant, except that the exercise period of options
granted to a stockholder owning more than 10% of the outstanding capital stock
may not exceed five years and their exercise price may not be less than 110% of
the fair value of the common stock at date of grant.

- Options Outside of the Plan:

On February 11, 2000, the Company granted to three directors and four employees
options to acquire 1,028,750 shares of its common stock. The exercise price for
the options is $4.00 per share. The options vest in four equal annual
installments commencing February 11, 2000 and expire on February 11, 2010.

On July 1, 2000, the Company granted to its Executive Vice President options to
purchase 210,000 shares of common stock at $4.40 per share, as further described
in Note 12.

On October 27, 2000, the Company granted to a director options to purchase
275,000 shares of its common stock. The exercise price for the options is $4.00
per share. The options vested on the grant date.

On October 27, 2000, the Company granted to an employee options to purchase up
to an aggregate of 50,000 shares of its common stock. The options vest and are
fully exercisable upon achievement of a technological development milestone by
the Company. The exercise price for the options is $5.50 per share and expire on
October 27, 2005.


                                      F-26
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Stock Option Plans (Continued)
------------------

-  Options Outside of the Plan: (Continued)

On November 30, 2000, the Company granted to two employees options to purchase
225,000 shares of its common stock at $4.00 per share. The options vested on the
grant date and expire in 10 years from the grant date.

On May 15, 2001, the Company granted to a member of the Company's advisory board
options to purchase 50,000 shares of common stock at $3.92 per share. The
options vested on the grant date and expire on May 15, 2011.

On June 7, 2001, the Company granted options to purchase 50,000 shares of its
common stock to an advisory board member. The exercise price is $2.30 per share,
with 25,000 options vesting and exercisable immediately and the remaining 25,000
vesting and exercisable equally on the anniversary date over the next three
years. These options expire on June 7, 2011.

On August 3, 2001, the Company granted options to purchase 50,000 shares of its
common stock to an advisory board member. The exercise price is $1.07 per share,
with 25,000 vesting and exercisable immediately and the remaining 25,000 vesting
and exercisable equally on the anniversary date over the next three years. These
options expire on August 3, 2011.



                                      F-27
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Stock Option Plans (Continued)
------------------

A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
                                                                  Weighted                              Weighted
                                             Under the Plans      Average         Outside the Plans      Average
                                              Stock Options    Exercise Price       Stock Options     Exercise Price
                                             --------------    --------------     ----------------    --------------

<S>                                              <C>               <C>                <C>                  <C>
   Balance at October 31, 1999                     -               $  -                    -               $  -

   Options granted - 11/01-10/31/00:
     In the 2000 plan                              -                  -                    -                  -

   Options granted - 11/01-10/31/00:
     Outside the option plan                       -                  -               1,563,750             4.10
                                              ----------           -----              ---------            -----
   Outstanding - October 31, 2000                  -                  -               1,563,750             4.10

   Options granted - 11/01 - 10/31/01:
     In the 2000 plan                            516,000            3.92                   -                  -
     In the 2001 plan                            750,000             .27                   -                  -

   Options granted - 11/01 - 10/31/01:
     Outside the option plan                       -                  -                 375,000             3.37

   Options expired/cancelled:
     In the 2000 plan                             (3,750)           3.92                   -                  -

   Options exercised in the 2001 plan           (750,000)            .27                   -                  -
                                              ----------           -----              ---------            -----
   Outstanding - October 31, 2001                512,250           $3.92              1,938,750            $3.96
                                              ==========           =====              =========            =====
   Exercisable at October 31:
      2001                                       182,438           $3.92              1,269,375            $4.00
      2002                                       292,376           $3.92              1,562,396            $4.07
      2003                                       401,814           $3.92              1,922,084            $3.98
      2004                                       512,250           $3.92              1,938,750            $3.96

</TABLE>
The exercise price for options outstanding as of October 31, 2001 ranged from
$1.07 to $5.50.

At October 31, 2001, 1,984,000 and -0- options are available under the 2000 Plan
and 2001 Plan, respectively.

The weighted average fair value at date of grant for options granted during 2001
and 2000 was $1.82 and $2.61 per option, respectively. The fair value of options
at date of grant was estimated using the Black-Scholes option pricing model
utilizing the following assumptions:

                                                    2001               2000
                                              ----------------     ----------

      Risk-free interest rates                 5.00% to  5.50%        5.50%
      Expected option life in years                   5                 3
      Expected stock price volatility         47.25% to 96.25%       33.00%
      Expected dividend yield                         0%                0%

                                      F-28
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Stock Option Plans (Continued)
------------------

Had the Company elected to recognize compensation cost based on the fair value
of the options at the date of grant, as prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", net
loss in 2001 and 2000 would have been $13,838,750 and $16,249,000, or $.51 and
$.75 per share, respectively

Warrants
--------

At October 31, 2001, the Company had outstanding warrants to purchase shares of
common stock as follows:
<TABLE>
<CAPTION>
                               Number of         Exercise                      Expiration
          Grant Date            Shares            Price                           Date
          ----------           ---------        ---------            ------------------------------

<S>                            <C>              <C>                 <C>
       June 7, 2000               50,000            $ 7.00           June 7, 2003
       June 7, 2000               50,000              8.50           June 7, 2003
       June 7, 2000               50,000             10.00           June 7, 2003
       June 7, 2000               50,000             11.50           June 7, 2003
       November 17, 2000       1,000,000              6.00           November 17, 2003
       November 17, 2000       3,000,000        Lesser of 6.00       November 17, 2003
                                or 50% of
                                                  market ($.20
                                                  at 10/31/01)
       March 12, 2001             67,586              5.10           March 12, 2004
       March 12, 2001             87,357              4.02           March 12, 2004
       May 1, 2001               500,000              2.50           May 1, 2006
       May 1, 2001               250,000              5.00           May 1, 2006
       May 1, 2001               250,000             10.00           May 1, 2006
       June 12, 2001              50,000              2.50           June 14, 2006
       June 12, 2001              25,000              5.00           June 14, 2006
       June 12, 2001              25,000             10.00           June 14, 2006
       October 31, 2001        1,000,000               .25           October 1, 2006
                               ---------        -------------        ------------------------------
                               6,454,943         $0.20-$11.50        June 7, 2003 - October 1, 2006
                               =========

       Exercisable at
         October 31, 2001      6,454,943
                               =========

</TABLE>


                                      F-29
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

Net Loss Per Share
------------------

Securities that could potentially dilute basic earnings per share ("EPS"), which
in the future that were not included in the computation of diluted EPS because
to do so would have been anti-dilutive for the periods presented, consist of the
following:

        Warrants to purchase common stock                             6,454,943
        Options to purchase common stock                              2,451,000
        Convertible notes payable and accrued interest                  922,500
                                                                      ---------
           Total as of October 31, 2001                               9,828,443
                                                                      =========
        Substantial issuances after October 31, 2001 through
          January 23, 2002:

        Common stock and warrants issued in connection
          with consulting agreements                                  1,150,000
                                                                      =========
        Convertible notes payable                                       250,000
                                                                      =========
                                                                        477,276
        Sale of common stock for cash                                 =========


NOTE 10 - TERMINATED MERGER AND LITIGATION
------------------------------------------

Astounding.com, Inc.
--------------------

In September 1999, the Company entered into a merger agreement with
Astounding.com, Inc. The merger agreement provided for the Company to issue
2,500,000 shares of its common stock for all of the outstanding shares of
Astounding. The closing of the merger was subject to various conditions
including the receipt of a debt or equity financing of at least $1,000,000 and
requisite shareholders approval.

During the three months ended January 31, 2000, the Company terminated its
previously announced merger with Astounding.com, Inc. because certain conditions
had not been satisfied.

On March 22, 2000, the Company filed a lawsuit in the State District Court in
Dallas, Texas against Astounding.com, Inc. and Jack Robinson. The Company's
complaint alleged that, among other things, Astounding.com, Inc. and Robinson
breached certain contractual obligations to New Visual and engaged in negligent
and/or fraudulent misrepresentation to induce New Visual to enter into the
merger agreement. New Visual sought a court order confirming that the merger
agreement was null and void, and an award of unspecified damages, court costs
and attorneys' fees. Robinson and Astounding.com have filed a counterclaim
against New Visual alleging breach of contract and unjust enrichment and seeking
unspecified damages, court costs and attorneys' fees. This litigation was
settled in February 2001.


                                      F-30
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 - TERMINATED MERGER AND LITIGATION (Continued)
------------------------------------------------------

Astounding.com, Inc. (Continued)
--------------------

Pursuant to the settlement agreement, the Company issued to Jack D. Robinson and
his attorneys 250,000 restricted shares of its common stock, valued at
$1,000,000. The Company in return received all the issued and outstanding common
stock of Astounding.com, Inc. The Company also agreed to file a registration
statement for all the 250,000 shares by March 31, 2001 and to cause the
registration statement to become effective and the shares to become freely
tradable no later than June 29, 2001. This settlement was recorded during the
three months ended January 31, 2001.

As of February 16, 2001, Astounding.com, Inc. had no liabilities and was engaged
in no business activities.

Intelecon Services, Inc.
-----------------------

On March 31, 2000, the Company signed a definitive merger agreement to acquire
Intelecon Services, Inc. ("Intelecon"), a provider of entertainment and business
communication technology and value-added services, in a stock transaction.

On September 26, 2000, the Company formally terminated its merger agreement with
Intelecon.

The Company advanced to Intelecon monies to purchase certain equipment on behalf
of the Company. Intelecon did not purchase the equipment and, therefore,
breached its contract and was unjustly enriched. The Company has brought forward
a claim against Intelecon for $105,000.

During April 2001, the Company reached a settlement with Intelecon for $117,000,
payable in the amount of $15,000 per month, until $117,000 has been paid in
full. As of October 31, 2001, the Company had received all monies due under this
settlement.



                                      F-31
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 - INCOME TAXES
----------------------

At October 31, 2001, the Company had approximately $28,095,000 of net operating
loss carryforwards for income tax purposes which expire as follows:

                Year                               Net Operating Losses
                ----                               --------------------

                2011                                   $ 1,583,000
                2012                                     4,714,000
                2018                                     4,472,000
                2019                                     1,698,000
                2020                                     4,759,000
                2021                                    10,869,000
                                                       -----------
                                                       $28,095,000
                                                       ===========

At October 31, 2001 and 2000, the Company has a deferred tax asset of
approximately $14,822,000 and $10,072,000, respectively, representing the
benefits of its net operating loss and certain expenses not currently deductible
for tax purposes, principally related to the granting of stock options and
warrants and the difference in tax basis of certain intangible assets. The
Company's deferred tax asset has been fully reserved by a valuation allowance
since realization of its benefit is uncertain. The difference between the
Federal statutory tax rate of 34% and the Company's effective federal tax rate
of -0- is due to the increase in the valuation allowance of $4,750,000 (2001),
$4,642,000 (2000) and $818,000 (1999). The Company's ability to utilize its
carryforwards may be subject to an annual limitation in future periods pursuant
to Section 382 of the Internal Revenue Code of 1986, as amended.

NOTE 12 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

Consulting Agreement
--------------------

In June 2000, the Company entered into a marketing and public relations
agreement to publicize the Company to brokers, prospective investors,
institutional investors, analysts and others, for a term of six months. In
consideration of the above services, the Company has paid the consultant
$50,000. In addition, the consultant was issued 50,000 shares of the Company's
common stock valued at $298,000. The consultant was also issued a warrant
entitling it to purchase, in the aggregate, up to 200,000 shares of the
Company's common stock. The warrant is divided into four tranches of fifty
thousand (50,000) shares each, with each tranche to have the following exercise
prices: Tranche 1 - $7.00 per share; Tranche 2 - $8.50 per share; Tranche 3 -
$10.00 per share; and Tranche 4 - $11.50 per share. The consultant and the
Company entered into a registration rights agreement with respect to the
registration of the above common stock and Warrant Shares. The consultant has
not exercised any of these warrants as of October 31, 2001.

The warrants were assigned a value of $762,000, which was all charged to
operations during the year ended October 31, 2000.

In March 2001, the Company entered into a consulting agreement with a company
for developing a new corporate positioning strategy and identifying an enhanced
brand platform. The Company agreed to pay $10,000 prior to the consulting
company commencing work, $7,500 upon delivery of the first stage and $7,500 upon
fulfillment of the contract.


                                      F-32
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
---------------------------------------------------

Consulting Agreement (Continued)
--------------------

During March 2001, the Company entered into a consulting agreement with a
company to provide financial advice and to arrange for equity investments or
other funding. The Company agreed to pay for such services by providing the
consultant with fees equal to (i) 5% of the gross amount of any cash financing
obtained for the Company, payable in cash; (ii) a number of shares of stock
equal to 10% of the stock issued in connection with any financing obtained for
the Company; and (iii) a number of warrants equal to 10% of the warrants issued
in connection with any financing obtained for the Company. The term of this
agreement was six months. Under the above terms, the Company granted warrants to
purchase 100,000 shares of common stock at an exercise price from $2.50 per
share to $10.00 per share. The exercise period is five years. The fair market
value of the stock warrants are estimated on the date of grant using the
Black-Scholes option-pricing model ranging from $.70 to $1.41 and totalled
$114,250.

In April 2001, the Company entered into a consulting agreement with a company
for a comprehensive level of international communications services. The Company
agreed to pay minimums of $15,000 per month plus related hard costs for services
and expenses. During May 2001, the Company and the consulting company mutually
agreed to cancel the above agreement.

In May 2001, the Company entered into a consulting agreement with a company for
providing consulting and advisory services in connection with strategic business
planning and related matters. The Company agreed to grant warrants to purchase
500,000 shares of common stock at an exercise price of $2.50 per share; 250,000
shares of common stock at an exercise price of $5.00 per share, and 250,000
shares of common stock at an exercise price at $10.00 per share. The exercise
period is five years. The fair value of stock warrants estimated on the date of
grant using the Black-Scholes Option-Pricing Model, ranged from $.32 to $1.73
per share, or $1,175,000, which was charged to operations during the year ended
October 2001. During October 2001, the Company granted additional warrants to
purchase 1,000,000 shares of common stock at an exercise price of $.25 per
share. The exercise period is five years. The fair value of these stock warrants
on the date of grant using the Black-Scholes Option-Pricing Model was $.38, or
$380,000, which was charged to operations during the year ended October 31,
2001.

On August 3, 2001, the Company entered into a consulting agreement to
collaborate with the Company's engineering consultants to expedite the design
and commercialization efforts of the Company's broad-band transmission
technology over telephone wire. In consideration of the above services, the
Company has paid the consultant $50,000. The term of this agreement was four
months with the option to renew for consecutive one-month terms. In September
2001, this consulting agreement was replaced by a Technology Planning and
Assistance Agreement between the Company and the engineering consultants,
whereby the Company agreed to pay the consultants a total of $250,000 in
exchange for the consultants' agreement to provide technical, consulting,
engineering, advisory and other services to the Company.


                                      F-33
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
---------------------------------------------------

Consulting Agreement (Continued)
--------------------

On August 30, 2001, the Company entered into a one-year consulting agreement
with an individual for providing consulting and advisory services in connection
with strategic business planning and related matters. The Company agreed to
grant options to this individual to purchase 750,000 shares of common stock at
an exercise price of $.27 per share. The fair value of stock warrants are
estimated on the date of grant using the Black-Scholes option-pricing model and
was valued at $540,000, of which $90,000 was charged to operations during the
year ended October 31, 2001. During September and October 2001, the above
options were exercised and the Company received $100,000, and the remaining
$100,000 was recorded as a subscription receivable and subsequently received by
the Company.

On August 24, 2001, the Company entered into a consulting agreement with a
communication company for providing capital formation, retail support and audio
webcast services. The Company agreed to pay a downpayment of $10,000, plus
25,000 shares of common stock due at the completion of first webcast, which was
August 31, 2001, and an additional 25,000 shares of common stock due at November
24, 2001. The first 23,000 shares were recorded for consulting services at fair
market value of $.95 per share, which totalled $23,750. An additional 750,000
shares of the Companys common stock were issued for additional consulting
services totalling $307,500.

During the fourth quarter ended October 31, 2001, the Company entered into four
consulting agreements with two companies and two individuals for providing
consulting, advisory and related services relating to the Company's business and
technology. The Company agreed to pay a total of 400,000 shares of the Company's
common stock for consulting services at fair market value, ranging from $.45 to
$.80 per share, which totalled $228,000.


                                      F-34
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
---------------------------------------------------

Employment Agreements
---------------------

On February 11, 2000, the Company entered into an employment agreement with its
current Chief Executive Officer. The agreement, effective April 1, 2000, is a
three-year employment contract with the Company that provides for base
compensation in the first contract year of $250,000; in the second contract
year, the base compensation of $300,000; and in the third year and during any
renewal term, the base compensation of $350,000. The employee is also entitled
to an annual bonus based upon his performance which will be at the sole
discretion of the Board of Directors. The annual bonus to the CEO shall be
payable in cash or in an amount of shares of the Company's common stock that
equals the amount of the bonus based upon the market price of the employer's
common stock on the date that the bonus is paid. During the second year of the
employment agreement, the CEO agreed to forego any increase in base salary until
the Company achieves certain revenue targets. As a result, his base salary has
remained $250,000.

On June 20, 2000, the Company entered into a three-year employment agreement
with its Executive Vice President commencing July 1, 2000, whereby the Executive
Vice President shall receive a base salary of $15,000 per year and options to
purchase 210,000 shares of common stock at $4.40 per share. Of these stock
options, 52,500 vested on October 31, 2000 and the balance vests straight-line
on the last day of each quarter beginning December 31, 2000 and ending December
31, 2002, or 17,500 per quarter. The options expire on July 1, 2005. This
employment agreement was cancelled as of January 1, 2002, when this executive
entered into a new employment agreement with the Company. See Note 14 -
Subsequent Events-Employment Agreement.

Joint Venture Production Agreement
----------------------------------

In April 2000, the Company entered into a joint venture production agreement to
produce a feature length film for theatrical distribution. The Company will
provide the funding for the production in the amount of $2,250,000 and, in
exchange, will receive a 50% share in all net profits from worldwide
distribution and merchandising, after receiving funds equal to its initial
investment of up to $2,250,000. The film is expected to be completed and ready
for a Summer 2002 release. The Company has agreed to deposit into a separate
account, on a monthly basis, funds to assure a minimum balance of $200,000 at
the beginning of each month, until the total of $2,250,000 has been deposited
into the account. For the years ended October 31, 2001 and 2000, the Company
funded approximately $1,269,000 and $585,000, respectively, of production and
other costs, which was included in projects under development in the
accompanying consolidated balance sheet.


                                      F-35
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
---------------------------------------------------

Leases
------

On January 3, 2000, the Company entered into an operating lease for office space
in San Diego, California. The lease commenced on February 1, 2000 and expires in
January 2005. The lease provides for a minimum annual rental of approximately
$54,000, with a 3% annual increase each year, starting on February 1, 2001 and
each year thereafter.

On May 4, 2001, the Company terminated an operating lease for office space in
Livermore, California, which commenced on March 1, 2000. Meanwhile, the Company
entered into an operating lease for office space in Pleasanton, California. The
lease commenced on June 1, 2001 and expires on May 31, 2004. The lease provides
for a minimum annual rental of approximately $120,000 for the first year and
$156,000 the following years. During August 2001, the Company reduced its rental
space and amended its lease agreement in Pleasanton, along with other proactive
measures to re-organize its technology development effects, and is currently in
negotiation to sublease a portion of this space. The amended lease provides for
a minimum annual agreement rental at approximately $43,000 for the first year,
$56,000 for the second year and $69,240 in the last year.

The Company's future minimum lease payments are as follows:

           Years Ending October 31:
           -----------------------

                    2002                       $  105,000
                    2003                          119,000
                    2004                          107,000
                    2005                            5,000
                    2006                             -
                                               ----------

                                               $  336,000
                                               ==========

Rent expense for the years ended October 31, 2001, 2000 and 1999 was $136,000,
$41,000 and $6,000, respectively.

Employee Terminations/Office Closing
------------------------------------

On August 3, 2001, the Company terminated the employment of the six employees
located at its office in Pleasanton, California, including the Company's former
chief operating officer and chief technology officer. The Company made $25,807
in severance payments in connection with the termination of employees other than
the former officers.


                                      F-36
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
---------------------------------------------------

Concentration of Credit Risk
----------------------------

The Company maintains cash balances in two financial institutions. The balances
are insured by the Federal Deposit Insurance Corporation up to $100,000 per
institution. From time to time, the Company's balances may exceed these limits.
At October 31, 2001 and 2000, uninsured cash balances were approximately
$226,665 and $$-0-, respectively. The Company believes it is not exposed to any
significant credit risk for cash.

NOTE 13 - SEGMENT INFORMATION
-----------------------------

Summarized financial information concerning the Company's reportable segments is
shown in the following table:
<TABLE>
For the Year Ended October 31, 2001:
-----------------------------------
<CAPTION>
                                          Telecommunication    Entertainment      Unallocable
                                               Business          Business          Expenses           Totals
                                          -----------------    -------------      -----------       -----------
<S>                                          <C>                <C>               <C>              <C>
    Net Sales                                $     -            $     -           $     -          $     -

    Operating Loss                           $ (846,902)        $     -           $ (8,645,682)    $ (9,492,584)

    Depreciation and Amortization            $2,059,960         $   16,893        $     87,793     $  2,164,646

    Interest expense                              -             $  307,500        $     29,898     $    337,378

    Total Identifiable Assets                $   57,723         $2,069,457        $    664,117     $  2,791,297

For the Year Ended October 31, 2000:
-----------------------------------

                                          Telecommunication    Entertainment      Unallocable
                                               Business          Business          Expenses           Totals
                                          -----------------    -------------      -----------       -----------

    Net Sales                               $     -             $    12,200       $     -          $     12,200

    Operating Loss                          $(8,494,636)        $     -           $(3,795,033)     $(12,289,669)

    Depreciation and Amortization           $   424,366         $    74,641       $    14,832      $    513,839

    Interest expense                        $    -              $     -           $    18,980      $     18,980

    Total Identifiable Assets               $    67,521         $   865,659       $   499,482      $  1,432,662
</TABLE>


For the year ended October 31, 1999, the Company's reportable segment consisted
of the entertainment business.


                                      F-37
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - SUBSEQUENT EVENTS
---------------------------

Common Stock
------------

As of January 15, 2002, the Company has received approximately $175,000 for the
issuance of 477,276 shares of common stock to investors.

The Company has subsequently issued 950,000 shares of its common stock in
connection with various consulting agreements which were valued at $493,948.

On November 5, 2001, the Company issued warrants to purchase 200,000 shares of
common stock to two companies related to a consulting agreement with two
investment bankers. The warrants can be exercised in forty-eight months at $.51.
By using the Black-Scholes option pricing model, the fair market value of these
warrants is $72,000.

Convertible Note Payable
------------------------

In December 2001, the Company entered into three convertible promissory note
agreements with three trusts, totalling $250,000. The Company agreed to pay the
principal and an amount equal to 50% of the principal sum if the Company reaches
certain milestone from the distribution of its motion picture, which is
currently in production. The notes may be converted at any time, in whole or in
part, into that number of fully paid and non-assessable shares of common stock
at a conversion price of $.40.

Employment Agreement
--------------------

On January 1, 2002, the Company cancelled its employment agreement with its
Executive Vice President dated June 20, 2000. The Company entered into a new one
year employment agreement at the same time, whereby the Executive Vice President
shall receive a base salary of $10,417 per month. The Executive Vice President
shall receive an annual bonus that will be applied to two promissory notes he
made in favor of the Company. The Executive Vice President owed $100,708 under
the first promissory note at October 31, 2001. The second note was issued to the
Company on January 1, 2002 for $67,631. All options granted and vested to the
Executive Vice President under the June 20, 2000 agreement shall be retained
(140,000 options) and any unvested options shall be cancelled.

Note Receivable from Related Parties
------------------------------------

On January 1, 2002, the Company converted advances of $67,631 to an officer to a
promissory note, payable on demand, at a rate of 7.0% per annum.

Expired Options
---------------

In November 2001, an aggregate of 78,500 options to purchase the Company's
common stock held by four former employees of NV Technology, Inc. was
terminated. Under the terms of the option agreements with these employees, the
options terminated three months after the employees were terminated. The
employees were terminated in August 2001. See "Note 12 - Commitments and
Contingencies - Employee Terminations/Office Closing."

                                      F-38
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
           (Formerly New Visual Entertainment, Inc. and Subsidiaries)
           (A Development-Stage Company Commencing November 1, 1999)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
NOTE 15 - QUARTERLY RESULTS (UNAUDITED)
---------------------------------------
<CAPTION>
                                                       Quarter Ended
                               ------------------------------------------------------------
                               January 31           April 30       July 31      October 31     Total Year
                               -----------        -----------    -----------    -----------    -----------
2001:
----
<S>                            <C>                <C>            <C>            <C>            <C>
Revenues                       $      -           $      -       $      -       $      -       $       -
Net loss                        (2,155,000)        (1,232,000)    (4,654,000)    (3,835,000)    (11,876,000)
Loss per share - basic
  and diluted   (a)                  $(.09)             $(.05)         $(.18)         $(.13)          $(.46)

2000:
----

Revenues                       $      -           $     6,800    $       900    $     4,500    $     12,200
Net loss                          (284,000) (a)    (8,546,000)    (1,564,000)    (2,331,000)    (12,725,000)
Loss per share - basic
  and diluted   (a)                  $(.02)             $(.39)         $(.07)         $(.12)          $(.59)
</TABLE>


(a) Per common share amounts for the quarters and full year have been calculated
separately. Accordingly, quarterly amounts do not add to the annual amount
because of differences in the weighted average common shares outstanding during
each period due to the effect of the Company's issuing shares of its common
stock during the year.






                                      F-39