<PAGE>

                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the fiscal year ended May 26, 2001

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the transition period from ______________ to _________________


                         Commission file number 0-21634
                                                -------

                            METRO GLOBAL MEDIA, INC.
                            ------------------------
                 (Name of small business issuer in its charter)


          Delaware                                            65-0025871
          --------                                            ----------
(State or other jurisdiction of                             (IRS Employer
incorporation or organization)                           Identification No.)


                 1060 PARK AVENUE, CRANSTON, RHODE ISLAND 02910
                 ----------------------------------------------
               (Address of principal executive offices) (Zip Code)


                                 (401) 942-7876
                                 --------------
                           (Issuer's telephone number)



Securities registered under Section 12(b) of the Exchange Act:  NONE

Securities registered under Section 12(g) of the Exchange Act:

                                  Common Stock
                                  ------------
                                (Title of class)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
of any amendment to this Form 10-KSB. [ ]

     The issuer's revenue for the fiscal year ended May 26, 2001 was:
$25,357,902.

     The aggregate market value of the common stock held by non-affiliates
computed by reference to the price at which the common stock was sold or the
average bid and asked price of the common stock, as of October 19, 2001 was
approximately $1,313,231.

     There were 9,380,223 shares of common stock outstanding as of October 19,
2001.

Documents Incorporated By Reference: None

Transitional Small Business Disclosure Format (Check one):

Yes [ ]     No [X]

<PAGE>

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

                                     PART I
                                     ------

<S>       <C>                                                                          <C>
ITEM 1.   BUSINESS.......................................................................3

ITEM 2.   PROPERTIES....................................................................10

ITEM 3.   LEGAL PROCEEDINGS.............................................................11

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................11

                                     PART II
                                     -------

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........12

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS...................................................13

ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA....................................18

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                AND FINANCIAL DISCLOSURES...............................................18

                                    PART III
                                    --------

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
            PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
            ACT.........................................................................18

ITEM 10. EXECUTIVE COMPENSATION.........................................................20

ITEM 11. SECURTITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................21

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................22

                                     PART IV

                                     -------

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...............................................24

INDEX TO FINANCIAL STATEMENTS..........................................................F-0
</TABLE>

                                        2


<PAGE>

PART I
------

ITEM 1.  BUSINESS
-----------------

     The following discussion contains forward looking statements. Actual
results could differ materially. See "Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Forward Looking
Statements.

     Metro Global Media, Inc. ("Metro Global") is engaged in the production and
distribution of erotic prerecorded videocassettes, magazines, CD-ROMs, digital
versatile discs ("DVD"), and other products. Metro Global operates through its
wholly owned subsidiaries and operating divisions: Metro West Studios, Inc.,
("Metro Studios"), Metro, Inc. - West Coast Division ("Metro West"), Metro
International Distributors ("Metro International"), Amazing Media Group, Inc.
("Amazing Media"), Amazing Direct, Inc. ("Amazing Direct"), Metro, Inc. - East
Coast Division ("Metro East"), Airborne for Men, LTD. ("Airborne"). Metro Global
and these subsidiaries and divisions are sometimes collectively referred to as
the "Company".

     The Company produces and distributes erotic motion picture entertainment,
in the form of feature films primarily on video cassettes and DVD, publishes and
distributes a variety of adult magazines and markets and distributes erotic
entertainment through direct mail order, e-commerce and over the Internet.
Wholesale distribution of the Company's home video and DVD products is
accomplished through a distribution network of wholesalers located throughout
the United States, Canada and Europe. In addition, Metro East operates a
regional distributorship center for the Company's motion picture titles and
magazines as well as the video/DVD titles, magazines and novelty products of
other companies. This 64,000 square foot Cranston, Rhode Island distribution
center services retail outlets located throughout the Northeast region of the
United States. Wholesale distribution of the Company's publications is
accomplished through a distribution network of wholesalers located throughout
the United States and Canada. Distribution throughout the rest of the United
States is conducted from the 35,500 square foot Metro West's Chatsworth,
California facility and international distribution is conducted through Metro
International, located in Flensburg, Germany.

     In September 1999, Metro Global's Board of Directors adopted a plan to
discontinue the operations of Fanzine International, Inc. ("Fanzine") and the
publishing segment and instructed management to divest Fanzine by the end of
fiscal 2000. On September 29, 1999, Metro Global sold Fanzine back to its former
shareholders and a corporation controlled by them. See "Discontinued
Operations".

     The Company, through its subsidiary Rocket Media Group LLC, was a 50%
partner in Maxstone Media Group, LLC. ("Maxstone"), a producer and distributor
of newsstand magazines. During the end of fiscal 2000 and the beginning of
fiscal 2001 Metro Global phased out the Maxstone operation and accordingly has
accounted for Maxstone as discontinued operations in the accompanying financial
statements.

     Metro Global was incorporated under the name South Pointe Enterprises,
Inc., in Florida in November 1987. In February 1996, Metro Global changed its
name from South Pointe Enterprises, Inc. to Metro Global Media, Inc. In November
1996, Metro Global merged into an inactive subsidiary of Metro Global, Metro
Sub, Inc., which merged entity changed its name to Metro Global Media, Inc.

CONTINUING OPERATIONS

Metro West Studios, Inc.:

Film and Video Production

     Through Metro Studios, the Company produces and distributes erotic motion
picture entertainment, commonly referred to in the industry as "adult
entertainment". This includes the production and financing of feature films
(full length motion pictures produced on film), feature videos (full length
motion pictures produced on videotape), and video compilations, distributed
primarily on videocassettes and DVD; the distribution of pay television and
cable/satellite programming; and the ownership and administration of film
copyrights. The Company produces films and videos either independently or under
arrangements with other producers, and is generally the principal source of
financing for these motion pictures. In addition, the Company purchases
outright, or licenses for distribution, completed films and videos produced by
others. Acquired distribution rights may be limited to specified territories,
specified media and/or particular periods of time.

                                       3
<PAGE>

     The Company strives to maintain the highest standards in the films it
produces. This is evidenced by the numerous industry awards which it has
received over the years. Recently, more than 30 nominations were received as
well as numerous awards including; Best Box Cover Concept (AVN 2001), Best
Marketing Campaign - Individual Title (AVN 2001), Best Director - Film (AVN
2001), Film of the Year (XRCO 2001), Best American Film of the Year (Venus
2000).

     The Company owns or has distribution rights to a library of approximately
4,000 titles primarily available on videocassette. Management believes the
Company's 4,000 plus film and video library and extensive still photo archive is
one of the most diverse and extensive libraries in adult entertainment and
includes the Cal Vista line, the Amazing Collection, and twenty volumes of
Taboo, one of the Company's most popular adult video series. Many of the
Company's original motion picture programs have been re-edited and licensed to
cable television operators. Approximately 20% of the titles in the Company's
motion picture library have been obtained from third parties under distribution
agreements pursuant to which the Company has acquired perpetual U.S.
distribution rights, and in some cases limited foreign distribution rights, to
the motion picture. The Company continues its efforts to expand its film
distribution into international markets and has entered into license agreements
with international distributors granting distribution rights to several of its
motion picture titles in several countries outside the United States. The
Company is in the process of converting its entire library of films and videos
into the DVD format.

     During fiscal 2001, the Company released 4 new feature films, 107 feature
videos, and 233 video compilations for a total of 344 new releases. This
represents an increase of 23% compared to the 264 new titles released during
fiscal 2000. However, although the number of new titles released increased in
2001, the mix was weighted more heavily in compilations and low-end videos than
in fiscal 2000. As a result, revenues from domestic and foreign film rights and
product distribution actually decreased. Metro West was unable to produce the
number of film features and high quality video features planned for fiscal 2001
because of unexpected constraints placed on the availability of funding from its
existing line of credit with Reservoir Capital Corporation as described below
(See Item 6. Management's Discussion and Analysis). The Company plans to
increase its efforts to distribute its library and new titles into domestic
cable and satellite television markets as well as new international markets in
order to maximize its return on the production costs invested in each title.

     Many of the Company's new feature film releases are edited into several
versions depending on the media through which they are distributed. The
Company's has entered into a variety of exclusive and non-exclusive licensing
arrangements with cable and pay television operators for recent feature
releases. These relationships include various types of fee arrangements,
including arrangements which permit unlimited showings for a defined duration in
exchange for a one-time lump sum royalty payment, arrangements for which the
Company is paid a fee based on the number of subscribers to the cable station
and the number of times its motion picture is shown, and arrangements pursuant
to which the Company receives a commission based upon the revenues received by
the pay television operators as a result of a showing of the Company's motion
picture. In general, versions of the films edited for cable or pay-per-view
television are less sexually explicit than the versions edited for home video
distribution.

     In July 1998, the Company signed a two-year agreement with Cable
Entertainment Distribution ("CED") to represent Metro for adult programming
through cable, television, satellite and stand-alone systems throughout the
United States. As part of the agreement, the Company signed an output agreement
with Playboy Entertainment Group ("Playboy"). In July 2000, the agreements were
extended for an additional two years. Under the agreement, the Company will
supply Playboy with up to three features per month. During the year ended May
26, 2001, the Company contracted to supply Playboy with sixteen features as
compared to twenty-eight during fiscal 2000. This significant drop in output
resulted from changes in the Company's fiscal 2001 production schedule
necessitated by an unexpected reduction in the availability of funds from the
Company's existing credit facility with Reservoir Capital Corporation. (See Item
6. Management's Discussion and Analysis or Plan of Operation.)

     In July 1999, the Company entered into a seven-year licensing and
production deal with New Frontier Media, Inc. ("New Frontier"), a publicly
traded adult satellite network company. New Frontier operates "TeN:The Erotic
Network" and the Extasy Network, which consists of three twenty-four hour direct
to home satellite channels, and the "Pleasure" channels. The licensing
arrangement allows New Frontier to utilize certain rights on the Company's adult
film and video library for all formats of electronic delivery, including but not
limited to dial-up Internet, Broadband Internet, Video-On-Demand, subscription
and pay television, and other video delivery mechanisms.

                                       4
<PAGE>

     The production deal calls for the Company to generate more than four
hundred titles over seven years, including a series of high-visibility special
programming events for New Frontier's adult networks and Internet sites. In
addition, the Company plans to create an original, high-end video line branded
by New Frontier for distribution by the Company to the home video/DVD market.
During fiscal 2001, the Company was not able to take full advantage of these
opportunities due to unexpected constraints on the availability of funding from
its existing line of credit with Reservoir Capital Corporation as indicated
above.

     The production and distribution market of cable and satellite broadcast
products is highly competitive, competing with each other as well as with other
forms of adult entertainment. Furthermore, there is increasing competition from
the cable and television industry evidenced by the increasing channel selections
and variety of basic cable and pay television options now available. Revenues
for motion picture entertainment products depends in-part on general economic
conditions, but the competitive position of a producer or distributor is still
greatly affected by the quality of and public response to the entertainment
product it makes available to the market place. There is strong competition in
adult cable and satellite distribution. The Company is confident that with its
many years of knowledge, experience and availability of top directors, it will
continue to release top selling productions in this field. Because of
distribution contracts with Playboy, the Spice channel and multi-channel "New
Frontier Media," along with foreign out-put agreements, management believes that
the Company is and will continue to be a leader in this field.

Metro Inc. - West Coast division:

     Metro West, the Company's West Coast division, located in Chatsworth,
California, duplicates, manufactures, warehouses and distributes exclusively all
of Metro Studio's productions on VHS and DVD formats.

     The Company creates and designs all artwork for promotional items and
packaging and contracts for printing services. Approximately 20% of the
Company's videocassettes are duplicated at its own duplicating facility located
in the Company's Chatsworth, California location, with the balance being
contracted to independent laboratories. All DVD replication is currently
outsourced.

     During 1998, the Company introduced its first Digital Versatile Discs,
("DVD"). This medium has grown dramatically since a unified single standard was
finalized. Management believes that this unified DVD format will make serious
inroads into the market shares of the videocassette recorder. DVD has several
major advantages over competing home video delivery technologies: 1) A single 5
1/4" DVD can hold up to 135 minutes per side of high resolution digital
full-motion video and audio; 2) Instant access is available to a favorite scene;
3) DVD contains significantly higher image and audio quality than laserdisc and
video tape; 4) Multiple language tracks can be incorporated on one disc; and 5)
A relatively low replication cost will translate into a competitive retail price
for a motion picture giving this medium significant mass-market potential.

     The Company utilizes third-party designers, artists and programmers to
introduce creative and technically superior products. The Company does not
anticipate experiencing any material difficulties and delays in the manufacture
and packaging of its products. Distribution of DVD products is accomplished
through the same distribution network of wholesalers and retailers to whom the
Company distributes its adult video products in the United States, Canada and
Europe. Order fulfillment for the Company's videos and DVD's is coordinated
through its California distribution facility, except for fulfillment in the
northeastern United States which is handled by its Cranston, Rhode Island
facility.

     Many DVD titles feature an automated photo gallery, full motion chapter
index, star biographies and behind the scenes footage. The Company was the first
to produce DVDs with True Perspectivetm multiple angle technology, which allows
the viewer to watch the same moment in time from two distinctive angles.

     The Company released 140 DVD titles during fiscal 2001. This represents a
43% increase over the 98 titles released during fiscal 2000; however, it is over
30% short of the more than 200 titles that were planned for release during
fiscal 2001. The planned release schedule was not maintained because of
unexpected constraints placed on the availability of funding from Metro's
existing line of credit as explained above. The Company plans to release in
excess of 200 titles in fiscal 2002.

     There is strong competition throughout the home video and DVD industry.
Several of the Company's competitors release titles on both video and DVD
formats. Nearly all of the Company's products compete with other products and
services that utilize leisure time or disposable income. The Company believes
that it can directly compete with other distributors and that it has a
competitive advantage over most because of its extensive

                                       5
<PAGE>

library, extensive on-hand inventory, and experienced customer service
departments. The Company also believes that its name, image, and reputation, as
well as quality of its distribution, provides a significant advantage over many
other competitors seeking to establish an adult distribution business.

Metro International, Inc.:

     The Company's wholly owned subsidiary, Metro International, operates an
international sales office in Flensburg, Germany to handle the sales of video
rights in Europe, South America and Australia. In addition to the sale of video
rights, this office sells the Company's videos and DVDs in Europe. In February
1999, Metro International opened a newly expanded facility in Flensburg,
Germany. Metro International generated revenues of approximately $714,000 or 3%
of the Company's consolidated revenue from continuing operations during the
fiscal year ended May 26, 2001 and $919,803 or 3% of the Company's consolidated
revenue from continuing operations during the fiscal year ended May 27, 2000.

     Foreign distribution, especially throughout Europe, is highly competitive.
Most countries have producers and distributors that release product
entertainment from local talent and in their native language. The demand for
American produced product has always been high in the foreign marketplace and
competition from other American suppliers is strong. The focus of Metro
International is to increase distribution through cable and satellite broadcast
and to increase their library and inventory of DVD titles as DVD continues its
extraordinary growth throughout the foreign marketplace. Management believes
that none of its competitors has as diverse a library as the Company.

Amazing Media Group, Inc.:

     The Company, through its Amazing Media subsidiary, publishes and
distributes a variety of adult magazines under various trade names, which it
distributes through wholesalers located throughout the United States and
internationally. Amazing Media capitalizes on the Company's extensive library by
reproducing stills, frames, or other duplicable media and transfers the content
onto a printed publication thereby maximizing the return on product costs
incurred in producing films and videos. Amazing Media also benefits the Company
by extending the Company trade name and increasing awareness of the Company's
various products through cost effective cross-promotional techniques. Amazing
Media currently publishes twenty-four magazines, which are distributed on a
bi-monthly or quarterly basis. Amazing Media's net revenues totaled $2,172,464
and $294,752 for fiscal 2001 and 2000, respectively, and included foreign sales
of $180,720 in fiscal 2001.

     In-house artists create productions for certain magazines while others are
outsourced with independent contractors. Production contracts are negotiated on
a series rather than a single title basis and are fixed-price with provisions
for cost of labor, material and specification adjustments. Either Amazing Media
or the production company may terminate these contracts, subject to certain
limitations.

     Independent third parties print all of Amazing Media's publications. The
Company uses three different printers for all of its magazine publication. The
Company believes that generally there is an adequate supply of printing services
available to the Company at competitive prices, should the need arise. All of
Amazing Media's magazine production and printing activities are coordinated
through the Company's facility located in Cranston, Rhode Island.

     The publishing and distribution of adult magazines is highly competitive,
as each competes with the other as well as with other forms of entertainment.
There is increased competition in the publishing industry as evidenced by the
increasing number of publications released monthly. Amazing Media's magazines
are well established, of high quality printing and are unique in their format.
To meet with direct competition from other publishers of adult magazines as well
as from all other forms of adult entertainment, the Company will continue to
expand its publishing division while utilizing its magazines to cross promote
the Company's Internet sites and entire adult entertainment product line.

Amazing Direct, Inc.:

AmazingDirect.com

     AmazingDirect.com, the Company's e-commerce and mail order business, allows
customers to directly purchase from the Company's approximate 10,000 items
inventory, including many produced by the Company. Management believes
AmazingDirect.com's product database of adult videos, CD-ROMs, DVDs, magazines,
novelties, and lingerie to be one of the worlds largest available online.

                                       6
<PAGE>

     The expansion and further development of e-commerce planned for fiscal 2001
was postponed due to the unexpected restrictions on the availability of funds
from Metro's existing line of credit as described above. As a result, the
webmaster program, equipment and system upgrades and back-end software
modifications planned for fiscal 2001 have been rescheduled for the third
quarter of fiscal 2002.

     Competition in mail order and e-commerce distribution is very high. The
Company competes with numerous mail order houses that specialize in adult
product distribution. With the Company's extensive library and large on-hand
inventory of other producer's product lines, it intends to focus on e-commerce
sales and distribution. It is management's belief that by adding proper
marketing and backend structuring, the Company will become a leader in
e-commerce distribution of adult products.

AmazingSex.com:

     AmazingSex.com, the Company's subscription based content viewing business,
allows members to view full screen, full motion video clips of "behind the
scenes" footage and scenes from upcoming releases as well as the extensive
content of the Company's video and still photo library.

     During fiscal 2000, the Company added four additional sites that cross
promote all other sites. Additional expansion and development planned for fiscal
2001 was delayed. Plans for adding additional sites and completing a database of
customers and visitors to utilize for mass mailings promoting specials and new
updates made to the sites were postponed as a result of unexpected constraints
on the availability of funding under the Company's existing line of credit as
described above. Management believes the increase in Internet sites will enable
Metro to increase its traffic and market share and generate increasing revenues.

     There is strong competition throughout the Internet with respect to
electronic distribution of adult media. There are currently over 30,000 adult
web sites offering a range of content from free material to monthly memberships,
including sites similar to the Company's. The Company meets with direct
competition on the Internet by utilizing its extensive exclusive video and still
photo library, along with its ability to promote new productions prior to their
release.

Metro, Inc - East Coast division:

     Through Metro East's 64,000 square foot distribution center located in
Cranston, Rhode Island, the Company is the largest distributor of adult products
in the Northeast, servicing over 500 retail outlets throughout the Northeast and
Mid-Atlantic regions. The northeast region is considered to be the top ranked
marketplace in the United States for retail locations and adult consumers. Metro
East's warehouse holds an inventory of over one hundred thousand items that are
delivered throughout the Northeast via company owned trucks.

     Metro East is the exclusive distributor of all the Company's products as
well as having distribution agreements with other best selling video producers
such as Vivid Video, Wicked Pictures, VCA Pictures, Private Video, Adam and Eve,
and Hustler Video. Additionally, Metro represents national novelty and adult toy
manufactures such as Doc Johnson Enterprises, California Exotic Novelties, Wet
International, and Topco, which represents the Hustler, Penthouse, and Spice
adult toy lines.

     Metro East also distributes adult newspapers and magazines from all the
major publishers such as LFP (Hustler Group), Playboy, Penthouse, Score Group,
and the Company's own publishing division, Amazing Media Group, Inc.

     The warehouse is also equipped to accommodate order fulfillment for the
Company's e-commerce traffic from its online superstore, Amazing Direct.com, and
its direct to consumer mail order business.

     Metro East also is in the business of manufacturing and distributing Video
Viewing Centers to retail locations where a user can review videos and DVDs
before purchase for a fee. Generally, this fee is split 50/50 with the owner of
the location. Metro maintains ownership of all equipment and is responsible for
its maintenance. The expansion of this business is limited as these units can
only be installed in locations where space permits and proper zoning so allows.

                                       7
<PAGE>

     The distribution markets of home video, DVD and adult products are highly
competitive. There are numerous full line distributors throughout the United
States that compete directly with the Company. Metro East, the largest
distributor in the Northeast region of the United States, meets direct
competition by carrying a large selection of products, maintaining an
outstanding distribution network and competitive pricing of its products.

Airborne for Men, LTD.:

Amazing SuperStore

Franchise/Licensing Subsidiary

     Airborne engages in the sale of franchise and licensing rights to operate
upscale adult orientated retail stores. Each franchise/licensed operation
carries all of the products distributed by the Company. During fiscal 1999,
Airborne introduced its Amazing SuperStore concept designed to strengthen the
"Amazing" brand name and expand its female and couples consumer base. In May
1999, the first Amazing SuperStore was opened in Providence, Rhode Island by
Capital Video Corporation ("CVC"), Metro's largest customer, which is owned by
Kenneth Guarino the Company's principal shareholder. With its success, CVC
converted its five existing Airborne for Men stores, as well as other existing
stores, into Amazing SuperStores or Amazing Express stores.

     Competition in the adult retail store business is strong. There is limited
competition in franchising and licensing of adult stores. The Company believes
it is more effective to license existing adult video stores instead of
franchising new locations, which is costly and time prohibitive due to site
development and local zoning requirements. Licensing of existing locations
allows stores to utilize the Company's proven and successful marketing,
merchandising and distribution programs.

TRADEMARKS AND TRADE NAMES

     The Company owns or licenses numerous trademarks and copyrights that it
uses in its video and magazine businesses. Its most important trademarks are
METROtm, INTROPICStm, CAL VISTAtm, MAGMAtm, AMAZING MEDIA GROUPTM, AMAZINGtm,
TOXXXICtm, METRO PRIME CUTStm, TABOOtm, ONLY THE BESTtm, CASTING CALLtm, BABES
ILLUSTRATEDtm, SOHOtm, ARCUStm, SUPERSHOTStm, RAGEtm and PULSEtm. Metro Global
believes it has trademark rights in these names and relies on trademark law to
protect such rights. Metro Global believes that the name recognition and image
that it has developed in each of its markets significantly enhance customer
response to its sales promotions. Accordingly, trademarks and copyrights are
important to Metro Global's business and it intends to aggressively defend them.

MAJOR CUSTOMER

     CVC, which is wholly-owned by Kenneth Guarino, the principal shareholder of
Metro Global, operates 41 video and magazine retail stores either directly or
through management service contracts with related parties. The locations are
primarily in the Northeast and accounted for approximately 40% of the Company's
net sales for the fiscal year ended May 26, 2001 and 41% of the Company's net
sales for the fiscal year ended May 27, 2000. See "Item 9. Management's
Discussion and Analysis and Item 12. Certain Relationships and Related
Transactions". During fiscal 2001, no other customer accounted for more than 10%
of the Company's net sales.

GOVERNMENT REGULATION

     The right to distribute adult videocassettes, DVD's magazines and related
products is protected by the First and Fourteenth Amendments to the United
States Constitution, which prohibit Congress or the various states from passing
any law abridging the freedom of speech.

     The First and Fourteenth Amendments, however, do not protect the
dissemination of obscene material, and several states and communities in which
Metro's products are distributed have enacted laws regulating the distribution
of obscene material with some offenses designated as misdemeanors and others as
felonies, depending on numerous factors. The consequence for violating the state
statutes varies by state. Similarly, 18

                                       8
<PAGE>

U.S.C. Sections 1460 through 1469 contain the federal prohibitions with respect
to the dissemination of obscene material, and the potential penalties for
individuals (including corporate directors, officers and employees) violating
the federal obscenity laws include fines, community service, probation,
forfeiture of assets and incarceration. The range of possible sentences require
calculations under the Federal Sentencing Guidelines, and the amount of the fine
and/or the length of the period of incarceration under those guidelines are
calculated based upon the retail value of the unprotected materials. Also taken
into account in determining the amount of the fine, length of incarceration or
other possible penalty are whether the person accepts responsibility for his or
her actions, whether the person was a minimal or minor participant in the
criminal activity, whether the person was an organizer, leader, manager or
supervisor, whether multiple counts were involved, whether the person provided
substantial assistance to the government, and whether the person has a prior
criminal history. In addition, federal law provides for the forfeiture of: (1)
any obscene material produced, transported, mailed, shipped or received in
violation of the obscenity laws; (2) any property, real or personal,
constituting or traceable to gross profits or other proceeds obtained from such
offense; and (3) any property, real or personal, used or intended to be used to
commit or to promote the commission of such offense, if the court in its
discretion so determines, taking into consideration the nature, scope and
proportionality of the use of the property in the offense. Because the Company
is engaged primarily in the wholesale distribution of its products to other
wholesalers and/or retailers, it can regulate the communities to which it
distributes its products. Management has taken steps to ensure compliance with
all federal, state and local regulations regulating the content of its motion
pictures and print products, by staying abreast of all legal developments in the
areas in which its motion pictures and print products are distributed and by
specifically avoiding distribution of its motion pictures and print products in
areas where the local standards clearly or potentially prohibit distribution of
these products. In light of the Company's efforts to review, regulate and
restrict the distribution of its materials, management believes that the
distribution of the Company's products does not violate any statutes or
regulations.

     Many of the communities in the areas in which the Company intends to offer
Amazing SuperStores licensing and franchises have enacted zoning ordinances
restricting the retail sale of adult entertainment products. The Company intends
to license Amazing SuperStores and to permit the opening of Amazing SuperStores
franchises only in locations where the retail sale of adult entertainment
products is permitted.

     Distribution rights to videocassettes, DVD's, magazines and CD-ROM products
are also granted legal protection under the copyright laws of the United States
and most foreign countries, which provide substantial civil and criminal
sanctions for unauthorized duplication and exhibition. The Company plans to take
all appropriate and reasonable measures to secure and maintain copyright
protection for all of its products under the laws of all applicable
jurisdictions.

DISCONTINUED OPERATIONS
-----------------------

     The Company purchased Fanzine on August 3, 1998. See "Business Acquisitions
and Other Activities" below.

     In September 1999, the Company's Board of Directors adopted a plan to
discontinue the operations of Fanzine and instructed management to divest
Fanzine and its Publishing Segment by the end of fiscal 2000. Accordingly,
Fanzine is reported herein as a discontinued operation for the year ended May
27, 2000 (see note 17 to financial statements). On September 29, 1999, the
Company sold Fanzine back to the former shareholders of Fanzine and a company
controlled by them, for $4,500,000 and the return to the Company of the
1,000,000 restricted shares of its Common Stock held by Fanzine's former
shareholders. The cash portion has been paid as follows: $1,000,000 paid on
October 31, 1999; $1,000,000 paid on November 30, 1999; $1,000,000 paid on June
1, 2000; and $1,500,000 paid on August 31, 2000. .

    During the end of fiscal 2000 and the beginning of fiscal 2001 the Company
phased out the Maxstone operation and accordingly has accounted for Maxstone as
discontinued operations in the accompanying financial statements.

                                       9
<PAGE>

BUSINESS ACQUISITIONS AND OTHER ACTIVITIES

     In August 1997, Rocket Media Group, LLC. ("Rocket"), a wholly-owned
subsidiary of the Company entered into a joint venture with Salmill Enterprises,
Inc. ("Salmill") for the purpose of magazine publishing. Under the terms of the
agreement, Rocket contributed a sub-license agreement for the rights to certain
titles, names and materials and Salmill contributed its publishing and
circulation expertise into a newly formed entity Maxstone; each joint venture
partner contributed $30,000. Minority interest amounted to $(56,044) at May 27,
2000. During the end of fiscal 2000 and the beginning of 2001 the Company phased
out the Maxstone operation and accordingly has accounted for Maxstone as
discontinued operations in the accompanying financial statements. See
"Discontinued Operations" above.

     In March 1998, the Company acquired an 80% interest in Amazing Direct, a
Nevada Corporation, by purchasing four hundred shares of its outstanding stock
at $2.00 per share. Amazing Direct is a mail order company. In April 1999, Metro
acquired the remaining shares of outstanding stock.

     On August 3, 1998, the Company acquired 100% of the stock of Fanzine for a
cash purchase price of $4,000,000, plus contingent consideration in a
transaction approved by the Company's Board of Directors. The contingent
consideration consisted of 1,000,000 restricted shares of the Company's Common
Stock with put option rights at $8.00 per share to be exercised by the selling
shareholder's during the second year on a quarterly basis, if certain minimum
earnings, as defined, were met. During Fanzine's first year of operations, the
Company had the right to call the shares at the greater of $6.00 per share or
75% of the market price. The Company did not call the shares.

     The Fanzine acquisition was accounted for as a purchase. The excess of the
purchase price over the fair market values of net assets acquired, which
included, among others, licenses, trademarks, and distribution rights, was
allocated to goodwill and amortized over ten years. A long-term convertible
debenture and other short-term borrowing financed the cash portion of
$4,000,000.

     On September 29, 1999, the Company sold Fanzine back to the former
shareholders and a company controlled by the former shareholders pursuant to a
Rescission and Purchase Agreement. The operations of Fanzine have been
classified as discontinued operations for fiscal 2000. See "Discontinued
Operations" above.

EMPLOYEES

     As of October 23, 2001, the Company and its subsidiaries employed
approximately 113 persons, of which 110 are full-time employees.

ITEM 2. PROPERTIES
------------------

     Metro's principal administrative office is located in Cranston, Rhode
Island and is leased from an entity principally owned by the spouse of Kenneth
Guarino, Metro Global's principal shareholder. See "Item 12. Certain
Relationships and Related Transactions". The facility of approximately 64,000
square feet houses Metro's administrative, editorial and operational offices;
the data center, customer service, warehouse and fulfillment facilities. As of
July 15, 1999, Metro relocated its California offices to an approximate 35,500
square feet of office, warehouse, distribution and duplicating laboratory space
located in Los Angeles County, California. This site has a lease term expiring
on June 30, 2004, with a renewal option for one additional five-year period,
subject to certain terms and conditions. Metro International has warehouse and
office space located in Flensburg, Germany totaling approximately 1,700 square
feet with a five-year lease term.

     Maxstone and Fanzine were located in New York City, New York occupying
approximately 3,045 square feet of office space under a five year, two month
lease term expiring on May 30, 2003. The lease was assumed by Fanzine effective
September 29, 1999 upon the sale of Fanzine. See "Discontinued Operations"
above.

                                       10
<PAGE>

ITEM 3. LEGAL PROCEEDINGS
-------------------------

George Kinney v. Metro Global Media, Inc., et al.
C.A. No. 99-579 (U.S.D.C.,D.R.I.)

     On November 22, 1999, George Kinney, on behalf of himself and all other
similarly situated, commenced a putative class action in the United States
District Court for the District of Rhode Island against Metro Global and certain
of its present or former officers and directors. Plaintiff seeks to represent a
class of all persons who acquired securities of Metro Global between September
13, 1996 and September 13, 1999. The Complaint alleges violations of section
10(b) of the Securities Exchange Act of 1934. Plaintiff alleges that the
defendants made a series of false and misleading statements concerning Metro
Global's reported financial results during the class period that violated
generally accepted accounting principles and ultimately caused Metro Global to
restate certain financial statements. On March 15, 2000, Metro Global and
certain defendants filed a motion to dismiss the complaint. The plaintiffs filed
an amended complaint dated May 15, 2000 and Metro Global moved to dismiss the
amended complaint on July 5, 2000. Plaintiffs filed an opposition to Metro
Global's motion to dismiss on August 15, 2000. Metro Global replied to the
plaintiffs' opposition on September 1, 2000. By order dated January 16, 2001,
the Court denied Metro Global's motion to dismiss the amended complaint. On
April 5, 2001, Metro Global retained new legal counsel for representation in the
action. Metro Global filed an answer to the complaint on May 4, 2001. The Court
has scheduled a conference for November 13, 2001 and thereafter it is
anticipated that a discovery process will be conducted to determine whether the
plaintiff is a proper class representative. Metro Global believes it has
meritorious defenses that will enable it to secure a cost effective settlement
before trial or, in the event of trial, that it will prevail.

New England Phoenix Co., Inc. vs. Metro Global Media Inc., and United Stock
Transfer, Inc.
C.A. 01CV11544GAO  (U.S. D. C..,  D MA)

     On September 7, 2001, a Complaint was filed against Metro Global and its
stock transfer agent in the United States District Court for the District of
Massachusetts. The Complaint alleges that Metro Global improperly canceled
certain shares of stock standing in the name of the plaintiff's predecessor in
interest and that Metro Global engaged in other tortuous behavior. Metro Global
has obtained an extension of time to respond to the Complaint. Metro Global
denies any wrongdoing and believes it has meritorious defenses that will enable
it to secure a cost effective settlement before trial or, in the event of trial,
that it will prevail.

     Except for the actions described above, there are no material legal
proceedings pending against Metro Global or its subsidiaries other than routine
litigation that is incidental to the business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

    None

                                       11
<PAGE>

PART II
-------

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------------------

     Metro Global's Common Stock is traded in the over-the-counter market via
the pink sheets under the symbol "MGBL". There is a very limited market for
Metro Global's Common Stock and no assurances can be given that any active
trading market will develop. On September 14, 1999, upon Metro Global's issuance
of a press release that it did not timely file its 1999 Annual Report on Form
10-KSB, the NASDAQ Stock Market halted the trading of Metro Global's Common
Stock. On December 7, 1999, Metro Global's Common Stock was delisted from the
NASDAQ Small Cap Market. The following table sets forth the high and low bid
prices per share of Metro Global's Common Stock for each quarter within the last
two fiscal years.

                                        COMMON STOCK*
                                     HIGH BID    LOW BID

Fiscal Year Ended May 26, 2001
------------------------------
First Quarter                        $ 0.5500    $ 0.4400
Second Quarter                       $ 0.5000    $ 0.2200
Third Quarter                        $ 0.2500    $ 0.1000
Fourth Quarter                       $ 0.1100    $ 0.0900

Fiscal Year Ended May 27, 2000
------------------------------
First Quarter                        $ 3.2500    $ 1.7190
Second Quarter                       $ 1.7500    $ 1.5310
Third Quarter                        $ 0.9300    $ 0.3200
Fourth Quarter                       $ 0.9600    $ 0.4100


     *Such market quotations reflect the high and low prices for Metro Global's
securities as quoted by dealers without retail mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions.

     At May 26, 2001 there were 399 holders of record of Metro Global's Common
Stock.

     Metro Global did not pay any cash dividends during its last two fiscal
years and the Board of Directors does not contemplate doing so in the
foreseeable future. Any decision as to future payment of dividends will depend
on the earnings and financial condition of Metro Global and such other factors
as the Board of Directors deems relevant.

SALES OF UNREGISTERED SECURITIES

     On December 31, 1996, in conjunction with the termination of an employment
agreement with Kenneth Guarino, the Company granted Mr. Guarino options to
purchase up to 200,000 shares of the Company's Common Stock at a price of $1.50
per share expiring on December 31, 2006. On February 12, 2001, the options were
canceled.

     On March 23, 1998, the Company entered into two convertible debentures with
related parties. On December 31, 1999, one of the debentures, including accrued
interest, was converted into 847,778 restricted shares of the Company's Common
Stock. The second debenture and accrued interest was assumed by CVC, the
Company's principal customer that is wholly owned by the company's principal
shareholder, and the accounts receivable due from CVC was reduced accordingly.

     On July 1, 1998, the Company entered into a convertible debenture with a
related party. On July 1, 1999, in conjunction with an extension of the due
date, warrants were issued to purchase 50,000 shares of the Company's Common
Stock for $2.58 per share. On December 31, 1999, the debenture and accrued
interest were assumed by CVC and the accounts receivable due from CVC was
reduced accordingly.

    On August 1, 1998, the Company entered into notes payable with related
parties. On August 1, 1999, in conjunction with an extension of the due date,
warrants were issued to purchase 115,000 shares of the Company's Common Stock
for $2.58 per share, exercisable for a term of five years. On December 31, 1999,
one

                                       12
<PAGE>

of the notes, including accrued interest, was converted into 781,250 shares of
the Company's Common Stock. The other note and accrued interest were assumed by
CVC and the accounts receivable due from CVC was reduced accordingly.

     On October 28, 1998, the Company entered into a note payable with an
unrelated third party. In consideration of the loan, Metro Global issued the
lender 150,000 restricted shares of the Company's Common Stock.

     On December 9, 1998, the Company entered into a term note with an unrelated
third party. As part of the transaction, the Company issued the lender warrants
to purchase 350,000 shares of Common Stock at a price of $3.00, expiring on
December 31, 2001 and 100,000 shares of Common Stock.

     On March 19, 1999, the Company entered into a consulting agreement with
Kenneth Guarino. Pursuant to the agreement, Mr. Guarino was granted options to
purchase up to 100,000 shares of the Company's Common Stock at a price of $2.00
per share, exercisable for a period of five years. On February 12, 2001, the
options were canceled.

     On June 30, 1999, the Company entered into a note payable with a related
party. On December 31, 1999, the note payable and accrued interest was converted
into 87,847 restricted shares of the Company's Common Stock.

     On July 21, 1999, the Company entered into a seven-year licensing agreement
with New Frontier Media, Inc. ("New Frontier"). In exchange for certain
services, the Company issued New Frontier 250,000 restricted shares of its
Common Stock and warrants to purchase 50,000 shares of Common Stock per year for
five years.

     During the year ended May 27, 2000, Dennis Nichols, President of Metro,
Inc., received 100,000 shares of the Company's Common Stock.

     On September 17, 2001, the Company issued 750,000 restricted shares of its
Common Stock in payment of $100,000 in consulting services provided during the
year ended May 26, 2001. The services, which related to mail order, marketing
and general business consulting, were provided by the mother of Greg Alves,
President of Metro Global, under the terms of an agreement dated July 1, 1998.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----------------------------------------------------------------

INTRODUCTION

     As described more fully below in Note 3 to the Consolidated Financial
Statements, in September 1999, the Company sold its Fanzine subsidiary. In
addition, the operation of its Maxstone subsidiary was phased out during the end
of fiscal 2000 and the beginning of fiscal 2001. As a result, the Company has
reported Fanzine and Maxstone as discontinued operations for the years ended May
26, 2001 and May 27, 2000. Accordingly, unless specifically noted to the
contrary, the following discussion under this Item 6 refers to only the results
of the Company's continuing operations, to the exclusion of the discontinued
operations of Fanzine and Maxstone.

     The following discussion should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
report.

RESULTS OF OPERATIONS

     Metro Global's revenues for fiscal 2001 decreased by 9% to $25,357,902 as
compared to $27,789,050 for fiscal 2000. The decrease in revenues of
approximately $2,431,000 was primarily attributable to reductions in Metro
Studios' planned production schedule for fiscal 2001, which affected the number
and type of new titles available for release. As a result, domestic and foreign
revenues from film rights and product distribution decreased by $4,309,000. This
decrease was partially offset by an increase in Amazing Media's magazine
revenues totaling $1,878,000. Fiscal 2001 was Amazing Media's first full year of
operations.

     Changes to the fiscal 2001 production schedule were required because of an
unexpected reduction in excess of $500,000 in the availability of funds from the
Company's existing credit facility with Reservoir Capital Corporation (for
further discussion, see "Liquidity and Capital Resources" below). As a result,
the Company released 484 new titles on video and DVD compared to the planned
release of 675 new titles. Further, the mix of these new releases was weighted
more heavily towards compilations and low-end videos than the Company's new
releases in fiscal 2000. The Company's production expenditures for fiscal 2001
decreased by 40% to $1,743,000, as compared to $2,893,000 in fiscal 2000.

                                       13
<PAGE>

     In response to this reduction in production revenue, management instituted
programs to reduce inventory levels, negotiate extended payment terms with
suppliers of products and services, and reduce costs and control expenses. As a
result of these efforts, as well as the proceeds generated from a partial
disposition of its investment in securities, Metro Global was able to satisfy
the demands of its lender while maintaining minimal production levels in order
to meet its contractual obligations and maintain its established customer base
and revenue streams.

     In the last quarter of fiscal 2001, the Company obtained $1,000,000 in
alternative financing to fund the production of specific titles for release in
fiscal 2002. Repayment of these advances is due over a period of 12 months
beginning in January 2002, and a royalty will be due on these titles at the rate
of $1.00 for each DVD sold through June 2003, with monthly payments beginning in
January 2003 and ending in February 2004. However, the Company needs additional
financing to achieve its planned production schedule for fiscal 2002. (For
further discussion, see "Liquidity and Capital Resources" below.)

     Cost of revenues (including amortization of film costs) as a percentage of
revenues was 67% for fiscal 2001 as compared to 65% for fiscal 2000. The
increase resulted primarily from: (1) fixed expenses related to amortization of
film costs being apportioned over reduced revenues and (2) a change in product
mix more heavily weighted in lower margin magazines as opposed to videos and
DVD's which generally have higher margins. The shift in product mix was
attributable to the reduced production schedule discussed above. If the Company
obtains adequate financing to fund its planned production schedule, management
believes that gross margins will improve as a result of increased revenues and a
shift back to a more favorable product mix. However, there is no assurance the
Company will be able to secure the additional financing and/or generate the cost
savings necessary to fund its planned production. (See "Liquidity and Capital
Resources".)

     Selling, general and administrative expenses decreased by 14% to $9,307,813
(37% of revenues) for fiscal 2001 as compared to $10,777,958 (39% of revenues)
for fiscal 2000. The reduction of approximately $1,470,000 was primarily
attributable to: (1) decreases in professional fees; (2) reductions in
promotional activities and trade show participation; and (3) the absence of
fiscal 2000 expenses associated with the relocation of Metro West's operation
into a new facility and internet development costs.

     A significant portion of the reduction in selling, general and
administrative expenses during fiscal 2001 was attributable to cost reduction
and expense control programs implemented by management in response to unexpected
reductions to its line of credit as discussed above. Management will continue to
focus on identifying and implementing operating improvements, procedures and
controls that reduce costs, increase efficiency and enhance profit margins.

     Interest income decreased by 74% to $51,586 for fiscal 2001 as compared to
$195,320 for fiscal 2000. The reduction of approximately $143,700 was
attributable to the repayment in fiscal 2001 of the note receivable related to
the sale of Fanzine.

     The Company reported a loss from continuing operations of $5,161,288 for
fiscal 2001 as compared to $1,455,743 for fiscal 2000. In addition to the shift
in production schedule due to reduced availability of funds, as discussed above,
the increase of $3,705,545 was primarily attributable to the loss on sale of
securities and the write down of the remaining investment in securities at May
26, 2001 to estimated net realizable value.

LIQUIDITY AND CAPITAL RESOURCES

     As a result of continuing losses, the Company is experiencing cash flow
problems and is in default under a note payable owed to an unrelated third party
(see below for further discussion). The Company's line of credit is also in
default as a result of failure to comply with certain financial ratio
requirements. The Company has a significant unpaid tax liability for the year
ended May 27, 2000. The Company has not received a commitment from the lender to
renew the line of credit which expires in November 2001 and has not obtained
replacement or supplemental financing, and there can be no assurance of such
renewal or new financing. The Company's accounts receivable balance from CVC,
its primary customer and a related party was approximately $3,500,000 at May 26,
2001, of which approximately $750,000 was over ninety days.

                                       14
<PAGE>

     These factors create an uncertainty regarding the Company's ability to
continue as a going concern. The Company's management has developed a business
plan that includes a reduction in product costs, improved inventory control, and
personnel restructuring. In addition, management plans selected price increases
and business development. Cash flow improvements are planned through a reduction
of the related party accounts receivable over a thirty-six week period. The
ability of the Company to continue as a going concern is dependent on the
success of these plans.

     The decreases in cash and inventory were related to the unexpected
reduction in the availability of funds from the Company's existing line of
credit as discussed above under "Results of Operations". Accounts receivable
from related parties increased during fiscal 2001 as a result of extended
payment terms granted at the request of CVC, the primary related party and the
Company's major customer. Payment terms were extended to accommodate CVC's major
expansion into three additional states with 10 new retail locations. The
commitment to provided extended payment terms was made to CVC prior to Reservoir
Capital Corporation's demands for reductions in funding levels available under
its line of credit with the Company. As a condition of the arrangement, CVC
agreed to a charge back of $244,843 from Metro for all pricing discounts allowed
from December 2000 through March 2001. In addition, CVC's discount program was
reduced effective April 2001.

     The Company has implemented a plan with CVC and its related parties whereby
remittances and shipments against open orders will be monitored over a 36-week
period ending in April 2002. At the end of that period CVC and its related
parties have committed to reduce their accounts receivable to approximately
$2,000,000 or between 60 to 75 days of billing.

     Of the Company's total accounts receivable at May 26, 2001, $3,545,765
(56%) as compared to $2,440,548 (45%) at May 27, 2000 was owed by CVC and
related parties. CVC, which is wholly owned by Kenneth Guarino who is also the
principal shareholder of the Company, operates 41 retail locations either
directly or through management service contracts with related parties. Because
of the amount of this receivable and the concentration of business with CVC,
this receivable is monitored very closely. All amounts due from CVC are
maintained within the agreed upon extended terms and are deemed collectible by
the Company. (See "Item K. Certain Relationships and Related Transactions").
Accordingly, no allowance for related party receivables and no related party bad
debt expense has been recorded in the Company's financial statements.

     Net cash provided by operating activities was $749,769 for fiscal 2001 as
compared to $2,299,583 for fiscal 2000. In addition to operating activities, the
primary sources of cash were: (1) payments from notes receivable totaling
$2,465,649; (2) proceeds from notes payable of $1,065,000 and (3) proceeds from
the sale of securities totaling $805,811.

     The primary uses of cash for fiscal 2001 consisted of: (1) payments on
notes payable of $2,715,000; (2) investments in motion pictures and other films
of $1,742,975; and (3) net payments on the line of credit of $496,240.

     On September 30, 1999, the Company sold Fanzine for $4,500,000, payable in
four installments. During the year ended May 27, 2000, the Company received
payments of $2,000,000. The remaining balance was paid in two installments; the
first on July 31, 2000 in the amount of $1,000,000 and the second on September
13, 2000 in the amount of $1,500,000.

     During the second quarter of fiscal 2001, the Company sold 200,000 shares
of New Frontier Common Stock for a total of $805,811 and recognized a loss of
$532,189. During the first quarter of fiscal 2002, the Company sold an
additional 207,850 shares for a total of $546,887 and recognized a loss of
$843,630. The Company intends to sell portions of its New Frontier shares from
time to time, pursuant to Rule 144. As of the close of trading on October 23,
2001, New Frontier's Common Stock was trading on the NASDAQ's Small Cap Market
at a price of $2.51 per share.

     In fiscal 2001, Metro Global invested $1,742,975 in new films and videos.
Financing for these activities has been and will continue to be generated
through operating cash flows, funds received from its line of credit, as well as
alternate financing sources as described below.

                                       15
<PAGE>

     Capital expenditures for fiscal 2001 amounted to $183,150 as compared to
$384,745 for fiscal 2000. The Company anticipates that its capital expenditures
for fiscal 2002 will be approximately $200,000 to $400,000 primarily used for
computer equipment upgrades and information system development.

     On March 23, 1998, the Company entered into two 12% convertible debentures
totaling $500,000 with related parties. Both notes were due on March 23, 1999,
in either cash or Common Stock, at a conversion rate of $2.25 per share.
Proceeds from the debentures were used for working capital. In March 1999, the
debentures' due dates, including accrued interest of $60,000 (which was added to
the notes principal), were extended until March 23, 2000. On December 31, 1999,
one of the debentures, including the accrued interest due under such debenture,
was converted into 847,778 restricted shares of the Company's Common Stock. The
second debenture and accrued interest was assumed by CVC, the Company's
principal customer that is wholly owned by the Company's principal shareholder,
and the accounts receivable due from CVC was reduced accordingly.

     On July 1, 1998, the Company entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. The
Company recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature. Proceeds from the debenture were used for working capital.
On July 1, 1999, the debenture's due date was extended until July 1, 2001. In
conjunction with the extension, warrants were granted to purchase 50,000 shares
of the Company's Common stock for $2.58 per share. The Company recorded interest
expense of $52,000 in connection with the issuance of the warrants in fiscal
2000. On December 31, 1999, the debenture and accrued interest were assumed by
CVC and the accounts receivable due from CVC was reduced accordingly.

     On August 1, 1998, the Company entered into notes payable totaling
$1,000,000 with related parties. The notes, which bear interest at 8%, were due
August 1, 1999. Proceeds from the notes were used in the acquisition of Fanzine.
In October 1998, the notes were reduced by $600,000 for the exercise of
warrants. On August 1, 1999, the notes' due dates were extended for one year. In
consideration of the extension, the interest rate increased from 8% to 10% and
warrants were issued to purchase up to 115,000 shares of Common Stock at a price
of $2.58, exercisable for a term of five years. The Company recognized interest
expense of $100,050 during fiscal 2000 in connection with the issuance of the
warrants. On December 31, 1999, one of the notes and accrued interest of
$281,250 was converted into 781,250 shares of the Company's Common Stock. On
December 31, 1999, the other note and accrued interest totaling $183,250 was
assumed by CVC and the accounts receivable due from CVC was reduced accordingly.

     On July 31, 1998, the Company entered into an 8% convertible debenture with
an unrelated party in the amount of $1,000,000, which was used in the purchase
of Fanzine. In connection with this transaction, the Company issued a warrant
for 75,000 shares at a price of $4.11 and a warrant for 25,000 shares at a price
of $3.29, both exercisable over two years which expired on July 31, 2000. The
Company recorded a discount on the debenture of $157,700 for the value of the
warrants. The Company amortized $13,142 and $78,850 of the discount to interest
expense for fiscal 2001 and 2000, respectively.

     The $1,000,000 debenture was to mature on July 31, 2000. Interest was
payable on a quarterly basis. The holder of the debenture was entitled to
convert the principal value into the Company's Common Stock at a discounted
market price as defined in the debenture agreement. For fiscal 2000, $105,000 of
convertible debentures plus accrued interest and penalties were converted into
83,888 restricted shares of the Company's Common Stock. On February 25, 2000,
the Company entered into a Forbearance and Modification Agreement with the
lender. Under the terms of the agreement, the Company made a payment of $150,000
upon execution of the agreement. The remaining balance of $850,000 was secured
by the pledge of 200,000 shares of New Frontier's Common Stock owned by the
Company. This balance was paid in two equal installments in July and October
2000, and the 200,000 shares of New Frontier's Common Stock were returned to the
Company.

     On October 28, 1998, the Company entered into an unsecured note payable
with an unrelated third party for $1,100,000. The note, which bears no interest,
was due in quarterly installments of $275,000 commencing December 31, 1998. In
consideration of the loan and part of an investment banking consultant
agreement, the Company issued the lender 150,000 restricted shares of the
Company's Common Stock. The Company used $507,500 of the proceeds to repurchase
198,242 shares of its outstanding Common Stock from Metro Plus, a company owned
by a principal stockholder. For fiscal 1999, the Company made one payment of
$275,000. In September 1999, the Company and lender agreed to a preliminary
extension of the note. In October 1999, the Company made a $275,000 payment.
Effective August 8, 2000, the Company renegotiated the terms for the final
$550,000 due on the note payable. Under the terms of the Forbearance and
Modification agreement, the note

                                       16
<PAGE>

was to be paid in equal monthly installments of $50,000 each. Payments on the
note have been in default since October 2000 and the loan balance of $450,000
bears interest at the default rate of 11% per annum. As of May 26, 2001, the
balance due on the note payable, including accrued interest was $480,242. At
October 23, 2001, the note balance of $480,584 including accrued interest
remained in default.

     On December 9, 1998, the Company entered into a six-month term loan
agreement with an unrelated third party. Under the terms of the agreement, the
Company borrowed $3,000,000 at an interest rate of 10% per year. The proceeds
were used toward the acquisition of Fanzine and to fund working capital. In
connection with this transaction, the Company issued warrants to purchase up to
350,000 shares of Common Stock at a price of $3.00, expiring on December 31,
2001. The Company recorded interest expense of $577,000 for the valuation of the
warrants. Additionally, the Company issued 100,000 shares of Common Stock and
recorded $187,500 of interest expense. In September 1999, the Company and this
lender agreed to an extension, under which the Company paid $1.3 million upon
closing a financing with Reservoir Capital Corporation. In November 1999, the
Company paid the lender an additional $600,000 from the proceeds of the sale of
Fanzine. The final payment of $1.2 million (which includes $100,000 of interest)
was paid directly from the proceeds of the final payment from the sale of
Fanzine, which was received on September 13, 2000. In connection with the
restructuring of the two notes payable, the Company recognized $337,475 of
extraordinary income for the forgiveness of interest and penalties in fiscal
2000.

     On June 30, 1999, the Company entered into a one-year note payable at an
interest rate of 10% with a related party for $30,000. Proceeds from the note
were used for working capital. On December 31, 1999, the note payable and
accrued interest was converted into 87,847 restricted shares of the Company's
Common Stock.

     In September 1999, the Company signed a $4,000,000 Loan and Security
Agreement with Reservoir Capital Corporation which, in November 2000 was renewed
until November 2001. The Company may borrow up to 70% of accounts receivable
less than ninety day old, up to a maximum of $3,000,000. The accounts receivable
borrowing base excludes foreign receivables and receivables where more than 50%
of the balance is over ninety days old. Also, the borrowing base on accounts
receivable owed by CVC is limited to the lesser of 30% of total accounts
receivable or $1,300,000. Additionally, the Company can borrow 40% of inventory,
up to a maximum of $700,000. The Company must pay a service fee of .35% per
month on the average daily loan balance. The Company must pay an under
utilization fee of .25% on the amount of the borrowings under $2,000,000. The
loan is secured by substantially all of the assets of the Company. The CVC
accounts receivable are guaranteed by the sole shareholder of CVC, who is also a
significant shareholder of the Company. In addition, CVC has pledged its
inventory to secure the loan.

     In January 2001, certain terms of the loan agreement were revised at the
demand of the lender. These revisions included a reduction of the borrowing base
on accounts receivable owed by CVC from $1,600,000 to $1,300,000 and a reduction
of the maximum inventory borrowings from $1,000,000 to $700,000. The reductions
were implemented on a pro rata monthly basis from January 2001 through June
2001. In addition, effective January 2001, the interest rate on borrowings
changed from prime plus 3.5% to prime plus 5.0% per annum. The loan agreement is
currently in default as a result of the Company's failure to comply with certain
financial ratio requirements. As of October 23, 2001 borrowings under the line
of credit totaled $2,464,649.

     During the second and third quarters of fiscal 2001, the Company received
advances from a related party totaling $565,000. The Company converted the
advances into one-year notes payable with interest at 12% per annum. Proceeds
from the notes were used for working capital. The notes, including interest of
$25,325, were paid on May 20, 2001.

     During the last quarter of fiscal 2001, the Company was able to obtain an
alternate financing source to supplement the funding requirements of its film
production schedule. On April 24, 2001 a limited partnership, Metro Media
Investors I, LP ("Media Investors") was formed with Metro International as its
General Partner. Media Investors was funded with $1,000,000 from its Limited
Partner. At May 26, 2001, the Company had received $500,000 in advances from
Media Investors to fund the production of specific titles. The remaining
available funds were advanced to the Company during the first quarter of fiscal
2002 to fund additional titles. Repayment of the advances is structured to
coincide with the anticipated cash flow stream from the specific titles being
produced. The Company is obligated to repay these advances over a period of
twelve months beginning in January 2002. In addition, a royalty will be paid to
Media Investors for the specific titles financed at the rate of $1.00 for each
DVD sold through June 2003 with monthly payments beginning January 2003 and
ending February 2004. The royalty payment is guaranteed to yield a minimum
return of 15% per annum to the Limited Partner.

                                       17
<PAGE>

     As discussed above, the Company is experiencing cash flow problems and
factors exist that create an uncertainty regarding the Company's ability to
continue as a going concern. The Company's credit facility under the
above-described Loan and Security Agreement with Reservoir Capital Corporation
is renewable on an annual basis with the next renewal due in November 2001. The
Company is also exploring additional sources of short term borrowing, but has no
commitments, understandings or agreements and there can be no assurance that
such additional financing will be available. If the Company lost, or sustained
additional reductions to, its existing credit line financing with Reservoir
Capital Corporation and was unable to replace it with suitable alternative
capital sources, there would be a materially adverse effect on its contemplated
production of new films and videos and, potentially, its financial condition. As
discussed in Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters, the Company's Common Stock was delisted from the NASDAQ
Small Cap Market on December 7, 1999. The light and sporadic trading volume of
the Company's Common Stock on the "pink sheets" materially and adversely affects
the Company's ability to raise capital through new issuances of equity or
convertible securities.

Forward Looking Statements

     This Form 10-KSB Report contains "forward-looking statements," including
statements in "Management's Discussion and Analysis or Plan of Operation," as to
expectations, beliefs, plans, objectives and future financial performance, and
assumptions underlying or concerning the foregoing. Such forward-looking
statements involve risks and uncertainties, which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. Among factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements would be the
Company's failure to obtain additional sources of financing, as discussed above;
government actions or initiatives, such as attempts to limit or otherwise
regulate the sale of adult-oriented materials, including print, video and online
materials; nonpayment or materially late payment by Metro Global's largest
customer, CVC, or a material decline or interruption in sales to CVC; possible
legal action on present or future overdue obligations, such as the
above-described default on $450,000 in aggregate payments due in October, 2000
through June, 2001.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
--------------------------------------------------

     The consolidated financial statements and supplemental data of Metro Global
and the report of independent auditors thereon set forth at pages F-1 through
F-25 herein are incorporated herein by reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------

     As reported in the Company's Current Report on Form 8-K, dated June 28,
1999, on June 22, 1999, the Company's accounting firm at that time, Grant
Thornton, LLP resigned and, as reported in the Company's Current Report on Form
8-K, dated July 20, 1999, on July 16, 1999 the Company appointed the accounting
firm of Imowitz Koenig & Co., LLP as independent accountants for fiscal 1999.
There have been no disagreements on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure with
the Company's previous accountants.

PART III
--------

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
--------------------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------

     The following table sets forth all of the current directors and executive
officers of the Company, their ages and the offices they hold with the Company
as of October 23, 2001. Executive officers and employees serve at the discretion
of the Board of Directors. All directors hold office until the next annual
meeting of stockholders of the Company and until their successors have been duly
elected and qualified.

Name                   Age     Position
----                   ---     --------

Gregory N. Alves       34      President and Director

Alan S. Casale         52      Director

Louis T. Turcotte      53      Chief Financial Officer, Treasurer, Secretary and
                               Director

                                       18
<PAGE>

     Gregory N. Alves is currently the President of Metro Global. Mr. Alves
joined Metro Global in March 1998 as Vice-President and General Manager of West
Coast operations. From 1996 until joining Metro Global, Mr. Alves served as
general manager of Elegant Angel, a competitor of Metro. Prior to this, Mr.
Alves owned VG Video, located in San Diego. Mr. Alves has extensive experience
in the production, promotion and marketing aspects of the industry. Mr. Alves
possesses an ownership interest in a production company employed by Metro
Global, which received payments of approximately $120,000 and $110,000 from
Metro Global during fiscal 2001 and 2000, respectively. Mr. Alves received his
Bachelor's degree in Business Administration from National University. Mr. Alves
was appointed to the Board of Directors in September 1999.

     Alan S. Casale has been a principal in the accounting firm of Casale,
Caliri, and Jeroma since its inception in 1996. Prior to 1996, Mr. Casale was a
principal in the accounting firm of Cardello, Riccitelli & Casale, which he
joined in 1987. Cardello, Riccitelli & Casale were the auditors of record of
Metro Global from December 1992 to February 1993, and audited the financial
statements of the Company for the years ended May 31, 1992, and May 31, 1991.
Mr. Casale, who specializes in taxation, valuation and litigation services, has
over 25 years of experience in both the private and public sectors. Mr. Casale,
a certified public accountant, received both his Bachelor of Science and Master
of Taxation degrees from Bryant College. Mr. Casale is a member of both the
American Institute and Rhode Island Society of Certified Public Accountants. Mr.
Casale was appointed a Director of Metro Global in 1995.

     Louis T. Turcotte was elected Chief Financial Officer, Treasurer and
Secretary of Metro Global and appointed to its Board of Directors in December
2000. From September 1998 until December 2000, Mr. Turcotte was the Chief
Financial Officer and Treasurer of Capital Video Corporation which operates a
chain of retail stores and is wholly-owned by Kenneth Guarino, a principal
shareholder of Metro Global. Mr. Turcotte has over 30 years experience in both
the public and private sectors and has held various financial executive
positions. Mr. Turcotte has been a certified public accountant since 1972 and is
a member of the American Institute and Rhode Island Society of Certified Public
Accountants. Mr. Turcotte received his undergraduate degree from Boston College
and a Masters Degree in Accounting from Northeastern University,

     In addition to the directors and executive officers listed above, Dennis
Nichols is expected to make a significant contribution to the business of the
Company and its subsidiaries. Dennis Nichols, 52, has served as President and
sole Director of Metro, Inc. since its inception in 1990. From March 1992 to
November 1994, Mr. Nichols served as President, Treasurer, Secretary and
Director of Capital Video Corporation, which operates a chain of retail video
stores in the northeastern United States and is wholly owned by Kenneth Guarino
who is also the principal shareholder of the Company.

     No director or executive officer serves pursuant to any arrangement or
understanding between him and any other person(s), other than arrangements or
understandings with directors and officers acting solely in their capacity as
such. There are no family relationships among directors and executive officers
of the Company.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater then 10% stockholders are required by the Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file.

     Based solely on a review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that, during fiscal 2001, all Section 16(a) filing requirements were
complied with in regards to its officers, directors and greater than 10%
beneficial owners except that: (1) Briana Investment Group, LLP, Kenneth Guarino
and Alan Casale are late in filing Form 5 statements with respect to the fiscal
year ended May 26, 2001 and (2) Gregory Alves and Louis Turcotte are late in
filing their initial statements of beneficial ownership on Form 3.

                                       19
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION
-------------------------------

     The following table summarizes all compensation paid to the person who
served as President of Metro Global during the fiscal year ended May 26, 2001
(the "Named Executive Officer"). No other executive officer earned compensation
and bonus exceeding $100,000 during the fiscal year ended May 26, 2001.

<TABLE>
<CAPTION>
                               Annual Compensation      Long Term Compensation
-------------------------------------------------------------------------------------------------------------------

Name and Principal                                      Other                   Securities                   All
Position                 Fiscal                         Annual                  Underlying                   Other
                          Year      Salary     Bonus     Comp.       Awards      Options        Payouts      Comp.
-------------------------------------------------------------------------------------------------------------------
<S>                      <C>       <C>         <C>     <C>          <C>         <C>            <C>           <C>
Gregory N. Alves
President (1)             2001      $75,000      -         -           -           -               -            -
                          2000      $75,000      -         -           -           -               -            -
                          1999      $75,000      -         -           -           -               -            -
-------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  Mr. Alves owns a production company employed by the Company, which received
     payments of $120,000 and $110,000 from the Company during fiscal 2001 and
     2000, respectively. See "Item 12. Certain Relationships and Related
     Transactions."

OPTIONS GRANTED IN LAST FISCAL YEAR

    The Company did not grant stock options to the Named Executive Officer
during the fiscal year ended May 26, 2001.

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUE OF UNEXERCISED
OPTIONS

    The Named Executive Officer did not exercise any options for stock of the
Company during the fiscal year ended May 26, 2001. The following table sets
forth information related to the Named Executive Officer with respect to the
unexercised options held by him as of the end of the fiscal year ended May 26,
2001.

            Aggregated Options/SAR Exercises in Last Fiscal Year and
                       Fiscal Year-End Option/SAR Values

<TABLE>
<CAPTION>
                                                                       Number of             Value of Unexercised
                                                                 Securities Underlying     In-the-Money Options/SARs
                                                                Unexercised Options/SARs          at FY-End
                                                                       at FY-End
                                                                      Exercisable/               Exercisable/
                          Shares Acquired on        Value            Unexercisable              Unexercisable
                               exercise           Realized
          Name                    (#)                ($)
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>                      <C>           <C>                        <C>

          None                    -0-                -0-                  -0-                         -0-

----------------------------------------------------------------------------------------------------------------------
</TABLE>

COMPENSATION OF DIRECTORS

     The Company does not currently pay or intend to pay compensation to its
directors for their services in that capacity; however, directors who are not
employees are reimbursed for out-of-pocket expenses incurred in connection with
their attendance at Board of Directors or committee meetings.

                                       20
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

     The following table sets forth certain information regarding the Company's
Common Stock beneficially owned as of October 19, 2001 (i) by each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock and (ii) by each of the Company's directors, Named Executive Officer and
by all executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                 NO. OF SHARES OF COMMON                PERCENTAGE OF BENEFICIAL
NAME AND ADDRESS                                 STOCK BENEFICIALLY OWNED                     OWNERSHIP (1)
--------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                                    <C>
NAMED EXECUTIVE OFFICERS
AND DIRECTORS
--------------------------------------------------------------------------------------------------------------------
Louis T. Turcotte                                          -0-
113 Lucy Lane                                                                                       *
Somerset, MA  02726
--------------------------------------------------------------------------------------------------------------------
Alan S. Casale
1140 Reservoir Avenue                                     1,220                (2)                  *
Cranston, RI  02920
--------------------------------------------------------------------------------------------------------------------
Gregory N. Alves                                         838,180               (3)                8.94
5150 Avenida Hacienda
Tarzana, CA  91356
--------------------------------------------------------------------------------------------------------------------
All executive officers
and directors as a
group (5 people)                                         839,400                                  8.95
--------------------------------------------------------------------------------------------------------------------

5% Beneficial Owners

--------------------------------------------------------------------------------------------------------------------
Briana Investment Group, LP
c/o Helen Adderley, Esquire                             1,745,318                                 18.61
Corner House
20 Parliament Street
Hamilton HM DX, Bermuda
--------------------------------------------------------------------------------------------------------------------
Kenneth F. Guarino                                      2,219,401              (4)                23.66
50 Fort Avenue
Cranston, RI  02905
--------------------------------------------------------------------------------------------------------------------
Metro Plus
1060 Park Avenue                                         186,758                                  2.00
Cranston, RI 02910
--------------------------------------------------------------------------------------------------------------------
</TABLE>

     *Beneficial ownership represents less than 1% of the Company's outstanding
Common Stock.

(1)  Beneficial ownership is determined in accordance with rules of the
     Securities and Exchange Commission, and includes generally voting power
     and/or investment power with respect to securities. Shares of Common Stock
     which may be acquired upon exercise or conversion of warrants or Preferred
     Stock which are currently exercisable or exercisable within 60 days of
     October 19, 1999, are deemed outstanding for computing the beneficial
     ownership percentage of the person holding such securities but are not
     deemed outstanding for computing the beneficial ownership percentage of any
     other person. Except as indicated by footnote, to the knowledge of Metro
     Global, the persons named in the table above have the sole voting and
     investment power with respect to all shares of Common Stock shown as
     beneficially owned by them.

(2)  Includes 600 unexercised stock options.

(3)  Includes 835,780 shares held by Mr. Alves' mother, with respect to which he
     disclaims beneficial ownership.

(4)  Includes 1,345,318 shares held by Briana Investment Group, LP, a trust
     established for the benefit of Mr. Guarino's spouse and children, and he
     has no investment and voting power with respect to these shares, and
     186,758 shares held by Metro Plus, a company partially owned by Kenneth
     Guarino.

                                       21
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

     CVC, which is wholly owned by Kenneth Guarino, the principal shareholder of
the Company, operates 41 retail locations either directly or through management
contracts with related parties. The locations, which are primarily located in
the Northeast, accounted for $10,036,916 (40%) and $11,494,896 (41%) of the
Company's revenues for the fiscal years ended May 26, 2001 and May 27, 2000,
respectively. The accounts receivable balances of CVC and related parties
accounted for $3,545,765 (56%) of the Company's total accounts receivable at May
26, 2001 as compared to $2,440,548 (45%) at May 27, 2000. Payment of CVC's
accounts receivable is secured by CVC's inventory, which security interest is
evidenced by that certain security agreement dated September 1993. The aging of
the accounts receivable from CVC and related parties is as follows:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                        Total          Current       30-60 days     60-90 days     Over 90 days
--------------------------------------------------------------------------------------------------------
<S>                 <C>             <C>             <C>             <C>             <C>
May 26, 2001        $  3,545,765    $ 1,158,617     $  827,729      $  806,316      $  753,103
--------------------------------------------------------------------------------------------------------

May 27, 2000        $  2,440,548    $ 1,009,961     $  991,775      $  438,812      $        0
--------------------------------------------------------------------------------------------------------
</TABLE>

     While in the past, the Company did not allow CVC's receivables to age
beyond 90 days, the Company's management has determined that temporarily
granting CVC, its principal customer, extended payment terms (as described in
Item 6. Management's Discussion and Analysis or Plan of Operations - Liquidity
and Capital Resources) is reasonable and in the best interests of the Company
because of the volume of business CVC has historically provided to the Company,
and the value of the inventory securing the payment of the accounts receivable.
At October 23, 2001, accounts receivable from CVC and related parties totaled
$2,990,277.

     Prior to December, 1999 CVC owned and operated five Airborne for Men
franchises. During fiscal 2000, the Company recorded $105,777 in royalty income
from CVC pursuant to a franchise agreement for the operation of the five
Airborne for Men stores. CVC owns the initial Amazing Superstore opened in May
1999 in Providence, Rhode Island. Effective December 31, 1999, the Airborne for
Men franchise agreements were terminated as CVC converted the Airborne for Men
stores into Amazing SuperStores.

     Effective May 1, 1993, the Company entered into a lease with Castle
Properties, L.L.C., an entity principally owned by Mr. Guarino's spouse, for an
approximately 64,000 square foot office, warehouse and shipping complex located
in Cranston, Rhode Island. This facility houses the Company's executive,
administrative, editorial and operational offices, the data center, customer
service, distribution and fulfillment facilities. The lease is for a term of ten
years with two five-year renewal options, and provides for a fixed annual rent
of $245,200 for the first five years, triple net. The annual rent for lease
years six through ten and the rent for the renewal terms, if the lease is
extended, shall be increased based on the consumer price index. In fiscal 1998,
the Company was granted a rent reduction of $81,733, which is being amortized
over the remaining term of the lease. Approximately 7,500 square feet of the
facility is sublet to CVC under an oral, month-to-month lease agreement for
$4,000 per month.

     The Company pays property taxes, in lieu of rent, on office space located
at 1060 Park Avenue, Cranston, Rhode Island. This property is being leased by
CVC from Centurion Financial Group, L.L.C., a company principally owned by a
trust, the principal beneficiaries of which are Mr. Guarino's children. For the
years ended May 26, 2001 and May 27, 2000, the Company incurred approximately
$5,553 and $13,493 of expense, respectively.

     On March 23, 1998, the Company entered into two 12% convertible debentures
totaling $500,000 with related parties. Both notes were due on March 23, 1999,
in either cash or Common Stock, at a conversion rate of $2.25 per share.
Proceeds from the debentures were used for working capital. In March 1999, the
debentures' due dates, including accrued interest of $60,000 (which was added to
the notes principal), were extended until March 23, 2000. On December 31, 1999,
one of the debentures, including the accrued interest due under such debenture,
was converted into 847,778 restricted shares of the Company's Common Stock. The
second debenture and accrued interest was assumed by CVC and the accounts
receivable due from CVC was reduced accordingly.

                                       22
<PAGE>

     On July 1, 1998, the Company entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. The
Company recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature. Proceeds from the debenture were used for working capital.
On July 1, 1999, the debenture's due date was extended until July 1, 2001. In
conjunction with the extension, warrants were granted to purchase 50,000 shares
of the Company's Common Stock for $2.58 per share. The Company recorded interest
expense of $52,000 in connection with the issuance of the warrants. On December
31, 1999, the debenture and accrued interest were assumed by CVC and the
accounts receivable due from CVC was reduced accordingly.

     On August 1, 1998, the Company entered into notes payable totaling
$1,000,000 with related parties. The notes, which bear interest at 8%, were due
August 1, 1999. Proceeds from the notes were used in the acquisition of Fanzine.
In October 1998, the notes were reduced by $600,000 for the exercise of
warrants. On August 1, 1999, the notes' due dates were extended for one year. In
consideration of the extension, the interest rate increased from 8% to 10% and
warrants were issued to purchase up to 115,000 shares of Common Stock at a price
of $2.58, exercisable for a term of five years. The Company recognized interest
expense of $100,050 in connection with the issuance of the warrants. On December
31, 1999, one of the notes and accrued interest of $281,250 was converted into
781,250 shares of the Company's Common Stock. On December 31, 1999, the other
note and accrued interest totaling $183,250 was assumed by CVC and the accounts
receivable due from CVC was reduced accordingly.

     On March 19, 1999, the Company entered into a one-year consulting agreement
effective April 1, 1999 with Kenneth Guarino, pursuant to which the Company paid
Mr. Guarino a fee of $10,000 per month. In addition, the Company granted Mr.
Guarino options to purchase up to 100,000 shares of Common Stock at a price of
$2.00 per share, exercisable for a period of 5 years. On that date, the
Company's Common Stock was trading at $2.06 per share. During the year ended May
27, 2000, the Company recorded consulting expense of $106,667 in connection with
the issuance of the warrants and reimbursed Mr. Guarino for approximately
$82,000 of expenses incurred in connection with his activities for the Company.
The consulting agreement was terminated in October 1999. On February 12, 2001
the options were canceled. On May 14, 2001, $60,000 in consulting fees owed to
Mr. Guarino under the terms of the agreement were assumed by CVC and the
accounts receivable due from CVC was reduced accordingly.

     Dennis Nichols, President of Metro, Inc. received 100,000 shares of the
Company's Common Stock, valued at $43,000, during the year ended May 27, 2000.

     On May 14, 2001, CVC agreed to assume $321,599 in back rents and property
taxes due to Castle Properties, L.L.C. through May 2001. In addition, CVC agreed
to assume rents and property taxes due for the period June through September
2001 totaling $95,168. The accounts receivable due from CVC was reduced
accordingly.

     Greg Alves, a director and President of the Company, possesses an ownership
interest in a production company that is employed by the Company and its
subsidiaries. The production company received payments of $120,000 from the
Company during fiscal 2001 and $110,000 during fiscal 2000.

     Effective June 2000, the Company outsourced its human resource, benefit
administration and payroll processing functions to CVC. The Company was charged
a total of $57,915 by CVC for services provided during the year.

     During the second and third quarters of fiscal 2001, the Company received
advances from a related party totaling $565,000. The Company converted the
advances into one-year notes payable with interest at 12% per annum. Proceeds
from the notes were used for working capital. The notes, including interest of
$25,325, were paid on May 20, 2001.

     On September 17, 2001, the Company issued 750,000 restricted shares of its
Common Stock in payment of $100,000 in consulting services provided during the
year ended May 26, 2001. The services, which related to mail order, marketing
and general business consulting, were provided by the mother of Greg Alves,
President of Metro Global.

                                       23
<PAGE>

CONFLICTS OF INTEREST

     Of necessity, some inherent conflict of interest is involved whenever
officers, directors and others acting on behalf of the Company, supply services
or goods to the Company for compensation. Additional conflicts may arise in the
future when company officers, directors or significant shareholders are involved
in the management of any other company with which the Company transacts
business. For example, Kenneth Guarino, the principal shareholder of the
Company, is the sole owner of the Company's largest customer, CVC. Conflicts may
also arise with respect to opportunities, which come to the attention of such
persons. Conflicts may also arise with respect to the amount of time and effort
devoted to various outside businesses and opportunities.

     Many of the persons, who perform services as officers and directors to the
Company are actively involved in, or in the future may be involved in outside
businesses from which they derive income. Their business activities may include
management of business ventures, the purchase and sale of real estate or the
pursuit of other opportunities. It is expected that these persons will continue
their separate business activities in addition to their activities at the
Company.

     Although the Board of Directors believes that members of management will be
of great assistance to the Company in the fulfillment of its corporate mission,
some transactions may occur in which the Company and a member of management will
have conflicts in particular respects. Prospective investors are specifically
cautioned that such conflicts will occur as a routine matter in the operation of
the Company. However, it is intended that, in accordance with legal principles
applicable to corporations, the Company's action will be determined whenever
possible by a disinterested majority of the Board of Directors.

     It is the Company's policy that all transactions in which an officer,
director or 5% shareholder has a direct or indirect interest be on terms no less
favorable to the Company than the Company would grant to or obtain from an
independent third party in an arms-length transaction. Because a majority of the
Board of Directors is not affiliated with CVC, all transactions between the
Company and CVC have been, and all future transactions will be, approved and/or
ratified by a disinterested majority of the Board of Directors.

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     Exhibits marked with an asterisk are filed herewith. The remainder of the
exhibits have heretofore been filed with the Commission and are incorporated
herein by reference.

(A) EXHIBITS:

     2.1    Stock Purchase Agreement dated July 31, 1998 by and among Robert
            Maiello, Michael Levine, Philip P. Salvatore, Bart Senior and Metro
            Global Media, Inc. as filed with the Commission on August 15, 1998
            as Exhibit (1) on Form 8-K and incorporated herein by reference.

     2.2    Rescission and Purchase Agreement dated September 29, 1999 by and
            among Metro Global Media, Inc., Metro, Inc., Fanzine International,
            Inc., Goldtree Publishing, Inc., Robert Maiello, Philip P.
            Salvatore, Bart Senior and Michael Levine as filed with the
            Commission on October 4, 1999 as exhibit 2.1 on Form 8-K and
            incorporated herein by reference.

     2.3    Security Agreement dated September 29, 1999 between Fanzine
            International, Inc. and Metro Global Media, Inc. as filed with the
            Commission on October 4, 1999 as exhibit 2.2 on Form 8-K and
            incorporated herein by reference.

     2.4    Security Agreement dated September 29, 1999 between Fanzine
            International, Inc. and Metro Global Media, Inc. as filed with the
            Commission on October 4, 1999 as exhibit 2.3 on Form 8-K and
            incorporated herein by reference.

     2.5    Promissory Note dated September 29, 1999 from Robert Maiello,
            Michael Levine, Bart Senior and Philip P. Salvatore to Metro Global
            Media, Inc. as filed with the Commission on October 4, 1999 as
            exhibit 2.4 on Form 8-K and incorporated herein by reference.


                                       24
<PAGE>

     2.6    Promissory Note dated September 29, 1999 from Goldtree Publishing,
            Inc. to Metro Global Media, Inc. as filed with the Commission on
            October 4, 1999 as exhibit 2.5 on Form 8-K and incorporated herein
            by reference.

     2.7    Personal Guarantee of Michael Levine dated September 29, 1999 as
            filed with the Commission on October 4, 1999 as exhibit 2.6 on Form
            8-K and incorporated herein by reference.

     2.8    Personal Guarantee of Robert Maiello dated September 29, 1999 as
            filed with the Commission on October 4, 1999 as exhibit 2.7 on Form
            8-K and incorporated herein by reference.

     2.9    Personal Guarantee of Philip P. Salvatore dated September 29, 1999
            as filed with the Commission on October 4, 1999 as exhibit 2.8 on
            Form 8-K and incorporated herein by reference.

     2.10   Personal Guarantee of Bart Senior dated September 29, 1999 as filed
            with the Commission on October 4, 1999 as exhibit 2.9 on Form 8-K
            and incorporated herein by reference.

     3.1    Articles of Incorporation, as filed with the Commission on August
            23, 1988 as Exhibit 3.1 to the Registration Statement on Form S-18
            and incorporated herein by reference.

     3.2    Bylaws, as filed with the Commission on August 23, 1988 as Exhibit
            3.2 to the Registration Statement on Form S-18 and incorporated
            herein by reference.

     3.3    Articles of Amendment of Articles of Incorporation of the
            Registrant, as filed with the Commission on January 17, 1995 as
            Exhibit 3.3 to the Quarterly Report on Form10-QSB for the fiscal
            quarter ended November 30, 1994 and incorporated herein by
            reference.

     3.4    Amendment to Bylaws of the Registrant, as filed with the Commission
            on January 17, 1995 as Exhibit 3.4 to the Quarterly Report on Form
            10-QSB for the fiscal quarter ended November 30, 1994 and
            incorporated herein by reference.

     3.5    Articles of Amendment of Articles of Incorporation of the
            Registrant, as filed with the Commission on August 28, 1996as
            Exhibit 3.5 to the Form 10-KSB for the fiscal year ended May 30,
            1996 and incorporated herein by reference.

     10.1   Stock Option Agreement dated September 9, 1993 between the
            Registrant and Kenneth F. Guarino, as filed with the Commission on
            February 3, 1994 as Exhibit 10.2 to the Annual Report on Form 10-KSB
            for the fiscal year ended May 30, 1993 and incorporated herein by
            reference.

     10.2   Lease Agreement dated September 9, 1993 between Castle Properties,
            L.L.C. and Metro, Inc., as filed with the Commission on February 3,
            1994 as Exhibit 10.4 to the Annual Report on form 10-KSB for the
            fiscal year ended May 30, 1993 and incorporated herein by reference.

     10.3   Security Agreement dated September 24, 1993 between Metro, Inc. and
            Capital Video Corporation, as filed with the Commission on February
            3, 1994 as Exhibit 10.5 to the Annual Report on Form 10-KSB for the
            fiscal year ended May 30, 1993 and incorporated herein by reference.

     10.4   Form of Airborne For Men, Ltd. Franchise Agreement, filed as Exhibit
            10.15 to the Post-Effective Amendment No. 14 to the Registration
            Statement on Form SB- 2 and incorporated herein by reference.

     10.5   Promissory note of Metro, Inc. payable to the order of Kenneth F.
            Guarino dated as of May 24, 1995 in the principal amount of $63,393
            as filed with the Commission as Exhibit 10.13 to the Form 10-KSB for
            the fiscal year ended May 30, 1995 and incorporated herein by
            reference.

     10.6   Capital Stock Purchase Agreement dated as of November 30, 1995 by
            and between Airborne for Men, Ltd. and Capital Video Corporation, as
            filed with the Commission on December 10, 1995 as Exhibit 10.1 to
            Form 8-K and incorporated herein by reference.

                                       25
<PAGE>

     10.7   Debt Conversion Agreement between Capital Video Corporation and the
            Registrant, as filed with the Commission on December 11, 1995 as
            Exhibit 10.2 to the Form 8-K and incorporated herein by reference.

     10.8   Capital Stock Purchase Agreement dated as of January 31, 1996 by and
            between Airborne for Men, Ltd. and Capital Video Corporation as
            filed with the Commission on May 9, 1996 as Exhibit 10.1 to the
            Quarterly Report on Form 10-QSB for the fiscal quarter ended
            February 28, 1996 and incorporated herein by reference.

     10.9   Amendment to Capital Stock Purchase Agreement dated as of November
            30, 1996 by and between Airborne For Men, Ltd. and Capital Video
            Corporation, as filed with the Commission on August 28, 1996 as
            Exhibit 10.16 to the Form 10-KSB for the fiscal year ended May 30,
            1996 and incorporated herein by reference.

     10.10  Amendment Agreement dated as of December 31, 1995 between Kenneth
            Guarino and the Registrant, as filed with the Commission on August
            28, 1996 as Exhibit 10.17 to the Form 10-KSB for the fiscal year
            ended May 30, 1996 and incorporated herein by reference.

     10.11  Amendment to Stock Option Agreement dated January 16, 1997 by and
            between Kenneth F. Guarino and the Registrant, as filed with the
            Commission on April 15, 1997 as Exhibit 10.1 to the Quarterly Report
            on Form 10-QSB for the quarter ended March 1, 1997 and incorporated
            herein by reference.

     10.12  Indemnification Agreement dated December 3, 1996 by Kenneth F.
            Guarino in favor of Registrant as filed with the Commission on April
            15, 1997 as Exhibit 10.2 to the Quarterly Report on Form 10-QSB for
            the quarter ended March 1, 1997 and incorporated herein by
            reference.

     10.13  Termination Agreement dated April 10, 1997 between Capital Video
            Corporation, Elvira Famiglietti and Metro, Inc. as filed with the
            Commission on April 15, 1997 as Exhibit 10.3 to the Quarterly Report
            on Form 10-QSB for the quarter ended March 1, 1997 and incorporated
            herein by reference.

     10.14  Description of Directors Compensation Arrangement, as filed with the
            Commission on April 15, 1997 as Exhibit 10.4 to the Quarterly Report
            on Form 10-QSB for the quarter ended March 1, 1997 and incorporated
            herein by reference.

     10.15  Registration Rights Agreement dated May 8, 1997 between Briana
            Investment Group, Ltd. and the Registrant, as filed with the
            Commission on May 8, 1997 as Exhibit 10.1 to Form 8-K and
            incorporated herein by reference.

     10.16  Employment Agreement dated July 31, 1998 between Robert Maiello and
            Metro Global Media, Inc. as filed with the Commission on August 15,
            1998 as Exhibit (2) on Form 8-K and incorporated herein by
            reference.

     10.17  Employment Agreement dated July 31, 1998 between Michael Levine and
            Metro Global Media, Inc. as filed with the Commission on August 15,
            1998 as Exhibit (3) on Form 8-K and incorporated herein by
            reference.

     10.18  Employment Agreement dated July 31, 1998 between Philip P. Salvatore
            and Metro Global Media, Inc. as filed with the Commission on August
            15, 1998 as Exhibit (4) on Form 8-K and incorporated herein by
            reference.

     10.19  Employment Agreement dated July 31, 1998 between Bart Senior and
            Metro Global Media, Inc. as filed with the Commission on August 15,
            1998 as Exhibit (5) on Form 8-K and incorporated herein by
            reference.

     10.20  Consulting Agreement dated March 19, 1999 between Metro Global
            Media, Inc. and Kenneth F. Guarino.

     10.21  License Agreement dated July 21, 1999 between Colorado Satellite
            Broadcasting, Inc. and Metro Global Media, Inc. on behalf of itself
            and its wholly owned subsidiary, Metro, Inc.

                                       26
<PAGE>

     10.22  Amendment to No. 1 Business Consulting Agreement dated September 10,
            1999 between Metro Global Media, Inc. and Kenneth F. Guarino.

     10.23  Loan and Security Agreement dated September 30, 1999 by and between
            Metro Global Media,Inc., Metro, Inc. and Reservoir Capital
            Corporation.

     21     Subsidiaries of the Registrant:

                   Metro, Inc.
                   Metro West Studios, Inc.
                   Rocket Media Group, LLC
                   Airborne for Men, Ltd.
                   Metro International Distributors
                   Amazing Direct, Inc.
                   Amazing Media Group, Inc.
                   Fanzine International, Inc.

(B)  REPORTS ON FORM 8-K

     None.


                                       27
<PAGE>

S I G N A T U R E S

     Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused the report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                              METRO GLOBAL MEDIA, INC.

                                              By: /s/ Gregory N. Alves
                                                  --------------------
                                                  Gregory N. Alves, President

                                              Date: November 7, 2001

     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.


Signature                         Title                         Date
---------                         -----                         ----

/s/ Gregory N. Alves      President and Director                November 7, 2001
--------------------
Gregory N. Alves

/s/ Louis T. Turcotte     Chief Financial Officer, Treasurer
---------------------     (principal financial and accounting
Louis T. Turcotte         Officer), Secretary and Director      November 7, 2001


/S/ Alan S. Casale        Director                              November 7, 2001
------------------
Alan S. Casale


                                       28
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report                                 F-1

Consolidated Balance Sheet                                   F-2

Consolidated Statements of Operations                        F-4

Consolidated Statements of Shareholders' Equity              F-6

Consolidated Statements of Cash Flows                        F-7

Notes to Consolidated Financial Statements                   F-10 - F25


                                      F-0
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Metro Global Media, Inc. and Subsidiaries
Cranston, Rhode Island

We have audited the accompanying consolidated balance sheet of Metro Global
Media, Inc. and Subsidiaries (the "Company") as of May 26, 2001, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended May 26, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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 Metro Global Media,
Inc. and Subsidiaries as of May 26, 2001 and the results of their operations and
their cash flows for each of the years in the two-year period ended May 26,
2001, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company is in default on a note payable
and its line of credit, has significant outstanding tax liabilities which are
past due and is experiencing cash flow problems. The inability of the Company to
meet its obligations raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding these matters also are
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

                                                /s/ Imowitz Koenig & Co., LLP
                                                    Certified Public Accountants

New York, New York
August 3, 2001


                                      F-1
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 26, 2001
--------------------------------------------------------------------------------

                                     ASSETS
                                     ------



Current Assets
  Cash                                                         $        --
  Accounts receivable, less allowance for doubtful accounts
    of $274,200                                                  2,848,237
  Accounts receivable, related party                             3,545,765
  Investment in securities                                         806,406
  Inventory                                                      3,843,660
  Prepaid expenses and other current assets                        330,097
                                                               -----------
Total Current Assets                                            11,374,165


Motion pictures and other films at cost, less accumulated
  amortization of $13,424,575                                    4,799,452


Property and equipment at cost, less accumulated
  depreciation of $3,486,359                                     1,672,426

Other assets                                                       117,070
                                                               -----------
Total Assets                                                   $17,963,113
                                                               ===========



                 See Notes to Consolidated Financial Statements

                                       F-2

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
MAY 26, 2001
--------------------------------------------------------------------------------



                      LIABILITIES AND SHAREHOLDERS' EQUITY


Current Liabilities
  Current portion of capital lease obligations            $    229,679
  Short-term borrowings                                      3,583,213
  Accounts payable                                           3,781,119
  Accrued expenses                                           1,940,818
  Income taxes payable                                         451,318
                                                          ------------
Total Current Liabilities                                    9,986,147

Deferred revenue                                             3,533,612
Capital lease obligations, less current portion                 87,255
                                                          ------------
Total Liabilities                                           13,607,014
                                                          ------------


Commitments and contingencies

Shareholders' Equity
  Preferred stock, no par value, authorized 2,000,000
    shares; issued and outstanding, none
  Common stock, $.0001 par value; authorized 10,000,000
    shares; issued 8,828,465 shares and outstanding,
    8,630,223 shares                                               883
  Additional paid in capital                                16,790,535
  Accumulated deficit                                      (11,851,459)
  Accumulated other comprehensive loss                         (76,360)
                                                          ------------

                                                             4,863,599

  Less cost treasury stock (198,242 common shares)            (507,500)
                                                          ------------

  Total Shareholders' Equity                                 4,356,099
                                                          ------------

  Total Liabilities and Shareholders' Equity              $ 17,963,113
                                                          ============

                 See Notes to Consolidated Financial Statements

                                       F-3
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                    2001             2000
                                                                 ------------    ------------
<S>                                                              <C>             <C>
Revenues, including $10,036,916 and $11,494,896 to               $ 25,357,902    $ 27,789,050
  related parties in fiscal 2001 and 2000, respectively

Cost of revenue, including amortization of motion pictures and
  other films of $2,400,164 and $2,289,778, respectively           16,939,648      18,023,323

 Selling, general and administrative expenses, including
  related parties of $364,101 and $320,793, respectively            9,307,813      10,777,958
                                                                 ------------    ------------

                                                                     (889,559)     (1,012,231)

Other income and (expenses)
  Interest expense, including $25,325 and $232,523 to related
    parties in 2001 and 2000, respectively                           (921,576)     (1,093,912)
  Interest income                                                      51,586         195,320
  Other income                                                         86,919         143,475
  Loss on sale of securities                                         (532,189)           --
  Write-down of investment in securities                           (2,643,068            --
                                                                 ------------    ------------

Loss from continuing operations before income taxes                (4,849,887)     (1,767,348)
Income tax (expense) benefit                                         (313,401)        311,605
                                                                 ------------    ------------
Loss from continuing operations                                    (5,161,288)     (1,455,743)

Extraordinary gain on debt restructuring
  (net of taxes of $137,015)                                             --           200,460

Gain on sale of discontinued operations
  (net of taxes of $469,756)                                             --           687,279

Loss from discontinued operations
  (net of tax benefit of $6,767 and $241,220, respectively)            (9,739)       (352,919)
                                                                 ------------    ------------
Net loss                                                         $ (5,171,027)   $   (920,923)
                                                                 ============    ============

Comprehensive loss

Net loss                                                         $ (5,171,027)   $   (920,923)
Other comprehensive loss                                              (57,062)       (276,283)
                                                                 ------------    ------------
Net other comprehensive loss                                     $ (5,288,089)   $ (1,197,206)
                                                                 ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       F-4

<PAGE>


METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

                                               2001            2000
                                            ---------       ---------
Loss Per Share:

Loss from continuing operations:
  Basic and diluted                         $   (0.60)      $   (0.21)
Extraordinary gain on debt restructuring:
  Basic and diluted                         $      --       $    0.03
Gain on sale of discontinued operation:
  Basic and diluted                         $      --       $    0.10
Loss from discontinued operations:
  Basic and diluted                         $      --       $   (0.05)
Net loss:
  Basic and diluted                         $   (0.60)      $   (0.13)
Weighted average number of shares:
  Basic and diluted                         8,630,223       7,119,146







                 See Notes to Consolidated Financial Statements

                                       F-5

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                   SERIES A                                               ADDITIONAL
                                PREFERRED STOCK       COMMON STOCK        TREASURY         PAID-IN            ACCUMULATED
                               SHARES    AMOUNT      SHARES    AMOUNT      STOCK           CAPITAL              DEFICIT
                               ----------------- --------------------- --------------  ---------------      ----------------
<S>                            <C>      <C>      <C>          <C>      <C>             <C>                  <C>
Balance, May 29, 1999             -    $    -      6,542,198  $  654   $  (507,500)     $  15,456,612       $  (5,759,509)

Shares issued:
  As compensation                                    235,504      24                          141,354
  For services                                       250,000      25                          531,225
  Upon conversion of debt                          1,800,763     180                          753,940
Issuance of unexercised
  warrants                                                                                    361,347
Amortization of unearned
  compensation - stock
Unamortized cost of services                                                                 (597,294)
Net loss                                                                                                          (920,923)
Other comprehensive loss
                               ----------------- --------------------- --------------  ---------------      ----------------

Balance, May 27, 2000             -    $   -        8,828,465  $  883  $   (507,500)    $   16,647,184       $  (6,680,432)

Amortization of unearned
  compensation - stock
Unamortized cost of services                                                                   143,351
Net loss                                                                                                        (5,171,027)
Reclassification adjustment
  for investment in securities
Other comprehensive loss
                               ----------------- --------------------- --------------  ---------------       ---------------

Balance, May 26, 2001             -    $   -        8,828,465  $  883   $  (507,500)    $   16,790,535       $ (11,851,459)
                               ================= ===================== ==============  ===============       ===============

<CAPTION>
                                    OTHER
                                COMPREHENSIVE       UNEARNED
                                     LOSS         COMPENSATION           TOTAL
                               --------------     ------------      ------------
<S>                            <C>                  <C>               <C>
Balance, May 29, 1999          $      (6,765)      $ (360,217)       $ 8,823,275

Shares issued:
  As compensation                                                        141,378
  For services                                                           531,250
  Upon conversion of debt                                                754,120
Issuance of unexercised
  warrants                                                               361,347
Amortization of unearned
  compensation - stock                                 359,717           359,717
Unamortized cost of services                                            (597,294)
Net loss                                                                (920,923)
Other comprehensive loss             (276,283)                          (276,283)
                               --------------   --------------      ------------

Balance, May 27, 2000           $    (283,048)   $       (500)       $ 9,176,587

Amortization of unearned
  compensation - stock                                    500                500
Unamortized cost of services                                             143,351
Net loss                                                              (5,171,027)
Reclassification adjustment
  for investment in securities        263,750                            263,750
Other comprehensive loss              (57,062)                           (57,062)
                               --------------    -------------      ------------

Balance, May 26, 2001           $     (76,360)    $          -       $ 4,356,099
                               ==============    =============      ============
</TABLE>


                See Notes to Consolidated Financial Statements.

                                      F-6

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000


<TABLE>
<CAPTION>
                                                                   2001                       2000
                                                             -----------------          ---------------
<S>                                                          <C>                        <C>
Cash flows from operating activities:
     Net loss                                                $      (5,171,027)         $      (920,923)
                                                             -----------------          ---------------

Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Depreciation expense                                              636,148                  655,300
     Amortization of motion pictures and other films                 2,400,164                2,289,778
     Amortization of deferred rent                                     (14,011)                 (14,011)
     Amortization of unearned compensation                                 500                  359,717
     Amortization of goodwill                                              -                    145,624
     Amortization of deferred revenue                                 (683,925)                (569,937)
     Amortization of deferred expense                                  143,351                  119,458
     Amortization of discount on debenture                              13,142                   78,850
     Accrued interest added to note payable principal                      -                    273,000
     Gain on sale of Fanzine                                               -                   (453,385)
     Loss on sale of securities                                        532,189                      -
     Loss on write down of securities                                2,643,068                      -
     Allowance for doubtful accounts                                    68,465                  (31,345)
     Common stock issued for consulting services                           -                     98,378
     Common stock issued for compensation                                  -                     43,000
     Issuance of warrants                                                  -                    175,844
     Minority interest                                                  56,044                 (109,511)
     Foreign exchange                                                  (57,062)                 (12,533)
(Increase) decrease in assets:
     Accounts receivable                                            (1,030,862)                (336,749)
     Inventory                                                       1,065,230                 (804,810)
     Recoverable income tax                                            339,000                      -
     Prepaid expenses and other current assets                          34,928                   70,264
     Other assets                                                       31,986                  (30,341)
     Deferred income taxes                                             900,000                 (900,000)
Increase (decrease) in liabilities:
     Accounts payable and accrued expenses                            (662,588)               1,551,895
     Income taxes payable                                             (494,971)                 622,020
                                                             -----------------          ---------------

Total adjustments                                                    5,920,796                3,220,506
                                                             -----------------          ---------------

Net cash provided by operating activities                    $         749,769          $     2,299,583
                                                             -----------------          ---------------
</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-7
<PAGE>



METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                    2001                      2000
                                                             -----------------          ---------------
<S>                                                        <C>                        <C>
Cash flows from investing activities:

     Payments from notes receivable                          $       2,465,649          $     1,821,272
     Investments in motion pictures and other films                 (1,742,975)              (2,892,892)
     Purchase of property and equipment                               (183,150)                (384,745)
     Proceeds from sale of securities                                  805,811                       -
                                                             -----------------          ---------------

Net cash provided by (used in) investing activities                  1,345,335               (1,456,365)
                                                             -----------------          ---------------

Cash flows from financing activities:

     Net (payments on) proceeds from line of credit                   (496,240)               2,187,155
     Proceeds on notes payable                                       1,065,000                   30,000
     Payments on notes payable                                      (2,715,000)              (2,325,000)
     Principal payments on capital lease obligations                  (310,403)                (373,834)
                                                             -----------------          ---------------

Net cash used in financing activities                               (2,456,643)                (481,679)
                                                             -----------------          ---------------

Net (decrease) increase in cash                                       (361,539)                 361,539

Cash, beginning of year                                                361,539                       -
                                                             -----------------          ---------------
Cash, end of year                                            $              -           $       361,539
                                                             =================          ===============

Supplemental disclosures of cash flow information:

     Cash paid during the year for:
            Interest                                         $         504,458          $       474,360
                                                             =================          ===============
            Income taxes                                     $             -            $       240,000
                                                             =================          ===============

</TABLE>
                 See Notes to Consolidated Financial Statements


                                      F-8

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing activities:

     On July 21, 1999, Metro Global entered into a seven year Licensing
Agreement with New Frontier Media, Inc. Metro Global received 500,000 restricted
shares of New Frontier Common Stock plus warrants to purchase an additional
500,000 shares of New Frontier Common Stock (100,000 shares per year for five
years). Metro Global valued the common stock and warrants at $4,787,474. The
deferred revenue is being amortized over seven years.

     As part of the Licensing Agreement, in consideration of certain services,
Metro Global issued New Frontier 250,000 restricted shares of its Common Stock
and warrants to purchase 250,000 shares of Common Stock (50,000 shares per year
for five years). Metro Global valued the Common Stock and warrants at $716,752.
The deferred expense is being amortized over five years.

     On September 30, 1999, Metro Global sold Fanzine for a note receivable of
$4,500,000 and the return of 1,000,000 restricted shares of Metro Global's
Common Stock.

     Capital lease obligations of $411,799 were incurred during the year ended
May 27, 2000 when Metro Global entered into capitalized leases for office
equipment and machinery and equipment.

     During the year ended May 27, 2000, $105,000 of convertible debentures and
accrued interest and penalties of $31,045 were converted into 83,888 restricted
shares of Common Stock.

     During the year ended May 27, 2000, various notes payable to related
parties totaling $580,000 plus accrued interest of $38,075 were converted into
1,716,875 restricted shares of Common Stock.

     Various payables and debt due to related parties totaling $321,599 and
$966,231 during fiscal 2001 and 2000, respectively, were assumed by Capital
Video Corporation ("CVC"). The accounts receivable due from CVC was reduced
accordingly.


                 See Notes to Consolidated Financial Statements

                                       F-9
<PAGE>


METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

     Metro Global Media, Inc. ("Metro Global"), which was incorporated in
November 1987, produces and distributes, predominantly in the United States,
motion pictures and other entertainment products (including magazines, videos
and novelties) and related ancillary products to wholesalers and retailers
oriented to the adult entertainment market.

     On August 3, 1998, Metro Global purchased 100% of the outstanding stock of
Fanzine International, Inc. ("Fanzine"), a publishing company. On September 29,
1999, Metro Global sold Fanzine back to the former shareholders and a company
controlled by the former shareholders. Accordingly, Metro Global has accounted
for the Fanzine segment as discontinued operations (see note 17) in the
accompanying financial statements.

Year-end

     Beginning May 31, 1997, Metro Global changed its fiscal year end to a 4-4-5
week format, which results in Metro Global's year-end to be on the last Saturday
in May of each year.

Principles of Consolidation

     The consolidated financial statements include the accounts of Metro Global
and its majority-owned and controlled subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.

 Recognition of Revenues

    Revenue is recognized at the time Metro Global sells motion pictures and
other products to customers. Fees collected from motion pictures licensed as
television program material are recognized as revenue when the license period
begins and the licensee is able to exercise rights under the agreement. Revenue
is recognized over the life of the agreement.

    Sales of magazines and estimated sales returns are recorded when each issue
is shipped to the distributor.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates based on
management's knowledge and experience. Due to their prospective nature, it is
reasonable to expect actual results to differ from those estimates.

Inventory

     Inventory is valued at the lower of cost (first-in, first-out method) or
market and consists principally of motion picture films, magazines and novelty
items held for resale.

Foreign Currency Translation

     The financial statements of the subsidiary located outside the United
States is measured using the local currency as the functional currency. Metro
Global translates the assets and liabilities of its foreign subsidiary at the
exchange rate in effect at year-end. Net revenues and expenses are translated
using average exchange rates in effect during the year. Gains and losses from
foreign currency translation (which constitute other comprehensive income or
loss) are credited or charged to stockholders' equity in the accompanying
consolidated balance sheet. Transaction gains or losses are recorded in selling,
general and administrative expense and are not material.

     The implementation of the new common European currency, the euro, will not
have a material impact on Metro Global's financial statements.

                                      F-10
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

     The cost of property and equipment, including leasehold improvements, is
charged to operations over the estimated useful lives of the respective assets
using depreciation computed by the straight-line method ranging from five to ten
years. Amortization of assets held under capital leases is included in
depreciation expense. Maintenance and minor repairs and replacements are charged
directly to operations. Major renewals and improvements are capitalized. Costs
and accumulated depreciation applicable to assets sold are removed from the
accounts and any gain or loss on disposal is charged or credited to income.

Motion Picture and Other Films

     Motion picture films, including videocassettes, video libraries, video
rights, CD-ROMs and DVDs are reflected at the lower of amortized cost or net
realizable value. Estimated future revenues are periodically reviewed and,
revisions may be made to amortization rates or write-downs made to the film's
net realizable value as a result of significant changes in future revenue
estimates. Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs to complete and exploit in a manner
consistent with realization of that income. More than 70% of film costs are
expected to be amortized in the first three years commencing upon the release of
the respective motion picture films.

     The cost of motion picture films was charged to operations in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 53, Financial
Reporting by Producers and Distributors of Motion Picture Films. However, in
June 2000 the Financial Accounting Standards Board ("FASB"), issued SFAS No. 139
which rescinded SFAS No.53.

     In June 2000, Metro adopted Statement of Position 00-2, "Accounting by
Producers and Distributors of Films" ("SOP 00-2"). SOP 00-2 established new film
accounting standards, including changes in revenue recognition and accounting
for advertising, development and overhead costs. Specifically, SOP 00-2 requires
advertising costs for theatrical and television product to be expensed as
incurred. In addition, SOP 00-2 requires development costs for abandoned
projects and certain indirect overhead costs to be charged directly to expense,
instead of those costs being capitalized to film costs, which was required under
the previous accounting model. SOP 00-2 also requires all film costs to be
classified in the balance sheet as noncurrent assets. Provisions of SOP 00-2 in
other areas, such as revenue recognition, generally are consistent with Metro's
existing accounting policies. The effect of SOP 00-2 was immaterial to the
financial statements.

Earnings per Share

     Basic earnings (loss) per share are computed by dividing net income (loss)
attributable to common stockholders (net income (loss) reduced (increased) by
preferred stock dividends) divided by the weighted average number of shares
outstanding during the year. Diluted earnings per share is consistent with basic
earnings per share while giving effect to all dilutive potential common shares
that would have been outstanding if the dilutive potential common shares had
been issued, while adding back to income any preferred dividend or interest
expense on convertible securities; however, such calculations are ignored if
they are antidilutive.

Deferred Income Taxes

     Metro Global follows Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". This statement requires a liability approach for
measuring deferred taxes based on temporary differences between the financial
statement and tax bases of assets and liabilities existing at each balance sheet
date using enacted tax rates for years which taxes are expected to be paid or
recovered.

Goodwill and Acquisition Costs

     Goodwill and acquisition costs were being amortized on a straight-line
basis over ten years. Amortization expense amounted to $133,333 for goodwill and
$12,295 for acquisition costs for the year ended May 27, 2000. The write-off of
goodwill was taken into account in determining the gain on sale of Fanzine (see
notes 3 and 18).

                                      F-11
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Comprehensive Income (loss)

     Comprehensive income (loss) includes net earnings and unrealized gains and
losses from foreign currency translation adjustments and reserves for the
valuation of available for sale marketable securities. Comprehensive loss for
the year ended May 26, 2001 consisted of a charge of $(57,062) for foreign
currency translation adjustments. The components of comprehensive loss for the
year ended May 27, 2000 consisted of charges of $(12,533) for foreign currency
translation adjustments and $(263,750) for market valuation of the investment in
securities. The accumulated comprehensive loss related to foreign currency
translation adjustments totaled $(76,360) and $(19,298) at May 26, 2001 and May
27, 2000, respectively. During fiscal 2001, the accumulated comprehensive losses
of $(1,137,000) related to the market valuation of the investment in securities
was reclassified to reflect the charge made to current operations for the write
down of the securities to market value.

Advertising Costs

     The cost of advertising is expensed as incurred. For the years ended May
26, 2001 and May 27, 2000, Metro incurred advertising expense of $184,534 and
$237,264, respectively.

Technology and Content

     Technology and content expenses consist principally of payroll and related
expenses for development, editorial, systems and telecommunication operations
personnel and consultants, system and telecommunications infrastructure and
costs of acquired content.

     Technology and content costs are generally expensed as incurred, except for
certain costs relating to the development of internal-use software, including
those relating to Metro's web sites, which are capitalized and depreciated over
estimated useful lives.

New Accounting Pronouncements

     The FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No. 133." The
Statement deferred for one year the effective date of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The Statement requires
companies to recognize all derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether they qualify for hedge accounting. This Statement was
effective for fiscal years beginning after June 15, 2000. There was no effect
from SFAS No. 133 on Metro Global's financial statements.

     In July 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS
No. 141 requires that all business combinations be accounted for under the
purchase method of accounting. SFAS No. 141 also changes the criteria for the
separate recognition of intangible assets acquired in a business combination.
SFAS No. 141 is effective for all business combinations initiated after June 30,
2001. Metro Global does not anticipate that SFAS No. 141 will have a material
effect on its financial statements.

     In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses accounting and reporting for intangible assets
acquired, except for those acquired in a business combination. SFAS No. 142
presumes that goodwill and certain intangible assets have indefinite useful
lives. Accordingly, goodwill and certain intangibles will not be amortized but
rather will be tested at least annually for impairment. SFAS No. 142 also
addresses accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Metro Global does not anticipate that SFAS
No. 142 will have a material effect on its financial statements.

                                      F-12

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

2. GOING CONCERN

     The accompanying consolidated financial statements of Metro Global reflect
net losses of $5,171,027 and $920,923 during the years ended May 26, 2001 and
May 27, 2000, respectively. Metro Global is currently experiencing cash flow
problems and is in default under a note payable and its line of credit. Metro
Global also has a significant unpaid tax liability for the year ended May 27,
2000. Metro Global's accounts receivable balance from a related party, Capital
Video Corporation ("CVC") was approximately $3,500,000 at May 26, 2001, of which
approximately $750,000 was over 90 days. Metro Global's line of credit, which is
in default, expires in November 2001, and has not yet been renewed. Metro Global
has not yet obtained replacement financing. These factors create an uncertainty
about Metro Global's ability to continue as a going concern. Management of Metro
Global has developed a business plan that includes a reduction in product costs,
improved inventory control, and personnel restructuring. In addition, management
plans selected price increases and business development. Metro Global plans to
improve its cash flow through a reduction of related party accounts receivable
over a 36 week period. The ability of Metro Global to continue as a going
concern is dependent on the success of these plans. The financial statements do
not include any adjustments that might be necessary if Metro Global is unable to
continue as a going concern.

3. ACQUISITIONS / DISPOSITIONS

Maxstone Media

     In August 1997, Rocket Media Group, LLC, ("Rocket") a wholly owned
subsidiary of Metro entered into a joint venture with Salmill Enterprises, Inc.
("Salmill") for the purpose of magazine publishing. Under the terms of the
agreement, Rocket contributed a sub-license agreement for the rights to certain
titles, names and materials and Salmill contributed its publishing and
circulation expertise into a newly formed entity Maxstone Media, LLC
("Maxstone"). Each joint venture partner contributed $30,000. Metro Global,
which effectively controlled Maxstone, phased out the Maxstone operation during
the end of fiscal 2000 and the beginning of fiscal 2001 and accordingly has
accounted for Maxstone as discontinued operations in the accompanying financial
statements (see Note 18).

Fanzine International, Inc.

     On August 3, 1998, Metro Global acquired 100% of the stock of Fanzine
International, Inc. ("Fanzine") for a cash purchase price of $4,000,000, plus
contingent consideration. The contingent consideration consisted of 1,000,000
restricted shares of Metro Global's Common Stock with put option rights at $8.00
per share to be exercised by the selling shareholders during the second year on
a quarterly basis, if certain minimum earnings, as defined, were met. Because
such minimum earning targets were never met, the contingent shares are not
included in the financial STATEMENTS. The acquisition was accounted for as a
purchase. The excess of the purchase price over the fair market values of net
assets acquired, which included, among others, licenses, trademarks, and
distribution rights, was allocated to goodwill and amortized over ten years. The
cash portion of $4,000,000 was financed by a long-term convertible debenture and
other short-term borrowings.

     On September 29, 1999, Metro Global signed a Rescission and Purchase
Agreement with the selling shareholders of Fanzine and a company controlled by
them. In consideration of this sale of Fanzine's stock, Metro Global received
payments totaling $4,500,000. Metro Global received payments of $2,500,000 and
$2,000,000 during fiscal 2001 and 2000, respectively. The operations of Fanzine
have been classified as discontinued operations in the accompanying financial
statements (see note 18).

                                      F-13
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at May 26, 2001:

     Machinery and equipment                       $2,419,028
     Furniture and fixtures                         1,141,961
     Office equipment                                 877,769
     Automobiles                                       98,932
     Leasehold improvements                           621,095
                                                   ----------
                                                    5,158,785

     Less: Accumulated depreciation                 3,486,359

     Total                                         $1,672,426
                                                   ==========



5. MOTION PICTURES AND OTHER FILMS

     Motion pictures and other films consist of the following at May 26, 2001:

     Motion picture films produced and released   $14,182,928
     Rights acquired to release motion pictures
       and other films                              2,187,854
     CD-ROM                                           471,478
     DVD                                              484,907
     Motion picture films in process                  896,860
                                                  -----------
                                                   18,224,027

     Less: Accumulated amortization                13,424,575

     Total                                        $ 4,799,452
                                                  ===========


6. INVESTMENT IN SECURITIES

     On July 21, 1999, Metro Global entered into a seven year Licensing
Agreement with New Frontier Media, Inc. ("New Frontier"). Metro Global received
500,000 restricted shares of New Frontier Common Stock plus warrants to purchase
an additional 500,000 shares of New Frontier Common Stock (100,000 shares per
year for five years). Metro Global valued the common stock and warrants at
$4,787,474. The deferred revenue is being amortized over seven years. Metro
accounts for the stock received as securities available for sale, in accordance
with SFAS 115. Both the stock and the warrants are periodically reviewed for
permanent impairment.

     As part of the Licensing Agreement, in consideration of certain services,
Metro Global issued New Frontier 250,000 restricted shares of its Common Stock
and warrants to purchase 250,000 shares of Common Stock (50,000 shares per year
for five years). Metro Global valued the Common Stock and warrants at $716,752.
The deferred expense is being amortized over five years.

     During fiscal 2001, Metro Global sold 200,000 shares of New Frontier Common
Stock for a total of $805,811 and recognized a loss of $532,189. At May 26,
2001, Metro Global wrote down $1,200,594 against the remaining investment of
300,000 shares and $1,442,474 against the warrants due to an other than
temporary decline in market valuation.

                                      F-14
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
7. DEBT

     On August 1, 1998, Metro Global entered into notes payable totaling
$1,000,000 with related parties. The notes, which bore interest at 8%, were due
August 1, 1999. Proceeds from the notes were used in the acquisition of Fanzine.
In October 1998, $600,000 of debt was converted into 400,000 shares of Metro
Global's Common Stock. On August 1, 1999, the balance of the notes' due dates
were extended for one year. In consideration of the extension, the interest rate
increased from 8% to 10% and warrants were issued to purchase up to 115,000
shares of Common Stock at a price of $2.58, exercisable for a term of five
years. Metro Global recorded interest expense of $100,050 in connection with the
issuance of the warrants. On December 31, 1999, one of the notes and accrued
interest of $281,250 was converted into 781,250 shares of Metro Global's Common
Stock. On December 31, 1999, the other note and accrued interest totaling
$183,250 was assumed by CVC and the accounts receivable due from CVC was reduced
accordingly.

     On October 28, 1998, Metro Global entered into a note payable with an
unrelated third party for $1,100,000. The note, which bears no interest, was due
in quarterly installments of $275,000 commencing December 31, 1998. In
consideration of the loan and part of an investment banking consultant
agreement, Metro Global issued the lender 150,000 restricted shares of Metro
Global's Common Stock. Metro Global used $507,500 of the proceeds to repurchase
198,242 shares of its outstanding Common Stock from Metro Plus, a company owned
by a significant shareholder. For the year ended May 29, 1999, Metro Global made
one payment of $275,000. In September 1999, Metro Global and the lender agreed
to a preliminary extension of the note. Metro Global made a payment of $275,000
in October 1999. Effective August 8, 2000, Metro Global, renegotiated the terms
for the final $550,000 due on the note payable. Under the terms of the
Forbearance and Modification agreement, Metro Global was to make monthly
payments of $50,000. Payments on the note have been in default since October
2000 and the loan balance of $450,000 bears interest at the default rate of 11%
per annum. As of May 26, 2001, the balance due on the note payable, including
accrued interest was $480,242.

     On December 9, 1998, Metro Global entered into a six-month term loan
agreement with an unrelated third party. Under the terms of the agreement, Metro
Global borrowed $3,000,000 at an interest rate of 10% per year. The proceeds
were used toward the acquisition of Fanzine and to fund working capital. In
connection with this transaction, Metro Global issued warrants to purchase up to
350,000 shares of Common Stock at a price of $3.00, expiring on December 31,
2001. Metro Global recorded interest expense of $577,000 in connection with the
issuance of the warrants during 1999. Additionally, Metro Global issued 100,000
shares of Common Stock and recorded $187,500 of interest expense relating to the
issuance of these shares during 1999. In September 1999, Metro Global and the
lender agreed to an extension. Under the terms of the extension, Metro Global
paid $1.3 million upon the closing of the financing with Reservoir Capital
Corporation, a new unrelated third party lender. In November 1999, Metro Global
paid the lender an additional $600,000 from the proceeds of the sale of Fanzine.
The final payment of $1.2 million (which included $100,000 of interest) was paid
directly from the proceeds of the final payment from the sale of Fanzine, which
was received on September 13, 2000. In connection with the restructuring of the
two notes payable, Metro Global recognized $337,475 of extraordinary income on
the forgiveness of interest and penalties in fiscal 2000.

     On June 30, 1999, Metro Global entered into a one-year note payable at an
interest rate of 10% with a related party for $30,000. Proceeds from the note
were used for working capital. On December 31, 1999, the note payable and
accrued interest was converted into 87,847 restricted shares of Metro Global's
Common Stock.

     During the last quarter of fiscal 2001, Metro Global was able to obtain an
alternate financing source to supplement the funding requirements of its film
production schedule. On April 24, 2001 a limited partnership, Metro Media
Investors I, LP ("Media Investors") was formed with Metro International, Metro
Global's foreign subsidiary, as its General Partner. Media Investors was funded
with $1,000,000 from its Limited partner. At May 26, 2001, Metro Global had
received $500,000 in advances from Media Investors to fund the production of
specific titles. The remaining available funds were advanced to Metro Global
during the first quarter of fiscal 2002 to fund additional titles. Repayment of
the advances is structured to coincide with the cash flow stream generated from
the specific titles being produced. The advances will be repaid over a period of
twelve months beginning in

                                      F-15
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

7. DEBT (CONTINUED)

January 2002. In addition, a royalty will be paid to Media Investors for the
specific titles financed at the rate of $1.00 for each DVD sold through June
2003 with monthly payments beginning January 2003 and ending February 2004. The
royalty payment is guaranteed to yield a minimum of 15% per annum to the Limited
Partner.

     During the second and third quarters of fiscal 2001, Metro Global received
advances from a related party totaling $565,000. Metro Global converted the
advances into one-year notes payable with interest at 12% per annum. Proceeds
from the notes were used for working capital. The notes, including interest of
$25,325, were paid on May 20, 2001.

Capital Lease Obligations

     Metro Global leases office equipment, machinery and equipment, and
furniture and fixtures under noncancellable capital leases. The leases expire at
various times through 2005 and bear interest at annual rates ranging from
approximately 10% to 21%. The respective assets acquired secure all leases.

     The following is a schedule of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments:

     Years ended                                            Amount
     -----------                                            ------

        2002                                               $247,598
        2003                                                 77,890
        2004                                                 10,435
        2005                                                  4,724
                                                           --------
      Total minimum lease payments                          340,647
      Less:  Amount representing interest                   (23,712)
                                                           --------
      Present value of net minimum lease payments          $316,935

8.  CONVERTIBLE DEBENTURES

     On July 31, 1998, Metro Global entered into an 8% convertible debenture
with an unrelated party in the amount of $1,000,000, which was used in the
purchase of Fanzine. In connection with this transaction, Metro Global issued a
warrant for 75,000 shares at a price of $4.11 and a warrant for 25,000 shares at
a price of $3.29, both exercisable over two years, which expired on July 31,
2000. Metro Global recorded a discount on the debenture of $157,700 for the
value of the warrants. Metro Global amortized $13,142 and $78,850 of the
discount to interest expense during fiscal 2001 and 2000, respectively.

     The $1,000,000 debenture was to mature on July 31, 2000. Interest was
payable on a quarterly basis. The holder of the debenture was entitled to
convert the principal value into Metro Global's Common Stock at a discounted
market price as defined in the debenture agreement. During fiscal 2000, $105,000
of convertible debentures plus accrued interest and penalties were converted
into 83,888 restricted shares of Metro Global's Common Stock. On February 25,
2000, Metro Global entered into a Forbearance and Modification Agreement with
the lender. Under the terms of the agreement, Metro Global made a payment of
$150,000 upon execution of the agreement. The remaining balance of $850,000 was
secured by the pledge of 200,000 shares of New Frontier Common Stock owned by
Metro Global. This balance was paid in two equal installments in July and
October 2000, and the 200,000 shares of New Frontier Common Stock were returned
to Metro Global.

                                      F-16

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
8. CONVERTIBLE DEBENTURES (CONTINUED)

     On March 23, 1998, Metro Global entered into two 12% convertible debentures
totaling $500,000 with related parties. Both notes were due on March 23, 1999,
in either cash or Common Stock, at a conversion rate of $2.25 per share.
Proceeds from the debentures were used for working capital. In March 1999, the
debentures, including accrued interest of $60,000 (which was added to the note
principal), were extended until March 23, 2000. On December 31, 1999, one of the
debentures, including the accrued interest due under such debenture, was
converted into 847,778 restricted shares of Metro Global's Common Stock. The
second debenture and accrued interest was assumed by CVC and the accounts
receivable due from CVC was reduced accordingly.

     On July 1, 1998, Metro Global entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. Metro
Global recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature in fiscal 1999. Proceeds from the debenture were used for
working capital. On July 1, 1999, the debenture's due date was extended until
July 1, 2001. In conjunction with the extension, warrants were granted to
purchase 50,000 shares of Metro Global's Common Stock for $2.58 per share. Metro
Global recorded interest expense of $52,000 in connection with the issuance of
the warrants in fiscal 2000. On December 31, 1999, the debenture and accrued
interest were assumed by CVC and the accounts receivable due from CVC was
reduced accordingly.

9. SHORT-TERM BORROWINGS

     In September 1999, Metro Global signed a $4,000,000 Loan and Security
Agreement with Reservoir Capital Corporation. Pursuant to the original terms of
the agreement, Metro could borrow up to 70% of accounts receivable less than
ninety day old, up to a maximum of $3,000,000. The accounts receivable borrowing
base excludes foreign receivables and receivables where more than 50% of the
balance is over ninety days old. Also, the borrowing base on accounts receivable
owed by CVC is limited to the lesser of 30% of total accounts receivable or
$1,600,000. Additionally, Metro could borrow 40% of inventory, up to a maximum
of $1,000,000. Metro must pay a service fee of .35% per month on the average
daily loan balance. Metro must pay an under utilization fee of .25% on the
amount of the borrowings under $2,000,000. The loan is secured by substantially
all of the assets of Metro. The CVC accounts receivable are guaranteed by the
sole shareholder of CVC, who is also a significant shareholder of Metro Global.
In addition, CVC has pledged its inventory to secure the loan. The loan was
renewed in November 2000.

     In January 2001, certain terms of the loan agreement were revised at the
demand of the lender. These revisions included a reduction of the borrowing base
on accounts receivable owed by CVC from $1,600,000 to $1,300,000 and a reduction
of the maximum inventory borrowings from $1,000,000 to $700,000. The reductions
were implemented on a pro rata monthly basis from January 2001 through June
2001. In addition, effective January 2001, the interest rate on borrowings
changed from prime plus 3.5% to prime plus 5.0% per annum. The loan agreement is
currently in default as a result of the Company's failure to comply with certain
financial ratio requirements. As of May 26, 2001 borrowings under the line of
credit totaled $2,633,213.

     The following schedule summarizes short-term borrowings as of May 26, 2001:

               Note payable (Note 7)                        $  450,000
               Production advances (Note 7)                    500,000
               Line of credit (Note 9)                       2,633,213
                                                            ----------
                                                            $3,583,213
                                                            ==========


                                      F-17

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

10. INCOME TAXES

     The provision (benefit) for income taxes consists of the following:

                                                         2001          2000
                                                         ----          ----
       Current provision (benefit)
           Federal                                 $  (778,098)    $  492,034
           State and local                             191,499         96,361
                                                   -----------     ----------
                                                      (586,599)       588,395
                                                   -----------     ----------
       Deferred provision (benefit)
           Federal                                     679,000       (679,000)
           State and local                             221,000       (221,000)
                                                   -----------     ----------
                                                       900,000       (900,000)
                                                   -----------     ----------

       Total                                       $   313,401     $ (311,605)
                                                   ===========     ==========

     The following table is a reconciliation of the income tax
     provision/(benefit) at the U.S. statutory rate to that in the financial
     statements:

                                                      2001              2000
                                                  -----------       ---------
     Tax benefit computed at 34%                  $(1,648,282)      $(600,898)
     Valuation allowance                            1,848,260         118,636
     Permanent differences                             36,040         121,837
     Other                                             77,383          48,820
                                                  -----------       ---------
                                                  $   313,401       $(311,605)
                                                  ===========       =========


     Deferred income taxes result from temporary differences in the financial
bases and tax bases of assets and liabilities. The significant components of
Metro Global's deferred income tax assets and liabilities are as follow:

                                                2001             2000
                                                 Asset           Asset
                                              (Liability)     (Liability)
                                              -----------    -----------
     Excess depreciation                      $  (126,000)   $  (187,000)
     Unearned management compensation             122,000        122,000
     Allowance for doubtful accounts              111,000         83,000
     Inventory capitalization                     245,000        156,000
     State net operating loss carry forward        78,000        132,000
     Other net deferred assets                  1,435,000      1,712,000
                                              -----------    -----------
                                                1,865,000      2,018,000
     Less valuation allowance                  (1,865,000)    (1,118,000)
                                              -----------    -----------
     Net deferred tax asset                   $      --      $   900,000
                                              ===========    ===========


     A valuation allowance has been established due to the uncertainty of
taxable income in future years.

     Metro Global has a state operating loss carryforward available of $78,000
which may be used to offset future taxable income. The carryforward expires in
2006.

                                      F-18
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
11. SHAREHOLDERS' EQUITY

Series A Convertible Preferred Stock

     During April 1998, Metro Global issued 2,175 shares of 1998 Series A
Convertible Preferred Stock ("Series A Shares"). During 1999, all of the Series
A Shares and accrued dividends were converted into 982,120 shares of Metro
Global's Common Stock. In addition to the Series A Shares, Metro Global issued
400,000 detachable warrants to purchase Metro Global's Common Stock at $1.50 per
share commencing April 20, 1998, exercisable over 5 years. In October 1998, all
400,000 warrants were transferred to a related party of Metro Global and
exercised.

Consultant Stock Compensation Plan

     Metro Global's Consultant Stock Compensation Plan allows Metro Global to
compensate consultants and certain other persons who have provided services to
Metro Global through the award of shares of Metro Global's Common Stock. In June
1998, Metro Global added 500,000 shares of Common Stock to the plan.

     During the year ended May 27, 2000, Metro Global issued 135,504 shares of
Common Stock valued at $98,378. As of May 26, 2001, 16,404 shares are available
under this plan.

Equity Incentive Plan

     During the year ended May 31, 1997, Metro Global adopted an Equity
Incentive Plan (the `Plan') that allows Metro Global to compensate key employees
and directors who have provided service to Metro Global through the award of
500,000 shares of Metro Global's Common Stock, including qualified and
non-qualified stock options.

     During the year ended May 31, 1997, options to purchase 200,000 shares were
awarded to Officers and key employees under the Plan. The grants under the Plan
provide for the options to vest 1/5 annually, on the anniversary date of the
grant. The vested options are exercisable through March 2007 at $2.00 per share.
Due to the termination of employment, 120,000 shares have been returned to the
plan.

     During the year ended May 27, 2000, Metro Global awarded 100,000 shares of
Common Stock to the President of Metro (see note 13). There are 310,800 shares
available under this Plan as of May 26, 2001.

Employee Stock Purchase Plan

     During the year ended May 31, 1997, Metro Global adopted an Employee Stock
Purchase Plan. This Plan allows employees of Metro Global to purchase up to
600,000 shares of Metro Global's Common Stock at a 15% discount to the market
price of the stock on the commencement date or closing date of the plan year,
whichever is lower.

     During the year ended May 29, 1999, 4,793 shares were awarded under this
plan. Compensation cost of $8,721 was charged to compensation. As of May 27,
2000, the plan was terminated and 595,207 shares were canceled.

Stock Options

     Pursuant to an employment agreement, Kenneth Guarino, the significant
shareholder of Metro Global and owner of CVC, was granted options to purchase
200,000 shares of Metro Global's Common Stock at $1.50 per share on January 1,
1993. Compensation of $300,000 was charged to operations from January 1, 1993 to
January 1, 1997. As of January 1, 1997 the term to exercise the options was
extended to December 31, 2006. On February 12, 2001, the options were canceled.
Metro Global recognized $137,500 of additional expense in fiscal 1997 for the
extension (see note 13).

                                      F-19
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
11. SHAREHOLDERS' EQUITY (CONTINUED)

     Effective April 1, 1999, Metro Global entered into a one year consulting
agreement with Kenneth Guarino. Under the agreement, Mr. Guarino was given
options to purchase up to 100,000 shares of Metro Global's Common Stock at a
price of $2.00 per share, exercisable over five years. Metro Global recorded
unearned compensation of $128,000 for the value of the option and amortized
$106,667 to consulting expense for the year ended May 27, 2000. The consulting
agreement was terminated effective October 25, 1999. The options were canceled
on February 12, 2001.

     The Black-Scholes Method was utilized to value the options.

12. COMMITMENTS AND CONTINGENCIES

Operating Leases

     Metro Global is obligated under long-term operating leases, which require
minimum annual rentals as follows:

                                   Office                            Machinery
                                   Warehouse                         And
       Year       Total            Premises          Vehicles        Equipment
     -------------------------------------------------------------------------

      2002      $  587,138       $  524,897         $  28,549         $33,692
      2003         560,165          504,178            22,445          33,542
      2004         303,107          276,264               -0-          26,843
      2005             -0-              -0-               -0-             -0-
      2006             -0-              -0-               -0-             -0-
                ----------       ----------         ---------         -------
     Total      $1,450,410       $1,305,339         $  50,994         $94,077
                ==========       ==========         =========         =======

     The lease on the Rhode Island warehouse and office facilities (see note 13)
expires on April 30, 2003 and has a renewal option for two successive additional
terms of five years (through April, 2008 and April, 2013, respectively), each
based on the current annual rent plus an amount based on the consumer price
index one month prior to the date of renewal. The lease requires monthly rentals
of $20,719. On June 1, 1997, Metro Global was granted a rent reduction of
$81,733, which is being amortized over the remaining term of the lease.

     The lease on the California warehouse facility expires on June 30, 2004 and
has a renewal option for an additional five year term. The lease requires
monthly rentals of $21,949 with bi-annual adjustments during the original term
and the renewal option period based on the consumer price index.

     Rent expense under office and warehouse operating leases totaled $542,417
and $557,522 during the years 2001 and 2000, respectively.

Other Matters/Major Customer

     Metro Global is a defendant in suits relating to matters arising in the
ordinary course of business. The amount of liability, if any, from the claims
cannot be estimated, but management is of the opinion that the outcome of the
claims will not have a material impact on Metro Global's financial position. On
November 22, 1999, George Kinney, on behalf of himself and all other similarly
situated, commenced a putative class action in the United States District Court
for the District of Rhode Island against Metro Global and certain of its present
or former Officers and Directors. Plaintiff seeks to represent a class of all
persons who acquired securities of Metro Global between September 13, 1996 and
September 13, 1999. The Complaint alleges claim based on alleged violations of
section 10(b) of the Securities Exchange Act of 1934. Plaintiff alleges that the
defendants made a series of

                                      F-20

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)

false and misleading statements concerning Metro Global's reported financial
results during the class period that violated generally accepted accounting
principles and ultimately caused Metro Global to restate certain financial
statements. On March 15, 2000, Metro Global and certain defendants filed a
motion to dismiss the complaint. The plaintiffs filed an amended complaint dated
May 15, 2000 and Metro Global moved to dismiss the amended complaint on July 5,
2000. Plaintiffs filed an opposition to Metro Global's motion to dismiss on
August 15, 2000. Metro Global replied to the plaintiffs' opposition on September
1, 2000. By order dated January 16, 2001, the Court denied defendants' motion to
dismiss the amended complaint. On April 5, 2001, Metro Global retained new legal
counsel for representation in the action. Metro Global filed an answer to the
complaint on May 4, 2001. The Court has scheduled a conference for November 13,
2001 and thereafter it is anticipated that a discovery process will be conducted
to determine whether the plaintiff is a proper class representative. Metro
Global believes it has meritorious defenses that will enable it to secure a cost
effective settlement before trial or, in the event of trial, that it will
prevail.

     Metro Global used three vendors in 2001 to provide substantially all
printing services (magazines, video boxes and promotional material). Management
of Metro Global believes that other suppliers could provide similar services at
comparable terms.

     CVC accounted for approximately 40% and 41% of Metro Global's sales (from
continuing operations) during the years ended May 26, 2001 and May 27, 2000,
respectively.

13. RELATED PARTY TRANSACTIONS

     Metro Global has significant tenant, borrower and customer relationships
with companies owned and managed by shareholders of Metro Global (see Notes 7
and 12). Significant related party transactions for the years 2001 and 2000 are
summarized below:

     CVC, which is owned by Kenneth Guarino, a significant shareholder of Metro
Global, operates forty one retail stores in the Northeast and accounted for
approximately 40% and 41% of Metro Global sales for the years May 26, 2001 and
May 27, 2000, respectively. Metro Global accounts receivable include $3,545,765
due from CVC at May 26, 2001. No allowance for doubtful related party
receivables and no related party bad debt expense has been recorded in the
accompanying 2001 and 2000 consolidated financial statements. During fiscal
2000, Metro Global recorded from CVC $105,777 in royalty income pursuant to a
franchise agreement for the operation of the Airborne for Men stores owned by
CVC. Effective January 1, 2000, Metro terminated the franchise agreement as CVC
converted all of their existing Airborne for Men stores into Amazing
SuperStores.

     Metro leases its Rhode Island warehouse and office facilities from Castle
Properties, L.L.C. ("Castle"), an affiliate, for its Rhode Island operations.
Mr. Guarino's wife principally owns Castle Properties. A portion of the facility
rented from Castle is sublet to CVC on a month-to-month basis. Sublease income
during the years 2001 and 2000 totaled $48,000 for each year. During the year
ended May 30, 1998, Castle granted Metro Global a four-month moratorium
amounting to $81,733, which is being amortized over the remaining lease term.
The net rent expense to Castle for the years ended May 26, 2001 and May 27, 2000
totaled $200,633 for each year. The corporate offices of Metro Global are
located with the corporate offices of CVC. Although Metro Global does not pay
rent, Metro Global pays property taxes on certain assets. For the year ended May
26, 2001 and May 27, 2000, Metro Global incurred approximately $5,553 and
$13,493 of expense, respectively.

                                      F-21
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (CONTINUED)

     On March 23, 1998, Metro Global entered into two 12% convertible debentures
totaling $500,000 with related parties. Both notes were due on March 23, 1999,
in either cash or Common Stock, at a conversion rate of $2.25 per share.
Proceeds from the debentures were used for working capital. In March 1999, the
debentures', including accrued interest of $60,000 (which was added to the note
principal), were extended until March 23, 2000. On December 31, 1999, one of the
debentures, including the accrued interest due under such debenture, was
converted into 847,778 restricted shares of Metro Global's Common Stock. The
second debenture and accrued interest was assumed by CVC and the accounts
receivable due from CVC was reduced accordingly.

     On July 1, 1998, Metro Global entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. Metro
Global recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature. Proceeds from the debenture were used for working capital.
On July 1, 1999, the debenture's due date was extended until July 1, 2001. In
conjunction with the extension, warrants were granted to purchase 50,000 shares
of Metro Global's Common Stock for $2.58 per share. Metro Global recorded
interest expense of $52,000 in connection with the issuance of the warrants. On
December 31, 1999, the debenture and accrued interest were assumed by CVC and
the accounts receivable due from CVC was reduced accordingly.

     On August 1, 1998, Metro Global entered into notes payable totaling
$1,000,000 with related parties. The notes, which bore interest at 8%, were due
August 1, 1999. Proceeds from the notes were used in the acquisition of Fanzine.
In October 1998, the notes were reduced by $600,000 for the exercise of
warrants. On August 1, 1999, the notes' due dates were extended for one year. In
consideration of the extension, the interest rate increased from 8% to 10% and
warrants were issued to purchase up to 115,000 shares of Common Stock at a price
of $2.58, exercisable for a term of five years. Metro Global recognized interest
expense of $100,050 in connection with the issuance of the warrants. On December
31, 1999, one of the notes and accrued interest of $281,250 was converted into
781,250 shares of Metro Global's Common Stock. On December 31, 1999, the other
note and accrued interest totaling $183,250 was assumed by CVC and the accounts
receivable due from CVC was reduced accordingly.

     On March 19, 1999, Metro Global entered into a one-year consulting
agreement effective April 1, 1999 with Kenneth Guarino, pursuant to which Metro
Global paid Mr. Guarino a fee of $10,000 per month. In addition, Metro Global
granted Mr. Guarino options to purchase up to 100,000 shares of Common Stock at
a price of $2.00 per share, exercisable for a period of 5 years. On that date,
Metro Global's Common Stock was trading at $2.06 per share. During the year
ended May 27, 2000 Metro Global recorded consulting expense of $106,667 in
connection with the issuance of the warrants and reimbursed Mr. Guarino for
approximately $82,000 of expenses incurred in connection with his activities for
Metro Global. The consulting agreement was terminated in October 1999. On May
14, 2001, $60,000 in consulting fees owed to Mr. Guarino under the terms of the
agreement were assumed by CVC and the accounts receivable due from CVC was
reduced accordingly.

     A film production company owned by Mr. Alves, the President of Metro
Global, was paid $120,000 and $110,000 during fiscal 2001 and 2000,
respectively, for services contracted by Metro Global or its subsidiaries.

     During the year ended May 27, 2000, Metro Global awarded Dennis Nichols,
President of Metro, 100,000 shares of Metro Global's Common Stock valued at
$43,000.

     Effective June 2000, the Company outsourced its human resource, benefit
administration and payroll processing functions to CVC. The Company was charged
$57,915 by CVC for services provided during the year.

     During the second and third quarters of fiscal 2001, Metro Global received
advances from a related party totaling $565,000. Metro Global converted the
advances into one-year notes payable with interest at 12% per annum. Proceeds
from the notes were used for working capital. The notes, including interest of
$25,325, were paid on May 20, 2001.

                                      F-22

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

13. RELATED PARTY TRANSACTIONS (CONTINUED)

     During the year ended May 26, 2001, the Company incurred consulting charges
related to mail order, marketing and general business services. The services
were provided by the mother of Greg Alves, the President of Metro Global. In
September 2001, the Company issued 750,000 restricted shares of its Common Stock
in payment of these services.

     On May 14, 2001, CVC agreed to assume $321,599 in back rents and property
taxes due to Castle Properties, L.L.C. through May, 2001. In addition, CVC
agreed to assume rents and property taxes due for the period June through
September 2001 totaling $95,168. The accounts receivable due from CVC was
reduced accordingly.

14. ACCOUNTING FOR STOCK BASED COMPENSATION

     Metro Global applies APB Opinion 25 and related interpretations in
accounting for its stock options issued to employees. Accordingly, under the
intrinsic value method, no compensation cost for options issued to employees,
has been recognized for the years May 26, 2001 and May 27, 2000 (see note 11).

     In October 1995, the Financial Accounting Standards Board issued Statement
(SFAS) No. 123, Accounting for Stock Based Compensation, which became effective
for transactions entered into in fiscal years beginning after December 15, 1995.
This statement permits an entity to apply the fair value based method to stock
options awarded during 1995 and thereafter in order to measure the compensation
cost at the grant date and recognize it over its vesting period. This statement
also allows an entity to continue to measure compensation costs for these plans
pursuant to APB Opinion 25. Entities electing to remain with the accounting
treatment under APB Opinion 25 must make proforma disclosures in net income and
earnings per share to include the effects of all awards granted to employees, as
if the fair value based method of accounting pursuant to SFAS No. 123 had been
applied.

     Metro Global has stock option plans which reserve shares of Common Stock
for issuance to executives, employees, and directors. Metro Global has adopted
the disclosure only provisions of Statement of Financial Accounting No. 123,
"Accounting for Stock Based Compensation". Accordingly, compensation expense
continues to be recognized under APB Opinion 25 for such plans. Had compensation
cost for Metro Global's stock option plans been determined based on the fair
value at the grant date for awards during the years ended May 26, 2001 and May
27, 2000 consistent with the provisions of SFAS No. 123, Metro Global's net
(loss) and (loss) per share would have been reduced to the pro forma amounts
indicated below:

                                                          2001         2000
                                                        ---------    --------

     Net loss - as reported                           $(5,171,027)   $(920,923)
     Net loss - pro forma                             $(5,174,027)   $(929,923)
     Basic and diluted loss per share - as reported   $      (.60)   $    (.13)
     Basic and diluted loss per share - pro forma     $      (.60)   $    (.13)

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. No options were granted during the years
ended May 26, 2001 or May 27, 2000.

     The pro forma effect of applying SFAS 123 may not be representative of the
effects on reported net income and earnings per share for future years since
options vest over varying periods.

                                      F-23
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

15.  FAIR VALUES OF FINANCIAL INSTRUMENTS

     Statement of Financial Accounting Standards (SFAS) No. 107, as amended by
SFAS No. 119, "Disclosures about Fair Value of Financial Instruments", requires
that Metro Global disclose estimated fair values for its financial instruments.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. Because no
market exists for a significant portion of Metro Global financial instruments,
fair values are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision.

     Management of Metro Global estimates that all financial instruments of
Metro Global, except long-term liabilities (notes payable), have a fair value
equal to the carrying value. Regarding the fair value of the long-term
liabilities and certain trade account receivables, it has been determined that
fair value cannot be reasonably estimated since the unique nature, interest
rates, repayment terms, restrictions and all related conditions pertaining to
these instruments do not provide information that would yield a basis for a
sound fair value in accordance with guidelines in SFAS 107 and 119.

16.  EARNINGS PER SHARE

     The computation of basic and diluted earnings per share from continuing
operations is as follows:


<TABLE>
<CAPTION>
                                                          May 26, 2001    May 27, 2000
                                                           -----------    -----------
<S>                                                       <C>            <C>
     Loss from continuing operations                       $(5,171,027)   $(1,455,743)
     Preferred Stock dividends                                    --             --
                                                           -----------    -----------
      Loss from continuing operations
        attributable to common shareholders                $(5,171,027)   $(1,455,743)
                                                           ===========    ===========
      Basic and Diluted EPS:
        Basic and Diluted common shares                      8,630,223      7,119,146
        Basic and Diluted EPS from continuing operations   $     (0.60)   $     (0.21)
</TABLE>


     At May 26, 2001 and May 27, 2000, warrants to purchase 1,200,000 shares of
Common Stock are not listed in the above analysis since the exercise price is
greater than the average market price of the common shares.

17. OPERATING SEGMENT INFORMATION

     Effective in 1999, Metro Global adopted SFAS 131, " Disclosures About
Segments of an Enterprise and Related Information." This statement introduced a
new model for segment recording, called the "management approach". The
management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and assessing
performance.

     The accounting policies of the segments are the same as those described in
note 1, Summary of Significant Accounting Policies. Metro Global evaluates
segment performance based on operating earnings before allocations of corporate
overhead costs. Intersegment net sales and eliminations are not material.

     Metro Global was comprised of two segments: the Adult Entertainment Segment
and the Publishing Segment (Fanzine). However, on September 29, 1999, Metro
Global sold the Publishing Segment and is accounting for the segment as
discontinued operations.

     Foreign sales totaled $894,730 and $919,083 at May 26, 2001 and May 27,
2000, respectively. There was no concentration of sales to any one country.
Foreign assets are immaterial at May 26, 2001 and May 27, 2000.

                                      F-24
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 26, 2001 AND MAY 27, 2000
--------------------------------------------------------------------------------

18. DISCONTINUED OPERATIONS

     In September 1999, Metro Global adopted a plan of disposition for Fanzine,
which was sold on September 29, 1999 for approximately $4,500,000 in notes
receivable and the return of 1,000,000 restricted shares of Metro Global's
Common Stock. The following table is a summary of the results of discontinued
operations for the year ended May 27, 2000:

                                                         May 27, 2000
                                                         -----------
     Revenues                                            $ 5,354,250
     Cost of revenues                                      5,335,696
                                                         -----------
                                                              18,554

     Other expenses                                          722,204
                                                         -----------
     Loss before income taxes                               (703,650)

     Income tax benefit                                      285,682
                                                         -----------
     Loss from discontinued operations                   $  (417,968)
                                                         ===========



     Loss from discontinued operations before income taxes does not include an
allocation of corporate interest expense or amortization of goodwill.

     Metro Global finished winding down Maxstone during the first quarter of
fiscal 2001 and accordingly accounted for Maxstone's income, net of tax of
$44,461, for the year ended May 27, 2000 and Maxstone's loss, net of tax benefit
of $6,767, for the year ended May 26, 2001 as discontinued operations in the
accompanying financial statements.


                                      F-25