<PAGE>

================================================================================


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

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

                                    FORM 10-Q

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


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

                 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2002

                         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 March 13, 2002 was 39,998,474.

================================================================================

<PAGE>

                                     PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE>
                                NEW VISUAL CORPORATION AND SUBSIDIARIES
                       (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                                      CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                 ASSETS
                                                 ------
                                                                           January 31,     October 31,
                                                                              2002            2001
                                                                          -------------   -------------
                                                                           (Unaudited)
<S>                                                                       <C>             <C>
Current Assets:
   Cash                                                                   $     85,713    $    294,802
   Notes receivable from related party                                         170,495         100,708
   Other receivable from officers                                               33,798          70,183
   Other current assets                                                        103,086          94,416
                                                                          -------------   -------------

       Total Current Assets                                                    393,092         560,109

Property and Equipment - Net                                                   263,081         284,896
Other Assets                                                                    33,940          33,642
Projects under Development                                                   1,913,451       1,912,650
                                                                          -------------   -------------

       Total Assets                                                       $  2,603,564    $  2,791,297
                                                                          =============   =============

                           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
                           -------------------------------------------------

Current Liabilities:
   Convertible notes payable                                              $    927,500    $    615,000
   Accounts payable and accrued expenses                                     1,292,360       1,435,024
   Loan payable                                                                145,000              --
                                                                          -------------   -------------

       Total Current Liabilities                                             2,364,860       2,050,024
                                                                          -------------   -------------

Long-Term Debt                                                                 256,886         256,886
                                                                          -------------   -------------

       Total Liabilities                                                     2,621,746       2,306,910
                                                                          -------------   -------------

Commitments, Contingencies and Other Matters (Notes 6, 7, 8, 9 and 10)

Stockholders' Equity (Deficiency):
   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; 100,000,000 shares authorized;
       32,970,696 and 30,003,681 shares issued and outstanding at
       January 31, 2002 and October 31, 2001, respectively                      32,970          30,003
   Additional paid-in capital                                               39,588,711      38,478,279
   Subscription receivable                                                          --        (103,500)
   Unearned financing fees                                                    (456,773)       (537,380)
   Unearned compensation                                                      (340,242)       (481,751)
   Accumulated deficit at October 31, 1999                                 (12,300,033)    (12,300,033)
   Deficit accumulated during the development stage                        (26,542,815)    (24,601,231)
                                                                          -------------   -------------

       Total Stockholders' Equity (Deficiency)                                 (18,182)        484,387
                                                                          -------------   -------------

       Total Liabilities and Stockholders' Equity (Deficiency)            $  2,603,564    $  2,791,297
                                                                          =============   =============

See notes to consolidated financial statements

                                                   1
</TABLE>
<PAGE>

<TABLE>
                                   NEW VISUAL CORPORATION AND SUBSIDIARIES
                          (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                                 (UNAUDITED)
<CAPTION>

                                                          For the Three Months Ended
                                                                  January 31,               For the Period from
                                                       ---------------------------------    November 1, 1999 to
                                                           2002                 2001         January 31, 2002
                                                       -------------       -------------       -------------
<S>                                                    <C>                 <C>                 <C>
REVENUES                                               $         --        $         --        $     12,200
                                                       -------------       -------------       -------------

OPERATING EXPENSES:
    Cost of sales                                                --                  --              21,403
    Projects costs written-off                                   --                  --             114,613
    Acquired in-process research and
        development expenses                                     --                  --           6,050,000
    Compensatory element of stock issuances                 702,407                  --           7,519,843
    Research and development                                329,113             362,702           1,983,877
    Selling, general and administrative expenses            671,614             535,352           6,800,351
    Litigation settlement in shares of common
        stock                                                    --           1,000,000           1,000,000
    Loss on disposal of equipment                                --                  --               7,500
                                                       -------------       -------------       -------------

        TOTAL OPERATING EXPENSES                          1,703,134           1,898,054          23,497,587
                                                       -------------       -------------       -------------

OPERATING LOSS                                           (1,703,134)         (1,898,054)        (23,485,387)
                                                       -------------       -------------       -------------

OTHER EXPENSES:
    Interest expense                                        157,843               7,444             514,201
    Amortization of unearned financing costs                 80,607             250,000           2,543,227
                                                       -------------       -------------       -------------

        TOTAL OTHER EXPENSES                                238,450             257,444           3,057,428
                                                       -------------       -------------       -------------

NET LOSS                                               $ (1,941,584)       $ (2,155,498)       $(26,542,815)
                                                       =============       =============       =============

BASIC AND DILUTED NET LOSS PER
    COMMON SHARE                                       $       (.06)       $       (.09)
                                                       =============       =============

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING                                   32,479,898          24,247,164
                                                       =============       =============

See notes to consolidated financial statements.

                                                     2
</TABLE>
<PAGE>

<TABLE>
                                  NEW VISUAL CORPORATION AND SUBSIDIARIES
                         (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                             CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                                                (UNAUDITED)
                                FOR THE THREE MONTHS ENDED JANUARY 31, 2002
<CAPTION>

                                                                       Common Stock             Additional
                                                              -----------------------------      Paid-in
                                                                 Shares           Amount         Capital
                                                              -------------   -------------   -------------
<S>                                                           <C>             <C>             <C>
Three Months Ended January 31, 2002:
-----------------------------------

Balance - October 31, 2001                                      30,003,681    $     30,003    $ 38,478,279
Issuance of common stock under consulting agreement
   ($.40 to $.66 per share)                                        950,000             950         493,948
Issuance of common stock for cash ($.25 to $.40 per share)       1,445,015           1,445         408,056
Cash received for subscription receivable                               --              --              --
Issuance of common stock in connection with the exercise of
   warrants ($.25 per share)                                       572,000             572         142,428
Value assigned to warrants issued to consultants                        --              --          66,000
Amortization of unearned compensation expense                           --              --              --
Amortization of unearned financing costs                                --              --              --
Net loss                                                                --              --              --
                                                              -------------   -------------   -------------

Balance - January 31, 2002                                      32,970,696    $     32,970    $ 39,588,711
                                                              =============   =============   =============


                                                                                Unearned        Unearned
                                                              Subscription      Financing     Compensation
                                                               Receivable         Costs          Expense
                                                              -------------   -------------   -------------
Three Months Ended January 31, 2002:
------------------------------------

Balance - October 31, 2001                                    $   (103,500)   $   (537,380)   $   (481,751)
Issuance of common stock under consulting agreement
   ($.40 to $.66 per share)                                             --              --              --
Issuance of common stock for cash ($.25 to $.40 per share)              --              --              --
Cash received for subscription receivable                          103,500              --              --
Issuance of common stock in connection with the exercise of
   warrants ($.25 per share)                                            --              --              --
Value assigned to warrants issued to consultants                        --              --              --
Amortization of unearned compensation expense                           --              --         141,509
Amortization of unearned financing costs                                --          80,607              --
Net loss                                                                --              --              --
                                                              -------------   -------------   -------------

Balance - January 31, 2002                                    $         --    $   (456,773)   $   (340,242)
                                                              =============   =============   =============

See notes to consolidated financial statements.

                                                     3
</TABLE>
<PAGE>

<TABLE>
                         NEW VISUAL CORPORATION AND SUBSIDIARIES
                (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                                       (UNAUDITED)
                       FOR THE THREE MONTHS ENDED JANUARY 31, 2002
<CAPTION>

                                                                               Total
                                                            Accumulated     Stockholders'
                                                              Deficit        Deficiency
                                                           -------------   -------------
<S>                                                        <C>             <C>
Three Months Ended January 31, 2002:
------------------------------------

Balance - October 31, 2001                                 $(36,901,264)   $    484,387
Issuance of common stock under consulting agreement
   ($.40 to $.66 per share)                                          --         494,898
Issuance of common stock for cash ($.25 to $.40 per share)           --         409,501
Cash received for subscription receivable                            --         103,500
Issuance of common stock in connection with the exercise
    of warrants ($.25 per share)                                     --         143,000
Value assigned to warrants issued to consultants                     --          66,000
Amortization of unearned compensation expense                        --         141,509
Amortization of unearned financing costs                             --          80,607
Net loss                                                     (1,941,584)     (1,941,584)
                                                           -------------   -------------
Balance - January 31, 2002                                 $(38,842,848)   $    (18,182)
                                                           =============   =============

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

Accumulated deficit during development stage
  (November 1, 1999 to January 31, 2002)                    (26,542,815)
                                                           -------------

Total accumulated deficit as of January 31, 2002           $(38,842,848)
                                                           =============

See notes to consolidated financial statements.

                                           4
</TABLE>
<PAGE>

<TABLE>
                                      NEW VISUAL CORPORATION AND SUBSIDIARIES
                             (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (UNAUDITED)
                               FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
                             AND THE PERIOD FROM NOVEMBER 1, 1999 TO JANUARY 31, 2002
<CAPTION>

                                                               For the Three Months Ended
                                                                       January 31,               For the Period from
                                                            ---------------------------------    November 1, 1999 to
                                                                2002                2001          January 31, 2002
                                                            -------------       -------------       -------------
<S>                                                         <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                 $ (1,941,584)       $ (2,155,498)       $(26,542,815)
   Adjustments to reconcile net loss to net cash used
       in operating activities:
          Consulting fees and other compensatory
             elements of stock issuances                         702,407                  --           7,519,843
          Stock issued for acquired in-process
             research and development                                 --                  --           6,050,000
          Stock issued for litigation settlement                      --           1,000,000           1,000,000
          Projects costs written-off                                  --                  --             114,613
          Amortization of unearned financing costs                80,607             250,000           2,543,227
          Depreciation of property and equipment                  20,732              34,880             236,597
          Disposal of property and equipment                       3,596                  --               3,596
          Loss on disposal of equipment                               --                  --               7,500

   (Increase) decrease from changes in:
       Other current assets                                       (8,670)             21,833            (103,086)
       Due from related parties                                  (33,402)             (2,638)           (172,871)
       Projects under development                                   (801)           (300,000)         (1,894,319)
       Other assets                                                 (298)            (40,676)            (28,940)
   Increase (decrease) from changes in:
       Accounts payable and accrued expenses                    (142,664)           (187,596)            871,662
                                                            -------------       -------------       -------------

       NET CASH USED IN OPERATING ACTIVITIES                  (1,320,077)         (1,379,695)        (10,394,993)
                                                            -------------       -------------       -------------

CASH USED IN INVESTING ACTIVITIES
   Acquisition of property and equipment                          (2,513)                 --            (408,548)
                                                            -------------       -------------       -------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from issuance of common stock                        513,001           1,431,880           9,088,996
   Proceeds from loan payable                                    145,000                  --             931,886
   Proceeds from exercise of warrants                            143,000                  --             378,000
   Proceeds from convertible notes payable                       312,500                  --             927,500
   Repayment of long-term debt                                        --                  --            (500,000)
                                                            -------------       -------------       -------------

       NET CASH PROVIDED BY FINANCING
          ACTIVITIES                                           1,113,501           1,431,880          10,826,382
                                                            -------------       -------------       -------------

(DECREASE) INCREASE IN CASH                                     (209,089)             52,185              22,841

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

CASH AND CASH EQUIVALENTS - ENDING                          $     85,713        $    241,419        $     85,713
                                                            =============       =============       =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:
   Interest                                                 $         --        $         --        $        526
                                                            =============       =============       =============

   Income taxes                                             $         --        $        800        $        800
                                                            =============       =============       =============

See notes to consolidated financial statements.

                                                        5
</TABLE>
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


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.

         BUSINESS AND CONTINUED OPERATIONS

         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 three months ended January 31,
         2002, the Company incurred a net loss of approximately $1,942,000 and
         had a working capital deficiency of approximately $1,972,000. 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.

                                       6
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


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

         BUSINESS AND CONTINUED OPERATIONS (CONTINUED)

         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.

         Management's business plan will require additional financing. To
         support its operations during the three months ended January 31, 2002,
         the Company borrowed $312,500 from three trusts and issued various
         convertible promissory notes. The Company received a $145,000
         short-term loan from one of its shareholders.

         During the three months ended January 31, 2002, the Company received
         $409,501 from the sale of 1,445,015 shares of its common stock and
         $143,000 from the exercise of 572,000 warrants. 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 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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         REVENUE RECOGNITION

         Substantially all revenues are 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.

                                       7
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         LOSS PER SHARE

         Basic earnings per share ("Basic EPS") is computed by dividing net
         income available to common stockholders by the weighted average number
         of common shares outstanding during the period. Diluted earnings per
         share ("Diluted EPS") gives effect to all dilutive potential common
         shares outstanding during a period. No effect has been given to
         outstanding options, warrants or convertible notes in the diluted
         computation, as their effect would be antidilutive.

         STOCK-BASED COMPENSATION

         As permitted by SFAS No. 123, "Accounting for Stock-Based
         Compensation," the Company accounts for its stock-based compensation
         arrangements pursuant to APB Opinion No. 25, "Accounting for Stock
         Issued to Employees." In accordance with the provisions of SFAS No.
         123, the Company discloses the pro forma effects of accounting for
         these arrangements using the Black-Scholes option-pricing model to
         determine fair value.

         IMPAIRMENT OF LONG-LIVED ASSETS

         The Company reviews long-lived assets and certain identifiable
         intangibles for impairment whenever events or changes in circumstances
         indicate that the total amount of an asset may not be recoverable. An
         impairment loss is recognized when estimated future cash flows expected
         to result from the use of the asset and its eventual disposition are
         less than its carrying amount.

         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.

         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.

                                       8
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)

         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).

         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 firm's fair value.

         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 believes that the implementation of
         this standard will have no impact on the Company's results of
         operations and financial position.

                                       9
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 2 - SUMMARY OF SIGNIFICANT 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.

NOTE 3 - NOTES RECEIVABLE FROM RELATED PARTY

         On September 6, 2001, the Company converted advances made to an officer
         in the amount of $99,656 into a promissory note, which is payable on
         demand and bears an interest rate of 7.0% per annum.

         On January 1, 2002, the Company converted advances made to an officer
         in the amount of $67,631 into a promissory note, which is payable on
         demand and bears an interest rate of 7.0% per annum.

         As of January 31, 2002, the outstanding amount from the above notes was
         $170,495, of which $3,208 represented accrued interest.

                                       10
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 4 - PROPERTY AND EQUIPMENT, NET

         Property and equipment consists of the following:

                                                 January 31,  October 31,
                                                     2002        2001
                                                  ---------    ---------

         Furniture and fixtures                   $ 54,096     $ 51,584
         Camera equipment                          540,169      544,664
         Office equipment                          109,430      109,460
                                                  ---------    ---------
                                                   703,695      705,708
         Less:  Accumulated depreciation           440,614      420,812
                                                  ---------    ---------

                Total                             $263,081     $284,896
                                                  =========    =========

         For the three months ended January 31, 2002 and 2001, depreciation
         expense was $20,732 and $34,880, respectively.

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of the following:

                                           January  31,      October 31,
                                               2002              2001
                                           -----------       -----------

         Professional fees                 $  391,112        $  606,807
         Interest payable                     516,600           356,601
         Consulting fees                      196,918           204,192
         Miscellaneous                        187,730           267,424
                                           -----------       -----------

                                           $1,292,360        $1,435,024
                                           ===========       ===========

NOTE 6 - CONVERTIBLE NOTES PAYABLE

         In October 2001, the Company entered into three convertible promissory
         note agreements with one individual and two companies, totaling
         $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.

                                       11
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 6 - CONVERTIBLE NOTES PAYABLE (CONTINUED)

         In December 2001, the Company entered into six convertible promissory
         note agreements with various trusts and individuals, totaling $312,500.
         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 $156,250, was recorded as interest expense during the
         quarter ended January 31, 2002.

         As of January 31, 2002, the outstanding amount for the above notes was
         $927,500.

NOTE 7 - 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 had borrowed $756,886 under these
         facilities, payable on June 29, 2003 in one payment, 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 in aggregate. The
         credit agreements terminate on June 29, 2003 and all accrued interest
         and unpaid interest, along with the principal, is due in full on June
         29, 2003.

         On July 12, 2001, the Company repaid $500,000 under the above five
         credit agreements and reduced the balance to $256,886.

         During the three months ended January 31, 2002, no repayment was
         required or made under the above five credit agreements.

NOTE 8 - STOCKHOLDERS' EQUITY

         SIGNIFICANT COMMON STOCK ISSUANCES DURING THE THREE MONTHS ENDED
         JANUARY 31, 2002

         As of January 31, 2002, the Company issued 950,000 shares of its common
         stock as consideration for consulting services performed by four
         consultants at prices ranging from $.40 to $.66 per share, totaling
         $494,898.

         As of January 31, 2002, the Company issued 1,445,015 shares of
         restricted common stock to investors for cash proceeds of $409,501.

                                       12
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)

         STOCK OPTION PLANS

         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 non-statutory 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" and together with the
         2000 Plan, the "Plans"), which provides for the granting of incentive
         and non-statutory options, restricted stock, dividend equivalent rights
         and stock appreciation rights for up to 2,500,000 shares of common
         stock to officers, employees, directors and consultants of the Company.

                                       13
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)

         STOCK OPTIONS

         A summary of the Company's stock option activity and related
         information follows:

<TABLE>
<CAPTION>
                                                                      Weighted                           Weighted
                                                    In the Plan       Average       Outside the Plan     Average
                                                   Stock Options   Exercise Price    Stock Options    Exercise Price
                                                   -------------   --------------    -------------    --------------
<S>                                                   <C>            <C>               <C>              <C>
         Outstanding - October 31, 2001               512,250        $   3.92          1,938,750        $   3.96

         Options granted - 11/01 - 01/31/02:
           In the Plans                                    --              --                 --              --
         Options granted - 11/01 - 01/31/02:
           Outside the Plans                               --              --                 --              --
         Options expired/cancelled:
           In the Plans                               (28,500)           3.92                 --              --
           Outside the Plans                               --              --           (120,000)           4.86
                                                   -----------       ---------        -----------       ---------

         Outstanding - January 31, 2002               483,750        $   3.92          1,818,750        $   3.90
                                                   ===========       =========        ===========       =========

         Exercisable at January 31:
            2002                                      175,313        $   3.92          1,256,375        $   3.95
            2003                                      278,126        $   3.92          1,494,896        $   4.02
            2004                                      380,439        $   3.92          1,802,084        $   3.92
            2005                                      483,750        $   3.92          1,818,750        $   3.90
</TABLE>

         The exercise price for options outstanding as of January 31, 2002
         ranged from $1.07 to $4.40.

         At January 31, 2002, 1,984,000 and -0- options are available under the
         2000 and 2001 plans, respectively.

         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. were terminated. Under the terms of the option agreements with
         these employees, the options terminated three months after the
         employees were terminated.

         In January 2002, the Company cancelled its employment agreement with
         its Executive Vice President which in turn cancelled 70,000 unvested
         options.

                                       14
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)

         WARRANTS

         At January 31, 2002, 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            2,428,000    Lesser of 6.00    November 17, 2003
                                                      or 50% of
                                                    market ($0.20
                                                    at 01/31/02)
         March 12, 2001                  67,586             5.10     March 12, 2004
         March 12, 2001                  87,357             4.02     March 12, 2004
         May 3, 2001                    500,000             2.50     May 3, 2006
         May 3, 2001                    250,000             5.00     May 3, 2006
         May 3, 2001                    250,000            10.00     May 3, 2006
         June 14, 2001                   50,000             2.50     June 14, 2006
         June 14, 2001                   25,000             5.00     June 14, 2006
         June 14, 2001                   25,000            10.00     June 14, 2006
         October 31, 2001             1,000,000              .25     October 31, 2006
         November 5, 2001               200,000              .51     November 5, 2005
                                   -------------    -------------

                                      6,082,943     $0.20-$11.50     June 7, 2003 - October 1, 2006
                                   =============    =============

         Exercisable at
           January 31, 2002           6,082,943
                                   =============
</TABLE>

         WARRANTS EXERCISED

         During January 2002, 572,000 warrants were exercised at $.25 per share,
         totaling $143,000.

         WARRANTS GRANTED

         On November 5, 2001, the Company granted two companies warrants to
         purchase 200,000 shares of its common stock at an exercise price of
         $.51. The warrants vested immediately and expire on November 5, 2005.
         The fair value of stock warrants estimated on the date of grant using
         the Black-Scholes option pricing model is $.33, or $66,000.

                                       15
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)

         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:

<TABLE>
<CAPTION>
<S>                                                                                  <C>
                  Warrants to purchase common stock                                  6,082,943
                  Options to purchase common stock                                   2,302,500
                  Convertible notes payable and accrued interest                     1,391,250
                                                                                     ----------

                  Total as of January 31, 2002                                       9,776,693
                                                                                     ==========

                  Substantial issuances after January 31, 2002 through
                     March 14, 2002:

                  Options granted outside the plan                                     500,000
                                                                                     ==========
                  Warrants granted in connection with consulting agreement             300,000
                                                                                     ==========
                  Options granted in connection with 2000 stock incentive plan       1,302,500
                                                                                     ==========
                  Sale of common stock for cash                                      3,674,000
                                                                                     ==========
                  Common stock issued to employees                                     485,000
                                                                                     ==========
                  Additional shares issued under settlement agreement                1,261,946
                                                                                     ==========
</TABLE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES

         NEW EMPLOYMENT AGREEMENTS

         On January 1, 2002, the Company cancelled its employment agreement with
         its Executive Vice President and entered into a new one year employment
         agreement, whereby the Executive Vice President receives a base salary
         of $10,417 per month. In addition, the employment agreement provides
         that 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 were
         retained (140,000 options) and all unvested options granted under the
         June 20, 2000 agreement were cancelled.

         ROYALTY PAYMENTS

         The Company's projects under development stipulate royalty payments
         that are based on percentages of revenue.

                                       16
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         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. As of January 31, 2002, the Company has funded
         approximately $1,857,000 of production and other costs, which was
         included in projects under development in the accompanying consolidated
         balance sheet.

NOTE 10- SUBSEQUENT EVENTS

         COMMON STOCK

         On February 25, 2002, the Company issued a restricted stock award of
         500,000 shares of common stock to an executive officer in consideration
         of his services to the Company. The restricted stock award was granted
         pursuant to the Company's 2000 Plan. The executive officer purchased
         the shares for $.001 per share, which are subject to a risk of
         forfeiture until they vest. The executive officer will not receive
         possession of the certificates representing the shares, and may not
         sell any of the shares until such shares vest, which will occur
         quarterly, 125,000 shares per quarter, beginning April 30, 2002. The
         Company has the right, pursuant to the terms of the restricted stock
         award, to repurchase any unvested shares issued pursuant to the award
         for $.002 per share in the event the executive officer is terminated or
         if there is a change of control of the Company. The value assigned to
         the common stock totaled $125,000.

         On February 25, 2002, the Company issued 485,000 shares of restricted
         common stock to two employees in consideration of their past services
         to the Company. The value assigned to the common stock totaled
         $178,238.

         As of March 1, 2002, the Company issued 3,674,000 shares of restricted
         common stock to investors. The total cash proceeds were $919,400. (see
         private placement below)

                                       17
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 10- SUBSEQUENT EVENTS (CONTINUED)

         STOCK OPTIONS

         On February 25, 2002, the Company granted non-qualified stock options
         under its 2000 Plan to purchase 862,500 shares of common stock to
         employees and employee directors of the Company at an exercise price of
         $.42 per share. The options vest in four equal quarterly installments
         starting April 30, 2002. All options expire on February 25, 2012.

         On February 25, 2002, the Company granted two directors options under
         its 2000 Plan to purchase 400,000 shares of its common stock at an
         exercise price of $.42. The options vest in four equal quarterly
         installments starting April 30, 2002. These options also expire on
         February 25, 2012.

         On February 25, 2002, the Company granted to a director and consultant
         to the Company options outside the Company's stock option plans to
         purchase 500,000 shares of its common stock at $.39. The options vest
         in four equal quarterly installments starting April 30, 2002. These
         options expire on February 25, 2012.

         On March 4, 2002, the Company granted an advisory board member options
         under the Company's 2000 Omnibus Securities Plan to purchase 40,000
         shares of its common stock at $.42. The options vest immediately and
         expire ten years from the grant date. The fair value of stock options
         estimated on the date of grant using the Black-Scholes option pricing
         model was $.44, or $17,600.

         CONSULTING AGREEMENT

         On February 11, 2002, the Company entered into a one-year consulting
         agreement for financial communications services, pursuant to which the
         Company agreed to pay the consultant $10,000 in cash per month. The
         consulting agreement provides that the Company may terminate the
         consulting services at any time following 90 consecutive days of
         representation by the consultant. Pursuant to the agreement, the
         Company granted the consultant warrants to purchase 300,000 shares of
         its common stock at exercise prices ranging from $.75 to $2.25. All of
         the warrants are exercisable immediately, hold piggy-back registration
         rights and expire two years from the grant date. The fair value of
         stock options estimated on the date of grant using the Black-Scholes
         option pricing model is $8,000.

                                       18
<PAGE>

                     NEW VISUAL CORPORATION AND SUBSIDIARIES
            (A DEVELOPMENT-STAGE COMPANY COMMENCING NOVEMBER 1, 1999)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 10- SUBSEQUENT EVENTS (CONTINUED)

         EMPLOYMENT AGREEMENT

         On February 25, 2002, the Company entered into a one year employment
         agreement with its Vice President and Secretary. The agreement provides
         for the Company to pay a base salary of $13,383.33 per month, plus
         other fringe benefits, including medical and health insurance and auto
         allowance. The employee shall receive an annual bonus to be determined
         at the sole discretion of the Board of Directors.

         SETTLEMENT AGREEMENT

         In February 2002, the Company issued an aggregate of 1,261,946
         restricted shares of its common stock to nine individuals who purchased
         common stock of the Company in a private placement completed in March
         2001 and contended that they were entitled to receive these additional
         shares in connection with their initial purchase agreements. The
         parties reached an amicable resolution of the matter and the Company
         received a full and complete release from each investor.

         PRIVATE PLACEMENT

         In February 2002, the Company entered into a private placement
         agreement with an investor under which the Company agreed to sell
         3,000,000 of its restricted common shares for $.25 per share. As part
         of this agreement, the underlining restricted shares have certain
         registration rights. This private placement was completed in March
         2002.

         LEGAL PROCEEDINGS

         On February 4, 2002, a lawsuit was filed against the Company by
         Creditors Adjustment Bureau, Inc., a California corporation, who was
         allegedly assigned rights to any judgement collected on amounts
         allegedly owed to Arter & Hadden, LLP, the Company's former legal
         counsel. The plaintiff seeks damages in the amount of $110,559.86, plus
         10% interest, costs of the suit and reasonable attorney's fees. The
         Company is currently investigating the merits of this lawsuit and does
         not believe the resolution of this matter will have a material adverse
         effect on the Company's financial position or results of operation.

                                       19
<PAGE>

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

         The following is a discussion and analysis of our financial condition
and results of operations and should be read in conjunction with the financial
statements and related notes contained in this Form 10-Q.

RESULTS OF OPERATIONS.

FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND THE THREE MONTHS ENDED JANUARY
31, 2001.

         REVENUES. The Company is a development stage company. There were no
revenues for the three months ended January 31, 2002 or for the three months
ended January 31, 2001.

         OPERATING EXPENSES. Operating expenses included compensatory element of
stock issuances, research and development expenses, selling, general and
administrative costs and the costs of a litigation settlement in shares of
common stock. Total operating expenses decreased to approximately $1,703,000 for
the three months ended January 31, 2002, from approximately $1,898,000 for the
three months ended January 31, 2001. The decrease resulted primarily from the
costs of a litigation settlement in shares of common stock in the three month
period ended January 31, 2001. The Company issued 250,000 shares of common stock
valued at $1,000,000 in a February 2001 settlement reached with Astounding.com,
Inc. and Jack Robinson in connection with certain disputes arising from a
non-consummated merger between the Company and Astounding.com, Inc. In addition,
research and development expenses decreased approximately $34,000, from $362,702
for the three months ended January 31, 2001 to $329,113 for the three months
ended January 31, 2001, as the Company shifted from employee-based research and
development to consultant-based research and development. These reductions were
offset by increases from 2001 to 2002 in the compensatory element of stock
issuances and selling general and administrative expenses. During the first
quarter of 2002, there were stock issuances valued at approximately $702,000 for
consulting expenses, compared to $-0- during the first quarter of 2001. Selling,
general and administrative expenses increased over these periods by
approximately $136,000, from $535,352 for the three months ended January 31,
2001 to $671,614 for the same period of 2002.

         OTHER EXPENSES. Other expenses included amortization of unearned
financing costs and interest expense. Total other expenses decreased to
approximately $238,000 for the three months ended January 31, 2002 from
approximately $257,000 for the three months ended January 31, 2001. The decrease
primarily resulted from a decrease in amortization of unearned financing costs
of approximately $169,000 in connection with a financing arrangement. During the
year ended October, 31, 2001 the Company paid down long-term debt in connection
with this financing arrangement amounting to $500,000. The decrease in
amortization of unearned financing costs was offset by an increase in interest
expense of approximately $156,000 resulting from an interest obligation
associated with a convertible note payable transaction during the three month
period ended January 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating activities was approximately $1,302,000 for
the three months ended January 31, 2002 and $1,380,000 for the three months
ended January 31, 2001. Cash balances totaled approximately $86,000 as of
January 31, 2002, compared to approximately $241,000 as of January 31, 2001.


         Operations have been financed principally through sales of common
stock, the exercise of warrants to purchase common stock, loans and the issuance
of convertible notes payable. Net proceeds from financing activities amounted to
approximately $1,114,000 for the three months ended January 31, 2002, including
sales of common stock amounting to approximately $513,000, exercise of warrants
resulting in proceeds of approximately $143,000, loans amounting to $145,000 and
convertible notes payable amounting to approximately $313,000. Net proceeds from
financing activities amounted to approximately $1,432,000 for the three months
ended January 31, 2001 and were solely the result of sales of common stock.

                                       20
<PAGE>

         Stock was issued in payment of expenses amounting to approximately
$702,000 for the three month period ended January 31, 2002 and in settlement of
litigation in the amount of $1,000,000 during the three months ended January 31,
2001.

         Research and development expenses related to the Company's NV
Technology (previously New Wheel Technology) subsidiary totaled approximately
$329,000 and $363,000 for the three months ended January 31, 2002 and the three
months ended January 31, 2001, respectively.

         In April 2000, the Company entered into a joint venture production
agreement to produce a feature length film for theatrical distribution. Under
the agreement, the Company agreed to provide the funding for the production in
the amount of $2,250,000 and, in exchange, it 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 to be completed
and a Summer 2002 release is contemplated. As of January 31, 2001, the Company
had funded approximately $2,127,000 of the production costs towards this
project, which included the purchase of camera equipment in the amount of
$266,004.

         In October 2001, we raised a total of $615,000 through the issuance of
convertible promissory notes. During the three months ended January, 31, 2002,
the Company issued convertible promissory notes totaling approximately $313,000.
The Company agreed to pay the principal and an amount equal to 50% of the
principal if certain milestones are reached from the distribution of the feature
length film currently in production. The promissory notes are convertible at any
time, in whole or in part, into shares of common stock at a conversion price of
$0.40 per share.

         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.

         In February 2002, the Company entered into a private placement
agreement with an investor under which the Company agreed to sell 3,000,000 of
its restricted common shares for a purchase price of $750,000. As part of this
agreement, the underlining restricted shares have certain registration rights.
The private placement was completed in March 2002.

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

GOING CONCERN CONSIDERATION

         The Company has continued losses in each of its years of operation,
negative cash flow and liquidity problems. These conditions raise substantial
doubt about its 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 its receipt of funds
from the issuance of equity securities and borrowings, and by acquiring assets
or paying expenses by issuing stock. Its continued existence is dependent upon
the Company's 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. 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.

                                       21
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         There have been no material changes to the Company's market risk for
the three months ended January 31, 2002. See the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 2001 for additional discussions
regarding quantitative and qualitative disclosures about market risk.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         On February 4, 2002, a lawsuit was filed against the Company by
Creditors Adjustment Bureau, Inc., a California corporation, who was allegedly
assigned rights to any judgment collected on amounts allegedly owed to Arter &
Hadden, LLP, the Company's former legal counsel. The suit, which was filed in
the Los Angeles Superior Court, is styled CREDITORS ADJUSTMENT BUREAU, INC., A
CALIFORNIA CORPORATION V. NEW VISUAL ENTERTAINMENT, INC., ASTOUNDING GROUP, LLC
DBA ASTOUNDING.COM, INC.; DOES I THROUGH X , INCLUSIVE (Case no. BC267550) and
seeks damages in the amount of $110,559.88, plus 10% interest, costs of the suit
and reasonable attorneys' fees. The Company is currently investigating the
merits of this lawsuit and does not believe the resolution of this matter will
have a material adverse effect on the Company's financial position or results of
operation.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

(c)      During the three months ended January 31, 2002, the Company issued
         unregistered securities as follows:

         1.       During November 2001, the Company issued 100,000 shares of
                  common stock to Rogallo Management, valued at $66,000, as
                  payment for services rendered.

         2.       In December 2001, the Company:

                  o        issued an aggregate of $250,000 principal amount of
                           convertible promissory notes to three investors,
                           which notes are convertible into the Company's common
                           stock at a conversion price of $0.40 per share, and
                           are due and payable upon the receipt by the Company
                           of certain proceeds from its motion picture currently
                           in production; and
                  o        sold 250,000 shares of common stock to one investor
                           at $0.40 per share for aggregate proceeds of
                           $100,000.

         3.       In January 2002, the Company:

                  o        sold 1,195,015 shares of common stock to 11 investors
                           for aggregate proceeds of $309,500; and
                  o        issued an aggregate of $62,500 principal amount of
                           convertible promissory notes to three investors,
                           which notes are convertible into the Company's common
                           stock at a conversion price of $0.40 per share, and
                           are due and payable upon the receipt by the Company
                           of certain proceeds from its motion picture currently
                           in production. Subsequent to January 31, 2002, the
                           Company issued the following unregistered securities:

                  In February 2002, the Company:

                  o        issued an aggregate of 1,261,946 restricted shares of
                           its common stock to nine individuals who purchased
                           common stock of the Company in a private placement
                           completed in March 2001 and contended that they were
                           entitled to receive these additional shares in
                           connection with their initial purchase agreements.
                           The Company reached an amicable resolution of the
                           matter and received a full and complete release from
                           each investor;
                  o        sold an aggregate 504,000 shares of common stock to
                           10 investors for aggregate proceeds of $126,000;
                  o        issued 150,000 shares of common stock, valued at
                           $69,000 to one individual in connection with services
                           provided to the Company; and
                  o        sold 10,000 shares of common stock to one investor
                           for aggregate proceeds of $3,400.


                                       22
<PAGE>

                  In March 2002, the Company:

                  o        completed the private placement of 3,160,000 shares
                           of its common stock to five investors for total
                           proceeds of $790,000; and
                  o        issued an aggregate 485,000 shares of its common
                           stock to two executive officers of the Company in
                           consideration of past services rendered.

         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 such Securities Act. 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
and appropriate legends were affixed to the share certificates issued in such
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:

         ---------- ------------------------------------------------------------
         Exhibit    Description
         ---------- ------------------------------------------------------------
         3.1        Bylaws of New Visual Corporation, as amended.
         ---------- ------------------------------------------------------------
         10.1       Convertible Promissory Note dated December 14, 2001 by New
                    Visual Corporation in favor of the Gerald and Judith Handler
                    Living Trust (incorporated by reference to Exhibit 10.21 of
                    the Company's Annual Report on Form 10-K for the year ended
                    October 31, 2001 (the "2001 10-K")
         ---------- ------------------------------------------------------------
         10.2       Convertible Promissory Note dated December 14, 2001 by New
                    Visual Corporation in favor of W.P. Lill Jr. Trust dated
                    12/22/99 (incorporated by reference to Exhibit 10.22 of the
                    2001 10-K).
         ---------- ------------------------------------------------------------
         10.3       Convertible Promissory Note dated December 14, 2001 by New
                    Visual Corporation in favor of the Handler Children Trust
                    (incorporated by reference to Exhibit 10.23 of the 2001
                    10-K).
         ---------- ------------------------------------------------------------
         10.4       Employment Agreement dated as of January 1, 2002 by and
                    between New Visual Corporation and John Howell (incorporated
                    by reference to Exhibit 10.24 of the 2001 10-K).
         ---------- ------------------------------------------------------------
         10.5       Promissory Note dated as of January 1, 2002, by John Howell
                    in favor of New Visual Corporation (incorporated by
                    reference to Exhibit 10.25 of the 2001 10-K).
         ---------- ------------------------------------------------------------
         10.6       Warrant Agreement dated February 11, 2002, by and between
                    New Visual Corporation and Elite Financial Communications,
                    LLC
         ---------- ------------------------------------------------------------
         10.7       Stock Option Agreement dated February 25, 2002, by and
                    between New Visual Corporation and Ray Willenberg, Jr.
         ---------- ------------------------------------------------------------
         10.8       Stock Option Agreement dated February 25, 2002, by and
                    between New Visual Corporation and C. Rich Wilson III
         ---------- ------------------------------------------------------------
         10.9       Stock Option Agreement dated February 25, 2002, by and
                    between New Visual Corporation and Ivan Berkowitz
         ---------- ------------------------------------------------------------
         10.10      Stock Option Agreement dated February 25, 2002, by and
                    between New Visual Corporation and Bruce Brown
         ---------- ------------------------------------------------------------
         10.11      Employment Agreement dated February 25, 2002, by and between
                    New Visual Corporation and C. Rich Wilson III
         ---------- ------------------------------------------------------------
         10.12      Restricted Stock Award Agreement dated as of February 25,
                    2002, by and between New Visual Corporation and John Howell
         ---------- ------------------------------------------------------------
         10.13      Consulting Agreement dated February 26, 2002, by and between
                    New Visual Corporation and Thomas J. Cooper
         ---------- ------------------------------------------------------------
         10.14      Stock Option Agreement dated February 26, 2002, by and
                    between New Visual Corporation and Thomas J. Cooper
         ---------- ------------------------------------------------------------

(b)      Reports on Form 8-K:

         Form 8-K dated November 27, 2001, was filed pursuant to Item 5 (Other
Events).

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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:    March 18, 2002               By:  /s/ RAY WILLENBERG, JR.
                                           -------------------------------------
                                           RAY WILLENBERG, JR.
                                           President and Chief Executive Officer
                                           (PRINCIPAL EXECUTIVE OFFICER)


Dated:   March 18, 2002                By:  /s/ THOMAS J. SWEENEY
                                           -------------------------------------
                                           THOMAS J. SWEENEY
                                           Chief Financial Officer
                                           (PRINCIPAL FINANCIAL AND ACCOUNTING
                                            OFFICER)

                                       24