<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2004

|_| 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                           (619) 692-0333
(Address of principal executive offices,         (Registrant's telephone number,
        including zip code)                            including area code)

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 [ ]

The number of shares of the issuer's Common Stock, par value $.001 per share,
outstanding as of June 21, 2004, was 78,604,866.



<PAGE>

PART I - FINANCIAL INFORMATION

            ITEM I - FINANCIAL STATEMENTS

                                   FORM 10-QSB

                             NEW VISUAL CORPORATION

                                 APRIL 30, 2004

                                TABLE OF CONTENTS

 PART   ITEM                                                                PAGE
  I   Financial Information:

         1.  FINANCIAL STATEMENTS:

             CONDENSED CONSOLIDATED BALANCE SHEET
               At April 30, 2004 (Unaudited)                                  2

             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
               For the Six and Three Months Ended April 30, 2004 and 2003    3-4

             CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
               (Unaudited)
                 For the Six Months Ended April 30, 2004                     5-6

             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
               For the Six Months Ended April 30, 2004 and 2003              7-8

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS           9-20

         2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS                                        21

         3.  CONTROLS AND PROCEDURES                                          23

  II  OTHER INFORMATION:
         1.  LEGAL PROCEEDINGS                                                24
         2.  CHANGES IN SECURITIES                                            24
         6.  EXHIBITS AND REPORTS ON FORM 8-K                                 24


                                       1


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (Unaudited)

                                     ASSETS
                                     ------

                                                               April 30, 2004
                                                               --------------

Current Assets:
  Cash                                                          $     22,868
  Other current assets                                                 6,644
                                                                -------------

      Total Current Assets                                            29,512

Property and equipment - net of accumulated
  depreciation of $429,203                                            32,518
Technology license and capitalized software
  development fee                                                  5,751,000
Film in distribution - net                                         2,055,998
Deferred financing costs                                             192,952
Other assets                                                          13,434
                                                                -------------

                                                                $  8,075,414
      Total Assets                                              =============

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

Current Liabilities:
  Convertible notes payable                                     $    873,000
  Notes payable                                                      752,310
  Convertible debentures, less debt discount of $988,888             111,112
   Accounts payable and accrued expenses                           1,604,400
                                                                -------------

      Total Current Liabilities                                    3,340,822

Redeemable Series B preferred stock                                3,192,000
                                                                -------------

      Total Liabilities                                            6,532,822
                                                                -------------
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                              --
  Common stock - $0.001 par value; 500,000,000 shares
    authorized; 78,604,866 issued and outstanding                     78,605
  Additional paid-in capital                                      54,093,805
  Unearned financing fees                                             (5,224)
  Unearned compensation                                             (525,000)
  Accumulated deficit                                            (52,099,594)
                                                                -------------

      Total Stockholders' Equity                                   1,542,592
                                                                -------------

      Total Liabilities and Stockholders' Equity                $  8,075,414
                                                                =============

            See notes to condensed consolidated financial statements.

                                       2


<PAGE>
<TABLE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                                        For the Six Months Ended
                                                               April 30,
                                                    --------------------------------
                                                        2004                2003
                                                    -------------      -------------
<S>                                                 <C>                <C>
REVENUES                                            $    170,843       $         --
                                                    -------------      -------------

OPERATING EXPENSES:
  Cost of sales                                           86,214                 --
  Research and development                                10,000             71,401
  Compensatory element of stock issuances
    for selling, general and administrative
    expenses                                           1,066,146          1,332,993
  Selling, general and administrative expenses         1.122,111            990,143
                                                    -------------      -------------

      TOTAL OPERATING EXPENSES                         2,284,471          2,394,537
                                                    -------------      -------------

OPERATING LOSS                                        (2,113,628)        (2,394,537)
                                                    -------------      -------------
OTHER (INCOME) EXPENSES:
  Interest expense                                       207,275            124,120
  Non-cash gain - litigation settlement                       --         (1,474,000)
  Amortization of unearned financing costs                94,709            210,151
  Other                                                     (905)                --
                                                    -------------      -------------

      TOTAL OTHER (INCOME) EXPENSES                      301,079         (1,139,729)
                                                    -------------      -------------

NET LOSS                                            $ (2,414,707)      $ (1,254,808)
                                                    =============      =============

BASIC AND DILUTED NET LOSS PER COMMON STOCK         $       (.03)      $       (.02)
                                                    =============      =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING                                         75,674,954         54,304,668
                                                    =============      =============

</TABLE>

            See notes to condensed consolidated financial statements.

                                       3


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                                  For the Three Months Ended
                                                           April 30,
                                               --------------------------------
                                                   2004                2003
                                               -------------      -------------

REVENUES                                       $     30,200                 --
                                               -------------      -------------
OPERATING EXPENSES:
  Cost of sales                                      14,820                 --
  Research and development                               --             31,401
  Compensatory element of stock issuances
    for selling, general and administrative
    expenses                                        316,565            727,838
  Selling, general and administrative
    expenses                                        537,525            491,415
                                               -------------      -------------

      TOTAL OPERATING EXPENSES                      868,910          1,250,654
                                               -------------      -------------

OPERATING LOSS                                     (838,710)        (1,250,654)
                                               -------------      -------------
OTHER (INCOME) EXPENSES:
  Interest expense                                  139,550             62,729
  Amortization of unearned financing costs            5,225            116,659
  Other                                                (905)                --
                                               -------------      -------------

      TOTAL OTHER EXPENSES                          143,870            179,388
                                               -------------      -------------

NET LOSS                                       $   (982,580)      $ (1,430,042)
                                               =============      =============

BASIC AND DILUTED NET LOSS PER COMMON STOCK    $       (.01)      $       (.02)
                                               =============      =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING                                    77,803,080         59,031,251
                                               =============      =============

            See notes to condensed consolidated financial statements.

                                       4


<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                             (UNAUDITED)
                               FOR THE SIX MONTHS ENDED APRIL 30, 2004

                                                    Common Stock                   Additional
                                             ---------------------------            Paid-In
                                                Shares          Amount              Capital
                                             ------------    -----------         ------------
<S>                                           <C>            <C>                  <C>
Balance - November 1, 2003                    70,676,682     $    70,677          $51,131,622

Issuance of common stock for cash              2,225,835           2,226              377,274
Issuance of common stock for
  extension of promissory notes and
  Interest                                       280,003             280               67,987
Issuance of common stock for deferred
  payroll                                        527,892             528              130,012
Issuance of common stock for
  compensation                                 1,049,999           1,050              244,949
Issuance of common stock under
  consulting agreements                        3,800,000           3,800              926,200
Issuance of common stock for services             44,455              44               10,521
Stock offering costs                                  --              --              (14,075)
Warrants issued with convertible
  debentures                                          --              --              470,082
Value assigned to beneficial conversions              --              --              629,918
Warrants issued to placement agent                    --              --              103,323
Value assigned to warrants issued for
  extension of convertible notes                      --              --               15,992
Amortization of unearned compensation
  expense                                             --              --                   --
Amortization of unearned financing costs              --              --                   --
Net loss                                              --              --                   --
                                             -----------     -----------          -----------

                                              78,604,866     $    78,605          $54,093,805
Balance - April 30, 2004                     ===========     ===========          ===========

</TABLE>

                      See notes to condensed consolidated financial statements.

                                                 5


<PAGE>
<TABLE>

                                         NEW VISUAL CORPORATION AND SUBSIDIARIES
                                CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                                       (UNAUDITED)
                                         FOR THE SIX MONTHS ENDED APRIL 30, 2004

                                               Unearned                                          Total
                                               Financing       Unearned        Accumulated    Stockholders'
                                                Costs        Compensation        Deficit         Equity
                                              -----------    ------------     -------------   ------------
<S>                                           <C>             <C>            <C>                <C>
Balance - November 1, 2003                    $  (15,674)     $  (404,582)   $(49,684,887)      $1,097,156

Issuance of common stock for cash                     --               --              --          379,500
Issuance of common stock for extension
  of promissory  notes and interest              (68,267)              --              --               --
Issuance of common stock for deferred
  payroll                                             --               --              --          130,540
Issuance of common stock for
  compensation                                        --         (245,999)             --               --
Issuance of common stock under
  consulting agreements                               --         (930,000)             --               --
Issuance of common stock for services                 --               --              --           10,565
Stock offering costs                                  --               --              --          (14,075)
Warrants issued with convertible
  debentures                                          --               --              --          470,082
Value assigned to beneficial
  conversions                                         --               --              --          629,918
Warrants issued to placement agent                    --               --              --          103,323
Value assigned to warrants issued for
  extension of convertible notes                 (15,992)              --              --               --
Amortization of unearned compensation
  expense                                             --        1,055,581              --        1,055,581
Amortization of unearned financing
  costs                                           94,709               --              --           94,709
Net loss                                              --               --      (2,414,707)      (2,414,707)
                                              -----------     ------------   -------------     ------------

                                              $   (5,224)     $  (525,000)   $(52,099,594)     $ 1,542,592
Balance - April 30, 2004                      ===========     ============   =============     ============

                                See notes to condensed consolidated financial statements.
</TABLE>
                                                           6


<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (UNAUDITED)

                                                                  For the Six Months Ended
                                                                          April 30,
                                                                   2004              2003
                                                               ------------      ------------
<S>                                                            <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                     $(2,414,707)      $(1,254,808)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
      Consulting fees and other compensatory elements of
        stock issuances                                          1,066,146         1,332,993
      Unusual item - gain on Litigation Settlement                      --        (1,474,000)
      Amortization of unearned financing costs                     117,580           210,151
      Amortization of film in production costs                      86,214                --
      Amortization on debt discount on notes                       111,112                --
      Depreciation                                                   8,783            18,247
    Change in Assets (Increase) Decrease:
      Other current assets                                          (1,629)          (25,964)
      Other assets                                                     398               707
    Change in Liabilities Increase (Decrease):
      Accounts payable and accrued expenses                         (10,740)         (296,774)
                                                               ------------      ------------

      NET CASH USED IN OPERATING ACTIVITIES                     (1,036,843)       (1,489,448)
                                                               ------------      ------------
CASH USED IN INVESTING ACTIVITIES

  Acquisition of license                                           (95,000)         (491,000)
                                                               ------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common stock                           379,500         2,024,707
  Offering costs related to stock issuances                        (14,075)         (129,217)
    Proceeds from convertible debentures                         1,100,000                --
  Proceeds from note payable                                        12,000                --
  Proceeds from convertible notes payable                               --           188,000
  Capitalized financing costs                                     (112,500)               --
  Repayments of convertible debentures                            (300,000)               --
  Repayments of notes payable                                           --          (231,096)
  Repayments of convertible notes payable                         (230,000)               --
                                                               ------------      ------------

      NET CASH PROVIDED BY FINANCING ACTIVITIES                    834,925         1,852,394
                                                               ------------      ------------

DECREASE IN CASH AND CASH EQUIVALENTS                             (296,918)         (128,054)

CASH AND CASH EQUIVALENTS - BEGINNING                              319,786           311,577
                                                               ------------      ------------

CASH AND CASH EQUIVALENTS - ENDING                             $    22,868       $   183,523
                                                               ============      ============

                      See notes to condensed consolidated financial statements.
</TABLE>
                                                 7


<PAGE>
<TABLE>

                               NEW VISUAL CORPORATION AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (UNAUDITED)

                                                               For the Six Months Ended
                                                                       April 30,
                                                                2004                2003
                                                            -----------         -----------
<S>                                                         <C>                 <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest                                                $     3,540         $    18,904
                                                            ===========         ===========
    Income taxes                                            $        --         $        --
                                                            ===========         ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Common stock issued for notes payable and accrued
    interest                                                $        --         $   256,250
                                                            ===========         ===========
  Common stock issued for extension of convertible
    notes payable                                           $    15,992         $        --
                                                            ===========         ===========
  Value assigned to warrants issued to placement
    agent                                                   $   103,323         $        --
                                                            ===========         ===========
  Accounts payable and accrued expenses satisfied by
    issuance of common stock                                $   130,011         $        --
                                                            ===========         ===========
  Value assigned to beneficial conversion in
    connection with the 7% convertible debenture            $   629,918         $        --
                                                            ===========         ===========
  Value assigned to warrants issued to purchasers
    of convertible debentures                               $   470,082         $        --
                                                            ===========         ===========

</TABLE>

                      See notes to condensed consolidated financial statements.

                                                 8


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1- PRINCIPLES OF CONSOLIDATION AND BUSINESS AND CONTINUED OPERATIONS

The condensed consolidated financial statements include the accounts of New
Visual Corporation and its wholly owned operating subsidiaries, NV
Entertainment, Inc. (including its 50% owned subsidiary Top Secret Productions,
LLC), Impact Multimedia, Inc. and NV Technology, Inc. (formerly New Wheel
Technology, Inc.) ("New Wheel") (collectively, the "Company"). All significant
inter-company balances and transactions have been eliminated. The Company
consolidates its 50% owned subsidiary Top Secret Productions, LLC due to the
Company's control of management, board of directors and financial matters.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
Unites States of America ("US GAAP"). In the opinion of management, the
accompanying unaudited financial statements contain all adjustments, consisting
only of those of a normal recurring nature, necessary for a fair presentation of
the Company's financial position, results of operations and cash flows at the
dates and for the periods indicated. These financial statements should be read
in conjunction with the financial statements and notes related thereto, included
in the Annual Report on Form 10-K for year ended October 31, 2003.

These results for the period ended April 30, 2004 are not necessarily indicative
of the results to be expected for the full fiscal year. The preparation of the
consolidated financial statements in conformity with US GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure 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.

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. With the
completion of the film "Step Into Liquid" and its revenue generation during the
fourth quarter of fiscal 2003 the Company was no longer considered a development
stage entity.

The Company operates in two business segments, the production of motion
pictures, films and videos (the "Entertainment Segment") and development of new
content telecommunications technologies (the "Telecommunication Segment"). The
success of the Company's Entertainment Segment is dependent on future revenues
from the film "Step Into Liquid." The success of the Telecommunications Segment
is dependent on the Company's ability to successfully commercialize its
semiconductor technology.

Through its subsidiary NV Entertainment the Company recorded operating revenues
for its Entertainment Segment, but may continue to report operating losses for
this segment. The Telecommunications Segment will have no operating revenues
until successful commercialization of its developed technology, but will
continue to incur substantial operating expenses, capitalized costs and
operating losses.

                                       9


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

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

Going Concern
-------------

The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going-concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. However, for the six and three months ended April 30, 2004,
the Company incurred net losses of $2,414,767 and $982,580, respectively. In
addition, the Company had a working capital deficiency of $3,311,310 as of April
30, 2004. The Company has limited capital resources and requires additional
funding in order to sustain its operations, accomplish its growth objectives and
market its planned 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 maintain operations or expand its planned operations. These factors
raise substantial doubt about the Company's ability to continue as a going
concern.

In December 2003, the Company completed a private placement of $1,000,000 of its
three-year 7% Convertible Debentures (the "Debentures"). Following the repayment
of the outstanding principal and accrued interest on short-term funding that was
to become due in April 2004 and other offering related expenses, the Company
received net proceeds of approximately $584,000. In addition the Company signed
commitments to place an additional $1,000,000 of Debentures following such time,
as the Securities and Exchange Commission (the "SEC") declares the registration
statement covering the common stock underlying the Debentures, which the Company
filed in February 2004, (and subsequently amended in April 2004), effective. In
April and May 2004, certain holders of the Debentures waived the registration
statement effectiveness condition and purchased an aggregate of $350,000 of
Debentures, thus satisfying their post effectiveness commitments. In June 2004,
the SEC advised the Company that it may not include in the registration
statement any of the shares underlying the Debentures issued after the filing of
such registration statement in February 2004. Accordingly, the Company will not
be placing any additional Debentures under this transaction. See Note 6,
"Convertible Debentures." The Company needs to raise approximately $400,000 on
an immediate basis in order to maintain its operations as presently conducted
through fiscal 2004. The Company currently has no commitments for any funding
and no assurance can be provided that the Company will be successful in raising
any of the needed funds. The inability to obtain needed funding will have a
material adverse effect on the Company. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty and these adjustments may be material.

The Company's ability to continue as a going concern is dependent upon obtaining
additional financing. Management believes that the Company will need to raise an
additional $3,000,000 to $4,000,000 to complete the design, testing and commence
the commercialization of its Semiconductor Technologies. The Company has no
commitments for such amounts nor can any assurance be provided that the Company
will be successful in raising needed amounts on commercially acceptable terms or
at all.

These condensed consolidated 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.

                                       10


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Film In Distribution
--------------------

Statement of Position 00-2, "Accounting by Producers or Distributors of
Films" ("SOP-00-2") 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-00-2 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). The Company makes certain estimates
and judgments of its future gross revenue to be received for each film based on
information received by its distributors, historical results and management's
knowledge of the industry. Revenue and cost forecasts are continually reviewed
by management and revised when warranted by changing conditions. A change to the
estimate of gross revenues for an individual film may result in an increase or
decrease to the percentage of amortization of capitalized film costs relative to
a previous period.

In addition, SOP-00-2 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 film's fair value.

The Company commences amortization of capitalized film costs and accrues
(expenses) participation costs when a film is released and it begins to
recognize revenue from the film. The Company had amortization costs of $14,820
and $86,214 for the three and six months ended April 30, 2004, respectively.

The Company did not amortize any production costs during the three or six months
ended April 30, 2003 since the film was not in distribution.

                                       11


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

The Company recognizes film revenue from the distribution of its feature film
and related products when earned and reasonably estimable in accordance with
SOP
00-2 -- "Accounting by Producers or Distributors of Films." The following
conditions must be met in order to recognize revenue in accordance with SOP
00-2:

     o    persuasive evidence of a sale or licensing arrangement with a customer
          exists;
     o    the film is complete and, in accordance with the terms of the
          arrangement, has been delivered or is available for immediate and
          unconditional delivery;
     o    the license period of the arrangement has begun and the customer can
          begin its exploitation, exhibition or sale;
     o    the arrangement fee is fixed or determinable; and
     o    collection of the arrangement fee is reasonably assured.

Under a rights Agreement with Artisan Pictures, Inc. ("Artisan"), the Company's
domestic distributor for its feature length film entitled "Step into Liquid",
the Company shares with Artisan in the profits of STEP INTO LIQUID after Artisan
recovers its marketing, distribution and other predefined costs and fees. The
agreement provides for the payment of minimum guaranteed license fees, usually
payable on delivery of the respective completed film, that are subject to
further increase based on the actual distribution results in the respective
territory. The Company recorded revenues of $30,200 and $170,843 for the quarter
ended and six months ended April 30, 2004. There were no revenues for the
quarter and six months ended April 30, 2003.

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.

Capitalized Software Development Costs
--------------------------------------

Capitalization of computer software development costs begins upon the
establishment of technological feasibility. Technological feasibility for the
Company's computer software is generally based upon achievement of a detail
program design free of high-risk development issues and the completion of
research and development on the product hardware in which it is to be used. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized computer software development costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenue, estimated economic life and changes in software and hardware
technology.

                                       12


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Capitalized Software Development Costs (Continued)
---------------------------------------------------

Amortization of capitalized computer software development costs commences when
the related products become available for general release to customers.
Amortization is provided on a product-by-product basis. The annual amortization
is the greater of the amount computed using (a) the ratio that current gross
revenue for a product bears to the total of current and anticipated future gross
revenue for that product, or (b) the straight-line method over the remaining
estimated economic life of the product.

The Company periodically performs reviews of the recoverability of such
capitalized software costs. At the time a determination is made that capitalized
amounts are not recoverable based on the estimated cash flows to be generated
from the applicable software, the capitalized costs of each software product is
then valued at the lower of its remaining unamortized costs or net realizable
value.

The Company has no amortization expense for the six months ended April 30, 2004
and 2003 for its capitalized software development costs as the technology was
not available for commercialization.

Series B Redeemable Preferred Stock
-----------------------------------

Series B Redeemable Preferred Stock, which includes characteristics of both
liabilities and equity, is classified as a long-term liability in accordance
with the provisions of SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity."

Net Income (Loss) Per Common Share
----------------------------------

Basic net loss per share of common stock is computed based on the 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. For the period ended April 30, 2004
and 2003, no effect has been given to outstanding options, warrants or
convertible debentures in the diluted computation, as their effect would be
anti-dilutive.

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

The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 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 for stock-based compensation relative to the Company's
employees. Stock and options granted to other parties in connection with
providing goods and services to the Company are accounted for under the fair
value method as prescribed by SFAS 123.

                                       13


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-Based Compensation (Continued)
----------------------------------

In December 2002, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure -
an Amendment of FASB Statement No. 123". This statement amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation. In
addition, SFAS No.148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 also requires that
those effects be disclosed more prominently by specifying the form, content, and
location of those disclosures.

<TABLE>

                                                             For the Six                          For the Three
                                                             Months Ended                         Months Ended
                                                               April 30,                            April 30,
                                                     -------------------------------    ---------------------------------
                                                         2004             2003                2004             2003
<S>                                                   <C>              <C>                 <C>              <C>
Net loss, as reported                                 $(2,414,707)     $(1,254,808)        $  (982,580)     $(1,430,042)

Add:  Stock-based employee compensation
  expense included in reported net loss                        --               --                  --               --

Less: Total stock-based employee compensation
  expense determined under the fair value-based
  method of all awards                                    (80,000)        (713,374)                 --         (713,374)
                                                      ------------     ------------        ------------     ------------
Proforma net loss                                     $(2,494,707)     $(1,968,182)        $  (982,580)     $(2,143,416)
                                                      ============     ============        ============     ============
Basic and Diluted Net Loss per Common Stock:

        As reported                                   $     (0.03)     $     (0.02)        $     (0.01)     $     (0.02)
                                                      ============     ============        ============     ============
        Proforma                                      $     (0.03)     $     (0.04)        $     (0.01)     $     (0.04)
                                                      ============     ============        ============     ============

</TABLE>

                                       14


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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


In January 2003, the FASB issued Interpretation Number 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). This interpretation of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest entity
("VIE") established by means other than voting interests. FIN No. 46 also
requires consolidation of a VIE by an enterprise that holds such a controlling
interest. In December 2003, the FASB completed its deliberations regarding the
proposed modification to FIN No. 46 and issued Interpretation Number 46(R),
"Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51"
("FIN No. 46(R)"). The decisions reached included a deferral of the effective
date and provisions for additional scope exceptions for certain types of
variable interests. Application of FIN No. 46(R) is required in financial
statements of public entities that have interests in VIEs or potential VIEs
commonly referred to as special-purpose entities for periods ending after
December 15, 2003. Application by public small business issuers' entities is
required in all interim and annual financial statements for periods ending after
December 15, 2004. The adoption of FIN No. 46(R) is not expected to have an
impact on the Company's consolidated financial position, results of operations
or cash flows.

NOTE 3 - FILM IN DISTRIBUTION

In April 2000, the Company entered into a joint venture production agreement to
produce a feature length film ("Step Into Liquid") for theatrical distribution.
The Company agreed to provide the funding for the production in the amount of up
to $2,250,000 and, in exchange, received 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. As of April 30, 2004 the Company has
funded a net of $2,335,101 for completion of the film. The film is currently in
distribution. The Company has recognized revenues of $30,200 and $170,843 for
the three months and six months ended April 30, 2004, respectively. The
Company's management believes revenues from the film will be more than adequate
to cover the capitalized production costs. The Company had amortization costs of
$14,820 and $86,214 for the three months and six months ended April 30, 2004,
respectively, for the film. The total film production costs and related amounts
capitalized are as follows:

<TABLE>
                                                                        April 30, 2004
                                                                        --------------
<S>                                                                       <C>
Released films                                                            $2,335,101

Less:  Cumulative amortization of film production costs                      279,103

          Total film production costs capitalized for released films       2,055,998

Films in production                                                               --

Films in development or pre-production                                            --
                                                                          ----------

          Total Film Production Costs Capitalized                         $2,055,998
                                                                          ==========
</TABLE>

                                       15


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 3 - FILM IN DISTRIBUTION (Continued)

Based on anticipated future revenues, amortization of the costs of the films in
distribution are estimated to be:

                    For the years ending
                        October 31,                               Amount
                    -------------------------                  -----------
                           2004 (6 months)                     $ 1,675,275
                           2005                                    126,908
                           2006                                    101,526
                           2007                                    152,289
                                                               -----------
                           Total                               $ 2,055,998
                                                               ===========

NOTE 4 - DEFERRED FINANCING COST

At April 30, 2004, deferred financing cost consists of costs incurred in
connection with the sale of $1,100,000 of 7% convertible debentures (Note 6).

           Deferred financing cost                                   $215,823
           Less :  Accumulated amortization                           (22,871)
                                                                     ---------
                     Deferred Financing Cost, net                    $192,952
                                                                     =========

Amortization of deferred financing cost for the six months ended April 30, 2004
was $22,871.

NOTE 5 - CONVERTIBLE NOTES PAYABLE

The Company entered into several convertible promissory note agreements with
various trusts and individuals, in which it agreed to pay the principal and an
additional amount equal to 50% of the principal. The notes are due when the
Company reaches certain milestones from the distribution of its motion picture
(Note 3). 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 conversion
prices ranging from $.33 to $1.00. These and the Company's other notes are
summarized in the table below:

                                                           April 30, 2004
                                                           --------------
Note payable (1)                                             $  200,000
Notes payable (ten notes) (2)                                   483,000
Note payable, 9% interest (3)                                    10,000
Notes payable (four notes), 12% interest (4)                    180,000
                                                             ----------
Total                                                        $  873,000
                                                             ==========

(1)      Due when receipts received by the Company from the joint venture exceed
         $375,000.
(2)      Due when receipts received by the Company from the joint venture exceed
         $2,250,000.
(3)      Due when receipts received by the Company from the joint venture exceed
         $750,000.
(4)      Notes had an original due date of November 21, 2003. The note holders
         extended the due date to January 7, 2004 in exchange for 160,000 shares
         of common stock. In January 2004 the Company paid $180,000 of principal
         payments and issued 120,003 of shares of common stock in exchange for
         further extending the due date of the notes until the next round of
         financing is completed. In addition the Company granted warrants to
         purchase 120,003 shares of common stock (see Note 7)

                                       16


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 6 - 7% CONVERTIBLE DEBENTURES

In December 2003, the Company completed a private placement to certain private
and institutional investors of $1 million in principal amount of its three year
7% Convertible Debentures (the "Debentures") and signed commitments to place an
additional $1,000,000 of such Debentures (the "Additional Debentures") when the
Company's registration statement (the "Registration Statement") covering the
Common Stock underlying the Debentures, filed on February 11, 2004 and amended
on April 28, 2004, is declared effective by the SEC. In April 2004, certain
holders of the Debentures waived the registration statement effectiveness
condition and purchased $100,000 in principal amount of Debentures, satisfying
their post effectiveness commitments. In June 2004, the SEC advised the Company
that it may not include in the registration statement any of the shares
underlying the Debentures issued after the filing of such registration statement
in February 2004. As an effective Registration Statement covering the shares
underlying the Additional Debentures is a condition to the investors' purchase
of the Additional Debentures, the Company does not anticipate that it will be
placing any Additional Debentures in connection with this transaction. The
Company intends to shortly file a revised Registration Statement in connection
with the shares underlying the $1,000,000 in principal amount of Debentures
issued in December 2003. The Company anticipates that it will file at a later
date a subsequent registration statement in respect of the shares underlying the
Debentures issued in April.

In connection with the issuance of the Debentures in December 2003, the Company
issued five-year warrants to purchase up to 6,666,667 shares of the Company's
Common Stock, at a per share exercise price of $0.25, subject to cashless
exercise provisions. In connection with the issuance of the Debentures in April,
the Company issued five-year warrants to purchase up to 666,666 shares of the
Company's Common Stock, at a per share exercise price of $0.25, subject to
cashless exercise provisions.

The holders of the debentures can convert their debt into shares of the
Company's common stock at $.15 per share subject to certain dilution
adjustments.

Accrued interest under the debentures may be paid in cash or Common Stock. In
the event of an uncured default, as defined, or a non-permitted sale of
securities, the holders of the Debenture can require the Company to redeem their
Debentures. Providing that the certain conditions are met, the Debentures
automatically convert into common shares on the third anniversary of issuance.
In addition, under certain circumstances, the Company can require the conversion
of the Debentures before such time.

The gross proceeds of the $1,000,000 in December of 2003 were allocated 57.73%
or $577,259 to the debenture and 42.27% or 422,741 to the warrants. The
conversion price of the debentures was below the market price of the Company's
common stock at December 31, 2003, which resulted in a beneficial conversion
feature relating to the first $1,000,000 of $577,259. In Accordance with EITF
00-27 the amount allocated to the beneficial conversion feature was limited to
the net proceeds of the offering less the value allocated to the warrants issued
to the purchasers.

The gross proceeds of the $100,000 in April of 2004 were allocated 52.66% or
$52,659 to the debenture and 47.34% or 47,341 to the warrants. The conversion
price of the debentures was below the market price of the Company's common stock
at April 20, 2004, which resulted in a beneficial conversion feature of $52,659.
In Accordance with EITF 00-27 the amount allocated to the beneficial conversion
feature was limited to the net proceeds of the offering less the value allocated
to the warrants issued to the purchasers.

The amount allocated to the warrants of $470,082 and the amount of the
beneficial conversion feature of $629,918 were both recorded as a debt discount
and are being charged to interest expenses over the term of the Debentures.

In connection with this private placement, the Company issued to the placement
agent warrants to purchase 733,333 shares of the Company's Common Stock valued
at $103,323 and incurred $112,500 of other debt issuance costs. Such amount was
recorded as deferred financing costs and is being charged to interest expense
over the term of the loan. The warrants to purchase 666,667 shares of common
stock expire on December 31, 2008 and the warrants to purchase 66,666 shares of
common stock expire on April 20, 2009. In each case, the warrants are
exercisable at $.15 per share.

                                       17


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 6 - 7% CONVERTIBLE DEBENTURES DUE DECEMBER 31, 2006 (Continued)

The Company paid in full ($300,000 plus $3,540 of accrued interest) the 7%
convertible debenture due April 30, 2004 out of the proceeds it received from
the above December 31, 2003 private placement.

NOTE 7 - STOCKHOLDERS' EQUITY

Common Stock Issuances During the Six Months Ended April 30, 2004:
------------------------------------------------------------------

During the six months ended April 30, 2004, the Company:

         o        issued 280,003 shares of common stock valued at $68,267 as
                  consideration for the extension of the due date of certain
                  convertible notes payable;
         o        issued 527,892 shares of common stock for deferred
                  compensation of $130,540;
         o        issued 1,049,999 shares of common stock for compensation to
                  four officers valued at $245,999;
         o        issued 3,800,000 shares of common stock for consulting
                  services valued at 930,000; and
         o        issued 44,455 shares of common stock to a vendor for services
                  valued at $10,565.
         o        issued 2,225,835 shares to various investors for cash proceeds
                  of $379,500.

Warrants Granted
----------------

On December 31, 2003 the Company issued warrants to purchase 6,666,667 shares of
its Common Stock at an exercise price of $.25 in connection with the placement
of $1,000,000 of Debentures (see note 6).

On December 31, 2003 the Company issued a warrant to purchase 666,667 shares of
its Common Stock at an exercise price of $.15 to the placement agent in
connection with the placement of $1,000,000 of Debentures. The fair value of the
stock warrants estimated on the date of grant using the Black-Scholes option
pricing model is $.14 per share or $93,333 (see note 6).

The Company granted to four convertible note holders warrants to purchase
120,003 shares of its Common Stock at an exercise price of $.25 in connection
with the extension of the convertible notes due date. The fair value of the
stock warrants estimated on the date of grant using the Black-Scholes option
pricing model is $.13 per share or $15,992.

On April 20, 2004 the Company issued warrants to purchase 666,666 shares of its
Common Stock at an exercise price of $.25 in connection with the $100,000 of
Debenture (see note 6).

On April 20, 2004, the Company granted a warrant to purchase 66,666 shares of
its Common Stock at the exercise price of $.15 to the placement agent in
connection with the placement of $100,000 of Debenture. The fair value of the
stock warrants estimated on the date of grant using the Black-Scholes option
pricing model is $.15 per share or $9,990.

                                       18


<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 8 - COMMITMENTS AND CONTINGENCIES

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

Securities that could potentially dilute basic earnings per share ("EPS") 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                                      9,886,665
Options to purchase common stock                                       6,378,750
Convertible notes payable and accrued interest                         2,675,055
7% convertible debenture due December 31, 2006                         7,333,333
Series B Preferred stock (based on a floor conversion
     price of $.34 at April 30, 2004)                                  9,388,235
                                                                       ---------
               Total as of April 30, 2004                             35,662,038
                                                                      ==========

Substantial issuance after April 30, 2004 through June 16, 2004:
   Common Stock issuable in connection with May 2004 250,000
   convertible note and warrants                                       3,500,000
                                                                      ==========
NOTE 9 - SEGMENT INFORMATION

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

<TABLE>
For the six months ended April 30, 2004:

                               Telecommunications   Entertainment
                                   Business            Business      Unallocable        Totals
                               -------------------------------------------------------------------
<S>                               <C>               <C>              <C>               <C>
Net Sales                         $        --       $   170,843      $        --       $   170,843

Operating (Loss) Income           $  (172,560)      $     4,432      $(1,945,500)      $(2,113,628)

Depreciation                      $     1,994       $     6,789      $        --       $     8,783

Total Identifiable Assets at
    April 30, 2004                $ 5,952,388       $ 2,090,119      $    32,907       $ 8,075,414
</TABLE>

                                       19


<PAGE>

                    NEW VISUAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 9 - SEGMENT INFORMATION (Continued)

<TABLE>
For the six months ended April 30, 2003:

                           Telecommunications  Entertainment
                                Business         Business      Unallocable     Totals
                           ---------------------------------------------------------------
<S>                            <C>             <C>             <C>             <C>
Net Sales                     $        --      $       --      $        --     $        --

Operating Loss                $(1,201,532)     $   (9,598)     $(1,183,407)    $(2,394,537)

Depreciation and
  amortization                $   168,655      $    9,598      $     1,208     $   179,461

Total Identifiable Assets
    at October 31, 2003       $ 5,765,459      $2,243,154      $   202,644     $ 8,211,257


For the three months ended April 30, 2004:

                           Telecommunications  Entertainment
                                Business         Business      Unallocable     Totals
                           ---------------------------------------------------------------
Net Sales                      $       --      $   30,200      $       --      $   30,200

Operating Income (Loss)        $  (12,080)     $    3,505      $ (830,135)     $ (838,710)

Depreciation                   $      835      $    3,500      $       --      $    4,335

Total Identifiable Assets      $5,952,388      $2,090,119      $   32,907      $8,075,414

For the three months ended April 30, 2003:

                           Telecommunications  Entertainment
                                Business         Business      Unallocable     Totals
                           ---------------------------------------------------------------
Net Sales                     $        --      $       --      $       --      $        --

Operating Income (Loss)       $(1,164,594)     $   (6,536)     $  (79,524)     $(1,250,654)

Depreciation                  $    84,491      $    6,536      $       63      $    91,090

Total Identifiable Assets     $ 5,765,459      $2,243,154      $  202,644      $ 8,211,257

</TABLE>

NOTE 10 - SUBSEQUENT EVENTS

In May 2004, certain Debenture holders waived the registration statement
effectiveness condition and purchased Debentures in the aggregate principal
amount of $250,000. In connection with such purchase, the Company issued to
these holders five year warrants to purchase 1,666,667 shares of its common
stock at a per share exercise price of $0.25, subject to cashless exercise
provisions. Under certain conditions, the warrant exercise period may be
reduced. The Company anticipates that it will file at a later date a subsequent
registration statement in respect of the shares underlying the Debentures issued
in May.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following discussion in conjunction with our financial
statements and the notes thereto included elsewhere herein. All statements in
this Form 10-QSB related to New Visual Corporation and Subsidiaries ongoing
financial operations and expected future results constitute forward-looking
statements. The actual results may differ materially from those anticipated or
expressed in such statements.

OVERVIEW

New Visual Corporation ("New Visual" or the "Company") is developing advanced
transmission technology designed to enable data to be transmitted across copper
wire at speeds and over distances that exceed those offered by existing forms of
broadband technologies, such as digital subscriber lines (collectively, the
"Semiconductor Technologies"). The Semiconductor Technologies are designed to
dramatically increase the capacity of the copper telephone network, enabling
telephone companies to leverage their existing copper wiring infrastructure and
provide enhanced video, data and voice services over the existing copper
telecommunications infrastructure. The Company conducts the Semiconductor
Technologies activities through our wholly owned subsidiary NV Technology, Inc.,
a Delaware corporation ("NV Technology").

In April 2000, our wholly owned subsidiary, NV Entertainment, Inc. a Delaware
company ("NV Entertainment") entered into a joint venture production agreement
to produce "STEP INTO LIQUID", a feature length surfing documentary for
theatrical distribution (the "Film"). NV Entertainment is a fifty-percent owner
of Top Secret Productions, LLC, the producer of the Film. The Film opened in
Hawaii, New York and Los Angeles on August 8, 2003 and played in more than 100
theaters across the United States during its 5-month theatrical run. With the
completion of the film "Step Into Liquid" and its revenue generation during the
fourth quarter of fiscal 2003 we are no longer considered a development stage
entity. Our Semiconductor Technologies have generated no revenues to date.

                                       20


<PAGE>

FILM. The Film has completed its domestic theater run grossing approximately
$3.7 million in box office revenues. As of April 30, 2004, the Compamy has
received revenue distributions in the aggregate amount of approximately
$551,000. The Film is currently being distributed to foreign markets for
theatrical sales and to the United States market for DVD and cable television
pay-per-view sales. The Company anticipates revenues in fiscal 2004 will exceed
fiscal 2003 revenues as we anticipate additional foreign revenues, television
rights and DVD sales. The DVD was released in the United States in April 2004.
After 2004, the Company expects that revenues from the film will decline. All
references henceforth to our business relating to the Film will sometimes be
referred to in this report as the "Entertainment Business."

SEMICONDUCTOR TECHNOLOGIES. We continued development of our Semiconductor
Technologies during the past quarter and are moving closer to having a
semiconductor chip available. Currently, we estimate that we will need to raise
an additional $3 million to $4 million in order to complete the design and
commercialization of the Semiconductor Technologies, produce a semiconductor
chip and market the chip. We currently have no commitments for the additional
amounts and no assurance can be given that we will be able to raise these
amounts on commercially acceptable terms or at all.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE AND SIX MONTHS ENDED APRIL 30, 2004 AND THE THREE AND
SIX MONTHS ENDED APRIL 30, 2003

REVENUES.

Revenues for the quarter and six months ended April 30, 2004 of $30,200 and
$170,844 respectively, were from guarantee fees from foreign distribution of the
Film. There were no revenues for the quarter and six months ended April 30,
2003.

OPERATING EXPENSES.

Operating expenses decreased $382,000 to $869,000 for the quarter ended April
30, 2004 as compared to the corresponding quarter in 2003, primarily as a result
of a decrease in the compensatory element of stock issuances for selling,
general and administrative expenses ($415,000), slightly offset by an increase
in selling, general and administrative expenses ($50,000). Operating expenses
decreased approximately $100,000 to $2,300,000, for the six months ended April
30, 2004 as compared to the corresponding six months in 2003, primarily as a
result of a decrease in the compensatory element of stock issuances for selling,
general and administrative expenses ($300,000), slightly offset by an increase
in selling, general and administrative expenses ($100,000).

OTHER (INCOME) EXPENSES.

Other (Income) Expenses decreased approximately $36,000 for the quarter ended
April 30, 2004 from the corresponding quarter in 2003 primarily as a result of a
decrease in the amortization of unearned financing costs ($111,000), offset by
an increase in interest expense ($77,000). The six months ended April 30, 2003
included a non-recurring gain in litigation settlement of $1,474,000. Excluding
this settlement, other expenses for the comparable six month period ended April
30, 2004 was approximately the same. However, for the six months ended April 30,
2004 operating expenses decreased approximately $110,000 as compared to the six
months ended April 30, 2003, primarily due to an adjustment for the amortization
of unearned financing costs.

                                       21


<PAGE>

NET INCOME (LOSS)

The Company generated net loss for the six months ended April 30, 2003 of
$1,200,000 as a result of the litigation settlement of $1,500,000 discussed
above. Excluding this litigation settlement, the Company lost $2,700,000 for the
six month period ended April 30, 2003, compared to a loss of $2,400,000 for the
same six month period ended April 30, 2004. The Company generated net loss for
the quarter ended April 30, 2004 of $982,000 compared to a loss for the quarter
ended April 30, 2003 of $1,430,000.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was approximately $1,000,000 for the six
months ended April 30, 2004 and $1,500,000 for the six months ended April 30,
2003. Cash balances totaled $23,000 as of April 30, 2004 and $320,000 as of
October 31, 2003.

Since November 1, 1999, operations have been financed principally through sales
of Common Stock, the exercise of warrants and options to purchase common stock,
and the issuance of convertible notes payable and notes payable. Net proceeds
from financing activities amounted to approximately $835,000 for the six months
ended April 30, 2004, primarily due to proceeds from convertible debentures
amounting to $1,000,000. The Company also repaid $530,000 of debt during the
first six months of fiscal 2004 and incurred approximately $14,000 in offering
costs related to stock issuances. Net proceeds from financing activities
amounted to $1,852,000 for the six months ended April 30, 2003. The Company also
incurred $112,500 of capitalized financing costs related to the $1,000,000
convertible debentures.

Stock was issued in the payment of selling, general and administrative expenses
amounting to approximately $1,100,000 for the six months ended April 30, 2004
and approximately $1,300,000 for the six months ended April 30, 2003.

Research and development expenses totaled $ 10,000 for the six months ended
April 30, 2004 and $40,000 for the six months ended April 30, 2003.

In December 2003, the Company completed a private placement to certain private
and institutional investors of $1 million in principal amount of its three year
7% Convertible Debentures (the "Debentures") and signed commitments to place an
additional $1 million of such Debentures (the "Additional Debentures") when the
Company's registration statement (the "Registration Statement") covering the
Common Stock underlying the debentures, filed on February 11, 2004 and
subsequently amended on April 28, 2004, is declared effective by the Securities
and Exchange Commission. In connection with the issuance of the Debentures, the
Company issued five-year warrants (the "Warrants") to purchase up to 6,666,667
shares of the Company's Common Stock. In April and May 2004, certain holders of
the Debentures waived the registration statement effectiveness condition and
purchased an aggregate of $350,000 in principal amount of Additional Debentures.
In connection with these post filing Debenture purchases, the Company issued
warrants for 2,333,334 shares of the Company's Common Stock. In each case, the
Warrants are at a per share exercise price of $0.25 (the "Warrants"), subject to
cashless exercise provisions; provided that the exercise period may be reduced
under certain conditions (primarily relating to the effectiveness of the
Registration Statement and the closing bid price of the Common Stock exceeding
$1.00 for each of 20 consecutive trading days). In June 2004, the SEC advised
the Company that it may not include in the registration statement any of the
shares underlying the Debentures issued after the filing of such registration
statement in February 2004. As an effective Registration Statement covering the
shares underlying the Additional Debentures is a condition to the investors'
purchase of the Additional Debentures, the Company does not anticipate that it
will be placing any additional Debentures in connection with this transaction.

The Company needs to raise a minimum of $400,000 on an immediate basis in order
to maintain its operations as presently conducted through fiscal 2004. The
Company has no commitments for any such financing, and there can be no assurance
that the financing will be available to us on commercially acceptable terms or
at all. The inability to obtain such financing will have a material adverse
effect on our business, its operations and future business prospects. It is also
anticipated that any successful financing will have a significant dilutive
effect on existing stockholders.

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<PAGE>

GOING CONCERN CONSIDERATION

The Company has incurred losses in each of its years of operation, negative cash
flow and liquidity problems. These conditions raise substantial doubt about the
Company's 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 the Company be unable to
continue as a going concern.

The Company has been able to continue based upon our receipt of funds from the
issuance of equity securities and borrowings, including the additional
Debentures purchased following the filing of the registration statement in
February 2004, and by acquiring assets or paying expenses by issuing stock. The
Company's continued existence is dependent upon its continued ability to raise
funds through the issuance of its securities or borrowings, and its 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. There
can be no guarantee that financing will be available on commercially acceptable
terms, or at all.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued Interpretation Number 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). This interpretation of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest entity
("VIE") established by means other than voting interests. FIN No. 46 also
requires consolidation of a VIE by an enterprise that holds such a controlling
interest. In December 2003, the FASB completed its deliberations regarding the
proposed modification to FIN No. 46 and issued Interpretation Number 46(R),
"Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51"
("FIN No. 46(R)"). The decisions reached included a deferral of the effective
date and provisions for additional scope exceptions for certain types of
variable interests. Application of FIN No. 46(R) is required in financial
statements of public entities that have interests in VIEs or potential VIEs
commonly referred to as special-purpose entities for periods ending after
December 15, 2003. Application by public small business issuers' entities is
required in all interim and annual financial statements for periods ending after
December 15, 2004. The adoption of FIN No. 46(R) is not expected to have an
impact on the Company's consolidated financial position, results of operations
or cash flows.

ITEM 3. CONTROLS AND PROCEDURES.

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, and that
such information is accumulated and communicated to the Company's management, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with participation of management,
including our Chief Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures were
effective.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING . During the quarter ended
April 30, 2004, there have been no changes in our internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, these controls.

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                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

         During the three months ended April 30, 2004, the Company issued
unregistered securities as follows:

         (i) In February 2004, the Company issued to

(A) a then executive officer 83,892 shares of Common Stock valued at $19,460 of
which 63,818 shares were issued as salary valued at $14,040, per his employment
agreement, and 20,074 shares were issued as a performance bonus;

(B) a non-management employee 4,000 shares of Common Stock valued at $1,080
issued as a performance bonus;

(C) to a service provider 29,455 shares of Common Stock in consideration of
services rendered; and

(D) eight investors a total of 1,033,334 shares of Common Stock for aggregate
consideration of $155,000.

         (ii) In April 2004, the Company issued to two of the Debenture Holders
$100,000 in principal amount of our three-year 7% Convertible Debentures,
following such holders' waiver of the registration statement effectiveness
condition.

All of the securities issued in the transactions described above were issued
without registration under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act or Regulation S under such
Securities Act. Except with respect to securities sold under Regulation S, the
recipients of securities in each such transaction acquired the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof. Appropriate legends were affixed to the share certificates
issued in all of the above transactions. The Company believes the recipients
were all "accredited investors" within the meaning of Rule 501(a) of Regulation
D under the Securities Act, or had such knowledge and experience in financial
and business matters as to be able to evaluate the merits and risks of an
investment in its common stock. All recipients had adequate access, through
their relationships with the Company and its officers and directors, to
information about the Company. None of the transactions described above involved
general solicitation or advertising.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

31. Rule 13a-14(a) / 15d-14(a) Certification *

32. Section 1350 Certification *

(b) Reports on Form 8-K:

  8-K filed on May 13, 2004 announcing that certain investors have waived the
registration requirement

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<PAGE>

                                   SIGNATURES

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

                                            NEW VISUAL CORPORATION
                                                 (Registrant)

DATED:   JUNE 21, 2004        BY: /S/ BRAD KETCH
                               --------------------------------------------
                               BRAD KETCH
                               PRESIDENT AND CHIEF EXECUTIVE OFFICER
                               (CHIEF EXECUTIVE AND PRINCIPAL FINANCIAL AND
                               ACCOUNTING OFFICER)

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