10-K 1 v71234e10-k.txt FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-10916 INTERVISUAL BOOKS, INC. (Exact Name of Registrant as Specified in its Charter) California 95-2929217 (State of Incorporation or Organization) (I.R.S. Employer I.D. No.) 2716 Ocean Park Boulevard, Suite 2020 Santa Monica, California 90405 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (310) 396-8708 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, No par value (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 2 The aggregate market value of the common stock held by non-affiliates of the registrant as of February 28, 2001, was approximately $2,418,039. The aggregate market value was based on the closing price of the common stock as quoted by The Nasdaq Stock Market on such date. Number of shares outstanding of common stock: 5,955,383 shares as of February 28, 2001. Documents incorporated by reference: None ================================================================================ 3 THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS AND EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED AS A RESULT OF THE FACTORS SET FORTH IN OR IMPLIED BY THE STATEMENTS CONTAINED IN THIS REPORT. PART I Item 1. BUSINESS Introduction Intervisual Books, Inc. (the "Company") was incorporated in California in 1975. The Company is engaged in the business of creating and producing a diversified line of pop-up and dimensional novelty books, which it sells to domestic retailers and international and US publishers. To a lesser extent, the Company also produces pop-up and dimensional game boards and playsets, as well as cloth books. The Company, as a packager, develops its own books and may grant the exclusive publishing rights to one publisher in each country. It also develops books in partnership with publishers to produce pop-up versions of existing titles owned by the publishers, including the works of key artists or writers controlled by the publishers. In some cases, the Company will self-publish certain titles and offer them directly to retailers. In substantially all cases, the Company retains the exclusive right to produce these books. The Company may decide that in order to maximize a title's potential it should be self-published. The Company sells and markets its self-published titles under the imprints "Piggy Toes Press" and "Pop-up Press." When a title is self-published, the Company maintains all North American rights. Foreign sales of a self-published title are handled the same as a packaged product. The product is offered to one or more foreign publishing partners who are given the right to sell and market the specific item in a given territory. The Company retains manufacturing rights and delivers finished product to the customer usually on a non-returnable basis. In North America, self-published titles are manufactured and brought into inventory for sale to retailers or distributors by the Company's own sales force. The Company determines the quantity of product to produce based upon estimates of the first year's sales. This inventory is stored and shipped from a public warehouse located in the Chicago area. Self-publishing sales for the most part are made by the Company's sales force directly to book, toy, gift and specialty chains and independent retailers. The Company's customer base also includes the club stores and mass markets. In most cases, self-publishing titles are sold on a returnable basis. The Company has the risk for unsold inventory, which is somewhat mitigated by the liquidity of book products, which can usually be sold to closeout buyers. In May of 1999, the Company acquired all the outstanding shares of Fast Forward Marketing, Inc. (FFM) for cash and shares of 1 4 the Company's common stock. FFM, a California company established in 1987, is an independent distributor of video and audio products for major motion picture studios and independent producers. FFM has built an account base of over 4,000 retailers, including national chains such as Musicland, Toys R Us, Blockbuster, Target, Borders and Best Buy, as well as specialty retailers such as The Store of Knowledge. As a result of this acquisition, the Company through its FFM division is now engaged in the distribution of video and audiotapes and other products. The Company also believes this acquisition gives it more direct control over its sales and marketing of its self-published titles and adds operational infrastructure needed to continue the transition toward becoming more of a traditional publisher. Types of Product Books The Company endeavors to combine the finest of children's contemporary book illustration with high quality color printing and paper engineering which achieves dramatic paper-folding effects. The Company's products incorporate dimensional and movable features where illustrations come to life through multiple movements activated by pull tabs and turning wheels. Pop-up paper scenes are created when printed paper pieces are glued onto a page in such a way that when the pages are opened, a complex three-dimensional model erects itself. The model then folds itself neatly away when the page is turned or when the book is closed. The Company also incorporates electronic audio and musical chips, lights, stuffed animals and other elements into some of its works. Although the Company has produced pop-up versions of many popular children's books, such as Madeline, Good Night Moon Room, Paddington, Clifford, Tales of Peter Rabbit, and fairy tale classics, approximately half of the Company's books are non-fiction educational books. The Human Body, a book with anatomical pop-ups, and a series of "Learn About" books, which teach children about such things as colors, shapes, sizes, numbers, etc. and were translated into 13 languages are examples of such educational books. The Company publishes several pop-up books by Jan Pienkowski including Haunted House which is probably the world's best selling pop-up book with over 1,200,000 copies in print. In the last four years, the Company sold over 600,000 copies of the interactive playset Choo Choo Charlie. There were two books in 2000 which each sold over 350,000 units, titled What Makes a Rainbow and Ten Little Ladybugs. The Company has produced "electronic" books with micro-chip components that play the music to songs such as Twinkle, Twinkle Little Star, Happy Birthday, Silent Night, Jingle Bells, Lullaby and Goodnight, etc.; as well as other books which have electronic sounds such as those created by a car horn, telephone, doorbell, and a toilet flushing. The Company's creative department includes book designers, writers, and specialized "paper engineers" who conceive and design the books and other products at the Company's offices in Santa Monica, California. The books, most of which require printing and labor-intensive hand-assembly are manufactured for the Company on a 2 5 subcontracted basis by printers in Colombia, Singapore, Thailand, China and Hong Kong. Video FFM distributes video and audio products for motion picture studios, including Walt Disney, Warner Bros., Universal, Paramount and 20th Century Fox, as well as independent producers. FFM has access to titles on subjects ranging from blockbuster studio releases to exercise and children's products. FFM also sells and services the direct mail catalog industry. FFM has its own sales force who access a sales database that provides current information on product availability and pricing. This sales database contains information on over 50,000 titles. Based upon confirmed orders, FFM places orders from its suppliers. Finished goods are either drop-shipped directly to the customer or received in an independent warehouse, consolidated and then shipped to the customer. The Company does not generally maintain an inventory of video and audio products which it distributes through FFM. Approximately 50% of video sales are sold on a returnable basis. Most of FFM's suppliers have predetermined return caps, which the Company uses to set return limits with its customers. This substantially reduces the Company's exposure to excess inventory. Publishing Agreements Over half of the books produced by the Company are conceived and developed by the Company's creative department. After the Company conceives an idea and makes a dummy book, key publishers are consulted to determine if they have an interest in publishing and marketing the book. In such cases, the Company and publisher sign an agreement which stipulates that the publisher will purchase a specified quantity of their edition for the right to control distribution and set pricing to sell the book. In addition, the publishing agreement allows the Company, on most titles, to recapture publishing rights if the publisher does not continue to reorder books. Normally the Company is also given the exclusive right in perpetuity to produce all future print orders of book titles. The Company often contracts with publishers to produce and market internationally a pop-up version of a classic title owned by the publisher. In such cases, the Company enters into a co-publishing agreement which requires the Company to provide, at its expense, paper engineering, dimensional design, art production and color separations. The publisher, who has contracted to order a set number of books, provides the funds which enable the Company to guarantee the quality of the final printing, hand assembly and binding of the book. The agreement also provides that the Company receives the right to sell the books in all world markets. In most cases, a royalty is paid to the co-publishing partner for all international sales. Where the Company has contracted with a publisher to produce a book, the Company does not normally incur the expense of final printing and assembly of books without firm publishers' orders in 3 6 hand. Approximately 30% of the Company's revenues in 2000 were derived from such co-editions. Most of the co-published works are authored and/or illustrated by top international children's book authors and illustrators with the publisher or are recognized classics still in copyright with the publisher. Examples of these books include: Peter Rabbit by Beatrix Potter, Winnie-the-Pooh by A. A. Milne, Good Night Moon Room by Margaret Wise Brown and The Little Engine That Could by Watty Piper. Because of the Company's reputation, prominent authors and/or illustrators have been attracted to produce their books with the Company. The Company has produced works authored and/or illustrated by Tomie DePaola, Jan Pienkowski, Tasha Tudor, Eric Carle, David Carter, Babette Cole, Mary Engelbreit, Jane Hissey, Mick Inkpen, Kees Moerbeek, and others. Customers In 2000, 1999, and 1998, approximately 83%, 65%, and 56%, respectively, of the Company's sales were to US customers. Contributing to the increased percentage of US sales is the inclusion of video sales from the date of the acquisition of Fast Forward Marketing in mid-May 1999. These video sales are entirely in the US. Excluding the video sales, the sales to US customers represented 68%, 49% and 56% of total sales in 2000, 1999, and 1998, respectively. In 2000, the Company sold books to 70 different publishers in 22 countries. In 2000 and 1999, no single customer accounted for 10% or more of the Company's total sales. Foreign sales accounted for 17%, 35%, and 44%, respectively, of the Company's total revenues for the years ended December 31, 2000, 1999 and 1998. These sales are international co-editions sold primarily in the United Kingdom, France, Australia, Germany, Italy and Japan. The Company sells in US dollars to all customers and, accordingly, currency fluctuations which increase the price of the Company's products to its foreign customers can adversely impact the level of the Company's export sales from time to time. The following table breaks down revenues attributed to export sales in the geographic areas indicated as well as each area's percent of total sales:

Because all sales are generated through the Company's US headquarters, the Company does not distinguish operating profit or loss between US sales and foreign sales. The Company has no identifiable assets attributable to foreign sales. 4 7 Marketing and Direct Distribution The Company's primary marketing activities take place with the presentation of its books at the International Children's Book Fair in Bologna, Italy, each April and at the Frankfurt International Book Fair in Germany each October. The Company also attends the Book Expo America held in a US city each June. The sales executives of the Company also market its products by calling directly on major publishers, both in the United States and internationally. In 2000, the Company introduced a total of 29 new titles to publishers, with first run printing averaging 30,000 copies per title. There were 39 titles added to the Company's self-publishing program. From the Fall of 1997 until June of 1999, the Company used an outside distributor, Andrews McMeel, located in Kansas City, Missouri, to sell, market, invoice and distribute its self-published book titles to retailers. Effective mid-1999, the Company moved the self-publishing sales and marketing in house and began using the sales staff acquired as part of the Fast Forward Marketing transaction. Under a new three year agreement, warehousing and fulfillment was transferred by December 31, 1999 from Andrews McMeel to Ware-Pak, an independent facility in the Chicago area. During 2000, the Company added eleven independent sales groups to sell and market self-published books and video titles. These groups add approximately 60 people to the Company's sales efforts. The Company feels that in addition to reducing costs, these moves will give it better direct control over sales and marketing to retailers. The Company purchases and owns the inventory required to support its self-published book sales. Seasonality of Business The Company's business is seasonal, as is the publishing and video business as a whole, with the major volume of sales occurring in the last six months of the year. This is due primarily to the increase in retail sales during the "back-to-school" season, Thanksgiving, and Christmas holidays. It is not unusual for the Company's sales volume in the last half of the year to exceed by 50% or more its sales volume for the first six months of the year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Competition Books The Company operates in the highly competitive book selling industry and its products compete generally with the entire publishing industry to attract retail buyers. Pop-up and novelty books represent a relatively small percentage of total US retail sales of juvenile hardcover books. While the Company believes it is currently the largest pop-up packager in the world, it realizes that other packagers have established a competitive presence in the United States and the United Kingdom. The Company estimates that there are currently approximately three companies who compete with the Company as packagers of quality pop-up and labor intensive novelty books. 5 8 Video As a distributor of non-IBI proprietary product, the FFM division competes in the traditional home video distribution marketplace along with other video distributors, such as Ingram Entertainment and Baker & Taylor. In some cases, the Company also competes with its product suppliers. While the ongoing consolidation of traditional video distributors creates opportunities for FFM, the competition the Company faces for retail shelf space has intensified. The major studios, FFM's largest suppliers, historically sell most major FFM traditional video accounts on a direct basis. While FFM handles the smaller specialty accounts and catalogs on behalf of the studios, there have been occasions of these accounts getting large enough that the studio elects to handle them directly and forego the service that FFM provides. Additionally, the Company is affected by the ongoing supplier side consolidation that is occurring in the home video industry. Smaller independent producers, whom FFM has a much broader distribution base, are susceptible to being acquired by larger companies and studios who already have direct relationships with the Company's customers. Backlist In the calendar year after a new book has been shipped, the book is classified as a "backlist" title. In 2000, 1999 and 1998, approximately 54%, 41%, and 63%, respectively, of the Company's net book sales were derived from the Company's backlist. As of the date of this Report, the Company has approximately 1,400 backlist titles with 350 titles on its "active" backlist (titles for which the Company has received orders within the last 36 months). Paper Engineers Management believes its pool of paper engineers is some of the most experienced in the world. In the creation of pop-up books, the paper engineer has the responsibility to design dramatic pop-up effects which are sturdy and durable, yet can be hand-assembled with ease and at a reasonable cost. Paper engineering is a skill rarely taught in schools; it is usually learned by doing. The Company currently employs 3 paper engineers. Printers The Company does not engage in any of its own printing, binding, hand-assembly, manufacturing, or shipping, but contracts such services from independent suppliers. The Company primarily utilizes printers in Colombia, Hong Kong, Singapore, China and Thailand to perform the printing, hand-assembly, binding, and shipping of its products. The Company supplies its printers with color separated printing films and, for certain projects, components are procured by the Company and provided to the printer to complete assembly. Because pop-up books are usually printed on 10 and 12 point board stock, not paper, the production operations required for pop-up books demand that the printers have top-quality die cutting, printing, box making, and packaging capabilities. The hand- 6 9 assembly of the bits and pieces of the movable parts of the books requires skilled labor similar to the level required to assemble precision electronic products and cannot be automated. Workers must apply the right amount of glue and assemble the parts together properly to enable the moving parts to function properly; one failed glue point could be the cause for book rejection. Hua Yang Printing, located in Hong Kong maintains its printing operation and hand-assembly plant in China and was responsible for 34% of the Company's production in 2000. Carvajal, one of the Company's primary producers, is located in Colombia and is a major international printer. Carvajal operates two hand-assembly plants, one in Colombia and the other in Ecuador, and produced 19% of the Company's product in 2000. Tien Wah Press maintains its printing facilities in Singapore and its hand-assembly plants in Malaysia and Indonesia. In 2000, the Company produced 4% of its product at Tien Wah Press. The balance of the Company's 2000 production was handled by Sirivatana in Thailand, Excel Printing Co. and Winner Offset Printing located in Hong Kong with hand assembly plants in China and one other smaller supplier. The Company has no long-term contracts with its printers but enters into contracts on an order-by-order basis. The Company has been working with Carvajal and Tien Wah Press for over 20 years and with Hua Yang Printing for over 10 years. The Company has not experienced any material difficulties in manufacturing its products or achieving acceptable levels of quality control through these printers and believes its relationships with them to be excellent. Backlog The Company's backlog consists of anticipated revenues from sales of books and videos for which the Company has confirmed orders which have not been manufactured and shipped. The backlog at February 28, 2001 was approximately $4,800,000 as compared to $3,100,000 at February 29, 2000. The backlog at February 28, 2001 consisted of confirmed orders for delivery in 2001. The Company believes that backlog as of any date is not necessarily indicative of future revenues. Employees As of March 16, 2001, the Company had 47 full-time employees. These employees include members of the administrative, creative, production and marketing departments. None of the Company's employees are covered by a collective bargaining agreement. The Company has never experienced a work stoppage and believes its labor relations are satisfactory. The Company also contracts with people on an independent contractor basis, particularly in the performance of such functions as graphic design, finished art, art production, and specialized writing. Item 2. PROPERTIES The Company's approximately 13,900 square foot executive offices are located in Santa Monica, California. The lease rate is approximately $22,180 per month through the remainder of the lease 7 10 and is subject to adjustment only for increases in annual operating expenses and taxes. The lease expires on January 31, 2002, subject to an option to extend for an additional five years at an adjusted rental based on 95% of the prevailing rates for comparable space. The Company believes that its physical properties are adequate for its current needs. Item 3. LEGAL PROCEEDINGS As of the date hereof, the Company is not a party to any material legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Executive Officers of the Registrant Information regarding the Company's executive officers is found in Part III, Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT of this Annual Report on Form 10-K. 8 11 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Company's common stock is traded under the symbol, IVBK, and was traded on the Nasdaq Small Cap Market System during 2000. The following table sets forth the high and low quotations from The Nasdaq Small Cap Market System for the Company's common stock for the periods indicated. Quotations do not include retail markups, markdowns or commissions and may not necessarily represent actual transactions. COMMON STOCK PRICE

The number of record holders of the Company's common stock as of February 28, 2001, was 168, several of which represent "street accounts" of securities brokers. The Company has not paid a dividend with respect to its common stock nor does the Company anticipate paying dividends in the foreseeable future. The Company is prohibited from paying dividends without the prior approval of the lenders under both its bank revolving line of credit facility and its subordinated revolving line of credit facility. Item 6. SELECTED FINANCIAL DATA The following table summarizes certain financial data for the Company for the fiscal years ended December 31, 2000, 1999, 1998, 1997, and 1996 which should be read in conjunction with the Financial Statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Report. 9 12 The consolidated financial statements also reflect the accounts of FFM from May 14, 1999, the date it was acquired. The acquisition was accounted for under the purchase method of accounting. In addition, the acquisition of FFM may impact comparability. SELECTED FINANCIAL DATA INTERVISUAL BOOKS, INC. Statements of Operations Data:

Balance Sheet Data:

10 13 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Statements and notes thereto appearing elsewhere in this Report. General The Company's inventory consists of finished books for promotional purposes, materials purchased for production, and finished books for its self-publishing program. The Company typically retains limited rights to publish the books it creates and the Company has the rights to publish approximately 1,400 books that are considered part of its "backlist" (titles that were originally manufactured and sold in previous years). Sales of titles from the Company's backlist accounted for approximately $5,482,000 or 54% of book sales in 2000, $4,853,000 or 41% of book sales in 1999, and $7,081,000 or 63% of book sales in 1998. Production costs related to books include amounts incurred for design, art, editorial services, paper engineering, cutting dies, and color separations. The costs for books are stated at cost and are capitalized and amortized using the sum-of-the-years-digits method over a five-year projected sales life. These costs are evaluated each year based on management's estimates of future sales of related products. These costs are written off when management believes they provide no future benefit. Costs of products which have an anticipated sales life of one year or less are written off in the first year of sale. Production costs related to videos include amounts incurred for duplication, editing, and packaging. The costs are stated at the lower of cost or net realizable value and are amortized over the greater of the number of units sold divided by total units estimated to be sold or straight line over the life of the product. Total production costs, net of accumulated amortization, were approximately $3,675,000 at December 31, 2000, and $3,417,000 at December 31, 1999. The Company recognizes income upon shipment of books and videos. Historically, the Company, which has a December 31 year-end, has recognized a majority of its sales in the last six months of each year, resulting from the year-end holiday season and the spring season of the following year which is often shipped in December. The Company achieved approximately 57%, 70%, and 57%, respectively, of its total sales during the last six months of 2000, 1999, and 1998. On March 20, 1998, the Company signed an agreement and plan of merger with the Hunt Creative Group, a related party. The merger was accounted for as a combination of entities under common control, which was accounted for in a similar manner as a pooling of interest, and all financial numbers have been restated to include the results of the Hunt Group. 11 14 On May 14, 1999, the Company completed the acquisition of Fast Forward Marketing, Inc., (Fast Forward). The transaction was completed under the terms and conditions of a definitive agreement signed March 29, 1999. Under this agreement, the Company acquired all the outstanding shares of Fast Forward for 670,000 shares of its common stock, a contingent cash payment of up to $200,000 due May 1, 2000, and a cash payment of $150,000 due May 1, 2001 subject to reduction for the payment by the Company of certain tax withholdings. The contingent cash payment of up to $200,000 or a lesser prorated amount is due if Fast Forward achieved between 70% and 90% of its 1999 projected gross margin, provided a minimum gross margin requirement was met. No payment was made as the target was not achieved. This transaction was accounted for as a purchase. This resulted in goodwill of $1,587,000 which is being amortized over the estimated useful life of 20 years. Results of Operations Comparison of the Year Ended December 31, 2000 to the Year Ended December 31, 1999. Net sales for the year ended December 31, 2000, were $19,311,000 as compared to $17,675,000 for the same period in 1999, an increase of $1,636,000 or 9%. This increase can be mainly attributed to higher video sales of $3,110,000 and higher self publishing sales of $3,114,000, offset by lower packaging sales of $4,588,000. The increase in video sales primarily relates to results being reported for 12 months of 2000 versus 7-1/2 months in 1999, since the acquisition of Fast Forward was finalized in mid-May of 1999. Self-publishing sales were up mainly due to the Company's continued efforts to expand this important market. The Company made and will continue to make a concentrated effort to expand not only its self-publishing customer base, but to increase the number of titles being offered to the Company's retail customers. Packaging sales decreased mainly due to lower sales to foreign publishers and to a lesser extent US publishers. Foreign sales were negatively affected by the strong US dollar and unfavorable Asian economic conditions. Also affecting foreign sales was the loss of a key UK packaging customer which was not replaced with a new account until late in 2000. Domestic packaging sales were lower mainly due to a direct seller who in 1999 was sold as a packager and in 2000 purchased self-published titles. Rights income for the year ended December 31, 2000 was $138,000 as compared to $599,000 for the year ended December 31, 1999. This income is subject to fluctuations and depends on the number of projects purchased in any given year. In 1999, rights income for the Company was much higher that normal due to nine titles being sold. In 2000, rights to two titles were sold. Gross profit margin as a percent of sales (including video sales, but excluding the effect of rights income) for the year ended December 31, 2000, was 17.6% as compared to 21% in 1999. Profit margins decreased mainly due to lower margins on self-publishing titles and lower margins on packaging sales offset by an increase in video margins. Margins on self-publishing titles fell 12 15 mainly because of the number of mass market accounts sold in 2000 as compared to 1999 and additional reserves taken for inventory markdowns. Closeout sales of self-publishing inventory also negatively impacted margins in 2000. The reduction in margin on packaging sales was due mainly to better pricing offered to foreign customers to help offset the effect of a stronger US dollar. Cost of sales consists primarily of manufacturing and shipping costs, book development amortization, and royalties. Manufacturing and shipping costs were $14,151,000 or 73.3% of sales for 2000 as compared to $12,079,000 or 68.3% of sales for 1999. The amortization of book development costs was $1,435,000 for 2000 compared to $1,432,000 for 1999. Royalties for the year ended December 31, 2000 were $336,000 as compared to $457,000 in 1999. The decrease in royalties is largely related to the mix of titles sold. Selling, general and administrative expenses for the year ended December 31, 2000 were $5,525,000 compared to $5,012,000 for the year ended December 31, 1999, an increase of $513,000 or 10.2%. Included, however, in 2000 were expenses for Fast Forward for the entire year as compared to only 7-1/2 months in the prior year since the acquisition was not finalized until mid-May of 1999. Assuming 12 months of expenses had been included in 1999 for Fast Forward, the combined selling, general and administrative expenses would have been $5,935,000 versus $5,525,000 in 2000 resulting in a $410,000 decrease in 2000. Personnel expenses for the year ended December 31, 2000 were $2,526,000 as compared to $2,419,000 in 1999. This increase of $107,000 can be attributed primarily to salaries and related costs for Fast Forward employees for being included for the entire year of 2000 as compared to only 7-1/2 months in 1999 and a non-recurring expense of $105,000 taken for a consulting arrangement. These increases were offset by officer salary reductions, decreases in auto allowances and stock option expenses. Selling expenses in 2000 were $1,406,000 versus $1,399,000 in 1999 for an increase of $7,000. This increase is primarily related to increases in show expenses and in the reserve for royalty advances offset by decreases in warehouse and distribution costs and field representative expenses. Administrative expenses were $1,593,000 in 2000 as compared to $1,194,000 in 1999. The increase of $399,000 was primarily attributable to increases in bad debt allowance, rent, accounting expenses and amortization of acquisition costs and goodwill partially offset by a decrease in depreciation. Other income for the year ended December 31, 2000 was $30,000 as compared to $46,000 in the prior year. Interest expense was $590,000 in 2000 versus $287,000 in 1999. Interest expense was higher as a result of an increase in borrowings on the Company's lines of credit. The Company experienced a loss before income taxes for the year ended December 31, 2000 of $2,559,000 compared to a loss of $947,000 for the comparable period in 1999, a decrease of $1,612,000. Included in this loss was an expense for income taxes of $192,000 which related to the partial write-off this year of a 13 16 tax benefit first taken in prior years. Also contributing to this year's loss were significantly higher additions to the reserves for returns, bad debts, inventory closeouts and authors' advances. The Company's net loss was $2,751,000 in 2000 as compared to net loss of $947,000 in 1999. The Company was in a loss carryforward position primarily due to the operating losses incurred during the years ended December 31, 2000, 1999 and 1998. At December 31, 2000, the Company had federal net operating loss carryforward available to offset future taxable income of approximately $4,400,000 that expires on various dates beginning in 2018 through 2020. The major temporary tax differences that are expected to reverse next year are allowance for doubtful accounts, reserves for sales and returns, accrued vacations, uniform capitalization of inventory, and the effect of a change from cash to accrual basis. However, the Company expects new temporary differences to be established in these years which will either reduce or exceed the reversing temporary differences. For the year ended December 31, 2000, the Company has a net deferred tax asset of $250,000. The Company evaluated the gross deferred tax asset of $2,626,100 taking into consideration projected operating results and determined that a valuation allowance of $2,376,100 should be established. The Company believes it is more likely than not that the net deferred tax asset of $250,000 will be realized. Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998. Net sales for the year ended December 31, 1999, were $17,675,000 as compared to $11,192,000 for the same period in 1998, an increase of $6,483,000 or 58%. The sales increase can be attributed to increases of $1,006,000 in foreign sales and $5,477,000 in domestic sales. Included in the 1999 figures were $5,951,000 of video sales in the US from Fast Forward acquired in mid-May. Sales increases in Japan and the UK of 114% and 48%, respectively, were primarily responsible for the increase in foreign sales. On the domestic side, sales were negatively affected by a decline in the Company's net sales from its self-publishing business which was offset by the addition of video sales. Rights income for the year ended December 31, 1999 was $599,000 as compared to $206,000 for the year ended December 31, 1998. This income is primarily derived from the Company's sales of worldwide direct marketing rights on nine titles in 1999 and two titles in 1998. Gross profit margin as a percent of sales (including video sales, but excluding the effect of rights income) for the year ended December 31, 1999, was 21% as compared to 14.3% in 1998. Profit margins increased on its sales to publishers to 34.4% in 1999 from 28.8% in 1998 and on its sales to retailers from its self-publishing program to 67% in 1999 from 37% in 1998. The margin on self-publishing titles in 1998 was lower mainly because 14 17 of one time charges taken to establish a future reserve for inventory markdowns combined with the sales in 1998 of excess inventory at lower than expected margins. Contributing to improved margins on book sales was the Company's ongoing efforts to obtain better prices from its customers and lower costs from its printers. Video sales by Fast Forward Marketing traditionally have gross margins between 16% to 19%. Offsetting 1999 margins realized on the sales of book products was a 19% profit margin on video sales. Cost of sales consists primarily of manufacturing and shipping costs, book development amortization, and royalties. Manufacturing and shipping costs were $12,079,000 or 68.3% of sales for 1999 as compared to $7,749,000 or 69.2% of sales for 1998. The amortization of book development costs was $1,432,000 for 1999 compared to $1,448,000 for 1998. Royalties for the year ended December 31, 1999 were $457,000 as compared to $395,000 in 1998. The increase in royalties is largely related to the mix of titles sold. Selling, general and administrative expenses for the year ended December 31, 1999 were $5,012,000 compared to $4,797,000 for the year ended December 31, 1998, an increase of $215,000 or 4.5%. Included in the 1999 figures were $1,353,000 of overhead expenses from Fast Forward incurred from the date of the acquisition. Excluding the Fast Forward expenses, selling, general and administrative expenses, which include personnel costs, decreased $1,138,000 from the prior year. Personnel expenses, excluding Fast Forward, were $1,437,000 in 1999 as compared to $2,161,000 in 1998. This decrease of $724,000 can be attributed primarily to salary and staff reductions and the expiration of a consulting agreement. Personnel expenses including Fast Forward were $2,419,000 in 1999. Selling expenses in 1999 were $1,209,000 versus $1,546,000 in 1998 for a decrease of $337,000. This decrease was primarily related to decreases in distribution related costs due to lower sales and decreases in delivery, travel & entertainment, and show expenses which were partially offset by increased expenses relating to the addition of a UK sales representative. Selling expenses for 1999 including Fast Forward were $1,399,000. Administrative expenses were $1,013,000 in 1999 as compared to $1,090,000 in 1998. The decrease of $77,000 was primarily attributable to decreases in bad debt allowance and legal expenses partially offset by increases in rent and amortization of acquisition costs and goodwill. Administrative expenses for 1999 including Fast Forward were $1,191,000. Other income for the year ended December 31, 1999 was $46,000 as compared to $71,000 in the prior year. Interest expense was $287,000 in 1999 versus $64,000 in 1998. The increase in interest expense was a result of increased borrowings on the Company's lines of credit. The Company experienced a loss before income taxes for the year ended December 31, 1999 of $947,000 compared to a loss of $2,985,000 for the comparable period in 1998, a decrease of $2,038,000. As a result of the application of the Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (see Notes to the accompanying consolidated financial statements) the Company recognized an income tax benefit 15 18 net of applicable income taxes of $700,000 in 1998, but was unable to recognize an additional tax benefit for 1999. The Company was in a loss carryforward position primarily due to the operating losses incurred during the year ended December 31, 1999 and 1998. At December 31, 1999, the Company had federal net operating loss carryforward available to offset future taxable income of approximately $2,900,000 that expires on various dates beginning in 2018 through 2019. The major temporary tax differences that are expected to reverse next year are allowance for doubtful accounts, reserves for sales and returns, accrued vacations, and uniform capitalization of inventory. However, the Company expects new temporary differences to be established in these years which will either reduce or exceed the reversing temporary differences. For the year ended December 31, 1999, the Company has a net deferred tax asset of $443,200. The Company evaluated the gross deferred tax asset of $1,629,800 taking into consideration projected operating results and determined that a valuation allowance of $1,186,600 should be established. The Company believes it is more likely than not that the net deferred tax asset of $443,200 will be realized. Liquidity and Capital Resources The Company's cash and cash equivalents decreased to $396,000 at December 31, 2000 from $644,000 at December 31, 1999. Working capital at December 31, 2000, was $452,000 compared to $958,000 at December 31, 1999. Net cash provided by operations was $23,000 in 2000 as compared to $1,195,000 used in operations in 1999. The $1,218,000 change in cash from operations was primarily attributable to the increased net loss for the year, a decrease in accounts receivable and increase in accrued expenses, partially offset by a decrease in accounts payable. Net cash used in investing activities amounted to $1,429,000 in 2000 as compared to $1,354,000 during 1999. Changes in cash from investing activities related primarily to increases in production costs. Net cash provided by financing activities in 2000 was $1,159,000 as compared to $1,632,000 in 1999. This difference was primarily attributable to the borrowings against the Company's bank and subordinated lines of credit. At December 31, 2000, The Company did not meet the minimum Net Tangible Asset requirement for continued listing on the Nasdaq Small-Cap Market. The Company has not received Nasdaq's notice of non-compliance but is in the process of talking with potential investors with the goal of raising enough capital to solve the issue. If capital cannot be raised or an alternative 16 19 solution found, there can be no assurances that our securities will not be delisted from the Nasdaq Small Cap Market. The Company has a line of credit facility with a bank that provides a credit line of up to $2,500,000 subject to certain covenants. Advances under the facility are secured by the Company's assets. In April 2001, the Company entered into Amendment Number 5 with the bank which extended the maturity date of the credit facility to June 30, 2002 and adjusted the applicable financial covenants. As amended, the line of credit is converted to an amortizing term loan and advances under the facility bear interest at prime plus four percent. As amended, the Company agreed to pay to the bank $225,000 on or before June 30, 2001, which amount is to be applied to the outstanding principal. In addition, the Company agreed to pay $15,000 per month commencing May 1, 2001, which amount is to be applied to the outstanding principal. In further consideration for the amendments, the Company agreed to pay to the bank a fee of $25,000. The credit facility contains certain other covenants and restrictions, including limitations on the occurrence of additional indebtedness and restrictions on the payment of dividends and on the Company entering into agreements to acquire, merge or consolidate with or into other businesses. At December 31, 2000 and 1999, the Company had an outstanding indebtedness of $2,475,000 and $1,475,000, respectively, as well as $0 and $76,400, in outstanding letters of credit. The Company was in compliance of all financial statement covenants as of December 31, 2000, as amended. The Company has a subordinated revolving line of credit facility with a private party that provides for a line of credit of up to $2,300,000. The line of credit is subordinated to the bank line of credit. Advances under this line bear interest at 5% above LIBOR (6.401% at December 31, 2000) and are also secured by the Company's assets. In Spring 2000, the Company exercised its option to extend the expiration date of this subordinated revolving line of credit to May 2001 in exchange for the issuance of warrants to purchase 150,000 shares of the Company's common stock. The warrants are exercisable for up to two years after the issue date at a price of $1.7325, which represented the average trading price of the Company's stock for the 20-day period prior to May 13, 2000 (the extension date). The value of these warrants, or $126,000, which was calculated based on the fair market value at the date of extension, was recorded as additional paid-in capital and prepaid expense and is being amortized over the remaining term of the loan. At December 31, 2000, the Company had an outstanding indebtedness of $2,300,000. In April 2001, the Company entered into Amendment Number 1 with the subordinated lender which extended the maturity date of the credit facility until June 30, 2002. As amended, the lender is no longer obligated to make future advances under the line and the Company agreed to pay to the subordinated lender $250,000 in April 2001 and $250,000 on or before March 15, 2002 which amounts are to be applied to the outstanding principal. In addition, the Company agreed to pay a fee of $10,000. The Company has experienced net losses and negative cash flows for the year ended December 31, 2000. In response to the losses and negative cash flow, the Company implemented additional executive salary cuts and eliminated certain positions and is closely managing its cash and inventory levels. In addition, the Company is considering other possible strategic alternatives, including raising additional equity and/or debt financing. As of the date of this filing, the Company is in talks with a number of potential investors and lenders but has not raised additional funds and no assurance can be given that any additional debt or equity financing will be available to the Company on acceptable terms. If the Company is not successful in raising additional financing, its business and current operations will be materially adversely affected. As of February 28, 2001, the Company did not have commitments for any material capital expenditures for 2001 or beyond. 17 20 This Section and this entire Report on Form 10-K contain forward-looking statements and include assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in this Section and in this entire Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; the impact of competitive products and pricing; changes in foreign exchange rates; inventory risks; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business and economic conditions; and changes in government laws and regulations, including taxes. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK All sales by the Company are denominated in US dollars and, accordingly, the Company does not enter into hedging transactions with regard to any foreign currencies. Currency fluctuations can, however, increase the price of the Company's products to its foreign customers which can adversely impact the level of the Company's export sales from time to time. The majority of the Company's cash equivalents are bank accounts and money markets, and the Company does not believe it has significant market risk exposure with regard to its investments. The Company's primary market risks include fluctuation in interest rates and variability in interest rate spread relationships (i.e. prime to LIBOR spreads). The Company's management believes that fluctuations in interest rates in the near term would not materially affect the Company's consolidated operating results, financial position or cash flows as the Company has limited risks related to interest rate fluctuations. 18 21 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements prepared in accordance with Regulation S-X are set forth beginning at page 20 hereof. INDEX TO FINANCIAL STATEMENTS Report of Independent Certified Public Accountants. . . . 20 Consolidated Balance Sheets as of December 31, 2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . 21 Consolidated Statements of Operations for the years Ended December 31, 2000, 1999 and 1998. . . . . . . . . . 22 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998. . . . . 23 Consolidated Statements of Cash Flows for the years Ended December 31, 2000, 1999 and 1998. . . . . . . . . . 24 Summary of Accounting Policies. . . . . . . . . . . . . . 25 Notes to Consolidated Financial Statements. . . . . . . . 29 Schedule II - Valuation and Qualifying Accounts . . . . . 44 19 22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Intervisual Books, Inc. and Subsidiary Santa Monica, California We have audited the accompanying consolidated balance sheets of Intervisual Books, Inc. and Subsidiary as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. We have also audited the schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Intervisual Books, Inc. and Subsidiary at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO SEIDMAN, LLP BDO SEIDMAN, LLP Los Angeles, California March 2, 2001, except for Notes 6 and 7, as to which the date is April 16, 2001 20 23 INTERVISUAL BOOKS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS

See accompanying summary of accounting policies and notes to consolidated financial statements. 21 24 INTERVISUAL BOOKS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying summary of accounting policies and notes to consolidated financial statements. 22 25 INTERVISUAL BOOKS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See accompanying summary of accounting policies and notes to consolidated financial statements. 23 26 INTERVISUAL BOOKS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (NOTE 19)

See accompanying summary of accounting policies and notes to consolidated financial statements. 24 27 INTERVISUAL BOOKS, INC. AND SUBSIDIARY SUMMARY OF ACCOUNTING POLICIES BUSINESS Intervisual Books, Inc. ("IBI") was incorporated in California in 1975. IBI is engaged in creating, packaging and producing of pop-up and dimensional novelty books for domestic and international distribution. IBI distributes through many publishers in the United States. In May 1999, IBI acquired Fast Forward Marketing, ("FFM"). Pursuant to the merger agreement, FFM became a wholly owned subsidiary of IBI. FFM provides sales and marketing services in the video, audio and book publishing industries throughout the United States. FFM purchases its product from major motion picture studios and/or independent video producers and sells directly to video retailers including children's educational stores, gift shops, museum stores, educational distributors, and direct mail catalogs. As used herein, the term the "Company" means Intervisual Books, Inc. and Subsidiary, and the term "IBI" means Intervisual Books, Inc., exclusive of such subsidiary. BASIS OF PRESENTATION The consolidated financial statements of the Company include the accounts of IBI and FFM. All significant intercompany transactions and balances have been eliminated. The accompanying consolidated financial statements reflect the acquisition of the Hunt Creative Group, which was merged into the Company in a manner similar to a pooling of interests for all periods presented. The merger was approved by the Company's shareholders on July 22, 1998 (see also Note 15). The accompanying consolidated financial statements also reflect the accounts and transactions of FFM from May 14, 1999, the date it was acquired. The acquisition was accounted for under the purchase method of accounting. REVENUE RECOGNITION The Company recognizes revenues upon shipment of product, at which time title passes to the customer. The Company records a provision for estimated future returns. PRODUCTION COSTS AND AMORTIZATION Production costs related to books include amounts incurred for design, art, editorial services, paper engineering, dies and color separation. The costs for pop-up books are stated at the lower of cost or net realizable value and are amortized using the sum-of-the-years-digits method over a five year projected sales life. These costs are periodically evaluated each year based on management's estimates of future sales of related products. These costs are written off when management believes they provide no future benefit. Costs of products which have an anticipated useful life of one year or less are charged to operations in the year the sales occur. Production costs related to videos include amounts incurred for duplication, editing, and packaging. The costs are stated at the lower of cost or net realizable value and are amortized over the greater of the number of units sold divided by total units estimated to be sold or straight line basis over the life of the product. Amortization of book and video production costs included in cost of sales for 2000, 1999, and 1998 was $1,464,290, $1,432,137, and $1,454,923. 25 28 INTERVISUAL BOOKS, INC. AND SUBSIDIARY SUMMARY OF ACCOUNTING POLICIES INVENTORY Inventory, which consists of materials and finished goods, is valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Depreciation is computed using the straight line and accelerated methods over the estimated useful lives of the assets. The Company periodically reviews such assets for possible impairments and expected losses, if any, are recorded currently. CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. GOODWILL Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized on a straight-line basis over twenty years. The Company periodically evaluates the recoverability of goodwill. The measurement of possible impairment is based primarily on the Company's ability to recover the unamortized balance of the goodwill from expected future operating cash flows on an undiscounted basis. INCOME TAXES The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 requires a company to use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and result primarily from differences in methods used to amortize production costs. A valuation allowance is provided when management cannot determine whether it is more likely than not that the deferred tax asset will be realized. Under SFAS 109, the effect on deferred income taxes of a change in tax rates is recognized in 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 26 29 INTERVISUAL BOOKS, INC. AND SUBSIDIARY SUMMARY OF ACCOUNTING POLICIES EARNINGS (LOSS) PER SHARE The Company computes earnings (loss) per common share under Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which requires presentation of basic and diluted earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts, such as stock options and warrants, to issue common stock were exercised or converted into common stock, but does not include the impact of securities that would be antidilutive. During the three years ended December 31, 2000, these securities were not included in the computation of diluted loss per share as they were antidilutive. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) establishes a fair value method of accounting for stock-based compensation plans. In accordance with SFAS 123, the Company has chosen to continue to account for stock-based compensation utilizing the intrinsic value method prescribed in APB 25. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Also, in accordance with SFAS 123, the Company has provided footnote disclosure with respect to stock-based employee compensation. The cost of stock-based employee compensation is measured at the grant date based on the value of the award and recognize this cost over the service period. The value of the stock-based award is determined using a pricing model whereby compensation cost is the excess of the fair value of the stock as determined by the model at grant date or other measurement date over the amount an employee must pay to acquire the stock. FAIR VALUE OF FINANCIAL INSTRUMENTS 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 equivalents, receivables, and accounts payable are recorded at carrying amounts which approximate fair value due to the short maturity of these instruments. The fair value of the Company's lines of credit approximates their carrying value due to the interest rates on these instruments which approximates the rate the Company could borrow at December 31, 2000 and 1999. SEGMENTS OF AN ENTERPRISE During the year ended December 31, 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," (SFAS 131) issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. SFAS 131 requires that public companies report certain information about operating segments, products, services and geographical areas in which they operate and their major customers. Adoption of SFAS 131 did not have an impact on the Company's financial position or results of operations. Adoption of SFAS 131 resulted in expanded disclosures for the year and all prior periods. See Note 18, Segment Information. 27 30 INTERVISUAL BOOKS, INC. AND SUBSIDIARY SUMMARY OF ACCOUNTING POLICIES NEW ACCOUNTING PRONOUNCEMENTS In December 1999, the SEC staff released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in the financial statements. SAB 101 must be applied to the financial statements no later than the fourth quarter of fiscal years ending after December 15, 2000. The Company adopted SAB 101 during the year ended December 31, 2000, and it had no impact on the Company's financial position or results of operations and cash flows. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 (FIN 44) Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of APB No. 25 for (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 2, 2000, but certain conclusions cover specific events that occurred after either December 15, 1998, or January 12, 2000. During the year ended December 31, 2000, the Company adopted FIN 44 in accounting for stock options (see Note 10). RECLASSIFICATIONS Certain reclassifications have been made to conform the prior year's amounts to the current year's presentation. 28 31 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - LIQUIDITY For the past three years, the Company reported a loss of ($2,750,777), ($946,635) and ($2,284,812) in 2000, 1999 and 1998. In addition, the Company had an outstanding indebtedness of $4,775,000, $2,475,000 with a bank and $2,300,000 subordinated debt with a private party, both of which expire in May 2001. In April 2001, the Company obtained an extension on both its bank line of credit and subordinated debt through June 30, 2002 (see Notes 6 and 7). The Company expects positive cash flow from operations for 2001. The Company also implemented additional executive salary cuts and eliminated certain positions and is closely managing its cash and inventory levels. In addition, the Company is considering other possible strategic alternatives, including raising additional equity and/or debt financing. As of the date of this filing, the Company is in talks with a number of potential investors and lenders but has not raised additional funds and no assurance can be given that any additional debt or equity financing will be available to the Company on acceptable terms. If the Company is not successful in raising additional financing, its business and current operations will be materially adversely affected. No assurance can be given that these results from operations or transactions will occur. NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable relates to sales to traditional publishing customers as well as sales under the IBI self-publishing program and FFM sales to video retailers. Sales under the self-publishing program and videos are subject to returns. FFM has an agreement with its customers and suppliers that allows for returns of merchandise. Accordingly, a reserve for sales returns and doubtful collections has been provided. The reserve accounts require the use of significant estimates. Accounts receivable are summarized as follows:

NOTE 3 - INVENTORY Inventories consist of the following:

29 32 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - PROPERTY AND EQUIPMENT The major classes of property and equipment and the related estimated useful lives are as follows:

Depreciation expense on property and equipment was $130,514, $161,771, and $95,964 for the years ended December 31, 2000, 1999, and 1998. NOTE 5 - CUSTOMER DEPOSITS Customer deposits of $182,964 and $62,664, recorded at December 31, 2000 and 1999, consist of cash advances received from publishers prior to printing, assembly and shipping of the related products. NOTE 6 - LINE OF CREDIT WITH A BANK The Company has a revolving line of credit facility with a bank that provides a credit line of up to $2,500,000, subject to certain covenants. Advances under the facility bear interest at prime (9.5% as of December 31, 2000) plus 2.5%, and are secured by the Company's assets. In April, 2001, the Company signed an amendment to the line of credit agreement which extended the maturity date to June 30, 2002, converted the line of credit to an amortizing term loan, and increased the interest rate to 4% over the bank's prime rate. In addition, certain financial covenants for the year ending December 31, 2000 were amended. Pursuant to the amended agreement, the Company is required to make a principal payment of $225,000 on or before June 30, 2001. In addition, the Company agreed to pay $15,000 per month commencing May 1, 2001, which amount is to be applied to the outstanding principal. In further consideration for the amendments, the Company agreed to pay to the bank a fee of $25,000. At December 31, 2000 and 1999, the Company had an outstanding indebtedness of $2,475,000 and $1,475,000, respectively, as well as $0 and $76,400, in outstanding letters of credit. The Company was in compliance with all financial statement covenants as of December 31, 2000, as amended. 30 33 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - LINE OF CREDIT WITH A PRIVATE PARTY The Company has a subordinated revolving line of credit facility with a private party that provides for a line of credit of up to $2,300,000. The line of credit is subordinated to the bank line of credit discussed in Note 6. Advances under this line bear interest at 5% above LIBOR (6.401% at December 31, 2000) and are secured by the Company's assets. This agreement, which was originally scheduled to expire on May 13, 2000, included a clause which allowed the Company to extend the line of credit for an additional year. On March 23, 2000, the Company exercised its option to extend the line of credit in exchange for the issuance of warrants to purchase 150,000 shares of the Company's common stock. The warrants are exercisable for up to two years after the issue date at a price of $1.7325, which represented the average trading price of the Company's stock for the 20-day period prior to May 13, 2000 (the extension date). The value of these warrants, or $126,000, which was calculated based on the fair market value at the date of extension, was recorded as additional paid-in capital and prepaid expense and is being amortized over the remaining term of the loan. In April 2001, the Company entered into Amendment Number 1 with the subordinated lender which extended the maturity date of the credit facility until June 30, 2002. As amended, the lender is no longer obligated to make future advances under the line and the Company agreed to pay to the subordinated lender $250,000 in April of 2001 and $250,000 on or before March 15, 2002 which amounts are to be applied to the outstanding principal. In addition, the Company agreed to pay a fee of $10,000. At December 31, 2000, the Company had an outstanding indebtedness of $2,300,000. The Company was in compliance with all covenants at December 31, 2000, as amended. NOTE 8 - INCOME TAXES Provisions (benefit) for income taxes included in the accompanying statements of operations consist of the following components:

31 34 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - INCOME TAXES (CONTINUED) The effective tax rate on loss before income taxes differed from the federal statutory tax rate. The following summary reconciles income taxes at the federal statutory tax rate with the actual taxes and effective tax rate:

The types of temporary differences between the tax bases of assets and liabilities that give rise to the net deferred tax balance at December 31, 2000 and 1999 and their approximate tax effects, are as follows:

At December 31, 2000, the Company had federal net operating loss carryforwards available to offset future taxable income of approximately $4,400,000 that expire in various dates beginning in 2018 through 2020. The Company evaluated the net deferred tax asset of $2,626,100, taking into consideration projected operating results, and determined that a valuation allowance of $2,376,100 should be established. The Company believes it is more likely than not that the deferred tax asset of $250,000 will be realized. 32 35 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - RIGHTS INCOME During 2000, 1999, and 1998, the Company sold the direct marketing rights to a third party to produce and sell two, nine and two of the Company's titles for a non-refundable fee of approximately $140,000, $600,000 and $200,000, respectively. The Company fulfilled all obligations under these agreements prior to recognizing revenue. NOTE 10 - COMMON STOCK OPTIONS Incentive Stock Option Plans ("ISOP") Under the terms of the Company's ISOP, under which options to purchase 550,000 shares of common stock can be issued, all key employees are eligible to receive non-assignable and non-transferrable options to purchase shares. The exercise price of any option may not be less than the fair market value of the shares on the date of grant; provided, however, that the exercise price of any option granted to an eligible employee owning more than 10% of the outstanding common stock may not be less than 110% of the fair market value of the shares underlying such option on the date of grant. No options granted may be exercisable prior to six months from the date of grant, nor more than ten years after the date of grant. The options granted generally vest evenly over a three year period, beginning from the date of grant. Non Qualified Stock Option Plans ("NQSOP") Under the terms of the Company's NQSOP, options to purchase 200,000 shares of common stock can be issued to attract and retain qualified persons for positions of substantial responsibility, such as key officers, directors, and consultants. Options of the plan are established in the same manner as the ISOPs, are non-assignable and non-transferrable (for employees of the Company), and are exercisable over a 10-year period from the date of grant. Each option lapses, if not previously exercised, on the 10th anniversary of the date of grant. The options granted generally vest evenly over a three year period, beginning from the date of grant. Directors Stock Option Plan ("DSOP") Under the terms of the Company's DSOP, options to purchase 300,000 shares of common stock can be issued to directors who are not employees of the Company. The exercise price of any option may not be less than the fair market value of the shares on the date of grant. Each person who becomes a director receives an initial grant to purchase 30,000 shares. Thereafter, on the date of each annual meeting of the Company's shareholders, each director will receive options to purchase 2,500 shares. Options are non-assignable and non-transferrable and are exercisable over a 10-year period from the date of grant or until the director ceases to be a member of the Board. The options granted vest evenly over a three year period beginning from the date of grant. 33 36 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - COMMON STOCK OPTIONS (CONTINUED) Nonstatutory Stock Options ("NSSO") During 1997, the Company granted nonstatutory stock options to purchase an aggregate of 600,000 shares of common stock to three individuals, as an inducement to join the Company, of which 125,000 have expired. These options are non-assignable and non-transferable, are exercisable over a seven year period from the date of grant and vest in various increments through 2000. The Company also issued NSSO to purchase 31,000 shares of common stock to the Chairman of the Board of the Company, subject to shareholder approval which was obtained in 1998. During 1998, the Company granted 125,000 NSSO to two individuals as an inducement to join the Company, of which 2,500 was exercised in 1999 and 33,100 were exercised in 2000. During 1999, the Company granted 25,000 NSSO to a director of the Company and 75,000 NSSO to an outside consultant of the Company for services rendered. Due to the acquisition of FFM in May 1999, the Company issued NSSO to purchase 350,000 shares of common stock to three individuals who were employees of FFM, of which 97,500 have expired. All such options have an exercise price equal to the closing price of the Company's common stock on the date of grant and were outside of any existing Company stock option plan. In November 1999, the Company's Board of Directors amended the exercise price from $1.50 to $1.25 per share for 506,000 options granted to three employees of the Company. These options are subject to variable plan accounting. During 2000, no compensation expense was recorded because the stock price at December 31, 2000 was less than the stock price on the date on which the variable plan accounting went into effect. 1999 Stock Option Plan "SOP" Under the terms of the Company's SOP, options to purchase 500,000 shares of common stock can be issued to attract and retain the best available personnel for positions of substantial responsibility as officers, directors, consultants, employees and others who perform valuable services. The plan terminates on June 23, 2009, unless the Board decides to terminate at an earlier date. The exercise price of options granted under the Plan shall be not less than 110% of the fair market value of the shares for grants to holders owning more than 10% or more of the outstanding stock. The options granted under the Plan shall vest at a minimum rate of 20% per year over the period of five years from the grant date. During 2000, the Company granted 114,500 options to employees and directors under the SOP, of which 25,000 have expired. Non-employee Options Under the Company's Non-qualified Stock Option Plan, Directors Stock Option Plan and Non-Statutory Stock Options, the Company granted 37,500, 112,500 and 37,500 options to non-employees during 2000, 1999 and 1998, respectively. As a result, the Company recorded non-cash compensation expense related to these options of $1,741, $43,217 and $28,498 in 2000, 1999 and 1998 with a corresponding credit to additional paid-in capital. All options have an exercise price equal to the closing price of the Company's common stock on the date of grant. The weighted average price of options granted during the years are included in the option activity table below. 34 37 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - COMMON STOCK OPTIONS (CONTINUED) Option activity within each plan is as follows:

35 38 NOTE 10 - COMMON STOCK OPTIONS (CONTINUED) Information relating to stock options at December 31, 2000 summarized by exercise price are as follows:

36 39 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - COMMON STOCK OPTIONS (CONTINUED) All stock options issued to employees have an exercise price not less than the fair market value of the Company's common stock on the date of the grant, and in accordance with accounting for such options utilizing the intrinsic value method, there is no related compensation expense recorded in the Company's consolidated financial statements. Had compensation cost for stock-based compensation been determined based on the fair value of the grant dates consistent with the method of SFAS 123, the Company's net loss and loss per share for the years ended December 31, 2000, 1999 and 1998 would have been increased to the pro forma amounts presented:

The fair value of option grants is estimated on the date of grant utilizing the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2000, 1999 and 1998; expected life of options was 7 years, expected volatility of 58%, 18% and 15%, respectively, risk-free interest rate of 6.0%, 6.0% and 6.0%, respectively, and a 0% dividend yield. The weighted average fair value on the date of grants for options granted during 2000, 1999 and 1998 was $.92, $.47 and $.75 per option. NOTE 11 - COMMITMENTS Operating Leases The Company leases its facilities and certain equipment under various operating leases which expire at various dates through April 10, 2005. The facility lease has a renewal option to extend the lease for an additional five years at an agreed upon rental amount. Future minimum lease payments under the noncancelable portion of these leases having terms in excess of one year at December 31, 2000 are presented in the schedule below.

Rent expense for the years ended December 31, 2000, 1999, and 1998 was $320,551, $285,243, and $248,622. 37 40 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - COMMITMENTS (CONTINUED) Employment Agreements On January 13, 1997, the Company entered into an employment and compensation agreement with a new President and Chief Operating Officer. This agreement originally expired on December 31, 1999, but was extended to January 31, 2002. The minimum aggregate obligation under this agreement in 2001 is $292,000. On October 1, 1997, the Company entered into an employment agreement and compensation agreement with the Chairman of the Board and Chief Executive Officer. This agreement, which originally was to expire on September 30, 2000, was extended through September 30, 2001. The Company shall pay the executive an initial annual salary of $250,000 subject to cost of living increases and annual Board evaluation. The agreement also allows for an additional payment of $60,000 annually in lieu of paying any life insurance premiums which benefit the executive. Additionally, the agreement provides $10,000 toward the cost of a long-term disability insurance policy. If such policy is not available, this amount is to be paid to the executive at year end. On November 13, 1997, the Company reached an agreement with a new Executive Vice President and Chief Financial Officer for employment to begin January 1998. The employment agreement, effective January 19, 1998, was for an initial term of three years with compensation of $175,000 in the first year, $183,750 in the second year and $192,950 in the third year. This employment agreement expired on January 19, 2001. The Company entered into a change of control agreement with the executive, effective September 6, 2000, for a term of 12 months. This agreement provides for a success bonus to be paid to the executive in the event of a change in control of the company. On May 12, 1999, the Company entered into an employment and compensation agreement with a Senior Vice President of Sales and Marketing. This agreement expires May 12, 2001, unless further extended or sooner terminated as provided in the agreement. The Company shall pay the executive $162,500 per year plus a commission of 3/4% of the amount of sales from the book division in excess of $15,000,000, plus 1/2% of the amount of sales from the video division in excess of $15,000,000. Additionally, the agreement provides for $1,500 per year toward the cost of a life insurance policy. On August 16, 2000, the Company amended an employment and compensation agreement with the President of Video and New Media Division. This agreement, which expires May 2002 unless further extended or sooner terminated as provided in the agreement, provides for compensation of $78,000 per annum. Pursuant to his previous Employment Agreement, the executive was granted options to purchase 140,000 shares of the Company's common stock. Additionally on August 16, 2000, the Company entered into a sales representative agreement with the executive which expires on May 11, 2002. Under this agreement, the executive will be entitled to a finders' fee for acting as IBI's agent in acquiring product from independent suppliers which the Company will distribute under a fee arrangement. This agreement also provides for commission to be paid on the sale of advertising materials, such as magazine inserts, sales aids, advertising premiums and packaging materials. Consulting Agreement On November 1, 1996, the Company entered into a consulting agreement with the former President, expiring on December 31, 2001. In August 2000, the Company amended the original agreement, which extended the agreement through May 31, 2003 and decreased monthly payments from $10,000 to $5,000. As a result, the Company recorded an expense of $104,516 with a related liability at December 31, 2000 as the Company determined it to be a period cost. At December 31, 2000, the Company has a remaining liability of $145,000 under the agreement, of which the short-term portion of $60,000 has been classified as accrued expenses and the long-term portion of $85,000 has been classified as other liabilities. 38 41 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - BUSINESS AND CREDIT CONCENTRATIONS The Company had one customer who accounted for approximately 13% of net sales in 1998. At December 31, 2000, the Company had one customer who accounted for approximately 16% of accounts receivable. The Company had one customer who accounted for approximately 16% of accounts receivable as of December 31, 1999 and two customers who accounted for approximately 40% of accounts receivable as of December 31, 1998. The Company had three vendors who accounted for approximately 46% of net purchases for the year ended December 31, 2000. The Company had two vendors who accounted for approximately 35% of net purchases for the year ended December 31, 1999 and three vendors who accounted for approximately 72% of net purchases for the year ended December 31, 1998. The Company had three vendors who accounted for approximately 43% of accounts payable at December 31, 2000. The Company had two vendors who accounted for approximately 39% of accounts payable as of December 31, 1999 and three vendors who accounted for approximately 80% as of December 31, 1998. NOTE 13 - PURCHASES The Company does not have manufacturing facilities. Most of the Company's products are manufactured by four printers located in Hong Kong, Colombia, Thailand, and Singapore. The Company's operations are subject to the customary risks of doing business abroad. NOTE 14 - EMPLOYEE BENEFIT PLAN The Company maintains a qualified defined contribution employee benefit plan (the "401(k) plan") covering substantially all employees who have been employed for greater than one year and are at least 21 years of age. The Company may make a matching contribution of an amount equal to a specified percentage of employee contributions. In addition, the Board of Directors may further elect to make discretionary contributions. As of June 1, 1998, the Company's matching contribution was suspended. Total contributions made by the Company to the 401(k) plan during the years ended December 31, 2000, 1999 and 1998 were $0, $0 and $19,421. NOTE 15 - RELATED PARTY TRANSACTIONS MERGER WITH THE HUNT CREATIVE GROUP On March 20, 1998, the Company signed an agreement and plan of merger with the Hunt Group, a related party, pursuant to which the Hunt Group was merged with and into the Company. The merger was approved by the Company's shareholders at its annual meeting on July 22, 1998. The merger was accounted for as a combination of entities under common control, which is accounted for in a similar manner as a pooling of interests and the financial statements were restated to include the results of the Hunt Group for all periods presented. Under the terms of the agreement, the Company issued to the Hunt Family Trust, sole shareholder of the Hunt Group, 250,000 shares of the Company's stock for all the outstanding stock of the Hunt Group. Additionally, the agreement called for an additional 78,000 contingent shares to 39 42 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - RELATED PARTY TRANSACTIONS (CONTINUED) be issued to the Hunt Family Trust in three separate increments of 26,000 each when cumulative sales of the Hunt Group developed products exceed $5,000,000, $6,000,000 and $7,000,000, respectively. As of December 31, 1998, cumulative sales of the Hunt Group developed products exceeded $7,000,000, and accordingly, an additional 78,000 shares of the Company stock were issued to the Hunt Family Trust and were included in weighted average shares outstanding based on the date the contingency was met. These shares are restricted securities and thus are not registered for resale unless provided for in a registration statement. The agreement also transfers the ownership of any and all copyrights or patents to the Company. The agreement also included the Hunt Group forgiving all royalties earned subsequent to October 1, 1997. Operating results of the Hunt Creative Group were not significant for the period January 1 through March 19, 1998. NOTE 16 - FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 2000, the Company recorded adjustments that increased its net loss by approximately $683,000, which primarily consists of $75,000 reserve for royalty advances, $150,000 reserve for obsolete inventory, $105,000 relating to the extension of a consulting agreement with the Company's former President, $125,000 additional bad debt reserves, and $192,000 adjustment to the deferred tax asset. The Company believes it is impracticable to determine which quarterly period the aforementioned adjustments relate to. In the fourth quarter of 1998, the Company recorded net adjustments that increased its net loss by approximately $525,000, which principally consists of $155,000 write-off of various accounts receivable, $63,000 write-off of inventory materials, recording $121,500 inventory reserves, $43,000 write-off of book production costs, and $99,500 write-off of royalty advances. The Company believes it is impraticable to determine which quarterly period the aforementioned adjustments relate to. NOTE 17 - EARNINGS (LOSS) PER SHARE The following is a reconciliation of the weighted average number of shares used to compute basic and diluted earnings (loss) per share:

Options and warrants to purchase 1,646,150, 1,603,249 and 1,224,417 shares were outstanding during the years ended 2000, 1999, and 1998, respectively, but were not included in the computation of diluted loss per common share because the effect would be antidilutive. 40 43 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - SEGMENT INFORMATION The Company's operations are classified into two principal reportable industry segments: (a) video distribution sales which involves the sales and marketing to video retailers, including children's educational stores, gift shops, museum stores and educational distributors and (b) sales from the production of pop-up and dimensional novelty books for domestic and international distribution.

The difference between segment assets and consolidated assets at December 31, 2000 and 1999 is due to the corporate asset of goodwill not directly attributable to the operating segments. For the year ended December 31, 1998, the Company operated as one segment. Export sales, which account for a significant portion of the Company's revenues, are summarized by geographic areas as follows. All export sales are derived from the book segment of the Company.

41 44 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - SUPPLEMENTAL CASH FLOW DISCLOSURES (a) Cash paid: During the years ended December 31, 2000, 1999, and 1998, the Company paid interest of $427,844, $284,129, and $51,186. The Company paid state income taxes of $800 for the three years ended December 31, 2000, 1999, and 1998. (b) Non-cash transactions: On July 1, 2000, the Company purchased the rights to certain book titles from a third party. As a result, approximately $357,000 that had previously been advanced to the third party was transferred to book production costs, and will be amortized in accordance with the Company's amortization policy. On May 13, 2000, in consideration for extending the subordinated line of credit with a private party for an additional year, the Company issued warrants to purchase 150,000 shares of common stock. As a result, the Company recorded $126,000 as additional paid-in capital and prepaid expense, which is being amortized over the remaining term of the line of credit. At December 31, 2000, the unamortized portion was $47,250 (see Note 7). On May 14, 1999, the Company entered into a merger agreement to acquire Fast Forward Marketing, "FFM". Under this agreement, the Company issued 670,000 shares of its common stock, valued at $489,100 and a cash payment of $150,000. NOTE 20 - ACQUISITION OF FAST FORWARD MARKETING On May 14,1999, the Company completed the acquisition of Fast Forward Marketing, Inc., ("FFM"). The transaction was completed under the terms and conditions of a definitive agreement signed March 29, 1999. Under this agreement, the Company acquired all the outstanding shares of Fast Forward for 670,000 shares of its common stock, a contingent cash payment of up to $200,000 due May 1, 2000, and a cash payment of $150,000 due May 1, 2001 subject to reduction for the payment by the Company of certain tax withholdings. The contingent cash payment of up to $200,000 or a lesser prorated amount was due if Fast Forward achieved between 70% and 90% of its 1999 projected gross margin, provided a minimum gross margin requirement was met. No payment was made as the target was not achieved. Of the 670,000 shares issued, 594,940 are restricted for three years so that no more than 10% can be sold in any one year. The remaining 75,060 shares were issued to certain employees valued at $89,130 under a pre-existing Fast Forward Phantom Stock Plan. The transferability of these shares is restricted for the period the employee remains with the Company or three years, whichever is less. 42 45 INTERVISUAL BOOKS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 - ACQUISITION OF FAST FORWARD MARKETING (CONTINUED) This transaction has been accounted for as a purchase. The estimated fair value of assets acquired and liabilities assumed relating to the FFM acquisition is summarized below:

The following unaudited supplemental information is provided on a pro forma basis as if the acquisition occurred on January 1, 1998. The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined companies.

NOTE 21 - QUARTERLY RESULTS (UNAUDITED) Quarterly results for the years ended December 31, 2000 and 1999 are reflected below:

(a) Includes fourth quarter adjustments. See Note 16 to the consolidated financial statements. 43 46 INTERVISUAL BOOKS, INC. AND SUBSIDIARY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(a) Write-off of uncollectible accounts and adjustments to reserve. (b) Additions also include reserve from FFM. 44 47 Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 45 48 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and directors of the Company are as follows:

Directors of the Company hold office until the next annual meeting of the stockholders, or until their successors are duly elected and qualified. Officers serve at the pleasure of the Board of Directors subject to the provisions of their employment contracts, if any. Waldo H. Hunt has been a director and the Chairman of the Board of the Company since its organization in 1975. In November 1996, he assumed the additional role of Chief Executive Officer. He previously served as its Chief Executive Officer and Chief Financial Officer from 1975 to January 1992. From 1994 through December 1996, Mr. Hunt also served as Chairman of The Hunt Creative Group, a company founded by Mr. Hunt in 1994 (the "Hunt Group"). Mr. Hunt is the founder of the Company and is considered by many to be the father of the modern-day pop-up industry. Nathan N. Sheinman became President and Chief Operating Officer of the Company on January 27, 1997. Mr. Sheinman joined the Board as a director in March 1997. Prior to joining the Company, Mr. Sheinman was employed by Penguin USA serving as Senior Vice President of Special Sales, Publisher of Looney Tunes books and Co-publisher of Penguin USA's Packaging Division from March 1990 to December 1996. Dan P. Reavis became Executive Vice President and Chief Financial Officer on January 19, 1998. Mr. Reavis joined the Board as a director in February 1998. Prior to joining the Company, Mr. Reavis was the Executive Vice President of Operations and Chief Financial Officer of Price Stern Sloan Publishers for ten years before that company was acquired by the Putnam Berkeley Group. 46 49 Gail A. Thornhill was appointed Secretary of the Company in February 1993. Ms. Thornhill has been employed by the Company since 1980 in various capacities and has served as its Controller and Chief Accounting Officer since February 1992. Steven D. Ades became President of the Company's Video and New Media Division in connection with the Company's acquisition of FFM in May 1999. Mr. Ades joined the Board as a director in August 1999. Prior to the Merger, Mr. Ades was the President and a director of Fast Forward since its organization in 1987. Steven F. Wallace became Senior Vice President of Sales and Marketing in connection with the Company's acquisition of FFM in May 1999. Prior to the Merger, Mr. Wallace was Vice President of Sales of Fast Forward Marketing since January 1994. From 1979 to 1993, Mr. Wallace was Senior Vice President of Sales for Price Stern Sloan Publishers. Dr. Neil G. Berkman became a director of the Company in August 1999. He is the President of Neil G. Berkman Associates, a firm he founded in 1988 that provides investor relations, financial consulting and crisis management services to public company clients. From 1981 until 1988 Dr. Berkman was with The Wall Street Group/California, Inc., where he served as President from 1984 to 1988. He earned a Ph.D. in Economics from the University of California, Berkeley, in 1977. Gordon Hearne became a director of the Company in February 1996. He was a principal of Hearne & Spector, an advertising agency formed in March 1995 until October 1999. Mr. Hearne was previously employed by the Company as director of its commercial division and later as marketing director of the division from June 1985 to June 1991 when the commercial division was sold to R.R. Donnelley. After such sale, he continued working as a consultant to an affiliate of R. R. Donnelly until February 1995. Leonard W. Jaffe became a director of the Company in February 1998. Prior to joining the Company, Mr. Jaffe was a director, Vice-Chairman and Chairman of the Executive Committee of National Education Corporation ("NEC") from 1976 until acquired by Harcourt General in June of 1997. He was a director of Steck-Vaughn Publishing Company from 1993 until acquired by Harcourt General in February 1998. He also serves as a consultant to various US and international companies. Wong Weng Foo became a director of the Company in August 2000. Mr. Wong has been a shareholder of T.Y. Wong Pte Ltd., a private investment company in Singapore, since its inception in 1968 and a director of the company since 1980. He was a shareholder and founder of Sirivatana Palace Press in Thailand, a manufacturer of pop-up and novelty books, from 1992 to 1999 when the company was sold. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own 47 50 more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of copies of such forms furnished to the Company and certain written representations, the Company believes that during the last fiscal year Section 16(a) late filings applicable to its officers, directors and greater than 10-percent beneficial owners were as follows: Mr. Hunt filed in March 2001 after the 45th day of the year a Form 5 disclosing acquisitions of Company stock through Mr. Hunt's 401(k) plan account and a gift of the company's stock by Mr.Hunt; Mr. Hearne, Ms. Thornhill and Mr. Wallace filed in March 2001 after the 45th day of the year Form 5's concerning the grant of stock options; Mr. Berkman and Mr. Jaffe filed in April 2001 Form 5's concerning the grant of stock options; and Mr. Wong filed in April 2001 a Form 3 concerning the grant of stock options. Item 11. EXECUTIVE COMPENSATION Cash Compensation The following table sets forth in the prescribed format the compensation paid to all person's serving as the Company's Chief Executive Officer and the other four most highly compensated executive officers of the Company for services rendered in all capacities during the Company's last three fiscal years: 48 51 SUMMARY COMPENSATION TABLE

------------- (1) Mr. Ades and Mr. Wallace joined the Company in May 1999 as part of the acquisition of Fast Forward Marketing, and no information is disclosed with respect to prior years for these executives. (2) The amount disclosed in this column includes $60,000 for a life insurance policy and auto allowances. (3) The amounts disclosed in this column represent contributions relating to the Company's 401(k) plan. 49 52 The following tables set forth certain information with respect to the executive officers named in the Summary Compensation table in the prescribed formats with respect to options granted and exercised under the Company's various stock option plans during the last fiscal year: OPTION GRANTS IN LAST FISCAL YEAR

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

(1) The amounts in this column are calculated using the difference between the closing market price of the Company's common stock at the Company's 2000 fiscal year-end and the option exercise prices. The closing market price of the Company's common stock was less than the option exercise prices. Director Compensation. Each director who is not an employee receives a $5,000 annual retainer, $1,000 for each Board meeting attended in person, $500 for each meeting of a committee of the Board which is separate from a Board meeting attended in person, and $250 for each Board or committee meeting attended by telephone. Under the Company's Non-employee Director Stock Option Plan, non-employee directors receive an initial option grant to purchase 30,000 shares of common stock when such person is first elected or appointed as a Company director and thereafter, on the date of each annual meeting of the Company's shareholders, an additional grant to purchase 2,500 shares of common stock (other than to directors who receive an initial grant during the calendar year in which the annual meeting is held), provided that such non-employee director continues in office after the annual meeting. Employment Agreements. On January 13, 1997, the Company entered into an employment and compensation agreement with Mr. 50 53 Sheinman employing him as the Company's President and Chief Operating Officer. This agreement originally expired on December 31, 1999, but was extended to January 31, 2002. The minimum aggregate obligation under this agreement in 2001 is $292,000. On October 1, 1997, the Company entered into an employment and compensation agreement with Mr. Hunt employing him as the Company's Chairman of the Board and Chief Executive Officer. This agreement, which by its terms originally expired on September 30, 2000, was extended through September 30, 2001. The Company shall pay the executive an annual salary of $250,000 subject to cost of living increases and annual Board evaluation. The agreement also allows for an additional payment of $60,000 annually in lieu of paying any life insurance premiums which benefit the executive. Additionally, the agreement provides $10,000 toward the cost of a long-term disability policy. If such policy is not available, this amount is to be paid to the executive at year end. On November 13, 1997, the Company reached an agreement with Mr. Reavis for employment as its Executive Vice President and Chief Financial Officer for employment to begin January 1998. The employment agreement, effective January 19, 1998, was for an initial term of three years with compensation of $175,000 in the first year, $183,750 in the second year and $192,950 in the third year. This employment agreement expired on January 19, 2001. The Company entered into a change of control agreement with Mr. Reavis, effective September 6, 2000, for a term of 12 months. This agreement provides for a success bonus to paid to the executive in the event of a change in control of the Company. On August 16, 2000, the Company amended an employment and compensation agreement with Mr. Ades, the President of Video and New Media Division. This agreement, which expires May 2002 unless further extended or sooner terminated as provided in the agreement, provides for compensation of $78,000 per annum. Pursuant to his previous Employment Agreement, Mr. Ades was granted options to purchase 140,000 shares of the Company's common stock. Additionally on August 16, 2000, the Company entered into a sales representative agreement with Mr. Ades which expires on May 11, 2002. Under this agreement, Mr. Ades will be entitled to a finders fee for acting as IBI's agent in acquiring product from independent suppliers which the Company will distribute under a fee arrangement. This agreement also provides for commission to be paid to Mr. Ades on the sale of advertising materials, such as magazine inserts, sales aids, advertising premiums and packaging materials. On May 12, 1999, the Company entered into an employment and compensation agreement with Mr. Wallace employing him as the Company's Senior Vice President of Sales and Marketing. This agreement expires May 12, 2001, unless further extended or sooner terminated as provided in the agreement. The Company shall pay the executive $162,500 per annum plus a commission of 3/4% of the amount of sales from the book division in excess of $15,000,000, plus 1/2% of the amount of sales from the video division in excess of $15,000,000. Additionally, the agreement provides $1,500 per year toward the cost of a life insurance policy. 51 54 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information concerning beneficial ownership of common stock of the Company as of February 28, 2001, by any person who is known by the Company to be the beneficial owner of more than five (5%) percent of the Company's common stock, by each director of the Company, each executive officer named in the Summary Compensation Table, and by all current directors and officers as a group. Except as otherwise noted, the following shareholders have sole voting and investment power with respect to the shares indicated except to the extent that authority is shared by spouses under applicable law.

--------------- * Less than 1% (1) Information relating to beneficial ownership of shares of Company common stock is based upon the rules set forth under the Securities Exchange Act of 1934. Under such rules, more than one person may be deemed to be a beneficial owner of the same securities. (2) Includes the following number of shares of common stock that may be purchased upon the exercise of options granted by the Company which are exercisable on February 28, 2001 or within 60 days thereafter: Mr. Hunt, 150,000; Mr. Sheinman, 300,000; Mr. Reavis, 175,000; Mr. Ades, 46,667; Mr. Berkman, 11,000; Mr. Hearne, 35,999; Mr. Jaffe, 23,499; and all directors and executive officers as a group, 834,915. (3) All such shares are owned of record either by Mr. Hunt or by Waldo H. Hunt and Patricia E. Hunt, Trustees of The Hunt Trust, UTA May 30, 1980, of which both Trustees have shared voting and investment power. 52 55 (4) All such shares are owned of record by Mr. Ades individually or by the trustees of the Ades Trust, both of which have shared voting and investment power. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has entered into indemnification agreements with its directors and certain selected officers whereby the Company has agreed to indemnify them against certain expenses. In addition, the Company entered into an indemnification agreement with Mr. Hunt and The Hunt Family Trust whereby the Company agreed to indemnify Mr. Hunt and the trust against costs, losses or damages incurred by them arising out of their guarantee of the Company's indebtedness under its bank revolving line of credit facililty. In May 1999, the Company acquired Fast Forward Marketing pursuant to the Merger. In connection with the Merger, the Company issued a total of 670,000 shares of its common stock, of which 594,940 shares were issued to the Ades Trust and the remaining 75,060 shares were issued to certain employees of Fast Forward Marketing pursuant to a pre-existing plan. Consideration for Fast Forward also included a contingent cash payment which would have been due in May 2000 if certain targets were met and an additional cash payment of $150,000 due May 1, 2001, subject to reduction for payment by the Company of certain tax withholdings. In connection with the Merger, the Hunt Trust and Mr. Ades and the Ades Trust entered into the Voting Agreement. Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report. 1. Financial Statements. A list of financial statements is contained in "Index to Financial Statements" on page 19 hereof. 2. Financial Statement Schedule. The following financial statement schedule of Intervisual Books, Inc., for the years ended December 31, 2000, 1999, and 1998 is filed as a part of this Report and should be read in conjunction with the Financial Statements of Intervisual Books, Inc.

Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is indicated in the Financial Statements or Notes thereto. 3. Exhibits. 53 56

54 57 Partnership and the Company dated August 8, 1996 (Incorporated by reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.10 Second Lease Addendum between Watt Headquarters Limited Partnership and the Company dated December 3, 1996 (Incorporated by reference to Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.11 Amendment to Lease Agreement between Watt Headquarters Limited Partnership and the Company dated January 27, 1997 (Incorporated by reference to Exhibit 10.23 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.12* Form of Indemnification Agreement provided to Company's executive officers and directors (Incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.13* Employment Agreement between the Company and Waldo H. Hunt (Incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.14* Nonstatutory Stock Option Agreement between the Company and Waldo H. Hunt (Incorporated by reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.15* Employment Agreement between the Company and Dan P. Reavis (Incorporated by reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.16* Nonstatutory Stock Option Agreement between the Company and Dan P. Reavis (Incorporated by reference to Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.17 Indemnification Agreement between the Company and Waldo Hunt and The Hunt Family Trust (Incorporated by reference to Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.18* Nonstatutory Stock Option Agreement between the Company and Leonard William Jaffe (Incorporated by reference to Exhibit 10.29 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.)

55 58 10.19 Agreement and Plan of Merger dated March 29, 1999 among Intervisual Books, Inc., FFM Acquisition Corp., Fast Forward Marketing, Inc., Steven D. Ades and Laurie Levit as Trustees of the Levit Revocable Family Trust. (Incorporated by reference to Exhibit 2.1 of Form 8-K filed May 27, 1999.) 10.20 Amendment No. 1 to Agreement and Plan of Merger dated April 29, 1999 among Intervisual Books, Inc., FFM Acquisition Corp., Fast Forward Marketing, Inc., Steven D. Ades and Steven D. Ades and Laurie Levit as Trustees of the Levit Revocable Family Trust. (Incorporated by reference to Exhibit 2.2 of Form 8-K filed May 27, 1999.) 10.21 Amended and Restated Voting Agreement dated May 19, 1999 among Steven D. Ades, Steven Ades and Laurie Levit, Trustees of the Levit Revocable Family Trust and Waldo H. Hunt, Trustee of The Hunt Family Trust. (Incorporated by reference to Exhibit 2.3 of Form 8-K filed May 27, 1999.) 10.22 Restricted Stock Agreement dated May 13, 1999 among Intervisual Books, Inc., Steven Ades and Laurie Levit, Trustees of the Levit Revocable Family Trust, Rhonda Saperstein, Barbara Abella, Steven Selsky and Steven Wallace. (Incorporated by reference to Exhibit 2.4 of Form 8-K filed May 27, 1999.) 10.23 Loan and Security Agreement dated May 13, 1999 among Zindart Limited, Intervisual books, Inc. and FFM Acquisition Corp. (Incorporated by reference to Exhibit 10.1 of Form 8-K filed May 27, 1999.) 10.24 Intellectual Property Security Agreement dated May 13, 1999 between Intervisual Books, Inc. and Zindart Limited. (Incorporated by reference to Exhibit 10.2 of Form 8-K filed May 27, 1999.) 10.25 Intellectual Property Security Agreement dated May 13, 1999 between Fast Forward Marketing and Zindart Limited. (Incorporated by reference to Exhibit 10.3 of Form 8-K filed May 27, 1999. 10.26 Subordination Agreement dated as of May 12, 1999 among Santa Monica Bank, Zindart Limited, Intervisual Books, Inc. and FFM Acquisition Corp. (Incorporated by reference to Exhibit 10.4 of Form 8-K filed May 27, 1999.) 10.27 Loan and Security Agreement dated May 13, 1999 among Intervisual Books, Inc., FFM Acquisition Corp. and Santa Monica Bank. (Incorporated by reference to Exhibit 10.5 of Form 8-K filed May 27, 1999.)

56 59 10.28 Secured Promissory Note dated as of May 12, 1999. (Incorporated by reference to Exhibit 10.6 of Form 8-K filed May 27, 1999.) 10.29 Amendment Agreement Number One to Loan and Security Agreement between the Company and Santa Monica Bank dated September 30, 1999. (Incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended September 30, 1999.) 10.30* Nonstatutory Stock Option Agreement between the Company and Steven D. Ades dated May 11, 1999. (Incorporated by reference to Exhibit 10.32 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.31* Employment Agreement between the Company and Steven Wallace dated May 12, 1999. (Incorporated by reference to Exhibit 10.35 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.32* Nonstatutory Stock Option Agreement between the Company and Steven Wallace dated May 12, 1999. (Incorporated by reference to Exhibit 10.36 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.33 Amendment Agreement Number Two to Loan and Security Agreement between the Company and Santa Monica Bank dated November 17, 1999. (Incorporated by reference to Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.34 Amended and Restated Secured Promissory Note between the Company and Santa Monica Bank dated November 17, 1999. (Incorporated by reference to Exhibit 10.38 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.35 Amendment to Lease Agreement between Watt Headquarters Limited Partnership and the Company dated June 21, 1999. (Incorporated by reference to Exhibit 10.39 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.36* 1999 Stock Option Plan. (Incorporated by reference to Exhibit 10.40 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.37* Amendment of Nonstatutory Stock Option Agreement between the Company and Waldo H. Hunt. (Incorporated by reference to Exhibit 10.41 of the Registrant's

57 60 Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.38* Amendment of Nonstatutory Stock Option Agreement between the Company and Dan P. Reavis. (Incorporated by reference to Exhibit 10.42 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.39* Employment Agreement between the Company and Nathan N. Sheinman. (Incorporated by reference to Exhibit 10.43 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.40* Amendment of Nonstatutory Stock Option Agreement between the Company and Nathan N. Sheinman. (Incorporated by reference to Exhibit 10.44 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.41 Extension Notice between the Company and Zindart Limited dated March 23, 2000. (Incorporated by reference to Exhibit 10.45 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.42 Commitment Letter to extend US Bank line of credit. (Incorporated by reference to Exhibit 10.1 of Registrant's Form 10-Q for the quarter ended March 31, 2000.) 10.43 Amendment Agreement Number Three to Loan and Security Agreement between the Company and US Bank. (Incorporated by reference to Exhibit 10.1 of Registrant's Form 10-Q for the quarter ended June 30, 2000.) 10.44 Amended and Restated Promissory Note between the Company and US Bank. (Incorporated by reference to Exhibit 10.2 of Registrant's Form 10-Q for the quarter ended June 30, 2000.) 10.45 Amendment Agreement Number Four to Loan and Security Agreement between the Company and US Bank. (Incorporated by reference to Exhibit 10.1 of Registrant's Form 10-Q for the quarter ended September 30, 2000.) 10.46* Amended and Restated Employment Agreement between the Company and Steven Ades dated August 16, 2000. 10.47* Sales Representative Agreement between the Company and Steven Ades dated August 16, 2000. 10.48 Amendment Number One to Restricted Stock Agreement dated August 16, 2000 by and among the Company and Steven D. Ades and Laurie Levit, as co-trustees of

58 61 the Steven Ades and Laurie Levit Revocable Family Trust 10.49 Amendment Number Two to Agreement and Plan of Merger dated August 16, 2000 by and among the Company, Fast Forward Marketing, Inc., Steven D. Ades, individually and Steven D. Ades and Laurie Levit, as co-trustees of the Steven Ades and Laurie Levit Revocable Family Trust. 10.50* Amendment to Consulting Agreement between the Company and Charles E. Gates dated August 29, 2000. 10.51* Change in Control Agreement between the Company and Dan Reavis dated September 6, 2000. 23. Consent of Independent Certified Public Accountants 24. Power of Attorney (contained on signature page)

-------------------------- * Indicates management contract or compensatory plan or arrangement (b) Reports on Form 8-K None 59 62 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERVISUAL BOOKS, INC. Date: April 17, 2001 By: /s/ Nathan N. Sheinman ---------------------------------- Nathan N. Sheinman, President, Chief Operating Officer, Director Date: April 17, 2001 By: /s/ Dan P. Reavis ---------------------------------- Dan P. Reavis, Executive Vice President, Chief Financial Officer, Director Date: April 17, 2001 By: /s/ Gail A. Thornhill ---------------------------------- Gail A. Thornhill, Controller Chief Accounting Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Waldo H. Hunt, Nathan N. Sheinman and Dan P. Reavis, or any of them, his attorney-in-fact, each with the power of substitution in any and all capacities, to sign any amendments to this Report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

60 63 /s/ Steven D. Ades President, Video April 17, 2001 ---------------------------- and New Media Division, STEVEN D. ADES Director /s/ Neil G. Berkman Director April 17, 2001 ---------------------------- NEIL G. BERKMAN /s/ Leonard W. Jaffe Director April 17, 2001 ---------------------------- LEONARD WILLIAM JAFFE /s/ Gordon Hearne Director April 17, 2001 ---------------------------- GORDON HEARNE /s/ Wong Weng Foo Director April 17, 2001 ---------------------------- WONG WENG FOO

61 64 INTERVISUAL BOOKS, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 2000 INDEX OF EXHIBITS FILED WITH REPORT Exhibit 10.46* Amended and Restated Employment Agreement between the Company and Steven Ades dated August 16, 2000. 10.47* Sales Representative Agreement between the Company and Steven Ades dated August 16, 2000. 10.48 Amendment Number One to Restricted Stock Agreement dated August 16, 2000 by and among the Company and Steven D. Ades and Laurie Levit, as co-trustees of the Steven Ades and Laurie Levit Revocable Family Trust 10.49 Amendment Number Two to Agreement and Plan of Merger dated August 16, 2000 by and among the Company, Fast Forward Marketing, Inc., Steven D. Ades, individually and Steven D. Ades and Laurie Levit, as co-trustees of the Steven Ades and Laurie Levit Revocable Family Trust. 10.50* Amendment to Consulting Agreement between the Company and Charles E. Gates dated August 29, 2000. 10.51* Change in Control Agreement between the Company and Dan Reavis 23. Consent of Independent Certified Public Accountants 24. Power of Attorney (contained on signature page) 62

INTERVISUAL BOOKS INC /CA 10-K