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


                                   FORM 10-QSB
                                   -----------

(Mark One)

( X )   QUARTERLY REPORT UNDER SECTION 13 or 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934.

For the quarterly period ended July 31, 2000

(   )   TRANSITION REPORT UNDER 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 ENTERTAINMENT, INC.
                         ------------------------------
        (Exact name of small business issuer as specified in its charter)

            Utah                                                  95-4543704
-------------------------------                              -------------------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                              Identification No.)

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

                                 (619) 692-0333
                           (Issuer's telephone number)

               ---------------------------------------------------
               (Former name, former address and former fiscal year
                          if changed since last report)

Check 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 (   )

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 23,901,123 shares of Common Stock,
$.001 par value, were outstanding as of September 11, 2000.

Transitional Small Business Disclosure Forms (check one):

                                Yes (   ) No ( X )
<PAGE>


                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                              INDEX TO FORM 10-QSB
                                  JULY 31, 2000

                                                                       Page Nos.
                                                                       ---------

PART     I - FINANCIAL INFORMATION:

         ITEM I - FINANCIAL STATEMENTS


         CONSOLIDATED BALANCE SHEETS                                        2
                  At October 31, 1999 and July 31, 2000


         CONSOLIDATED STATEMENTS OF OPERATIONS                              3
                  For the Nine Months Ended July 31, 1999 and 2000


         CONSOLIDATED STATEMENTS OF OPERATIONS                              4
                  For the Three Months Ended July 31, 1999 and 2000


         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  (DEFICIENCY)                                            5 - 6
                  For the Nine Months Ended July 31, 1999 and 2000


         CONSOLIDATED STATEMENTS OF CASH FLOWS                              7
                  For the Nine Months Ended July 31, 1999 and 2000


         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      8 - 24


         ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                           CONDITION AND RESULTS OF OPERATIONS              25


PART     II - OTHER INFORMATION                                             30


<PAGE>
<TABLE>

                           NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEETS

<CAPTION>

                                               ASSETS
                                               ------
                                                                        October 31,          July 31,
                                                                           1999                2000
                                                                      ---------------   ---------------
                                                                                          (Unaudited)
<S>                                                                   <C>               <C>
Current Assets:
  Cash                                                                $       62,872    $      762,769
  Prepaid expenses and other current assets                                        -            11,244
  Receivable from related parties                                             31,422            12,700
                                                                      ---------------   ---------------

      Total Current Assets                                                    94,294           786,713

Property and equipment - net of accumulated depreciation                     102,530           291,927
Film and video library, net                                                  100,557            54,442
Projects under development, net                                               32,883           505,773
Other assets                                                                   5,000             9,091
                                                                      ---------------   ---------------

      Total Assets                                                    $      335,264    $    1,647,946
                                                                      ===============   ===============

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

Current Liabilities:
  Accounts payable and accrued expenses                               $      420,699    $      130,446
                                                                      ---------------   ---------------

      Total Current Liabilities                                              420,699           130,446
                                                                      ---------------   ---------------

Long-term Debt                                                                     -           529,000
                                                                      ---------------   ---------------

      Total Liabilities                                                            -           659,446
                                                                      ---------------   ---------------

Commitments, Contingencies and Other Matters
    (Notes 1, 2, 5, 6, 7 and 8)

Stockholders' Equity (Deficiency):
  Preferred stock, - $0.01 par value; 15,000,000 shares
     authorized at July 31, 2000; Series A junior participating
     preferred stock; -0- shares issued and outstanding at
     July 31, 2000                                                                 -                 -
  Common stock - $0.001 par value; 100,000,000 shares authorized;
     17,224,049 and 23,876,123 shares issued and outstanding at
     October 31, 1999 and July 31, 2000, respectively                         17,224            23,876
  Unearned financing fees                                                          -        (2,833,333)
  Additional paid-in capital                                              12,197,374        26,468,539
  Accumulated deficit                                                    (12,300,033)      (22,670,582)
                                                                      ---------------   ---------------

      Total Stockholders' Equity (Deficiency)                                (85,435)          988,500
                                                                      ---------------   ---------------

      Total Liabilities and Stockholders' Equity (Deficiency)         $      335,264    $    1,647,946
                                                                      ===============   ===============
</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)


                                                   For the Nine Months Ended
                                                           July 31,
                                                 -----------------------------
                                                      1999            2000
                                                 -------------   -------------

REVENUES                                         $     82,436    $      7,700
                                                 -------------   -------------

OPERATING EXPENSES:
  Amortization of costs of projects                    60,870          51,242
  Projects costs written off                          131,250          10,844
  Depreciation of property and equipment               45,645          63,610
  Acquired in-process research and development              -       6,050,000
  Compensatory element of stock issuances             104,000       2,468,428
  Research and development                                  -         362,906
  Selling, general and administrative expenses        594,082       1,200,746
                                                 -------------   -------------

      TOTAL OPERATING EXPENSES                        935,847      10,207,776
                                                 -------------   -------------

OPERATING LOSS                                       (853,411)    (10,200,076)
                                                 -------------   -------------

OTHER EXPENSES:
   Interest expense                                         -           3,806
   Amortization of unearned financing costs                 -         166,667
                                                 -------------   -------------

       TOTAL OTHER EXPENSES                                 -         170,473
                                                 -------------   -------------

NET LOSS                                         $   (853,411)   $(10,370,549)
                                                 =============   =============

BASIC AND DILUTED LOSS PER COMMON SHARE          $      (0.06)   $      (0.50)
                                                 =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING                                    14,071,186      20,700,263
                                                 =============   =============

See notes to consolidated financial statements.

                                       3
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)


                                                   For the Three Months Ended
                                                           July 31,
                                                 -----------------------------
                                                      1999            2000
                                                 -------------   -------------

REVENUES                                         $     37,989    $        900
                                                 -------------   -------------

OPERATING EXPENSES:
  Amortization of costs of projects                    20,290          15,507
  Projects costs written off                           43,750               -
  Depreciation of property and equipment               15,215          29,068
  Acquired in-process research and development              -               -
  Compensatory element of stock issuances             100,000         619,650
  Research and development                                  -         182,697
  Selling, general and administrative expenses        215,722         547,781
                                                 -------------   -------------

    TOTAL OPERATING EXPENSES                          394,977       1,394,703
                                                 -------------   -------------

OPERATING LOSS                                       (356,988)     (1,393,803)
                                                 -------------   -------------

OTHER EXPENSES:
   Interest expense                                         -           3,806
   Amortization of unearned financing costs                 -         166,667
                                                 -------------   -------------

       TOTAL OTHER EXPENSES                                 -         170,473
                                                 -------------   -------------

NET LOSS                                         $   (356,988)   $ (1,564,276)
                                                 =============   =============

BASIC AND DILUTED LOSS PER COMMON SHARE          $      (0.02)   $      (0.07)
                                                 =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING                                    14,512,091      22,028,085
                                                 =============   =============

See notes to consolidated financial statements.

                                       4
<PAGE>
<TABLE>

                                NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                                  (UNAUDITED)
                                    FOR THE NINE MONTHS ENDED JULY 31, 1999

<CAPTION>

                                                     Common Stock        Additional                         Total
                                              ------------------------    Paid-in       Accumulated    Stockholders'
                                                 Shares      Amount       Capital         Deficit        Deficiency
                                              -----------  -----------  -------------   -------------  -------------

<S>                                           <C>          <C>          <C>             <C>            <C>
Balance - October 31, 1998                    12,966,532   $   12,966   $  9,883,209    $(10,255,518)  $   (359,343)

Issuance of common stock for services:
  ($.16 per share at December 1998)               25,000           25          3,975               -          4,000
  ($.16 per share at July 1999)                  625,000          625         99,375               -        100,000
Issuance of common stock for cash
  (November 1, 1998 - July 31, 1999)           1,309,309        1,309        196,958               -        198,267
Issuance of common stock in settlement of debt
  ($.20 per share at December 1998)              250,000          250         49,750               -         50,000
Net loss                                               -            -              -        (853,411)      (853,411)
                                              -----------  -----------  -------------   -------------  -------------
Balance - July 31, 1999                       15,175,841   $   15,175   $ 10,233,267    $(11,108,929)  $   (860,487)
                                              ===========  ===========  =============   =============  =============

</TABLE>

See notes to consolidated financial statements.

                                       5

<PAGE>
<TABLE>

                                NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                                  (UNAUDITED)
                                    FOR THE NINE MONTHS ENDED JULY 31, 1999

<CAPTION>

                                                     Common Stock        Additional       Unearned                         Total
                                              ------------------------    Paid-in        Financing      Accumulated    Stockholders'
                                                 Shares      Amount       Capital          Costs          Deficit        Deficiency
                                              -----------  -----------  -------------   -------------   -------------  -------------

<S>                                           <C>          <C>          <C>             <C>             <C>            <C>
Balance - October 31, 1999                    17,224,049   $   17,224   $ 12,197,374    $          -    $(12,300,033)  $    (85,435)

Issuance of common stock for cash
  ($1.00 to $4.00 per share)                     770,994          771      2,593,617               -               -      2,594,388
Issuance of common stock for services:
  ($1.00 to $1.40 per share at January 31)        29,765           30         34,020               -               -         34,050
  ($1.20 to $12.00 per share at April 30)      1,161,065        1,161      1,813,568               -               -      1,814,729
  ($3.00 to $7.88 per share at July 31)          109,000          109        619,541               -               -        619,650
Acquisition of Impact Pictures, Inc.
  ($4.00 per share)                               12,500           12         49,988               -               -         50,000
Acquisition of New Wheel Technology, Inc.
  ($2.00 per share)                            3,000,000        3,000      5,997,000               -               -      6,000,000
Issuance of common stock under consulting
  agreement ($2.00 per share)                  1,500,000        1,500      2,998,500      (3,000,000)              -              -
Issuances of stock for exercise of warrants
  ($2.40 per share)                               68,750           69        164,931               -               -        165,000
Amortization of unearned financing costs               -            -              -         166,667               -        166,667
Net loss                                               -            -              -               -     (10,370,549)   (10,370,549)
                                              -----------  -----------  -------------   -------------   -------------  -------------
Balance - July 31, 2000                       23,876,123   $   23,876   $ 26,468,539    $ (2,833,333)   $(22,670,582)  $    988,500
                                              ===========  ===========  =============   =============   =============  =============

</TABLE>
See notes to consolidated financial statements.

                                       6
<PAGE>
<TABLE>

                           NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (UNAUDITED)
<CAPTION>

                                                                        For the Nine Months Ended
                                                                                July 31,
                                                                      -----------------------------
                                                                           1999            2000
                                                                      -------------   -------------
<S>                                                                   <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                           $   (853,411)   $(10,370,549)
   Adjustments to reconcile net loss to net cash used by operating
      activities:
         Compensatory elements of stock issuances                          104,000       2,468,428
          Amortization of deferred financing fees                                -         166,667
         Stock issued for acquired in-process research and
            development                                                          -       6,050,000
         Projects costs written-off                                        131,250          10,884
         Amortization of costs of projects                                  60,870          51,242
         Depreciation of property and equipment                             45,645          63,610

   Cash provided by (used in) the change in assets and liabilities:
        Prepaid expenses and other current assets                                -         (11,244)
        Other assets                                                             -          (4,091)
        Receivable from related parties                                          -          18,722
        Projects under development                                        (230,237)       (488,901)
        Accounts payable and accrued expenses                              543,616        (290,252)
                                                                      -------------   -------------

          NET CASH USED IN OPERATING ACTIVITIES                           (198,267)     (2,335,484)
                                                                      -------------   -------------

CASH USED IN INVESTING ACTIVITIES
  Capital expenditures                                                           -        (253,007)
                                                                      -------------   -------------

CASH PROVIDED BY FINANCING ACTIVITIES
  Proceeds from issuance of common stock                                   198,267       2,594,388
  Proceeds from note payable                                                     -         529,000
  Proceeds from exercise of warrants                                             -         165,000
                                                                      -------------   -------------

          NET CASH PROVIDED BY FINANCING ACTIVITIES                        198,267       3,288,388
                                                                      -------------   -------------

INCREASE IN CASH                                                                 -         699,897

CASH AND CASH EQUIVALENTS - BEGINNING                                            -          62,872
                                                                      -------------   -------------

CASH AND CASH EQUIVALENTS - ENDING                                    $          -    $    762,769
                                                                      =============   =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

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

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

    Accounts payable satisfied by issuance of stock                   $     50,000    $          -
                                                                      =============   =============
</TABLE>


See notes to consolidated financial statements.

                                       7
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  1-          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  BASIS OF PRESENTATION

                  The accompanying financial statements are unaudited. These
                  statements have been prepared in accordance with the rules and
                  regulations of the Securities and Exchange Commission (the
                  "SEC"). Certain information and footnote disclosures normally
                  included in the financial statements prepared in accordance
                  with generally accepted accounting principles have been
                  condensed or omitted pursuant to such rules and regulations.
                  In the opinion of management, the financial statements reflect
                  all adjustments (which include only normal recurring
                  adjustments) necessary to state fairly the financial position
                  and results of operations as of and for the periods indicated.
                  These financial statements should be read in conjunction with
                  the Company's financial statements and notes thereto for the
                  year ended October 31, 1999, included in the Company's Form
                  10-KSB/A as filed with the SEC.

                  ACCOUNTING ESTIMATES

                  The preparation of financial statements in conformity with
                  general accepted accounting principles 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 statement
                  and the reported amounts of revenues and expenses during the
                  reporting period. Actual results could differ from those
                  estimates.

                  PRINCIPLES OF CONSOLIDATION

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

                  DESCRIPTION OF BUSINESS

                  The Company (previously known as Bellwether Investment Inc.)
                  was incorporated under the laws of the State of Utah on
                  December 5, 1985. On October 18, 1995, the Company acquired
                  all of the outstanding shares of Siliwood Entertainment
                  Corporation ("Siliwood"), a development-stage company with no
                  operations. The Company issued 1,477,898 shares of common
                  stock to the shareholders of Siliwood to effect the
                  acquisition. The acquisition was accounted for as a
                  recapitalization and was accounted for in a manner similar to
                  a pooling of interest. The Company then changed its name to
                  Siliwood Entertainment Corporation.

                                       8
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  1 -         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  DESCRIPTION OF BUSINESS (CONTINUED)

                  On June 10, 1996, the Company acquired certain assets and
                  assumed various liabilities from Infinity Vision Entertainment
                  ("IVE"). Immediately following the purchase, Siliwood changed
                  its name to New Visual Entertainment, Inc. ("NVE").
                  Accordingly, former IVE partners have an interest in NVE
                  stock. The acquisition of these assets and the assumption of
                  these liabilities has been accounted for as a purchase and the
                  costs were allocated based on fair market value. There were no
                  operations of NVE prior to this acquisition. The Company has
                  been engaged in the development, design and distribution of
                  software techniques, videos and theaters for stereoscopic
                  (3-D) authoring and visualization, but has recently expanded
                  its business plan to include the development of new content
                  transmission technologies as well.

                  The accompanying consolidated financial statements have been
                  performed in conformity with generally accepted accounting
                  principles, which contemplate continuation of the Company as a
                  going-concern. As of July 31, 2000, the Company has an
                  accumulated deficit of $22,670,582.

                  The Company has continued losses in each of its years of
                  operation, negative cash flow and liquidity problems. These
                  conditions raise substantial doubt about the consolidated
                  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 the financial
                  support of certain of its stockholders and the continued
                  existence of the Company is dependent upon this support and
                  its ability to acquire assets by the issuance of stock.
                  Management's plans in this regard are to receive the continued
                  support of the stockholders and/or to obtain other financing
                  until profitable operation and positive cash flow are achieved
                  and maintained. There can be no guarantee that the
                  stockholders will provide this support.

                  CASH AND CASH EQUIVALENTS

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

                  PROPERTY AND EQUIPMENT

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

                                       9
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  1 -         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  FILM AND VIDEO LIBRARY AND PROJECTS UNDER DEVELOPMENT

                  Film and video library and projects under development are
                  stated at the lower of amortized cost or market. Upon
                  completion, costs are amortized on an individual production
                  basis in the proportion that current gross revenues bear to
                  management's estimate of total gross revenues with such
                  estimates being reviewed at least quarterly. In prior years,
                  several projects under development were determined to have no
                  estimated realizable value and were accordingly written-off.
                  Project costs written-off during the nine months ended July
                  31, 1999 and 2000 were $131,250 and $10,884, respectively. For
                  the nine months ended July 31, 1999 and 2000, amortization
                  expense related to the film and video library was $60,869 and
                  $62,086, respectively.

                  INCOME TAXES

                  Deferred tax liabilities and assets are determined based on
                  the difference between the financial statement carrying amount
                  and tax bases of assets and liabilities using enacted tax
                  rates in effect in the years in which the differences are
                  expected to reverse.

                  FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The financial statements include various estimated fair value
                  information at July 31, 2000 and October 31, 1999, as required
                  by Statement of Financial Accounting Standards 107,
                  "Disclosures about Fair Value of Financial Instruments". Such
                  information, which pertains to the Company's financial
                  instruments, is based on the requirements set forth in that
                  Statement and does not purport to represent the aggregate net
                  fair value to the Company.

                  The following methods and assumptions were used to estimate
                  the fair value of each class of financial instruments for
                  which it is practicable to estimate that value:

                  Cash and Cash Equivalents: The carrying amount approximates
                  fair value because of the short-term maturity of those
                  instruments.

                  Receivables and Payables: The carrying amounts approximate
                  fair value because of the short maturity of those instruments.

                  All of the Company's financial instruments are held for
                  purposes other than trading.

                  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.

                                       10
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  1 -         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  RESEARCH AND DEVELOPMENT

                  Research and development costs are charged to expense as
                  incurred.

                  ADVERTISING

                  Advertising costs are charged to operations when incurred.
                  Advertising expense for the nine months ended July 31, 1999
                  and 2000 was $2,403 and $67,833, respectively.

                  LOSS PER SHARE

                  Basic net loss per common share has been computed based on the
                  weighted average number of shares of common stock outstanding
                  during the periods presented, which were retroactively
                  adjusted to give recognition to a reverse stock split on
                  October 18, 1995 and a reverse stock split on June 8, 2000.
                  Common stock equivalents were not included in the calculation
                  of diluted loss per share because their inclusion would have
                  had the effect of decreasing the loss per share otherwise
                  computed.

                  REVERSE STOCK SPLITS

                  On October 18, 1995, the Company approved a one-for-two
                  reverse split of its issued and outstanding common stock. On
                  June 8, 2000, the Company effected a one-for-four reverse
                  split of its issued and outstanding common stock. The
                  accompanying consolidated financial statements, notes and
                  other references to share and per share data have been
                  retroactively restated to reflect the reverse stock splits for
                  all periods presented.

                  STOCK-BASED COMPENSATION

                  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 minimum value method 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.

                                       11
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  1 -         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  COMPREHENSIVE INCOME

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

                  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

                  In June 1998, the Financial Accounting Standards Board issued
                  Statement of Financial Accounting Standard No. 133,
                  "Accounting for Derivative Instruments and Hedging Activities"
                  (FAS 133). This statement establishes accounting and reporting
                  standards for derivative instruments, including certain
                  derivative instruments embedded in other contracts, and for
                  hedging activities. The Company will be required to adopt FAS
                  133 for the quarter ended January 31, 2001. The Company does
                  not expect the adoption to have a material impact on its
                  financial statements.

NOTE  2 -         ACQUISITIONS

                  IMPACT PICTURES, INC.

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

                                       12
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  2 -         ACQUISITIONS (CONTINUED)

                  NEW WHEEL TECHNOLOGY, INC.

                  In February 2000, the Company completed the acquisition of New
                  Wheel Technology, Inc. ("New Wheel"), a development-stage
                  California-based, technology company, for 500,000 restricted
                  shares of New Visual common stock. New Wheel was merged with
                  the Company's Astounding Acquisition Corp. subsidiary, which
                  changed its name to New Wheel Technology, Inc. An additional
                  2,500,000 restricted shares of common stock have been issued
                  and placed with an escrow agent to be released to the New
                  Wheel stockholders upon the achievement by New Wheel of a
                  technological development milestone. Also, additional
                  compensation would be paid to the New Wheel stockholders if
                  New Wheel's high speed digital transmission technology
                  generates revenues for the Company in excess of $1 billion, or
                  if there is a sale of assets or stock, or a merger of New
                  Visual or any of its affiliates, in which the New Wheel
                  technology comprises at least 15% of the consideration. As of
                  April 30, 2000, the Company recorded the issuance of the full
                  3,000,000 shares, which were valued at $6,000,000. The Company
                  has accounted for this acquisition under the purchase method
                  of accounting. As of the acquisition date, New Wheel had no
                  tangible assets and its intangible assets were in the
                  development stage. Accordingly, the $6,000,000 was charged to
                  operations under the caption "Acquired in-process research and
                  development expenses", during the nine months ended July 31,
                  2000.

NOTE  3 -         PROPERTY AND EQUIPMENT, NET

                  Property and equipment consists of the following:

                                                        October 31,  July 31,
                                                           1999       2000
                                                         ---------  ---------
                        Furniture and fixtures           $  2,376   $ 37,689
                        Camera equipment                  278,660    426,820
                        Office equipment                   26,442     95,726
                                                         ---------  ---------
                                                          307,478    560,235
                        Less: Accumulated depreciation    204,948    268,308
                                                         ---------  ---------

                                      Total              $102,530   $291,927
                                                         =========  =========

                  For the nine months ended July 31, 1999 and 2000, depreciation
                  expense was $45,645 and $63,610, respectively.

                                       13
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000



NOTE  4 -         ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                  Accounts payable and accrued liabilities consist of the
                  following:


                                                         October 31,  July 31,
                                                            1999       2000
                                                          ---------  ---------
                              Professional fees           $150,000   $ 60,000
                              Payroll and related taxes     29,485     43,607
                              Miscellaneous                241,214     26,839
                                                          ---------  ---------

                                                          $420,699   $130,446
                                                          =========  =========

NOTE  5 -         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 July 31, 2000, the Company
                  had borrowed $529,000 under these facilities, payable on June
                  29, 2003 in one payment, together with all accrued and unpaid
                  interest at 6%. The credit agreements expire on October 28,
                  2002. As of July 31, 2000, the Company had $971,000 of unused
                  credit under these credit agreements.

NOTE  6 -         STOCKHOLDERS' EQUITY

                  PREFERRED STOCK

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

                  On July 27, 2000, the Company created a series of preferred
                  stock, par value $0.01 per share, designated as "Series A
                  Junior Participating Preferred Stock". The number of shares
                  constituting the Series A Junior Participating Preferred Stock
                  shall be 200,000, initially reserved for issuance upon
                  exercise of the rights discussed in Note 8. Subject to the
                  rights of the holders of any shares of any series of preferred
                  stock ranking prior and superior to the Series A Preferred
                  Stock with respect to dividends, the holders of shares of
                  Series A Preferred Stock, in preference to the holders of
                  common stock, shall be entitled to receive, when, as and if
                  declared by the Board of Directors, quarterly dividends
                  payable in cash on the last day of each quarter in each year,
                  commencing on the first quarterly dividend payment date after
                  the first issuance of a share or fraction of a share of Series
                  A Preferred Stock, in an amount per share

                                       14
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  6 -         STOCKHOLDERS' EQUITY (CONTINUED)

                  PREFERRED STOCK (CONTINUED)

                  equal to the greater of $1.00 or 1,000 times the aggregate per
                  share amount of all cash and non-cash dividends or other
                  distributions, other than a dividend payable in shares of
                  common stock. Each share of Series A Preferred Stock shall
                  entitle the holder to 1,000 votes. Upon any liquidation, no
                  distribution shall be made to the holders of shares of stock
                  ranking junior to the Series A Preferred Stock, unless the
                  holders of shares of Series A Preferred Stock shall have
                  received $1,000 per share, plus an amount equal to accrued and
                  unpaid dividends and distributions thereon. The shares of
                  Series A Preferred Stock shall not be redeemable.

                  COMMON STOCK ISSUANCES

                  -        During the Year Ended October 31, 1999:
                           ---------------------------------------

                           For the period from November 1, 1998 to October 31,
                           1999, the Company issued 1,849,592 shares of common
                           stock at prices ranging from $.08 to $1.64 per share,
                           totalling $610,062.

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

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

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

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

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

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

                           During September 1999, the Company issued 98,875
                           shares of common stock between $.48 and $2.00 in
                           settlement of debt totalling $91,625.

                                       15
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  6 -         STOCKHOLDERS' EQUITY (CONTINUED)

                  COMMON STOCK ISSUANCES (CONTINUED)

                  -        During the Year Ended October 31, 1999: (Continued)
                           --------------------------------------

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

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

                  -        During the Nine Months Ended July 31, 2000:
                           ------------------------------------------

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

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

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

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

                                       16
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  6 -         STOCKHOLDERS' EQUITY (CONTINUED)

                  COMMON STOCK ISSUANCES (CONTINUED)

                  -        During the Nine Months Ended July 31, 2000:
                           (Continued)
                           ------------------------------------------

                           In connection with the acquisition of New Wheel, the
                           Company entered into an agreement with lenders to
                           provide loans of up to $1.5 million. As consideration
                           for these loans and other services under the
                           agreement, the Company issued 1,500,000 shares of its
                           common stock to the lenders. The Company has valued
                           the stock at $3,000,000 to be amortized over the life
                           of the debt instrument. As of April 30, 2000, the
                           Company had not received proceeds under the debt
                           financing. Accordingly, the Company has classified
                           the $3,000,000 as unearned financing costs in
                           stockholders" equity as of April 30, 2000. During the
                           quarter ended July 31, 2000, the Company began to
                           draw money down from the credit facilities.
                           Accordingly, the Company at such time, began to
                           amortize the unearned financing costs over the
                           three-year period ended April of 2003.

                           On March 17, 2000, the Company issued 1,250 shares at
                           $2.80 for a signing bonus to an employee.

                           During March 2000, the Company issued 154,090 shares
                           of common stock between $1.40 and $12.00 for
                           consulting and professional services totalling
                           $388,329.

                           During April 2000, the Company issued 1,005,725
                           shares of common stock between $1.20 and $2.00 for
                           professional services totalling $1,422,900.

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

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

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

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

                                       17
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  6 -         STOCKHOLDERS' EQUITY (CONTINUED)

                  STOCK OPTIONS

                  On February 11, 2000, the Company granted to three directors
                  options to acquire 900,000 shares of its common stock. The
                  exercise price for the options is $4.00 per share. The options
                  vest in four equal annual installments of 225,000 shares
                  commencing February 11, 2000 and expire February 11, 2010.

                  On July 1, 2000, the Company granted to its Executive Vice
                  President options to purchase 210,000 shares of common stock
                  at $4.40 per share, as further described in Note 7.

                  Since the exercise price was equal to the fair market value of
                  the Company's common stock on each date of grant, no
                  compensation expense has been recorded. If the Company had
                  elected to record the issuance of stock options using the fair
                  value method, the Company's net loss and loss per share would
                  be as follows:


                                                Three Months        Nine Months
                                                ------------        -----------

                         Net Loss:
                             As reported        $(1,564,276)      $(10,370,549)
                             Proforma           $(1,609,276)      $(10,685,549)

                         Loss Per Share:
                             As reported             $(0.07)            $(0.50)
                             Proforma                $(0.07)            $(0.52)

                  The fair value of stock options granted during the nine months
                  ended July 31, 2000 was estimated on the date of grant using
                  the Black-Scholes option-pricing model. The weighted average
                  fair value and related assumptions were as follows:


                                                              Grant Date
                                                       -------------------------
                                                       February 11,     July 1,
                                                           2000          2000
                                                       -----------   -----------
                         Expected volatility               33.0%         33.0%
                         Risk-free interest rate            5.5%          5.5%
                         Expected lives                  3 years       3 years
                         Dividend yield                      -0-           -0-

                                       18
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  6 -         STOCKHOLDERS' EQUITY (CONTINUED)

                  EARNINGS 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           200,000
                           Options to purchase common stock          1,110,000
                                                                     ---------

                           Total as of July 31, 2000                 1,310,000
                                                                     =========

                  2000 OMNIBUS SECURITIES PLAN

                  During April 2000, the Board of Directors adopted, and
                  subsequently on May 31, 2000, the shareholders of the Company
                  approved, the 2000 Omnibus Securities Plan. The 2000 Omnibus
                  Securities Plan authorizes the granting of stock options and
                  restricted stock awards. The 2000 Omnibus Securities Plan may
                  be administered by the Board of Directors or a committee
                  appointed by the Board. A total of 2,500,000 shares of common
                  stock are reserved for issuance under the 2000 Omnibus
                  Securities Plan. Options granted under the option plan may be
                  either (i) options intended to constitute incentive stock
                  options under Section 422 of the Internal Revenue Code of
                  1986, as amended, or any corresponding provisions of
                  succeeding law (the "Code"), or (ii) non-qualified stock
                  options.

                  The exercise price for each stock option is determined by the
                  board. Incentive stock options must have an exercise price of
                  at least 100% (or at least 110% in the case of incentive stock
                  options granted to certain employees owning more than 10% of
                  the outstanding voting stock) of the fair market value of the
                  common stock on the date the stock option is granted. Under
                  the 2000 Omnibus Securities Plan, fair market value of the
                  common stock for a particular date will generally be the
                  closing sale price for the stock if the common stock is listed
                  on an established stock exchange. If the common stock is not
                  listed on an established stock exchange on a particular date,
                  the fair market value of the common stock will be the average
                  of the closing bid and asked prices per share for the stock as
                  quoted by The Nasdaq SmallCap market or on the OTC Bulletin
                  Board of the National Association of Securities Dealers or in
                  the NQB Pink Sheets published by the National Quotation Bureau
                  Incorporated.

                  No stock option may be exercised after the expiration of ten
                  years from the date of grant (or five years in the case of
                  incentive stock options granted to certain employees owning
                  more than 10% of the outstanding voting stock). Pursuant to
                  the 2000 Omnibus Securities Plan, the aggregate fair market
                  value of the common stock for which one or more incentive
                  stock options granted to any participant may, for the first
                  time, become exercisable as incentive stock options under the
                  federal tax laws during any one calendar year shall not exceed
                  $100,000.

                                       19
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  7 -         COMMITMENTS AND CONTINGENCIES

                  LEASES

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

                  On February 16, 2000, the Company entered into an operating
                  lease for office space in Livermore, California. The lease
                  commenced on March 1, 2000 and expires on February 28, 2002.
                  The lease provides for a minimum annual rental of
                  approximately $25,700 for the first year and $26,800 the
                  following year.

                  Rent expense for the nine months ended July 31, 1999 and 2000
                  was $4,500 and $48,353, respectively.

                  ROYALTY PAYMENTS

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

                  TERMINATED MERGER AND LITIGATION

                  In September 1999, the Company entered into a merger agreement
                  with Astounding.com, Inc. The merger agreement provided for
                  the Company to issue 10,000,000 (pre-June 8, 2000 reverse
                  split) shares of its common stock for all of the outstanding
                  shares of Astounding. The closing of the merger was subject to
                  various conditions including the receipt of a debt or equity
                  financing of at least $1,000,000 and requisite shareholders
                  approval.

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

                                       20
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000



NOTE  7 -         COMMITMENTS AND CONTINGENCIES (CONTINUED)

                  TERMINATED MERGER AND LITIGATION (CONTINUED)

                  The Company, on March 22, 2000, filed a lawsuit in the State
                  District Court in Dallas, Texas against Astounding.com, Inc.
                  and Jack Robinson. The Company's complaint alleges that, among
                  other things, Astounding.com, Inc. and Robinson breached
                  certain contractual obligations to New Visual and engaged in
                  negligent and/or fraudulent misrepresentation to induce New
                  Visual to enter into the merger agreement. New Visual is
                  seeking a court order confirming that the merger agreement is
                  null and void, and an award of unspecified damages, court
                  costs and attorneys fees. Robinson and Astounding.com have
                  filed a counterclaim against New Visual alleging breach of
                  contract and unjust enrichment and seeking unspecified
                  damages, court costs and attorney fees. The Company denies
                  liability and intends to vigorously prosecute its claim and
                  defend itself against the counterclaim.

                  PROPOSED MERGER

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

                           On March 31, 2000, the Company signed a definitive
                           merger agreement for it to acquire Intelecon
                           Services, Inc. ("Intelecon"), a leading provider of
                           entertainment and business communication technology
                           and value-added services, in a stock transaction.
                           Intelecon is a producer services audio-visual
                           rentals, sales, installations and staging services
                           company offering complete turn-key solutions for
                           productions, concerts, corporate entities, tradeshows
                           and multimedia. Intelecon has approximately 75 full
                           time employees and offices in Dallas, Los Angeles and
                           Las Vegas. In consideration of the merger, the former
                           shareholders of Intelecon will receive 500,000
                           restricted shares of the Company's common stock. An
                           additional 875,000 restricted shares of the Company's
                           common stock will be delivered to an escrow agent and
                           be released to the Intelecon shareholders over a
                           five-year period upon the achievement of certain
                           pre-tax income milestones. If the milestones are not
                           satisfied, the shares will not be released from
                           escrow until the end of the five-year escrow period,
                           and under certain circumstances would be forfeited by
                           the shareholders. An additional 17,500 shares of the
                           Company's common stock will be reserved for issuance
                           upon the exercise of stock options held by certain
                           Intelecon employees that will be exchanged for the
                           Company's stock options in the merger.

                                       21
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000



NOTE  7 -         COMMITMENTS AND CONTINGENCIES (CONTINUED)

                  PROPOSED MERGER (CONTINUED)

                  -        Intelecon Services, Inc. (Continued)
                           ------------------------

                           Consummation of the merger is subject to various
                           conditions, including the filing by the Company of an
                           application for listing of its common stock on the
                           NASDAQ Stock market; the receipt by the Company of a
                           commitment letter from Lilly Beter Capital Group,
                           Ltd. concerning the placement of at least $18 million
                           of debt or equity securities of the Company within 12
                           months after the closing of the merger; Intelecon's
                           liabilities (excluding capital leases) being no
                           greater than $1.5 million; Intelecon's restructuring
                           of certain obligations that would permit certain
                           Intelecon indebtedness, preferred stock and warrants
                           to be cancelled at closing in exchange for the
                           issuance by the Company of no more than 500,000
                           restricted shares of common stock; and the completion
                           of an audit of Intelecon's 1998 and 1999 financial
                           statements acceptable to New Visual. The merger also
                           is subject to the satisfactory completion of each
                           party's due diligence and requisite board and
                           shareholder approval.

                  CONSULTING AGREEMENT

                  In June 2000, the Company entered into a marketing and public
                  relations agreement to publicize the Company to brokers,
                  prospective investors, institutional investors, analysis and
                  others, for a term of six months. In consideration of the
                  above services, the Company has paid the consultant $50,000.
                  In addition, the consultant was issued 50,000 shares of the
                  Company's common stock. The consultant was also issued a
                  warrant entitling it to purchase, in the aggregate, up to
                  200,000 shares of the Company's common stock. The warrant is
                  divided into four tranches of fifty thousand (50,000) shares
                  each, with each tranche having the following exercise prices:
                  Tranche 1 - $7.00 per share; Tranche 2 - $8.50 per share;
                  Tranche 3 - $10.00 per share; and Tranche 4 - $11.50 per
                  share. The consultant and the Company entered into a
                  registration rights agreement with respect to the registration
                  of the above common stock and warrant shares.

                                       22
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  7 -         COMMITMENTS AND CONTINGENCIES (CONTINUED)

                  EMPLOYMENT AGREEMENTS

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

                  In connection with its New Wheel acquisition, in February
                  2000, the Company entered into two employment agreements for
                  executive services. The agreements provide for the Company to
                  pay base salaries of $208,000 each per annum and a bonus of
                  $12,500 each upon the execution of the agreement. The
                  agreements expire on October 20, 2000, with a renewal option
                  between six months and eleven months, based on certain
                  milestones.

                  On June 20, 2000, the Company entered into a three-year
                  employment agreement with its Executive Vice President
                  commencing July 1, 2000, whereby the Executive Vice President
                  shall receive a base salary of $15,000 per year and options to
                  purchase 210,000 shares of common stock at $4.40 per share. Of
                  these stock options, 35,000 vested on July 1, 2000 and the
                  balance vests straight-line on the last day of each quarter
                  beginning September 30, 2000 and ending December 31, 2002, or
                  17,500 per quarter. The options expire on July 1, 2005.

                  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 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 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.

                                       23
<PAGE>

                 NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 2000


NOTE  7 -         COMMITMENTS AND CONTINGENCIES (CONTINUED)

                  CONCENTRATION OF CREDIT RISK

                  Financial instruments which potentially subject the Company to
                  concentrations of credit risk are primarily cash and cash
                  equivalents. At July 31, 2000, the Company had a bank balance
                  in excess of federally insured limits by approximately
                  $744,311.

                  For the nine months ended July 31, 1999, substantially all of
                  the net revenues were derived from three companies. For the
                  nine months ended July 31, 2000 substantially all of the net
                  revenues were derived from one company.

NOTE  8 -         SUBSEQUENT EVENT

                  RIGHTS DIVIDEND

                  The Company adopted a shareholder rights plan in which one
                  right was distributed on August 21, 2000 as a dividend on each
                  outstanding share of common stock to shareholders of record on
                  that date. Each right will entitle the shareholders to
                  purchase 1/1,000th of a share of a new series of junior
                  participating preferred stock of the Company at an exercise
                  price of $200 per right. The rights will be exercisable only
                  if another person acquires or announces its intention to
                  acquire beneficial ownership of 20% or more of the Company's
                  common stock. After any such acquisition or announcement, the
                  Company's shareholders, other than the acquirer, could then
                  exercise each right they hold to purchase the Company's common
                  stock at a 50% discount from the market price. In addition,
                  if, after another person becomes an acquiring person, the
                  Company is involved in a merger or other business combination
                  in which it is not the surviving corporation, each right will
                  entitle its holder to purchase a number of shares of common
                  stock of the acquiring company having a market value equal to
                  twice the exercise price of the right. Prior to the
                  acquisition by a person or group of beneficial ownership of
                  20% or more of the Company's common stock, at the option of
                  the Board of Directors, the rights are redeemable for $0.001
                  per right. The rights will expire on August 21, 2004.

                                       24
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS


GENERAL
-------

       The following is a discussion and analysis of the results of operations
of the Company and should be read in conjunction with the Company's financial
statements and related notes contained in this Form 10-QSB.

       Certain information contained in this Form 10-QSB may contain
forward-looking statements. The forward-looking statements are subject to
certain risks and uncertainties. Actual results could differ materially from
current expectations. Among the factors that could effect the Company's actual
results and could cause results to differ from those contained in the
forward-looking statements contained herein is the Company's ability to
commercialize its technologies successfully, which will be dependent on
business, financial and other factors beyond the Company's control, including,
among others, market acceptance, ability to manufacture on a large scale basis
and at feasible costs, together with all the risks inherent in the establishment
of a new enterprise and the marketing and manufacturing of new products.

PLAN OF OPERATION
-----------------

       THE COMPANY. New Visual Entertainment, Inc. has historically focused on
the development of high-quality, cost-effective 3D film production and
exhibition for theme parks and attractions in the special venue marketplace. The
Company is still active in this industry as it continues to develop proprietary
short 3D film and video titles for distribution to a variety of markets
including the special venue, satellite TV, home video, and Internet markets.
However, the Company's primary focus has shifted to activities designed to
pioneer the development of high bandwidth technology in conjunction with high
data content production and animation. The Company's new mission is the
development of technology that would utilize existing copper telecommunications
infrastructure to deliver high data content to residential customers. The full
development of such technology would provide New Visual with the capability to
produce and deliver major studio quality content to mass media markets at speeds
exceeding current industry standards while using a telecommunications
infrastructure that is already in place and well-established.

       NEW WHEEL TECHNOLOGY, INC. New Wheel Technology, Inc., a wholly owned
subsidiary of the Company, is developing its Cu@OCx technology, a "last mile"
solution that would extend the range over which data can be transmitted at rates
of 52Mbps over standard 26-gauge copper telephone wire.

                                       25
<PAGE>

       The developing trend towards High Definition Television ("HDTV") requires
bandwidth of 20 Mbps. Current Asymmetric Digital Subscriber Line ("ADSL")
deployment is limited to 8Mbps, even at optimum transfer speeds. ADSL cannot use
the existing telephone infrastructure to transmit HDTV transmissions to
residences from the telephone central office. The Company envisions the fully
developed New Wheel Cu@OCx technology would permit 52Mbps transmissions through
copper telephone wire for at least 8,500 feet, which would be adequate bandwidth
for HDTV transmission. The ability to deploy broadband transmissions over
existing copper wire could eliminate the complexities and costs involved in
installing new fiber optic cable to and throughout office buildings and complete
the last leg of "Fiber to the Curb".

       IMPACT MULTIMEDIA, INC. Impact Multimedia, Inc., formerly Impact
Pictures, Inc., is a wholly owned subsidiary of the Company and a full service
production studio capable of producing CD-ROM, DVD, or web-based multimedia
presentations utilizing advanced technologies in animation, graphics design,
compression, digital audio, motion capture, digital video and vector-based
graphics for corporate, commercial, and consumer applications. Impact Multimedia
currently produces multimedia sales demos, business card size CD's, direct
mailers, and animated websites, and has plans to position itself as a multimedia
production house with marketing and advertising capabilities. Impact Multimedia
has the ability to satisfy many of the Company's content development and
marketing needs while also serving its own customers.

       PLANS FOR FISCAL YEAR 2000. The Company's plans of operation for the
remainder of its 2000 fiscal year will consist of the following activities:

o        developing the New Wheel broadband transmission technology;

o        validating the performance of the broadband transmission technology;

o        licensing the broadband transmission technology to telecommunications
         manufacturers, service providers, and vendors;

o        seeking manufacturing partners for delivering the broadband
         transmission technology to localized markets;

o        continuing to build a market for the Company's content production and
         distribution capabilities; and

o        continuing to evaluate merger/acquisition candidates with the potential
         to enhance the Company's business plan.

                                       26
<PAGE>

RESULTS OF OPERATIONS
---------------------

For the Nine Months Ended July 31, 2000 vs. the Nine Months Ended July 31, 1999
-------------------------------------------------------------------------------

       REVENUES. Revenues for the nine months ended July 31, 2000 were
approximately $7,700. Revenues for the nine months ended July 31, 1999 were
approximately $82,000 due to revenue recognized from film and video library
productions.

       OPERATING EXPENSES. Operating expenses include amortization of project
costs, writedown of project costs, depreciation of property and equipment,
compensatory element of stock issuances, acquired in-process research and
development expenses, research and development expesnes, and selling, general
and administrative costs. Total operating expenses increased from $936,000 for
the nine months ended July 31, 1999 to $10,208,000 for the nine months ended
July 31, 2000. The increase was principally related to an increase in
compensatory element of stock issuances of $2,364,000, a $6,050,000 charge to
earnings for acquired in-process research and development costs, research and
development costs of $363,000 related to our New Wheel subsidiary and an
increase of $607,000 in selling, general and administrative expenses, as a
result of our increased in our corporate infrastructure.

       The acquired in-process research and development costs were associated
with the acquisitions of New Wheel Technology ($6,000,000) and Impact Pictures
($50,000). Included in the acquisition of New Wheel Technology was 2,500,000
shares, valued at $5,000,000, that were issued and are being held in escrow. The
shares will be released from escrow upon the achievement of certain
technological development milestones. If these technological milestones are not
met, the shares will be returned to the Company.

       OTHER EXPENSES. Other operating expenses included amortization of
unearned financing fees and interest expense. Total other expenses increased
from $-0- for the nine months ended July 31, 1999 to $170,000 for the nine
months ended July 31, 2000.

For the Three Months Ended July 31, 2000 vs. the Three Months Ended
July 31, 1999
-------------------------------------------------------------------

       REVENUES. Revenues for the three months ended July 31, 2000 were
approximately $900. Revenues for the three months ended July 31, 1999 were
approximately $38,000.

       OPERATING EXPENSES. Operating expenses increased from $395,000 for the
three months ended July 31, 1999 to $1,395,000 for the three months ended July
31, 2000. The increase was principally related to an increase in compensatory
element of stock issuances, of $520,000, and an increase in research and
development expenses of $183,000 due to the Company's acquisition of New Wheel
Technology and an increase of $232,000 in selling, general and administrative
expenses.

       OTHER EXPENSES. Total other expenses increased from $-0- for the three
months ended July 31, 1999 to $170,000 for the three months ended July 31, 2000
due to interest expense and amortization of financing costs related to our new
line of credit.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

       Operations have been financed through private sales of common stock
resulting in net proceeds of approximately $2,759,000 and $198,000 for the nine
months ended July 31, 2000 and July 31, 1999, respectively. In addition, during
these periods, a substantial portion of expenses were paid by the issuance of
stock.

                                       27
<PAGE>

PROPOSED ACQUISITION
--------------------

       INTELECON SERVICES, INC. In March of 2000, New Visual announced the
signing of an agreement to acquire, by way of a merger, Intelecon Services,
Inc., a Dallas-based studio and production company (the "Intelecon Merger").
Established in 1991, Intelecon is a privately held production, e-commerce,
multimedia, staging and audio-visual company. Intelecon offers complete turnkey
solutions for productions, concerts, corporate events, tradeshows, and
multimedia. Its services include stereoscopic 3D, 2D, and 3D animation, on-line
and off-line nonlinear non-compressed digital editing, special effects, 3D
visualization, audio, lighting, rigging, video walls, large screen and panoramic
projection.

       In consideration of the Intelecon Merger, the former shareholders of
Intelecon will receive 500,000 restricted shares of New Visual common stock. An
additional 875,000 restricted shares of New Visual common stock will be
delivered to an escrow agent and be released to the Intelecon shareholders over
a five-year period upon the achievement of certain pre-tax net income
milestones.

       Upon the consummation of the Intelecon Merger, Intelecon will be a
wholly-owned subsidiary of the Company, and will continue to operate under the
Intelecon name. Consummation of the Intelecon Merger is subject to various
conditions, including the filing by the Company of an application for listing of
its common stock on the NASDAQ Stock Market; the receipt by the Company of a
commitment letter from Lilly Beter Capital Group, Ltd. concerning the placement
of at least $18 million of debt or equity securities of the Company within 12
months after the closing of the Intelecon Merger; Intelecon's liabilities
(excluding capital leases) being no greater than $1.5 million; Intelecon's
restructuring of certain obligations that would permit certain Intelecon
indebtedness, preferred stock and warrants to be canceled at closing in exchange
for the issuance by the Company of no more than 500,000 restricted shares of
common stock; and the completion of an audit of Intelecon's 1998 and 1999
financial statements acceptable to New Visual. The Intelecon Merger is also
subject to the satisfactory completion of each party's due diligence and
requisite board and shareholder approval.

       Upon completion of the Intelecon Merger, Edward Vakser and Vladimir
Vakser, Intelecon's founders, will be appointed to the Company's board of
directors and begin serving as officers of the Company. Edward Vakser will
become the Company's President, and Vladimir Vakser will become the Company's
Chief Financial Officer. Ray Willenberg, Jr., the Company's current CEO and
Chairman of the Board, will continue to serve as the Chief Executive Officer and
Chairman of the Board of the Company.

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 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 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.

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 the consolidated 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 the financial support of
certain of its stockholders and the continued existence of the Company is
dependent upon this support and its ability to acquire assets by the issuance of
stock. Management's plans in this regard are to receive the continued support of
the stockholders and/or to obtain other financing until profitable operation and
positive cash flow are achieved and maintained. There can be no guarantee that
the stockholders will provide this support.

                                       28
<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
----------------------------------------------

       In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
will be required to adopt FAS 133 for the quarter ended January 31, 2001. The
Company does not expect the adoption to have a material impact on its financial
statements.

                                       29
<PAGE>

                          PART II -- OTHER INFORMATION.

Item 1. Legal Proceedings.

         In September 1999, the Company entered into a merger agreement with
         Astounding.com, Inc. that provided for the issuance of 10 million
         (pre-reverse stock split) shares of Company common stock. An individual
         named Jack Robinson is the sole shareholder of Astounding.com, Inc. The
         closing of the merger was conditioned on, among other things,
         shareholder approval and at least $1 million of debt or equity
         financing being contributed to the Company. The merger has not closed,
         and the Company terminated this Agreement in February 2000.

         In March 2000, the Company filed a lawsuit in state district court in
         Dallas, Texas against Astounding.com and Jack Robinson relating to the
         merger agreement. In this lawsuit the Company alleges breach of
         contract, fraud, unconscionability and negligent misrepresentation with
         respect to the merger agreement. The Company is seeking a court order
         confirming that the merger agreement is null and void and an award of
         unspecified damages, court costs and attorneys' fees. Robinson and
         Astounding.com have filed a counterclaim against New Visual alleging
         breach of contract and unjust enrichment. The Company denies liability
         and intends to vigorously prosecute its claim and defend itself against
         the counterclaim.


Item 2. Changes in Securities and Use of Proceeds.

               (a)      Not applicable.
               (b)      Not applicable
               (c)      The Company issued 423,832 shares of its common
                        stock in the preceding fiscal quarter, in
                        transactions exempt from registration under
                        Section 4(2) of the Securities Act of 1933, as
                        amended. See Note 6 to the Financial Statements
                        attached hereto.
               (d)      Not applicable.

Item 3. Defaults Upon Senior Securities.

               Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

         The Company submitted the following matters to a vote of its security
         holders at its annual meeting that was held on May 31, 2000:

         (a)      The Company's shareholders were asked to vote for the election
                  of Lilly Beter, John Howell, Celso B. Suarez, Jr., Ray
                  Willenberg, Jr., and C. Rich Wilson III to hold office until
                  the 2001 Annual Meeting of Shareholders. The shareholders
                  elected each director with 81,359,621 votes cast for, no votes
                  cast against, and 364,544 absentions.

         (b)      The Company's shareholders were asked to approve an Amendment
                  to Article IV of the Company's Articles of Incorporation to
                  effect a 1:4 reverse stock split, to decrease the number of
                  authorized shares of the Company's preferred stock from
                  200,000,000 to 15,000,000, and to decrease the par value of
                  such preferred stock from $30.00 to $0.01 per share. This
                  amendment to the Company's Articles of Incorporation was
                  approved with 78,313,611 votes cast for, 3,257,554 votes cast
                  against, and 153,000 abstentions.

                                       30
<PAGE>

         (c)      The Company's shareholders were asked to ratify the selection
                  of Tabb, Conigliaro & McGann, P.C. as the Company's
                  independent auditors for the year ending October 31, 2000. The
                  shareholders ratified the selection of the independent
                  auditors with 81,004,655 votes cast for, 306,602 votes cast
                  against; and 232,008 abstentions.

         (d)      The Company's shareholders were asked to approve the Company's
                  2000 Omnibus Securities Plan. The 2000 Omnibus Securities Plan
                  was approved with 80,587,525 votes cast for, 1,141,212 votes
                  cast against, and 446,108 abstentions.

Item 5. Other Information.

               Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

               (a)      Exhibits.

                  3.1      Restated Articles of Incorporation(1).

                  3.2      Bylaws(2).

                  4.1      Specimen Stock Certificate(3).

                  4.2      Rights Agreement by and between New Visual
                           Entertainment, Inc. and First Union National Bank,
                           dated August 9, 2000(4).

                  10.1     Client Service Agreement by and between the Company
                           and Continental Capital and Equity Corporation, dated
                           June 7, 2000(5).

                  10.2     Employment Agreement by and between the Company and
                           John Howell, dated June 20, 2000(5).

                  10.3     Form of Credit Agreement dated June 29, 2000 by the
                           Company and each of the following trusts: Epics
                           Events Trust, Ltd.; Exodus Systems Trust, Ltd.;
                           Prospect Development Trust, Ltd.; Pearl Street
                           Investments Trust, Ltd.; and Riviera Bay Holdings
                           Trust, Ltd.(5).

                  10.4     Form of Note dated June 29, 2000 executed by the
                           Company in favor of each of the following trusts:
                           Epics Events Trust, Ltd.; Exodus Systems Trust, Ltd.;
                           Prospect Development Trust, Ltd.; Pearl Street
                           Investments Trust, Ltd.; and Riviera Bay Holdings
                           Trust, Ltd.(5).

                  27.1     Financial Data Schedule (5).


         (b)      Reports on Form 8-K.

                           Form 8-K filed May 17, 2000

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

(1)   Previously filed as Exhibit 3.1 to the Registrant's Annual Report on Form
      10-KSB/A filed on May 1, 2000.
(2)   Previously filed as Exhibit 3.2 to the Registrant's Annual Report on Form
      10-KSB/A filed on May 1, 2000.
(3)   Previously filed as Exhibit 4.1 to the Registrant's Annual Report on Form
      10-KSB/A filed on May 1, 2000.
(4)   Previously filed as Exhibit 4.1 to the Company's Registration Statement on
      Form 8-A, filed on August 10, 2000.
(5)   Filed herewith.


                                       31
<PAGE>





         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.




Dated:   September 14, 2000



                                         NEW VISUAL ENTERTAINMENT, INC.
                                         (Registrant)





                                         /s/ Ray Willenberg, Jr.
                                         -------------------------------
                                         Chief Executive Officer