<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

(Mark One)

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

For the quarterly period ended July 31, 1999

(    )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934.

For the transition period from __________________ to ___________________.


Commission File Number 0-21785

                        _______________________________

                         NEW VISUAL 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   (   )                    No    ( X )

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 60,703,362 shares of Common Stock,
$.001 par value, were outstanding as of July 31, 1999.

Transitional Small Business Disclosure Forms (check one):

                   Yes   (   )                    No   ( X )
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                                INDEX TO FORM 10Q
                                  JULY 31, 1999

                                                                       Page Nos.
                                                                        --------


PART     I - FINANCIAL INFORMATION:

         ITEM I - FINANCIAL STATEMENTS


         CONSOLIDATED BALANCE SHEETS                                      F-1
               At October 31, 1998 and July 31, 1999


         CONSOLIDATED STATEMENTS OF OPERATIONS                            F-2
               For the Nine Months Ended July 31, 1998 and 1999


         CONSOLIDATED STATEMENTS OF OPERATIONS                            F-3
               For the Three Months Ended July 31, 1998 and 1999


         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY              F-4
               For the Nine Months Ended July 31, 1999


         CONSOLIDATED STATEMENTS OF CASH FLOWS                            F-5
               For the Nine Months Ended July 31, 1998 and 1999


         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                   F-6 - F-14


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


PART     II - OTHER INFORMATION

<PAGE>
<TABLE>
                            NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                                     CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                     ASSETS
                                     ------


                                                                                 October 31,         July 31,
                                                                                    1998               1999
                                                                                -------------      -------------
                                                                                                    (Unaudited)
<S>                                                                             <C>                <C>
Current Assets:
  Receivable from related parties                                               $     23,072       $     23,072
                                                                                -------------      -------------

      Total Current Assets                                                            23,072             23,072

Property and equipment - net of accumulated depreciation                             163,391            117,746

Other assets                                                                           5,000              5,000

Film and video library, net                                                                -             68,302

Projects under development, net                                                       60,124             29,939
                                                                                -------------      -------------

      Total Assets                                                              $    251,587       $    244,059
                                                                                =============      =============

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                    ----------------------------------------


Current Liabilities:
  Notes payable - related parties                                               $    285,500       $    285,500
  Accounts payable and accrued expenses                                              325,430            819,046
                                                                                -------------      -------------

      Total Current Liabilities                                                      610,930          1,104,546
                                                                                -------------      -------------

Commitments, Contingencies and Other Matters (Note 4)

Stockholders' Deficiency :
  Cumulative convertible preferred stock, Series A and B - $30
     par value; 200,000,000 shares authorized; liquidation price,
     $30 per share; -0- shares issued and outstanding                                      -                  -
  Common stock - $0.001 par value; 100,000,000 shares
     authorized; 51,866,128 and 60,703,362 shares issued and
     outstanding at October 31, 1998 and July 31, 1999, respectively                  51,866             60,703
  Additional paid-in capital                                                       9,844,309         10,187,739
  Accumulated deficit                                                            (10,255,518)       (11,108,929)
                                                                                -------------      -------------

      Total Stockholders' Deficiency                                                (359,343)          (860,487)


      Total Liabilities and Stockholders' Deficiency                            $    251,587       $    244,059
                                                                                =============      =============
</TABLE>

See notes to consolidated financial statements.

                                       F-1
<PAGE>
<TABLE>
                            NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENT OF OPERATIONS
                                             (UNAUDITED)
<CAPTION>

                                                                                  For the Nine Months Ended
                                                                                           July 31,
                                                                                --------------------------------
                                                                                  1998                 1999
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
REVENUES                                                                        $          -       $     82,436
                                                                                -------------      -------------

COSTS AND EXPENSES:
  Amortization of costs of projects                                                        -             60,870
  Projects costs written off                                                       1,199,559            131,250
  Depreciation of property and equipment                                              49,032             45,645
  Compensatory element of stock issuances                                            740,090            104,000
  Selling, general and administrative expenses                                       258,953            594,082
                                                                                -------------      -------------

    TOTAL COSTS AND EXPENSES                                                       2,247,634            935,847
                                                                                -------------      -------------

LOSS BEFORE INCOME TAXES                                                          (2,247,634)          (853,411)

INCOME TAX EXPENSE                                                                         -                  -
                                                                                -------------      -------------

NET LOSS                                                                        $ (2,247,634)      $   (853,411)
                                                                                =============      =============

BASIC AND DILUTED LOSS PER SHARE                                                $       (.05)      $       (.02)
                                                                                =============      =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING                                                                   47,846,759         56,284,745
                                                                                =============      =============
</TABLE>

See notes to consolidated financial statements.

                                       F-2
<PAGE>
<TABLE>
                            NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENT OF OPERATIONS
                                             (UNAUDITED)
<CAPTION>

                                                                                  For the Three Months Ended
                                                                                           July 31,
                                                                                --------------------------------
                                                                                    1998                1999
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
REVENUES                                                                        $          -       $     37,989
                                                                                -------------      -------------

COSTS AND EXPENSES:
  Amortization of costs of projects                                                        -             20,290
  Projects costs written off                                                         399,853             43,750
  Depreciation of property and equipment                                              16,344             15,215
  Compensatory element of stock issuances                                            268,765            100,000
  Selling, general and administrative expenses                                        86,562            215,722
                                                                                -------------      -------------

    TOTAL COSTS AND EXPENSES                                                         771,524            394,977
                                                                                -------------      -------------

LOSS BEFORE INCOME TAXES                                                            (771,524)          (356,988)

INCOME TAX EXPENSE                                                                         -                  -
                                                                                -------------      -------------

NET LOSS                                                                        $   (771,524)      $   (356,988)
                                                                                =============      =============

BASIC AND DILUTED LOSS PER SHARE                                                $       (.02)      $       (.01)
                                                                                =============      =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING                                                                   49,856,444         58,048,362
                                                                                =============      =============
</TABLE>

See notes to consolidated financial statements.

                                       F-3
<PAGE>
<TABLE>

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



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

<S>                                              <C><C>         <C>        <C>        <C>          <C>           <C>
Balance - October 31, 1998                       -  $       -   51,866,128 $   51,866 $ 9,844,309  $(10,255,518) $   (359,343)

Issuance of common stock for services:
 ($.04 per share at December 1998)               -          -      100,000        100       3,900             -         4,000
 ($04 per share at July 1999)                    -          -    2,500,000      2,500      97,500             -       100,000
Issuance of common stock for cash
 (November 1, 1998 - July 31, 1999)              -          -    5,237,234      5,237     193,030             -       198,267
Issuance of common stock in settlement
 of debt ($.05 per share at December             -          -    1,000,000      1,000      49,000             -        50,000
 1998)
Net loss                                         -          -            -          -           -      (853,411)     (853,411)
                                         ---------- ----------  ---------- ---------- -----------  ------------- -------------

Balance - July 31, 1999                          -  $       -   60,703,362 $   60,703 $10,187,739  $(11,108,929) $   (860,487)
                                         ========== ==========  ========== ========== ===========  ============= =============
</TABLE>

See notes to consolidated financial statements.

                                       F-4

<PAGE>
<TABLE>

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

                                                                                   For the Nine Months Ended
                                                                                          July 31,
                                                                                --------------------------------
                                                                                    1998                1999
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                                     $ (2,247,634)      $   (853,411)
   Adjustments to reconcile net loss to net cash used by operating activities:
       Compensatory elements of stock issuances                                      740,090            104,000
       Project in progress written-off                                             1,199,559            131,250
       Amortization of costs of projects                                                   -             60,870
       Depreciation of property and equipment                                         49,032             45,645

   Increase (decrease) from changes in:
       Projects under development                                                   (123,622)          (230,237)
       Accounts payable and accrued expenses                                          39,756            543,616
                                                                                -------------      -------------

          NET CASH USED IN OPERATING ACTIVITIES                                     (342,819)          (198,267)
                                                                                -------------      -------------

CASH PROVIDED BY FINANCING ACTIVITIES
  Proceeds from issuance of common stock                                             337,202            198,267
                                                                                -------------      -------------

DECREASE IN CASH                                                                      (5,617)                 -

CASH AND CASH EQUIVALENTS - BEGINNING                                                  6,293                  -
                                                                                -------------      -------------

CASH AND CASH EQUIVALENTS - ENDING                                              $        676    $             -
                                                                                =============      =============

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.

                                       F-5

<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE 1-           SUMMARY OF 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
                  10KSB for the year ended October 31, 1999 as filed with the
                  Securities and Exchange Commission.

                  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") (formerly known as
                  Siliwood) and its subsidiary, NV Entertainment ("NV")
                  (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 5,911,592 shares of common
                  stock to the shareholders of Siliwood to effect the reverse
                  acquisition. The reverse 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.

                                       F-6
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE 1 -          SUMMARY OF 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 changes
                  its name to New Visual Entertainment, Inc. ("NVE").
                  Accordingly, former IVE partners have an interest in NVE
                  (formerly known as Siliwood) 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
                  acquisition. The Company is currently engaged in the
                  development, design and distribution of software techniques,
                  videos and theaters for stereoscopic (3-D) authoring and
                  visualization.

                  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, 1999, the Company has a
                  stockholders' deficiency of $860,487, a working capital
                  deficiency of $1,081,474 and an accumulated deficit of
                  $11,108,929.

                  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.

                  CONCENTRATION OF CREDIT RISK

                  Financial instruments, which potentially subject the Company
                  to concentrations of credit risks, are principally trade
                  accounts receivable. The Company maintains an allowance for
                  uncollectible accounts receivable and, generally, does not
                  require collateral. At July 31, 1999, no allowance for
                  uncollectible accounts was deemed necessary by management.

                  CASH AND CASH EQUIVALENTS

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

                                       F-7
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  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.

                  INTANGIBLE ASSETS

                  Intangible assets consists of a stereoscopic imaging
                  technology and the rights to certain stereoscopic/3-D titles.
                  These costs are stated at the lower of cost or net realizable
                  value and will be amortized over their estimated economic life
                  of 5 years. These costs are evaluated quarterly to determine
                  the net realizable value. During the year ended October 31,
                  1997, a valuation allowance of $330,893 was charged to
                  operations related to such assets.

                  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.
                  Projects costs written-off during the nine months ended July
                  31, 1998 and 1999 were $1,199,559 and $131,250, respectively.
                  For the nine months ended July 31, 1998 and 1999, amortization
                  expense related to the film and video library was $-0- and
                  $60,870, respectively.

                  INCOME TAXES

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

                  ACCOUNTING ESTIMATES

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

                                       F-8
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  FAIR VALUE OF FINANCIAL INSTRUMENTS

                  Quoted market prices generally are not available for all of
                  the Company's financial instruments. Accordingly, fair values
                  are based on judgements regarding current economic conditions,
                  risk characteristics of various financial instruments and
                  other factors. These estimates involve uncertainties and
                  matters of judgement and, therefore, cannot be determined with
                  precision. Changes in assumptions could significantly affect
                  the estimates.

                  A description of the methods and assumptions used to estimate
                  the fair value of each class of the Company's financial
                  instruments is as follows:

                  Cash, receivables, accounts payables and accrued expenses have
                  carrying amounts that approximate fair value due to the short
                  maturity of these instruments. Management was not able to
                  practically estimate the fair value of notes payable due to
                  their related party nature.

                  REVENUE RECOGNITION

                  Substantially all revenues are derived from the production and
                  licensing of videos and commercial films. Revenue is
                  recognized over the shorter of the license term or the
                  expected revenue term.

                  ADVERTISING

                  Advertising costs are charged to operations when incurred.
                  Advertising expense for the nine months ended July 31, 1999
                  was $2,805.

                  LOSS PER SHARE

                  Basic earnings per share ("Basic EPS") is computed by dividing
                  net income available to common stockholders by the weighted
                  average number of common shares outstanding during the period.
                  Diluted earnings per share ("Diluted EPS") gives effect to all
                  dilutive potential common shares outstanding during a period.
                  In computing diluted EPS, the treasury stock method is used in
                  determining the number of shares assumed to be purchased from
                  the conversion of common stock equivalents.

                  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
                  proforma effects of accounting for these arrangements using
                  the minimum value method to determine fair value.

                                       F-9
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE 1 -          SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                  IMPAIRMENT OF LONG-LIVED ASSETS

                  During 1996, the Company adopted the Statement of Financial
                  Accounting Standards (SFAS) No. 121, "Accounting for the
                  Impairment of Long-Lived Assets and for Long-Lived Assets to
                  be Disposed of". Under the provisions of this statement, the
                  Company has evaluated its long- lived assets for financial
                  impairment, and will continue to evaluate them as events or
                  changes in circumstances indicate that the carrying amount of
                  such assets may not be fully recoverable.

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

                  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

                  Effective November 1, 1998, the Company adopted the provisions
                  of SFAS No. 130, "Reporting Comprehensive Income". SFAS No.
                  130 establishes standards for reporting comprehensive income,
                  defined as all changes in equity from non-owner sources.
                  Adoption of SFAS No. 130 did not have a material effect on the
                  Company's financial position or results of operations.

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

                  Effective November 1, 1998, the Company adopted Statement of
                  Financial Accounting Standards (SFAS) No. 132, "Employers'
                  Disclosures About Pensions and Postretirement Benefits", which
                  standardizes the disclosure requirements for pensions and
                  other postretirement benefits. The Statement addresses
                  disclosure only. It does not address liability measurement or
                  expense recognition. There was no effect on financial position
                  or net income as a result of adopting SFAS No. 132.

                                      F-10
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE  2 -         PROPERTY AND EQUIPMENT, NET

                  Property and equipment consists of the following:

                                                      October 31,     July 31,
                                                         1998           1999
                                                     ------------   ------------
                    Furniture and fixtures           $     2,376    $     2,376
                    Camera equipment                     278,660        278,660
                    Office equipment                      26,442         26,442
                                                     ------------   ------------
                                                         307,478        307,478
                    Less: Accumulated depreciation       144,087        189,732
                                                     ------------   ------------

                                  Total              $   163,391    $   117,746
                                                     ============   ============

                  For the nine months ended July 31, 1998 and 1999, depreciation
                  expense was $49,032 and $45,645, respectively.

NOTE  3 -         PREFERRED STOCK AND COMMON STOCK

                  DESCRIPTION OF SECURITIES

                  On October 18, 1995, the Company approved a 1-for-2 reverse
                  stock split. All common shares and price per share information
                  disclosed in the financial statements and notes have been
                  adjusted to give effect to the 1-for-2 reverse stock split.

                  On July 23, 1996, the Company issued 200,000 shares of
                  non-voting series "B" cumulative convertible preferred stock
                  (3-to-1 conversion feature for common stock) with a
                  liquidation value of $30 per share for the acquisition of the
                  rights of a music library, which consist of 2,100 titles. Each
                  music title was appraised at a value range of $1,000 to
                  $3,000. The value of the acquisition was based upon the fair
                  market value of the stock that was issued. In September 1999,
                  the Company's Board of Directors elected to cancel the
                  preferred shares of NVE stock. The decision was made and
                  executed as the Company sought to take delivery of the music
                  library and the seller was unable to provide the content.

                  For the Year ended October 31, 1998:
                  ------------------------------------

                  For the period from November 1, 1997 to October 31, 1998, the
                  Company issued 6,527,978 shares of common stock at prices
                  ranging from $.04 to $1.00 per share totalling $463,312
                  pursuant to Rule 144.

                  For the period November 1, 1997 to October 31, 1998, the
                  Company issued 4,792,500 shares of common stock at various
                  amounts for officers compensation and director fees totalling
                  $739,826.

                                      F-11
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE  3 -         PREFERRED STOCK AND COMMON STOCK (CONTINUED)

                  DESCRIPTION OF SECURITIES (CONTINUED)

                  For the Year ended October 31, 1998: (Continued)
                  ------------------------------------

                  In November 1997, the Company issued 1,000,000 shares of
                  common stock at $.05 totalling $50,000 for a subsequently
                  aborted acquisition.

                  On March 25, 1998, the Company issued 100,000 shares of common
                  stock at $.06 for professional services totalling $5,500.

                  On April 13, 1998, the Company issued 3,000,000 shares of
                  common stock at $.05 in settlement of debt totalling $130,000.

                  On June 2, 1998, the Company issued 410,000 shares of common
                  stock between $.05 and $.12 in settlement of debt totalling
                  $31,500.

                  During August 1998, the Company issued 187,000 shares of
                  common stock at $.05 for professional services totalling
                  $10,700.

                  On September 8, 1998, the Company issued 60,000 shares of
                  common stock at $.05 for professional services totalling
                  $3,000.

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

                  For the period from November 1, 1998 to July 31, 1999, the
                  Company issued 5,237,234 shares of common stock at prices
                  ranging from $.02 to $.25 per share totalling $198,267,
                  pursuant to Rule 144.

                  On December 15, 1998, the Company issued 100,000 shares of
                  common stock at $.04 for professional services totalling
                  $4,000.

                  On December 28, 1998, the Company issued 1,000,000 shares of
                  common stock at $.05 in settlement of debt totalling $50,000.

                  On July 23, 1999, the Company issued 2,500,000 shares of
                  common stock at $.04 for professional services totalling
                  $100,000.

                                      F-12
<PAGE>

                  NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 31, 1999



NOTE  4 -         COMMITMENTS AND CONTINGENCIES

                  The Company hired a television company to produce 26 episodes
                  of live music acts in 3-D. As of October 31, 1997, the Company
                  paid $1,515,563 to the television company. All 26 episodes
                  have yet to be completed as of October 31, 1998 in 3-D. Since
                  no revenues were recognized, the Company wrote-off the
                  accumulated project cost of $1,515,563 during the year ended
                  October 31, 1998.

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

                  The Company's headquarters are located in San Diego,
                  California. Rent expense for the nine months ended July 31,
                  1998 and 1999 was $6,000 and $5,940, respectively.

                  CONCENTRATION OF CREDIT RISK

                  For the year ended October 31, 1998 and the nine months ended
                  July 31, 1999, substantially all of the net revenues were
                  derived from three companies. At July 31, 1999, no receivables
                  were due from the above customers.

                                      F-13
<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 consolidated
financial statements and related notes contained in this Form 10-Q.

Certain information contained in this Form 10-Q 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 affect 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
-----------------

New Visual Entertainment, Inc. was founded with the mission to produce and
distribute high-impact 3D films for the growth oriented specialty venue markets,
such as theme parks, amusement parks, family entertainment centers and casinos.
The Company, through its proprietary technology, utilizes a low cost 3D
production and exhibition technology to compete in these markets. The Company
plans to use this proprietary technology to continue to produce high-quality,
cost effective 3D films and market them to venues not accessible to other 3D
systems and software providers due to cost prohibitiveness.

Through the use of this proprietary technology, the Company developed three new
feature films during 1998 and 1999. They were (1) "Wonder in Belize", an
underwater 3D film; (2) "Big Waves" in Hawaii; and (3) "A Day at the Beach", an
off-road and surfing lifestyle adventure. The Company also produced two
customer-driven productions in 1999: "Miss Hawaiian Tropic '99" for C3D, and
"Game On", a paintball film for JT USA.

With the production of the above films, the Company has strengthened its
position as a special venue content producer of 3D material. Additionally, it
has positioned itself to produce and distribute multi-media and alternative
format content for traditional and web-based consumption.

The Company's plan of operation for the 2000 fiscal year will consist of
activities aimed at:

o        Investigating and, if appropriate, pursuing definitive agreements for
         acquisitions believed by the Board to be consistent with the Company's
         plan to develop and distribute 3D content over a variety of traditional
         and new media (such as 3D films for special venues, computer software,
         videotape, television and Internet distribution).

o        Establishing strategic partnerships for the production, marketing,
         sales, licensing and other distribution of the Company's 3D content.

o        Developing new 3D content and otherwise expanding the Company's library
         of 3D material.

o        Acquiring additional studio production and editing equipment, cameras,
         lenses, and mobile theater transport equipment.

<PAGE>

PLAN OF OPERATION (CONTINUED)
-----------------

The Company believes, with the right strategic partnerships, it can function as
a full-scale production studio capable of financing, producing and distributing
3D and traditional content to multiple mass markets.

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

For the Nine Months Ended July 31,1999 vs. the Nine Months Ended July 31, 1998
------------------------------------------------------------------------------

REVENUES. Revenues increased to approximately $82,000 for the nine months ended
July 31, 1999. There were no revenues for the nine months ended July 31, 1998.
The increase of $82,000 was primarily due to revenue recognized from film and
video library productions.

COSTS AND EXPENSES. Cost and expense includes amortization of project costs,
writedown of project costs, depreciation of property and equipment, compensatory
element of stock issuances, and selling, general and administrative costs. Total
costs and expenses decreased from $2,248,000 for the nine months ended July 31,
1998 to $936,000 for the nine months ended July 31, 1999. The decrease was
principally related to the decrease in compensatory element of stock issuances
of $636,000 and a decrease in projects costs written off of $1,069,000.

NET LOSS. The net loss for the nine months ended July 31, 1999 was approximately
$853,000, as compared to a net loss for the nine months ended July 31, 1998 of
$2,248,000. The decrease in net loss was principally due to lower writedowns in
project costs and lower compensatory issuances of common stock offset by an
increase in selling, general and administrative costs.

For the Three Months Ended July 31, 1999 Vs. Three Months Ended July 31, 1998
-----------------------------------------------------------------------------

Due to the small volume of revenue activities in these periods, the analysis of
these periods would not be meaningful.

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

Operations have been financed through private sales of common stock resulting in
net proceeds of approximately $198,000 for the nine months ended July 31, 1999
and $337,000 for the nine months ended July 31, 1998. In addition, during these
years, a substantial portion of expenses were paid by the issuance of stock.

Net cash used by operating activities approximated $198,000 for the nine months
ended July 31, 1999 and $343,000 for the nine months ended July 31, 1998. Net
cash used for operating activities consisted of new project production costs and
the funding of cash portions of selling, general and administrative costs.

PROPOSED MERGER
---------------

In September 1999, the Company entered into a merger agreement with
Astounding.com, Inc. ("Astounding"). The merger agreement provides for the
Company to issue 10,000,000 shares of its common stock for all of the
outstanding shares of Astounding. The closing of the merger was subject to
various conditions including the receipt of a debt or equity financing of at
least $1,000,000 and requisite shareholders approval. During the three months
ended January 31, 2000, the Company terminated its previously announced merger
with Astounding because certain conditions had not been satisfied.

<PAGE>

ACQUISITIONS
------------

In January 2000, the Company completed the acquisition of 100% of the common
stock of Impact Pictures, Inc., a small development-stage San Diego-based
multi-media production firm, for 50,000 shares of the Company's common stock.

In February 2000, the Company completed the acquisition of 100% of the common
stock of New Wheel Technology, Inc. ("New Wheel"), a development-stage
California based technology company, for 2,000,000 restricted shares of New
Visual's common stock. An additional 10,000,000 restricted shares of common
stock have been delivered to an escrow agent and will be released to the New
Wheel stockholders upon the achievement by New Wheel of a defined technological
development milestone. New Wheel is presently working on developing a high speed
digital transmission technology over copper wire.

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.

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

Statement of Financial Accounting Standards No. 130, "Comprehensive Income"
(SFAS 130), was issued in June 1997. SFAS 130 requires reclassification of
earlier financial statements for comparative purposes. SFAS 130 requires that
all items defined as comprehensive income, including changes in the amounts of
certain items, foreign currency translation adjustments and gains and losses on
certain securities, be shown in a financial statement SFAS 130 does not require
a specific format for the financial statement in which comprehensive income is
reported, but does require that an amount representing total comprehensive
income be reported in that statement. The adoption of SFAS 130 did not have a
material effect on the Company's financial statements.

Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131"), was issued in June 1997.
SFAS 131 becomes effective for the Company's fiscal year 1999 and requires
restatement of disclosures for earlier periods presented for comparative
purposes. This new standard requires companies to disclose segment data based on
how management makes decisions about allocating resources to segments and how it
measures segment performance. SFAS 131 requires companies to disclose a measure
of segment profit or loss, segment assets, and reconciliations to consolidated
totals. It also requires entity-wide disclosures about a company's products and
services, its major customers and the material countries in which it holds
assets and reports revenues. The adoption of SFAS 131 did not have a material
effect on the Company's financial statements.

<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
----------------------------------------------------------

Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits" ("SFAS 132"), was issued in
February 1998. SFAS 132 becomes effective for 1999 and requires restatement of
disclosures for earlier periods presented for comparative purposes. SFAS 132
revises employers' disclosure about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans, but
rather standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate analysis, and eliminates certain disclosures that are no
longer useful. The adoption of SFAS 132 did not have a material effect on the
Company's financial statements.

<PAGE>

                          PART II -- OTHER INFORMATION.




Item 1.        Legal Proceedings.

               Not applicable.


Item 2.        Changes in Securities and Use of Proceeds.

               Not applicable.


Item 3.        Defaults Upon Senior Securities.

               Not applicable.


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

               Not applicable.


Item 5.        Other Information.

               Not applicable.

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

               (a)      Exhibits.

                        Not applicable.

               (b)      Reports on Form 8-K.

                        None.

Item 27.       Financial Data Schedule (2)


-----------------
(2) Filed herewith

<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: March 16, 2000


                                              NEW VISUAL ENTERTAINMENT, INC.
                                              (Registrant)





                                              /S/ Ray Willenberg, Jr.
                                              -----------------------------
                                              President