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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A

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

    For the fiscal year ended      May 27, 2000
                              ----------------------

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

    For the transition period from             to
                                    ----------    ----------

                         Commission file number 0-21634

                            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)


                                 ---------------
                                (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. [ ]

         State issuer's revenue for its most recent fiscal year: $27,789,050

         State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold or the average bid and asked price of such common equity,
as of a specified date within the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act.):

                          $2,924,350 at August 24, 2000
          -----------------------------------------------------------

Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the Issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

<PAGE>

                   (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS)

         Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.

                                 Yes [ ] No [ ]

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 8,630,223 at August 18,
2000

                       DOCUMENTS INCORPORATED BY REFERENCE

If the followings documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
the Rule 424(b) or (c) of the Securities Act of 1993 ("Securities Act"). The
listed documents should be clearly described for identification purposes (e.g.,
annual report to security holders for fiscal year ended December 24, 1990).

Transitional Small Business Disclosure Format (Check one):

                                 Yes [ ] No [X]

                                Explanatory Note
                                ----------------

         This Annual Report on Form 10-KSB/A is being filed as Amendment No. 1
to the registrant's Annual Report on Form 10-KSB for the fiscal year ended May
27, 2000 for the purpose of making amendments to (i) Item 3 of Part I, (ii)
Items 6 and 8 of Part II, (iii) the registrant's Consolidated Balance Sheet and
Consolidated Statements of Operations and (iv) Notes 1, 2, 5, 6, 8 and 12 to the
registrant's Consolidated Financial Statements.

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                                TABLE OF CONTENTS

                                     PART I

ITEM 1.  BUSINESS..............................................................4

ITEM 2.  PROPERTIES...........................................................13

ITEM 3.  LEGAL PROCEEDINGS....................................................14

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................14

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS .............................................................15

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS................................................16

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA...........................19

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURES............................................19

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
         ACT..................................................................20

ITEM 10. EXECUTIVE COMPENSATION...............................................21

ITEM 11. SECURTITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......23

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................24

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................27

INDEX TO FINANCIAL STATEMENTS................................................F-0

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PART I

ITEM 1.  BUSINESS

         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. The year 2000 resulted in
strong gains through business operations and increased sales. Metro Global
recognized a sales gain of 19% or approximately $4,000,000 for the year ended
May 27, 2000. Additionally, gross profit increased approximately $2,500,000 or
33.5%, and gross margin increased 3.8% to 35.1% of revenues. Metro Global
operates through its wholly-owned subsidiaries and operating divisions: Metro
West Studios, Inc., Metro, Inc. - West Coast Division ("Metro West"), Metro
International Distributors ("Metro International"), Amazing Media Group, Inc.
("Amazing Media"), Amazing Direct.com, Amazing Online, Metro, Inc. - East Coast
Division ("Metro"), Airborne for Men, LTD. ("Airborne"). Additionally, Metro,
through its subsidiary Rocket Media Group LLC, is a 50% partner in Maxstone
Media Group, LLC. ("Maxstone"), a producer and distributor of newsstand
magazines.

         In September 1999, Metro Global's Board of Directors adopted a plan to
discontinue the operations of 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".

         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

         Metro 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. Metro 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, Metro 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.

         Metro owns or has distribution rights to a library in excess of 3,500
titles primarily available on videocassette. Management believes Metro's 3,500
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 nineteen volumes of Taboo, one of
Metro's most popular adult video series. Metro has manufactured and sold
approximately 3,000,000 videocassettes during the fiscal year ended May 27,
2000, primarily to distributors, wholesalers and store chains located in the
United States. Many of Metro's original motion picture programs have been
re-edited and licensed to cable television operators. Approximately 25% of the
titles in Metro's motion picture library have been obtained from third parties
under distribution agreements pursuant to which Metro has acquired perpetual
U.S. distribution rights, and in some cases limited foreign distribution rights,
to the motion picture. Metro

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continues its efforts to expand its video 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. Metro is in the process of converting its
entire library of films and videos into the DVD format.

         During fiscal 2000, Metro released six new feature films, ninety-one
feature videos, and one hundred sixty-seven video compilations. Metro plans to
continue to actively seek to acquire distribution rights to additional titles
produced by third parties, and increase its efforts to distribute its library
and new titles into domestic cable and satellite television markets as well as
new international markets.

         Many of Metro's new feature film releases are edited into several
versions depending on the media through which they are distributed. Metro 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 Metro is paid a fee
based on the number of subscribers to the cable station and the number of times
Metro's motion picture is shown, and arrangements pursuant to which Metro
receives a commission based upon the revenues received by the pay television
operators as a result of a showing of Metro'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, Metro signed an agreement with Cable Entertainment
Distributors ("CED") to represent Metro for adult programming through cable,
television, satellite and stand-alone systems throughout the United States. As
part of the agreement, Metro signed an output agreement with Playboy
Entertainment Group, ("Playboy"). Under the agreement, Metro will supply Playboy
with up to three features per month for two years. During the fiscal year ended
May 27, 2000, Metro contracted to supply Playboy with twenty-eight features.
Playboy has rights to these features for five years, with an option for another
five years at a fee of 25% of the original licensing fee. CED receives a graded
commission on all placements. Metro and CED extended the contract in July 2000
for an additional two years.

         In July 1999, Metro 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 recently launched "Pleasure" channels. The licensing
arrangement allows New Frontier the right to utilize certain rights on Metro'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.

         The production deal calls for Metro to generate more than four hundred
features over seven years, including a series of high-visibility special
programming events for New Frontier's five adult networks, and Internet sites
that are part of an acquisition by New Frontier of Interactive Gallery, Inc.
("IGallery"), a leader in Internet-delivered adult entertainment. In addition,
Metro plans to create an original, high-end video line branded by New Frontier
for distribution by Metro to the home video/DVD market.

         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

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conditions, but the competitive position of a producer or distributor is still
greatly effected 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. Metro is confident that with their many
years of knowledge, experience and availability of top directors, they will
continue to release top selling production in this field. Because of
distribution contracts with Playboy, the Spice channel and multi-channel "New
Frontier Media," along with foreign out-put agreements, Metro will continue to
be a leader in this field.

Metro Inc. - West Coast division:

         Metro's West Coast division, located in Chatsworth, CA, duplicates,
manufactures, warehouses and distributes exclusively all of its production on
VHS and DVD formats.

         During 1998, Metro introduced its first Digital Versatile Discs,
("DVD"), which 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 video cassette 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; 5)
Since DVD is 100% digital, the cost of replication is comparable to CD-ROM or
audio CD; and 6) A relatively low replication cost will translate to a retail
price for motion picture of under $20.00, giving this medium significant
mass-market potential. Experts at Toshiba estimate that the market for DVD
software could exceed $20 billion by the year 2005. Metro believes that the next
evolution of the CD-ROM drive, now standard equipment for all multimedia
computer systems, will be the DVD-ROM. Similar to a CD-ROM in most respects, the
DVD-ROM will be capable of holding more then ten times more information than a
CD-ROM.

         Metro utilizes third-party designers, artists and programmers to
introduce creative and technically superior products. Metro 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 Metro
distributes its adult video products both in the United States, Canada and
Europe. Order fulfillment is coordinated through Metro's California distribution
facility.

         Many DVD titles feature an automated photo gallery, full motion chapter
index, star biographies and behind the scenes footage. Metro 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. Metro has
released 98 DVD titles as of May 27, 2000, up from 29 titles as of May 29, 1999.
Metro Global anticipates releasing in excess of 200 titles in fiscal 2001.

         Metro creates and designs all artwork for promotional items and
packaging and contracts for printing services. Approximately 20% of Metro's
videocassettes are duplicated at Metro's own duplicating facility located in
Metro's Los Angeles, California location, with the balance being contracted to
independent laboratories.

         In January of 1999, Metro retained STV Communications, Inc. ("STV"), a
privately held company out of Santa Monica, California, to produce a new
Interactive Media Center for Metro's top selling lines of videos and DVDs. STV,
a leader in providing products and services for electronic merchandising and
marketing for major chains, such as Tower Records and Virgin Superstores,
produced the Media Centers that display up to thirty titles with a one to two
minute previews, clips from upcoming titles, advertisements of Metro's Internet
sites and promotions for Metro's other vendors. Management believes that with
the use of such a customer-friendly, captivating, interactive merchandising
display that advertise Metro's Internet sites and products, revenues will
increase over existing traditional marketing techniques.

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         In June of 1999, Metro rolled out one hundred of its Media Center
interactive display units to the adult retail market. Each unit houses a 20"
color monitor and holds up to two hundred forty pieces of video and DVD packaged
for sell-through. Consumers can be assured that the quality of the movie is
consistent with the quality of the packaging by viewing the titles that are on
display. This Media Center is exclusive to Metro and separates us from other
companies marketing adult video and DVD product.

         There is a strong competition throughout the home video and DVD
industry. Several of Metro's competitors release titles on both video and DVD
formats. Nearly all of Metro's products compete with other products and services
that utilize leisure time or disposable income. Metro meets the direct
competition from other distributors and has a competitive advantage over most
because of Metro's extensive library, large on-hand inventory, and experienced
customer service departments. Metro is confident that their competitive edge
will continue. Metro 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.:

         Metro Global'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 Metro's videos and DVDs in Europe, South America and
Australia. In February 1999, Metro International opened a newly expanded
facility in Flensburg, Germany. Metro International generated revenues of
approximately $919,083 or 3% of the consolidated revenue from continuing
operations of Metro Global, 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 have larger worldwide distribution or has as
diverse a library as Metro.

Amazing Media Group, Inc.:

Publishing

         Metro, through its Amazing Media subsidiary, publishes and distributes
a variety of adult magazines under various tradenames, which it distributes
through wholesalers located throughout the United States, Canada and Europe.
Metro capitalizes on its extensive library by reproducing stills, frames, or
other duplicable mediums and transfers the content onto a printed publication
thereby maximizing the product costs incurred in producing films and videos.
Amazing Media also benefits Metro by extending the Metro tradename and increases
the awareness of the various Metro products through this cost effective cross
promotional technique. Amazing Media currently publishes twenty-four magazines,
which are distributed on a bi-monthly or quarterly basis.

         Production for magazines are created by in-house artists while some are
contracted with independent contractors. Production contracts are entered into
on a series rather than a single title basis and are fixed-price with provisions
for cost of labor, material and specification adjustments. These contracts,
subject to certain limitations, may be terminated by Metro or the production
company.

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         All of Metro's publications are printed by independent third parties.
Metro uses three different printers for all of its magazine publication. Metro
believes that generally there is an adequate supply of printing services
available to Metro at competitive prices, should the need arise. All of Metro's
magazine production and printing activities are coordinated through its 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. Metro'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, Metro will continue to
expand its publishing division while utilizing its magazines to cross promote
Metro's Internet sites and entire adult entertainment product line.

Amazing Direct.com:

E-Commerce

         AmazingDirect.com, Metro's E-Commerce and mail order business, allows
customers to directly purchase from Metro's approximate 10,000 items inventory,
including many produced by Metro. 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. Additional discounts
will be offered to repeat buyers and members who enter through the membership
site. The mall is free of charge to enter and new product is updated daily.
Additionally, a revenue share program, EarnBigBucks.com, is being implemented
allowing webmasters to resell product from AmazingDirect.com and receive a share
of every sale. A complete online signup form will allow webmasters to offer
Metro's products.

         Due to an increase in traffic and business to Metro's e-commerce site
(AmazingDirect.com) and membership site (AmazingSex.com), along with an analysis
of the benefits, increased opportunities and revenue growth of
direct-to-consumer sales, Metro is investing resources in upgrading and adding
to its existing sites. A redesign to the back-end management functionality and
an upgrade to Sun Station Unix web servers should allow Metro easy scalability
while increasing speed, reliability and security to our sites. Backend software
and computer upgrades are currently being completed prior to launching the
affiliate program, which is expected to be completed by November 1, 2000. These
backend upgrades will allow Metro to handle up to 5,000 orders daily.

         Competition in mail order and e-commerce distribution is very high.
Metro competes with numerous mail order houses that specialize in adult product
distribution. With Metro's extensive library and large on-hand inventory of
other producer's product lines, they intend to focus on e-commerce sales and
distribution. It is management's belief that by adding proper marketing and
backend structuring, Metro will become a leader in e-commerce distribution of
adult products. In addition to intended expansion of e-commerce, the company is
planning to achieve growth through acquisition of similar existing business
enterprises that are unable to compete against major companies such as Metro.

Amazing Online - Internet division:

         The marketing concept of offering full screen, full motion video in
conjunction with amazingsex.com was implemented by Metro during fiscal 1999 with
the production of the Project X 2000 CD-ROM. By combining the interactivity and
accessibility of the Internet with the speed of the CD-ROM, users can now watch,
by linking to projectx2000.com, full screen, full motion video clips while
online at the site. This promotional CD-ROM allows the user to see behind the
scenes footage, view scenes from upcoming releases, pre-order any of these
movies online, and take a virtual tour of the site before joining the membership
site, amazingsex.com.

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         In July 1999, Metro entered into an Internet support and
traffic-sharing agreement with Interactive Telecom Network ("ITN") and
Interactive Gallery, Inc. ("IGallery"). Under the terms of the agreement, ITN
will provide all technical support necessary to operate our sites, including
hosting, systems administration and management, network security solutions,
customer service, and fully automated credit card clearing services. ITN offers
Internet access and Service Bureau for automation and systems integration, and
specializes in mass-call processing using state-of-the-art switching, voice
response and computer technology.

         The traffic-sharing program of the agreement directs a portion of
IGallery's fifteen million visitors per month to Metro's web sites, along with
exit traffic and qualified traffic to be routed to IGallery sites. As part of
the traffic-sharing program, IGallery has placed banners on its sites promoting
Metro and provide links to its sites from its webmaster portal and its weekly
Tips & Tricks newsletter. In addition, IGallery will send marketing emails to
its database of webmasters promoting Metro's online presence. The agreement also
calls for the creation of a new pay-per-view live feed site, amazinglive.com, in
which both Metro and IGallery will participate in revenues. This new live feed
will also be offered to the thousands of adult webmasters already contracted
with IGallery.

         During fiscal 2000, Metro added four additional sites which cross
promote all other sites. Metro is currently building a database of all customers
to be used for mass mailings to continue to promote the sites with notifications
of specials and new updates made to the sites. 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 via 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 Metro's. Metro meets with direct competition on the Internet by
utilizing its extensive exclusive video and still photo library, along with the
ability to promote new productions prior to their release. Since a key component
of marketing on the Internet is building traffic, Metro feels that it's cross
promotion agreement with I-Gallery will result in a significant increase in
traffic to its membership sites.

Metro, Inc - East Coast division:

         Located in Cranston, Rhode Island, Metro is the largest distributor of
adult products in the Northeast, servicing over 500 retail outlets throughout
the Northeast and Midatlantic regions. The northeast region is considered to be
the #1 marketplace in the US for retail locations and adult consumers. A 64,000
square foot warehouse holds an inventory of over one hundred thousand items and
company owned trucks deliver products throughout the Northeast.

         Metro is the exclusive distributor of all Metro West 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 currently represents Hustler, Penthouse, and
Spice adult toy lines.

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

         The warehouse has recently been refitted to accommodate order
fulfillment of all of Metro Global's E-Commerce traffic from its online
superstore, Amazing Direct.com and its direct to consumer mail order business.

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         Metro also is in the business of manufacturing and distributing Video
Viewing Centers 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.

         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 Metro. Metro, the largest distributor
in the Northeast region of the United States, meets with direct competition by
carrying a large selection of inventory along with an outstanding distribution
network. The company intends, that during the next twelve months, it will expand
distribution by increasing its product lines and its sales force.

Airborne for Men, LTD.:

Amazing SuperStore

Franchise/Licensing Subsidiary

         Airborne engages in the sale of franchise and licensing to operate
upscale adult orientated retail stores. Each franchise/licensed operation
carries all of the products distributed by Metro. During fiscal 1999, Airborne
introduced it's Amazing SuperStore strategy designed to strengthen the "Amazing"
brandname. In May 1999, the first Amazing SuperStore was opened in Providence,
RI. 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.

         Airborne currently operates one franchise and has licensing agreements
with seventeen stores. Airborne intends on licensing twenty more stores in the
next twelve months. A licensing agreement includes the use of the "Amazing" name
and logo trademark along with an exclusive product line distribution agreement.
The franchising agreement includes the same plus a management training and
marketing fee.

         Airborne is in the process of reviewing a syndication program for
expansion of the Amazing SuperStore format and intends on aggressively expanding
this concept.

         Competition in the adult retail store business is very high. There is
no competition in franchising and licensing of adult stores. The company intends
to focus over the next twelve months on licensing the "Amazing Superstore"
program thoughout the United States. The company feels that it would be more
effective to re-license adult video stores instead of utilizing franchising
methods, which is costly and time prohibitive due to site development and local
zoning requirements. Licensing of existing locations allows stores to utilize
our proven and successful marketing, merchandising and distribution programs.

DISTRIBUTION; MAJOR CUSTOMER

         Wholesale distribution of Metro'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 operates a regional
distributorship for its own motion picture titles as well as the video/DVD
titles of other companies to retail outlets located throughout the upper
Northeast region of the United States. Wholesale distribution of Metro's
publications is accomplished through a distribution network of wholesalers
located throughout the United States and Canada. Metro's New England region
fulfillment activities are conducted from a centralized 64,000 square foot
facility in Cranston, Rhode Island. National distribution is conducted from the
California facility and international distribution is conducted through Metro's
subsidiary, Metro International, located in Flensburg, Germany.

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         In March 1998, Metro acquired an 80% interest in Amazing Direct, a mail
order company. Metro acquired the remaining 20% interest in April 1999. Metro
expects to build a customer database through advertisement in adult magazines,
hits on its Internet sites, as well as purchasing or renting customer lists.

         All orders are taken via phone or mail and sent to the Cranston, RI
warehouse for fulfillment. Metro anticipates continued growth during fiscal
2000, as the customer database continues to expand.

         Capital Video Corporation ("CVC"), which is wholly-owned by Kenneth
Guarino, a principal shareholder of Metro Global, operates approximately thirty
video and magazine retail stores in the New England and upstate New York areas
and accounted for approximately 41% of Metro's net sales for the fiscal year
ended May 27, 2000 and 40% of Metro's net sales for the fiscal year ended May
29, 1999. See "Item 12. Certain Relationships and Related Transactions". During
fiscal 200, no other customer accounted for more than 10% of Metro's net sales.

GOVERNMENT REGULATION

         The right to distribute adult videocassettes, magazines and CD-ROM
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 designed as misdemeanors and others as
felonies, depending on numerous factors. The consequence for violating the state
statutes varies by state. Similarly, 18 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 the length of the period of the
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 Metro is engaged primarily in the wholesale distribution of its products
to other wholesalers and/or retailers, Metro 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 these products. In light of Metro's efforts to review, regulate and
restrict the distribution of its materials, management believes that the
distribution of Metro's products does not violate any statutes or regulations.

                                       11
<PAGE>

         Many of the communities in the areas in which Airborne intends to offer
Amazing SuperStores franchises have enacted zoning ordinances restricting the
retail sale of adult entertainment products. Airborne intends to open 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 video cassettes, 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. Metro 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.

TRADEMARKS AND TRADE NAMES

         Metro owns or licenses numerous trademarks and copyrights that it uses
in its video and magazine businesses. Its most important trademarks are
METRO(tm), INTROPICS(tm), CAL VISTA(tm), MAGMA(tm), AMAZING MEDIA GROUP(TM),
AMAZING(tm), TOXXXIC(tm), METRO PRIME CUTS(tm), TABOO(tm), ONLY THE BEST(tm),
CASTING CALL(tm), BABES ILLUSTRATED(tm), SOHO(tm), ARCUS(tm), SUPERSHOTS(tm),
RAGE(tm) and PULSE(tm). Metro believes it has trademark rights in these names
and relies on trademark law to protect such rights. Metro 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's business and Metro intends to aggressively
defend them.

DISCONTINUED OPERATIONS

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

         In September 1999, Metro Global's Board of Directors adopted a plan to
discontinue the operations of Fanzine and instructed management to divest
Fanzine and the Publishing Segment by the end of fiscal 2000. Accordingly,
Fanzine is reported herein as a discontinued operation for the years ended May
27, 2000 and May 29, 1999 (see note 17 to financial statements). On September
29, 1999, Metro Global sold Fanzine back to the former shareholders of Fanzine
and a company controlled by them, for $4,500,000 and the return to Metro Global
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 is to be paid by August 31, 2000. The first two
scheduled payments were secured by the personal guarantees of Fanzine's
shareholders and all such payments are secured by Fanzine's assets.

         Metro Global is currently winding down the Maxstone operation and
accordingly has accounted for Maxstone as discontinued operations in the
accompanying financial statements

                                       12
<PAGE>

BUSINESS ACQUISITIONS AND OTHER ACTIVITIES

         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; each joint venture
partner contributed $30,000. Metro Global has included Maxstone's results from
operations in the consolidated financial statements. Minority interest amounted
to $(56,044) at May 27, 2000.

         In March 1998, Metro Global 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, Metro Global acquired 100% of the stock of Fanzine
for a cash purchase price of $4,000,000, plus contingent consideration in a
transaction approved by Metro Global's Board of Directors. The contingent
consideration consisted of one million restricted shares of Metro Global'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, are met. During Fanzine's first year of
operations, Metro Global had the right to call the shares at the greater of
$6.00 per share or 75% of the market price. Metro Global 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 is being amortized over ten years. The cash portion of
$4,000,000 was financed by a long-term convertible debenture and other
short-term borrowing.

         On September 29, 1999, Metro Global 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 and fiscal 1999. See
"Discontinued Operations" above.

EMPLOYEES

         As of May 27, 2000, Metro Global and its subsidiaries employed
approximately 146 persons, of which 137 are full-time employees.

ITEM 2. PROPERTIES

         Metro's principal administrative office is an approximate 64,000 square
foot office, warehouse and shipping complex located in Cranston, Rhode Island
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". This facility houses Metro's administrative, editorial and
operational offices; the data center, customer service, and 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 renewable option of one
additional period of sixty months, subject to terms and conditions. Metro
International Distributors has warehouse and office space located in Flensburg,
Germany of approximately 1,700 square feet with a five-year lease term.

         Maxstone and Fanzine are located in New York City, New York with an
approximate 3,045 square feet of office space with 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.

                                       13
<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 person 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 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's reply to
the plaintiffs' opposition is due September 1, 2000. Metro Global believes it
has meritorious defenses and intends to vigorously defend this action.

         Except for the putative class action suit describe 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

                                       14
<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 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

Fiscal Year Ended May 29, 1999
------------------------------
First Quarter                                         $ 4.6250    $ 2.2810
Second Quarter                                        $ 4.0005    $ 1.8750
Third Quarter                                         $ 3.7500    $ 2.3750
Fourth Quarter                                        $ 4.1250    $ 1.6250

* 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 27, 2000 there were 420 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 July 31, 1998, Metro Global entered into an 8% convertible debenture
with an unrelated third party. In connection with this transaction, Metro Global
issued warrants to purchase 75,000 and 25,000 shares of Common Stock at prices
of $4.11 and $3.29, respectively, all of which expired on July 31, 2000.

         On October 28, 1998, Metro Global 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 Metro Global's Common Stock.

         On December 9, 1998, Metro Global entered into a term note with an
unrelated third party. As part of the transaction, Metro Global 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 July 21, 1999, Metro Global entered into a seven year licensing
agreement with New Frontier Media, Inc. ("New Frontier"). In exchange for
certain services, Metro Global 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.

                                       15
<PAGE>

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

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

RESULTS OF CONTINUING OPERATIONS - FISCAL 2000 AS COMPARED TO FISCAL 1999

         Metro Global had revenues of $27,789,050 from continuing operations for
fiscal 2000 as compared to revenues of $23,389,171 for fiscal 1999, a 19%
increase. Increased revenues are primarily due to: (1) an increase in video and
DVD sales of approximately $3,200,000 as a result of the increased investment
made by Metro Global in new productions and DVD conversions; (2) an increase in
cable and foreign film rights revenue of approximately $360,000; (3) an increase
in inclusion of revenues from Metro International of approximately $919,083 in
fiscal 2000 as compared to $765,000 in fiscal 1999; and (4) revenue from
licensing of Metro's film library of approximately $570,000.

         Metro Global's gross profit from continuing operations for fiscal 2000
was $9,765,727 as compared to $7,314,720 in fiscal 1999. Metro Global's gross
margin increased to 35.1% in fiscal 2000 from 31.3% in fiscal 1999. The primary
reason for the increase in gross margin is due to the increase in revenues from
cable and film rights sold and revenues from licensing Metro's film library,
with relatively low associated costs.

         Selling, general and administrative costs increased by $1,284,015 to
$10,777,958 in fiscal 2000 as compared to $9,493,943 in 1999, a 14% increase.
The increase in selling, general and administrative expenses is primarily due
to: (1) an increase in payroll and related payroll expenses for Metro of
approximately $650,000 due to the expansion of the west coast operations,
magazine department and the Internet and mail order department; (2) an increase
of approximately $200,000 in expenses associated with the upgrade and expansion
of Metro's internet sites; (3) an increase of approximately $230,000 in Metro's
depreciation expense; (4) an increase in rent and relocation costs of $150,000
due to the move of the West Coast facility; and (5) an increase in marketing and
promotional costs of approximately $75,000. As a percentage of revenues,
selling, general and administrative expenses were 38.8% in fiscal 2000, as
compared to 40.6% in fiscal 1999.

         Other income and expenses decreased $1,359,651 to $755,117 in fiscal
2000 as compared to $2,114,768 in 1999. This decrease is primarily due to a
decrease in interest expense from $2,240,488 at May 29, 1999 to $1,093,912 at
May 27, 2000, attributable to the decrease in Metro Global's outstanding debt.

         Metro Global recorded a net loss of $1,455,743 from continuing
operations in fiscal 2000 as compared to a net loss from continuing operations
of $4,127,141 in fiscal 1999. The decrease in loss is primarily attributable to
the increase in gross margin and a decrease in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

         Cash amounted to $361,539 at May 27, 2000. Metro Global's primary
sources of cash in fiscal 2000 consisted of $2,299,583 in cash provided by
operating activities and net proceeds from a line of credit of $2,187,155.

         As discussed in "Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters", Metro Global's Common Stock was delisted from the
NASDAQ Small Cap Market on December 7, 1999. The light and sporadic trading
volume of Metro Global's Common Stock on the "pink sheets" materially and
adversely affects Metro Global's ability to raise capital through new issuances
of equity or convertible securities.

         In July 1999, Metro Global received 500,000 shares of Common Stock of
New Frontier plus warrants to purchase an additional 500,000 shares of New
Frontier Common Stock (100,000 shares per year for five years) at an exercise
price of $7.869 per share. Metro Global intends to sell portions of its New
Frontier shares
                                       16
<PAGE>

from time to time, pursuant to Rule 144. As of the close of trading on August
20, 2000, New Frontier's Common Stock was trading on the NASDAQ's Small Cap
Market at a price of $5.68 per share.

          The primary uses of cash for the fiscal year ended May 27, 2000
consisted of: (1) investments in motion pictures and other films of $2,892,892;
(2) purchases of property and equipment of $384,745; (3) payments on notes
payable of $2,325,000; and (4) payments on capital lease obligations of
$373,834. Metro Global had non-cash adjustments of $3,048,227 at May 27, 2000,
primarily from depreciation and amortization and valuation of issued warrants.


         The net increase in accounts receivable of $336,749 was primarily due
to the increase of sales for the period. Accounts payable and accrued expenses
increased $1,551,895 due to increased purchasing, increased spending for film
production and increased costs associated with DVD authoring and duplication.

         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' 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 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 in
fiscal 2000. On December 31, 1999, the debenture and accrued interest were
assumed by CVC, Metro Global's principal customer which is wholly-owned by Metro
Global's principal shareholder, 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 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. 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 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 expiring on July 31, 2000.
Metro Global recorded a discount on the debenture of $157,700 for the value of
the warrants. Metro Global amortized $78,850 and $65,708 of the discount to
interest expense for fiscal 2000 and 1999, 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

                                       17
<PAGE>

the principal value into Metro Global's Common Stock at a discounted market
price as is 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 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 is
due in two installments of $425,000 each, due on July 1, 2000 and October 1,
2000. The restructured note payable is secured by 200,000 restricted shares of
New Frontier common stock owned by Metro Global. On June 30, 2000, Metro Global
made the first $425,000 payment and 125,000 shares of stock were returned by the
lender.

         On October 28, 1998, Metro Global entered into a note payable with a
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 majority stockholder. For fiscal 1999, Metro Global made one payment of
$275,000. In September 1999, Metro Global and lender agreed to a preliminary
extension of the note. In October 1999, Metro Global made a $275,000 payment.
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 must make monthly payments of $50,000.

         On December 9, 1998, Metro Global entered into a six-month term loan
agreement with a 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 for the valuation of the warrants.
Additionally, Metro Global issued 100,000 shares of Common Stock and recorded
$187,500 of interest expense. In September 1999, Metro Global and this lender
agreed to an extension, under which Metro Global paid $1.3 million upon closing
a financing with Reservoir Capital Corporation. 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 includes $100,000 of interest) will be
paid directly from the proceeds of the final payment from the sale of Fanzine,
which is due on August 31, 2000. In connection with the restructuring of the two
notes payable, Metro Global recognized $337,475 of extraordinary income for the
forgiveness of interest and penalties.

         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.

         In September 1999, Metro Global signed a $4,000,000 Loan and Security
Agreement with Reservoir Capital Corporation. Pursuant to the terms, Metro 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 borrowings on accounts receivable owned be Capital Video
Corporation ("CVC") are limited to the lesser of 30% of total accounts
receivable or $1,600,000. Additionally, Metro can borrow 40% of inventory, up to
a maximum of $1,000,000. Borrowings under this loan bear interest at prime rate
plus 3.5% per annum. Additionally, Metro must pay a service fee of .35% per
month on the average daily loan balance. Metro must pay an unused fee of .25% on
the amount of the borrowings under $2,000,000. The loan is secured by the assets
of Metro. The CVC accounts receivable are guaranteed by the sole shareholder of
CVC, who is a principal shareholder of Metro Global. Additionally, CVC has
executed a put on the inventory of Metro in case of default. As of May 27, 2000,
borrowings under the line of credit totaled $3,129,453.

                                       18
<PAGE>

         On September 30, 1999, Metro Global sold Fanzine for $4,500,000,
payable in four installments. During the year ended May 27, 2000, Metro Global
received payments of $2,000,000. The balance as of May 27, 2000 is $2,465,649.

         Of Metro's total accounts receivable at May 27, 2000, $2,440,548 (45%),
as compared to $2,419,990 (40%) at May 29, 1999, is owed by CVC, a chain of
retail stores, which is wholly-owned by a principal shareholder of Metro Global.
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
within terms given by Metro, and are maintained within 60 to 90 days.
Accordingly, no allowance for related party receivables and no related party bad
debt expense has been recorded in Metro Global's financial statements.

         In fiscal 2000, Metro invested $2,892,892 in new feature films and
videos. Financing for these activities has been and will continue to be
generated through operating cash flows as well as funds received from its line
of credit.

Capital Expenditures

         Capital expenditures for fiscal 2000 amounted to $384,745 as compared
to $477,322 for fiscal 1999. Metro Global anticipates that its capital
expenditures for fiscal 2001 will be approximately $250,000 to $500,000
primarily used for computer equipment for the expanding Internet department.

         Management believes that funds provided by operations, existing and new
line of credit, are adequate to meet the anticipated short-term and long-term
capital needs. Metro Global's credit facility under the above-described Loan and
Security Agreement with Reservoir Capital Corporation is renewable on an annual
basis. Metro Global is also exploring possible additional sources of short term
borrowing, but has no commitments, understandings or agreements to such effect
and there can be no assurance that such additional financing will be available.
If Metro Global lost its existing credit facility financing and was unable to
replace it with suitable alternative capital sources, there would be a
materially adverse effect on its contemplated production of new feature films
and video and, potentially, its financial condition. Management believes that
inflation has not had a material effect on its operations.

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 including, without limitation government actions or
initiatives, such as attempts to limit or otherwise regulate the sale of
adult-oriented materials, including print, video and online materials.

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-26 herein are incorporated herein by reference.

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

         As previously reported in Metro Global's Current Report on Form 8-K,
dated May 14, 1999, on May 10, 1999, Metro Global appointed the accounting firm
of Grant Thornton, LLP ("Grant Thornton") as independent accountants for fiscal
1999 to replace Trien, Rosenberg, Weinberg, Cuillo & Fazzari, LLP, effective
with such appointment. Metro Global's Board of Directors approved the selection
of Grant Thornton as its new independent accountants. As reported in Metro
Global's Current Report on Form 8-K, dated June 28, 1999, on June 22, 1999,
Grant Thornton resigned, and as reported in Metro Global's Current Report on
Form 8-K, dated July 20, 1999,

                                       19
<PAGE>

on July 16, 1999 Metro Global 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 Metro Global's prior
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 Metro Global, their ages and the offices they hold with
Metro Global as of August 18, 2000. 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 Metro Global and until their successors
have been duly elected and qualified.

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

Gregory N. Alves           33       President and Director

Alan S. Casale             51       Director

Janet M. Hoey              37       Treasurer, Secretary and Director

         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 $110,000 and $76,000 from Metro
Global during fiscal 2000 and 1999, 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 Metro Global 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.

         Janet M. Hoey was elected Treasurer of Metro Global in December 1997.
Ms. Hoey was employed by the accounting firm of Ernst & Young from 1985 through
1990. From 1990 through 1996, Ms. Hoey was employed as controller and financial
consultant by Quantum Resources, a forensic accounting and consulting company.
Prior to joining Metro Global, Ms. Hoey was employed by Barnstable County Supply
as its controller. Ms. Hoey, a certified public accountant, is a graduate of
Providence College. Ms. Hoey was appointed to the Board of Directors and elected
Secretary of Metro Global in September 1999.

         In addition to the Directors and Executive Officers listed above,
Dennis Nichols is expected to make a significant contribution to the business of
Metro Global and its subsidiaries. Dennis Nichols, 51, has served as President
and sole Director of Metro since its inception in 1990. From March 1992 to
November 1994,

                                       20
<PAGE>

Mr. Nichols served as President, Treasurer, Secretary and Director of Capital
Video Corporation, which operates a chain of retail video stores in the New
England and upstate New York area and is wholly-owned by Kenneth Guarino.

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

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

         Section 16(a) of the Securities Exchange Act of 1934 requires Metro
Global's Officers and Directors, and persons who own more than 10% of a
registered class of Metro Global'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 Metro Global with
copies of all Section 16(a) forms they file.

         Based solely on a review of the copies of such forms furnished to Metro
Global, or written representations that no Forms 5 were required, Metro Global
believes that, during fiscal 2000, all Section 16(a) filing requirements were
complied with in regards to its officers, directors and greater then 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 27, 2000, and (2) Gregory Alves and Janet Hoey are
late in filing their initial statements of beneficial ownership on Form 3.

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 27, 2000
(the "Named Executive Officers"). No other executive officer earned compensation
and bonus exceeding $100,000 during the fiscal year ended May 27, 2000.

<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.
---------------------------------------------------------------------------------------------------------------------------
Gregory N. Alves
<S>                         <C>       <C>              <C>        <C>         <C>            <C>             <C>        <C>
President (1)               2000      $  75,000         -          -           -              -               -          -
                            1999      $  75,000         -          -           -              -               -          -
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Mr. Alves possesses an ownership interest in a production company employed
      by Metro Global, which received payments of $110,000 and $76,000 from
      Metro Global during fiscal 2000 and 1999, respectively. See "Item 12.
      Certain Relationships and Related Transactions."

OPTIONS GRANTED IN LAST FISCAL YEAR

         Metro Global did not grant stock options to any of the Named Executive
Officers during the fiscal year ended May 27, 2000.

                                       21
<PAGE>

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

         None of the Named Executive Officers exercised any options for stock of
Metro Global during the fiscal year ended May 27, 2000. The following table sets
forth information with respect to the Named Executive Officers with respect to
the unexercised options held by them as of the end of the fiscal year ended May
27, 2000.

<TABLE>
<CAPTION>
                    Aggregated Options / SAR Exercises in Last Fiscal Year and fiscal year-end Option / SAR Values
                    ----------------------------------------------------------------------------------------------

                                                                Number of Securities       Value of Unexercised
                                                               Underlying Unexercised    In-the-Money Options/SARs
                                                               Options/SARs at FY-End               at
                                                                                                  FY-end

                         Shares Acquired on        Value
                            exercise (#)       Realized ($)         Exercisable /       Exercisable / Unexercisable
Name                                                                Unexercisable
-------------------------------------------------------------------------------------------------------------------
<S>                               <C>                <C>                  <C>                        <C>
None                             -0-                -0-                  -0-                        -0-
-------------------------------------------------------------------------------------------------------------------
</TABLE>

         In September 1993, a disinterested majority of the Board of Directors
authorized the execution of an Employment Agreement with Kenneth F. Guarino,
effective as of January 1, 1993. By mutual agreement, the employment agreement
was terminated on December 31, 1996. In addition, Metro Global granted Mr.
Guarino stock options to purchase up to 200,000 shares of Common Stock at a
purchase price of $1.50 per share, exercisable in four annual installments of
50,000 shares commencing January 1, 1994. In January 1997 the term of the
options was extended to December 31, 2006. The requirement that the options be
exercised within 30 days after termination of employment was deleted.

         In March 1999, the Board of Directors entered into a one year
consulting agreement with Mr. Guarino. In consideration of his services, Metro
Global paid Mr. Guarino $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. The consulting agreement
was terminated in October 1999.

COMPENSATION OF DIRECTORS

         Metro Global 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.

                                       22
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding Metro
Global's Common Stock beneficially owned as of May 27, 2000 (i) by each person
who is known by Metro Global to own beneficially more than 5% of Metro Global's
Common Stock and (ii) by each of Metro Global's directors, Named Executive
Officers 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)
---------------------------------------------------------------------------------------------------
Named Executive Officers and Directors
---------------------------------------------------------------------------------------------------
<S>                                                        <C>                             <C>
Janet Hoey                                                -0-
268 Wilson Road                                                                            *
Fall River, MA  02720
---------------------------------------------------------------------------------------------------
Alan S. Casale
1140 Reservoir Avenue                                   1,220  (2)                         *
Cranston, RI  02920
---------------------------------------------------------------------------------------------------
Gregory N. Alves                                       88,180  (3)                         *
5150 Avenida Hacienda
Tarzana, CA  91356
---------------------------------------------------------------------------------------------------
All executive officers and directors as a
group (5 people)                                       89,400                              *
---------------------------------------------------------------------------------------------------
5% Beneficial Owners
---------------------------------------------------------------------------------------------------
Briana Investment Group, LP
c/o Helen Adderley, Esquire                         1,745,318                          22.22
Corner House
20 Parliament Street
Hamilton HM DX, Bermuda
---------------------------------------------------------------------------------------------------
Kenneth F. Guarino                                  2,619,401  (4)                     30.35
50 Fort Avenue
Cranston, RI  02905
---------------------------------------------------------------------------------------------------
Metro Plus
1060 Park Avenue                                      186,758                           2.16
Cranston, RI 02910
---------------------------------------------------------------------------------------------------
</TABLE>

* Beneficial ownership represents less than 1% of Metro Global'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
      September 30, 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 85,780 shares held by Mr. Alves' mother, with respect to which he
      disclaims beneficial ownership.

                                       23
<PAGE>

(4)   Includes 300,000 unexercised stock options, 1,745,318 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.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr. Guarino serves as the operations manager and is 100% owner of, CVC,
which operates a chain of retail video stores in the New England and upstate New
York area. CVC accounted for $11,494,896 (41%) and $9,358,002 (40%) of the
revenues of Metro for the fiscal years ended May 27, 2000 and May 29, 1999. At
May 27, 2000, $2,440,548 (45%) of Metro's outstanding accounts receivable were
due from CVC. At May 29, 1999, $2,419,990 (40%) of Metro's outstanding accounts
receivable were due. 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 is
as follows:

-------------------------------------------------------------------------------
                   Current        30-60 days       60-90 days      Over 90 days
-------------------------------------------------------------------------------
May 27, 2000      $1,009,961       $  991,775       $ 438,812       $   -0-
-------------------------------------------------------------------------------
May 29, 1999      $  684,339       $  599,408       $ 561,475       $  574,768
-------------------------------------------------------------------------------

         While in the past, Metro Global did not allow CVC receivables to age
beyond 90 days, Metro Global's management has determined that extending CVC's
payment terms is reasonable and in the best interests of Metro Global because of
the volume of business CVC has historically provided to Metro Global, and the
value of the inventory securing the payment of the accounts receivable.

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

         Effective May 1, 1993, Metro 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 Metro's executive,
administrative, editorial and operational offices, the data center, customer
service, warehouse 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 consumer price index. In fiscal 1998,
Metro 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.

         Metro Global pays property taxes, in lieu of rent, on real property
located at 1060 Park Avenue, Cranston, RI. 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 27, 2000 and May 29, 1999, Metro Global incurred approximately $13,493
and $6,000 of expense, respectively.

                                       24
<PAGE>

         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' 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 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 issued its one-year promissory note in
the principal amount of $250,000 bearing interest at 8% to Dennis Nichols,
President of Metro. On August 1, 1999, the term of the note was extended for one
year. In consideration for the extension, the interest rate was adjusted from 8%
to 10%, the principal amount of the note was increased to $270,000 and Mr.
Nichols was granted warrants to purchase 75,000 shares of Metro Global's Common
Stock for $2.58 per share.

         On August 1, 1998, Metro Global entered into a one-year promissory note
for $750,000 at 8% interest with Briana Investment Group, L.L.C. ("Briana").
Briana is a trust established for the benefit of Mr. Guarino's wife and
children. On August 1, 1999, the note was extended for one year and the interest
rate was increased to from 8% to 10% and Briana was granted warrants to purchase
40,000 shares of Metro Global's Common Stock for $2.58 per share. In October
1998, an unrelated party holding 400,000 warrants issued in conjunction with the
Series A Preferred stock transferred the warrants to Briana. In October 1999,
Briana exercised the warrants, and the note payable was reduced from $750,000 to
$150,000.

         In October 1998, Metro Global repurchased 198,242 shares of its
outstanding Common Stock from Metro Plus, a company partially owned by Mr.
Guarino. Metro Global paid $2.56 per share, which was the market price on the
date of the transaction.

         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 $2.063 per share. Since the date of
the consulting agreement, Metro Global recorded consulting expense of $106,667
and $21,333 in connection with the issuance of the warrants and reimbursed Mr.
Guarino for approximately $82,000 and $70,000 of expenses incurred in connection
with his activities for Metro Global during the years ended May 27, 2000 and May
29, 1999, respectively. The consulting agreement was terminated in October 1999.

         Greg Alves, a director and President of Metro Global, possesses an
ownership interest in a production company that is employed by Metro Global or
its subsidiaries. The production company received payments of $110,000 from
Metro during fiscal 2000 and approximately $76,000 during fiscal 1999.

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

                                       25
<PAGE>

CONFLICTS OF INTEREST

         Of necessity, some inherent conflict of interest is involved whenever
Officers, Directors and others acting on behalf of Metro Global, supply services
or goods to Metro Global 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 Metro Global transacts
business. For example, Metro Global's largest customer, CVC, is wholly owned by
Kenneth Guarino, a principal shareholder of Metro Global. 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 respective businesses and opportunities.

         Many of the persons who perform services as Officers and Directors to
Metro Global are actively, and in the future will be, involved in businesses
from which they derive income, other than Metro Global. Their activities may
include information and management of business ventures, the legal profession,
purchase and sale of real estate and pursuit of other opportunities. It is
expected that these persons will continue their separate business activities in
conjunction with their activities at Metro Global.

         Although the Board of Directors believes that members of management
will be of great assistance to Metro Global in the fulfillment of its corporate
mission, some transactions may and will occur where Metro Global 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 Metro Global. However, it is intended that, in accordance with
legal principals applicable to corporations, Metro Global's action will be
determined whenever possible by a disinterested majority of the Board of
Directors.

         It is Metro Global'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 Metro Global than Metro Global would grant to or obtain from an
independent third party in an arms-length transaction. Because a majority of the
Board of Directors are not affiliated with CVC, all transactions between Metro
Global or Metro and CVC have been, and all future transactions will be, approved
and/or ratified by a disinterested majority of the Board of Directors.

                                       26
<PAGE>

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.

   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.

                                       27
<PAGE>

   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.

   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.

                                       28
<PAGE>

   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.

   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.

                                       29
<PAGE>

  *23    Consent of Independent Auditors

   99.1  Letter from Ellis L. Levin, Director of Ten Eyck Associates, Inc.,
         dated March 5, 1998 as filed with the Commission on April 13, 1998 as
         Exhibit (1) on Form 8-KA and incorporated herein by reference.

   99.2  Letter from Trien Rosenberg, Rosenberg, Weinberg, Ciullo & Fazzari LLP,
         dated March 18, 1998 as filed with the Commission on April 13, 1998 as
         Exhibit (2) on Form 8-KA and incorporated herein by reference.

  *27.1  Financial Data Schedule

(B)   REPORTS ON FORM 8-K

      None

                                       30
<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: February 13, 2001

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-KSB/A amending its annual report on
Form 10-KSB for fiscal year ended May 27, 2000 previously filed, to be signed on
its behalf by the undersigned, thereunto duly authorized.

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

/s/ Gregory N. Alves       President and Director              February 13, 2001
--------------------
Gregory N. Alves

/s/ Louis T. Turcotte      Treasurer (principal
---------------------      financial and accounting Officer)   February 13, 2001
Louis T. Turcotte          , Secretary and Director

/S/ Alan S. Casale         Director                            February 13, 2001
------------------
Alan S. Casale

                                       31
<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 - F26

                                       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 27, 2000, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended May 27, 2000. 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 generally accepted auditing
standards. 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 27, 2000 and the results of their operations and
their cash flows for each of the years in the two-year period ended May 27,
2000, in conformity with generally accepted accounting principles.

                                  Imowitz Koenig & Co., LLP

New York, New York

August 16, 2000

                                       F-1
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 27, 2000
--------------------------------------------------------------------------------

                                     Assets
                                     ------

Current Assets
--------------

  Cash                                                              $   361,539
  Accounts receivable, less allowance for doubtful accounts
     of $ 205,755                                                     2,991,057
  Accounts receivable, related party                                  2,440,548
  Note Receivable                                                     2,465,649
  Inventory                                                           4,908,890
  Recoverable income tax                                                339,000
  Prepaid expenses and other current assets                             365,025
                                                                    -----------
Total Current Assets                                                 13,871,708
--------------------                                                -----------

  Motion pictures and other films at cost, less accumulated
    amortization of $11,024,411
                                                                      5,456,641
  Property and equipment at cost, less accumulated
    depreciation of $2,850,211
                                                                      2,125,424
  Investment in securities
                                                                      4,523,724
  Deferred taxes
                                                                        900,000
  Other assets
                                                                        149,056
                                                                    -----------
Total Assets                                                        $27,026,553
------------                                                        ===========

                 See Notes to Consolidated Financial Statements

                                       F-2
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 27, 2000
--------------------------------------------------------------------------------

                      Liabilities and Shareholders' Equity
                      ------------------------------------

Current liabilities
-------------------

  Current portion of capital lease obligations                        $ 300,435
  Short-term borrowings                                               5,716,311
  Accounts payable                                                    5,516,166
  Accrued expenses                                                      882,370
  Income taxes payable                                                  946,289
                                                                    -----------
Total current liabilities                                            13,361,571
-------------------------


  Deferred revenue                                                    4,217,537
  Capital lease obligations, less current portion                       326,902
                                                                    -----------
Total liabilities                                                    17,906,010
-----------------                                                   -----------

  Minority interest                                                     (56,044)

Commitments and contingencies

Shareholders' equity
--------------------

  Preferred Stock, no par value; authorized 2,000,000 shares;
    issued and outstanding, none                                            -0-
  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                                         16,647,184
  Accumulated deficit                                                (6,680,432)
  Accumulated other comprehensive loss                                 (283,048)
                                                                    -----------
                                                                      9,684,587

  Unearned compensation                                                    (500)
  Less cost of Treasury Stock (198,242 common shares)                  (507,500)
                                                                    -----------
Total shareholders' equity                                            9,176,587
--------------------------                                          -----------
Total liabilities and shareholders' equity                          $27,026,553
------------------------------------------                          ===========

                 See Notes to Consolidated Financial Statements

                                       F-3
<PAGE>


METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                             2000            1999
                                                                             ----            ----
<S>                                                                     <C>             <C>
Revenues (including $11,494,896 and $9,358,002 to
  related parties in fiscal 2000 and 1999,
  respectively)                                                         $ 27,789,050    $ 23,389,171
Cost of revenues, including amortization of
  motion pictures and other films of
  $2,289,778 and $1,757,722, respectively                                 18,023,323      16,074,451
Selling, general and administrative expenses
  (including $106,667 and $108,333 to related
  parties in 2000 and 1999, respectively)                                 10,777,958       9,493,943
                                                                        ------------    ------------

Other income and (expenses)                                               (1,012,231)     (2,179,223)
                                                                        ------------    ------------
Interest expense (including $232,523 and $175,575
  to related parties in 2000 and 1999,
  respectively)
Interest income                                                           (1,093,912)     (2,240,488)
Other income                                                                 195,320             -0-
                                                                             143,475         125,720
                                                                        ------------    ------------
                                                                            (755,117)     (2,114,768)
                                                                        ------------    ------------
Loss from continuing operations before income taxes                       (1,767,348)     (4,293,991)
  Benefit from income taxes                                                 (311,605)       (166,850)
                                                                        ------------    ------------
Loss from continuing operations                                           (1,455,743)     (4,127,141)

Extraordinary gain on debt restructuring (net of taxes of $137,015)          200,460             -0-
Gain on sale of discontinued operations (net of taxes of $469,756)           687,279             -0-
Income (loss) from discontinued operations (net of taxes (benefit) of
$(241,220) and $134,500 in fiscal 2000 and 1999, respectively)              (352,919)        150,201
                                                                        ------------    ------------
Net loss                                                                $   (920,923)   $ (3,976,940)
                                                                        ============    ============

Comprehensive Loss
------------------

Net loss                                                                $   (920,923)   $ (3,976,940)
                                                                        ------------    ------------
Other comprehensive loss                                                    (276,283)         (6,765)
                                                                        ------------    ------------
Net other comprehensive loss                                            $ (1,197,206)   $ (3,983,705)
                                                                        ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       F-4
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

Loss Per Share:

  Loss from continuing operations:
    Basic and Diluted                                     $ (0.21)     $ (0.80)
  Extraordinary gain on debt restructuring:
    Basic and Diluted                                        $0.03         $-0-
  Gain on sale of discontinued operations:
    Basic and Diluted                                        $0.10         $-0-
  Income (Loss) from discontinued operations:
    Basic and Diluted                                     $ (0.05)        $0.03
  Net loss:
    Basic and Diluted                                     $ (0.13)     $ (0.77)
  Weighted average number of shares:
    Basic and Diluted                                    7,119,146    5,511,084

                 See Notes to Consolidated Financial Statements

                                       F-5
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                              Series A                                                     Additional
                                           Preferred Stock          Common Stock          Treasury          Paid-in
                                           Shares      Amt         Shares        Amt        Stock           Capital

Balance at May 30, 1998 (as
<S>                                         <C>    <C>            <C>           <C>          <C>          <C>
restated)                                   855    $ 857,979      4,245,193     $424         $ -0-        $9,316,063

Shares issued:
  as compensation                                                   414,885       42                       1,037,550
  in connection with
    conversion of Series A
Preferred Stock                            (855)    (857,979)       982,120       98                       2,174,902
  as interest cost on
    borrowings                                                      250,000       25                         569,975
  upon exercise of warrants                                         400,000       40                         599,960
  upon exercise of option                                           250,000       25                         299,975
Embedded interest on
  convertible debentures                                                                                     202,092
Dividends on Series A
  Preferred Stock                                                                                            309,248
Purchase of Treasury Stock                                                                (507,500)
Issuance of unexercised
  warrants                                                                                                   818,847
Issuance of unexercised
  options                                                                                                    128,000
Amortization of unearned
  compensation - stock
Net Loss
Other comprehensive loss
                                           -----      -----       ---------     ----     ----------      -----------
Balance, May 29, 1999                       -0-        -0-        6,542,198      654      (507,500)       15,456,612
                                           -----      -----       ---------     ----     ----------      -----------

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
Other comprehensive loss
                                           -----      -----       ---------     ----     ----------      -----------
Balance, May 27, 2000                       -0-        -0-        8,828,465     $883     $(507,500)      $16,647,184
                                           =====      =====       =========     ====     ==========      ===========
</TABLE>

<TABLE>
<CAPTION>
                                             Retained          Other
                                             Earnings      Comprehensive      Unearned
                                           (accumulated        Loss         Compensation         Total
                                             deficit)
Balance at May 30, 1998 (as
<S>                                        <C>                   <C>          <C>             <C>
restated)                                  $(1,473,321)          $ -0-        $(64,375)       $8,636,770

Shares issued:
  as compensation                                                             (415,380)          622,212
  in connection with
    conversion of Series A
Preferred Stock                                                                                1,317,021
  as interest cost on
    borrowings                                                                                   570,000
  upon exercise of warrants                                                                      600,000
  upon exercise of option                                                                        300,000
Embedded interest on
  convertible debentures                                                                         202,092
Dividends on Series A
  Preferred Stock                             (309,248)
Purchase of Treasury Stock                                                                      (507,500)
Issuance of unexercised
  warrants                                                                                       818,847
Issuance of unexercised
  options                                                                     (128,000)
Amortization of unearned
  compensation - stock                                                         247,538           247,538
Net Loss                                    (3,976,940)                                       (3,976,940)
Other comprehensive loss                                       (6,765)                            (6,765)
                                           ------------    -----------          -------       ----------
Balance, May 29, 1999                       (5,759,509)        (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)                                         (920,923)
Other comprehensive loss                                     (276,283)                          (276,283)
                                           ------------    -----------          -------       ----------
Balance, May 27, 2000                      $(6,680,432)    $ (283,048)          $ (500)       $9,176,587
                                           ============    ===========          =======       ==========
</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 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                     2000             1999
                                                                                     ----             ----
<S>                                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                        $(920,923)     $(3,976,940)
                                                                                   ---------      -----------

Adjustments to reconcile net loss to net cash provided by operating activities:
  Depreciation Expense                                                               655,300          513,773
  Amortization of motion pictures and other films                                  2,289,778        1,757,722
  Amortization of deferred rent                                                      (14,011)         (14,011)
  Amortization of unearned compensation                                              359,717          247,538
  Amortization of goodwill                                                           145,624          364,071
  Amortization of discount on debenture                                               78,850           65,708
  Amortization of deferred revenue                                                  (569,937)             -0-
  Amortization of deferred expense                                                   119,458              -0-
  Accrued interest and penalties added to note payable principal                     273,000           60,000
  Discount on issuance of convertible debenture                                          -0-         (157,700)
  Allowance for doubtful accounts                                                    (31,345)          74,070
  Embedded interest on convertible debentures                                            -0-          202,092
  Gain on sale of discontinued operation                                            (453,385)             -0-
  Common Stock issued for consulting services                                         98,378          573,478
  Common Stock issued for compensation                                                43,000              -0-
  Common Stock issued for interest expense                                               -0-          570,000
  Issuance of warrants                                                               175,844          818,847
  Minority interest                                                                 (109,511)           5,247
  Foreign exchange                                                                   (12,533)          (6,765)
(Increase) decrease in assets:
  Accounts receivable                                                               (336,749)      (2,906,281)
  Inventory                                                                         (804,810)        (377,117)
  Prepaid expenses and other current assets                                           70,264         (960,857)
  Other assets                                                                       (30,341)         (93,819)
  Recoverable income tax                                                                 -0-         (134,000)
  Deferred income taxes                                                             (900,000)             -0-
Increase (decrease) in liabilities:
  Accounts payable and accrued expenses                                            1,551,895        3,781,550
  Income taxes payable                                                               622,020           99,650
                                                                                   ---------      -----------
Total adjustments                                                                  3,220,506        4,483,196
                                                                                   ---------      -----------
Net cash provided by operating activities                                          2,299,583          506,256
                                                                                   ---------      -----------
</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 ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                2000            1999
                                                                                ----            ----
<S>                                                                          <C>             <C>
CASH FLOWS FROM INVESTING ACTIVITIES:

  Acquisition of Fanzine                                                            -0-      (4,000,000)
  Acquisition costs                                                                 -0-        (168,860)
  Notes Receivable                                                            1,821,272             -0-
  Investments in motion pictures and other films                             (2,892,892)     (2,869,558)
  Purchase of property and equipment                                           (384,745)       (477,322)
                                                                             ----------      ----------
Net cash used in investing activities                                        (1,456,365)     (7,515,740)
                                                                             ----------      ----------
CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from the issuance of Series A convertible Preferred Stock                -0-       1,317,021
  Purchase of Treasury Stock                                                        -0-        (507,500)
  Proceeds from issuance of common stock                                            -0-          48,734
  Proceeds from exercise of warrants                                                -0-         600,000
  Proceeds from issuance of convertible debentures                                  -0-       1,200,000
  Net proceeds from line of credit                                            2,187,155         412,026
  Proceeds on notes payable                                                      30,000       5,100,000
  Principal payments on notes payable                                        (2,325,000)       (875,000)
  Principal payments on capital lease obligations                              (373,834)       (356,504)
  Contribution from joint venture partner                                           -0-          30,000
                                                                             ----------      ----------
Net cash (used in) provided by financing activities                            (481,679)      6,968,777
                                                                             ----------      ----------
Net increase (decrease) in cash                                                 361,539         (40,707)
Cash, beginning of year                                                            (-0-)        184,995
Adjustment for discontinued operations                                              -0-        (144,288)
                                                                             ----------      ----------
CASH, END OF YEAR                                                            $  361,539      $      -0-
                                                                             ==========      ==========
Supplemental disclosures of cash flow information:

    Cash paid during the year for:

        Interest                                                             $  474,360      $  236,728
                                                                             ==========      ==========
        Income taxes                                                         $  240,000      $      -0-
                                                                             ==========      ==========
</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 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

Supplemental schedule of non-cash investing and financing activities:

         During the year ended May 29, 1999, a payable of $300,000 was converted
into 250,000 restricted shares of Metro Global's Common Stock by a related party
(see note 12).

         During the year ended May 29, 1999, 2,175 shares of Series A preferred
stock plus accrued dividends of $35,247 were converted into 982,120 shares of
Metro Global's Common Stock. Metro Global recognized total dividends of $543,750
relating to the beneficial conversion feature of this stock. As of May 29, 1999
all shares had been converted.

         Capital lease obligations of $411,799 and $230,382 were incurred during
the fiscal years 2000 and 1999, respectively, when Metro Global entered into
capitalized leases for office equipment and machinery and equipment.

         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. At May 27, 2000, Metro
Global reserved $263,750 against the investment for a change in market
valuation.

         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 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.

         During the year ended May 27, 2000, various payables and debt due to
related parties totaling $966,231 were assumed by Capital Video Corp, Inc.
("CVC"). The accounts receivable from CVC was reduced accordingly.

         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.

                 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 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

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, Inc. ("Metro"), a wholly-owned
subsidiary of 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.

                                      F-10
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (CONTINUED)

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.

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. The cost of motion picture films is charged to operations in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 53,
Financial Reporting by Producers and Distributors of Motion Picture Films.
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.

Earnings per Share

         Basic earnings (loss) per share is 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.

                                      F-11
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (CONTINUED)

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 are being amortized on a straight-line
basis over ten years. Amortization expense amounted to $133,333 and $333,333 for
goodwill and $12,295 and $30,738 for acquisition costs for the year ended May
27, 2000 and May 29, 1999, respectively. The write-off of goodwill was taken
into account in determining the gain on sale of Fanzine(see notes 2 and 17).

Comprehensive Income (loss)

         In 1999, Metro Global adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") which requires
the display of comprehensive income (loss) and its components in the financial
statements. Comprehensive income (loss) includes net earnings and unrealized
gains and losses from currency translation, available for sale marketable
securities and minimum pension liability adjustments. Metro Global's components
of comprehensive loss as of May 27, 2000 consists of a current period charge of
$(12,533) in foreign currency translation and $(263,750) in market valuation
from investment in securities.

Advertising Costs

         The cost of advertising is expensed as incurred. For the years ended
May 27, 2000 and May 29, 1999, Metro incurred advertising expense of $237,964
and $283,273, 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, that are capitalized and
depreciated over estimated useful lives.

New Accounting Pronouncement

         In June 1998, and subsequently amended in 1999 and 2000, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized

                                      F-12
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (CONTINUED)

currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.

         SFAS 133 is effective for fiscal years beginning after June 15, 2000.
SFAS 133 cannot be applied retroactively. SFAS 133 must be applied to (a)
derivative, instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997. The adoption of SFAS 133 will have no effect on the financial
statements of Metro Global, as Metro Global has no derivative activity.

         In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not impact Metro
Global's revenue recognition policies.

         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 will be immaterial to the
financial statements.

2. 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 controls Maxstone, has included Maxstone's results from
operations in the consolidated financial statements. Minority interest amounted
to $(56,044) at May 27, 2000. Metro Global is in the process of dissolving this
company, and has classified results as discontinued operations in the
accompanying financial statements.

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

                                      F-13
<PAGE>

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 will receive
payments totaling $4,500,000. Payment of the $4,500,000 is secured by the assets
of Fanzine and partly secured by the personal guarantees of the former Fanzine
shareholders. For the year ended May 27, 2000, Metro Global received payments of
$2,000,000. Metro Global received a payment of $1,000,000 on May 31, 2000 and
will receive a payment of $1,500,000 by August 31, 2000. The operations of
Fanzine have been classified as discontinued operations in the accompanying
financial statements (see note 17).

3.  PROPERTY AND EQUIPMENT

    Property and equipment consists of the following at May 27, 2000,


                Machinery and equipment                  $ 2,418,085
                Furniture and fixtures                     1,098,332
                Office equipment                             818,260
                Automobiles                                   98,932
                Leasehold improvements                       542,026
                                                         -----------
                                                           4,975,635
                Less: Accumulated depreciation             2,850,211
                                                         -----------
                Total                                    $ 2,125,424
                                                         ===========

4.  MOTION PICTURES AND OTHER FILMS

    Motion pictures and other films consist of the following at May 27, 2000,


             Motion picture films produced and released      $11,999,873
             Rights acquired to release motion pictures
               and other films                                 2,161,854
             CD-ROM                                              471,478
             DVD                                                 288,704
             Motion picture films in process                   1,559,143
                                                             -----------
                                                              16,481,052
             Less: Accumulated amortization                   11,024,411
                                                             -----------
             TOTAL                                           $ 5,456,641
                                                             ===========

                                      F-14

<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

5.  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. At May 27, 2000, Metro Global recorded a comprehensive loss of
$263,750 on the investment. 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.

6.  DEBT

         On August 1, 1998, Metro Global 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, $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 recorded interest expense of $243,412 in
1999 in connection with the issuance of the restricted stock. Metro Global used
$507,500 of the proceeds to repurchase 198,242 shares of its outstanding Common
Stock from Metro Plus, a company partially owned by a significant shareholder.
For the year ended May 29, 1999, Metro Global made one payment of $275,000. As a
result, default interest at 11% per annum has been accrued on this note. 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 must make monthly payments of $50,000.

         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

                                      F-15
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

6.  DEBT (CONTINUED)

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 includes $100,000 of interest) will be paid directly from the
proceeds of the final payment from the sale of Fanzine. 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.

         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.

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%. All leases are secured by the respective assets
acquired.

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

            2001                                                      $ 353,771
            2002                                                        263,296
            2003                                                         71,953
            2004                                                         10,435
            2005                                                          4,724
                                                                          -----
         Total minimum lease payments                                   704,179
         Less:  Amount representing interest                           (76,842)
                                                                      ---------
         Present value of net minimum lease payments                  $ 627,337
                                                                      =========


                                      F-16
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

7.  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. Metro Global recorded a
discount on the debenture of $157,700 for the value of the warrants. Metro
Global amortized $78,850 and $65,708 of the discount to interest expense during
fiscal 2000 and 1999, respectively.

         The $1,000,000 debenture was to mature on July 31, 2000. Interest is
payable on a quarterly basis. The holder of the debenture is entitled to convert
the principal value into Metro Global's Common Stock at a discounted market
price as is 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 is
due in two installments of $425,000 each, due on July 1, 2000 and October 1,
2000. The restructured note payable is secured by 200,000 restricted shares of
New Frontier common stock owned by Metro Global. On June 30, 2000, Metro Global
made the first $425,000 payment and 125,000 shares were returned by the lender.

         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.

8. SHORT-TERM BORROWINGS

         Pursuant to a line of credit agreement with Finova Capital, Metro
Global's subsidiary, Metro, was able to borrow up to 75% of assigned accounts
receivable less than 90 days old, up to a maximum of $1,000,000 at an interest
rate of prime plus 5% per annum. The outstanding balance under the line was
secured by the accounts receivable of Metro, and the guarantee of Metro Global.
On November 11, 1999, the outstanding balance on the line of credit was repaid
with proceeds from the line of credit with Reservoir Capital Corporation
described below.

                                      F-17
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

8. SHORT-TERM BORROWINGS (CONTINUED)

         In September 1999, Metro Global signed a $4,000,000 Loan and Security
Agreement with Reservoir Capital Corporation. Pursuant to the terms, Metro may
borrow up to 70% of accounts receivable less than ninety days 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. The borrowings on accounts receivable from CVC, a related party, are
limited to the lesser of 30% of total accounts receivable or $1,600,000.
Additionally, Metro can borrow 40% of inventory, up to a maximum of $1,000,000.
Borrowings under this loan bear interest at prime rate plus 3.5% per annum.
Additionally, Metro must pay a service fee of .35% per month on the average
daily loan balance. Metro must pay an unused fee of .25% on the amount of the
borrowings under $2,000,000. The loan is secured by the assets of Metro. The CVC
accounts receivable are guaranteed to the lender by the sole shareholder of CVC,
who is a principal shareholder of Metro Global. Additionally, CVC has executed a
put on the inventory of Metro in case of default. As of May 27, 2000, borrowings
under the line of credit totaled $3,129,453.

         The following schedule summarizes short term borrowings as of May 27,
2000:

         Note payable                                              $     550,000
         Term loan                                                     1,200,000
         Convertible debenture, net of discount (Note 7)                 836,858
         Line of credit (Note 8)                                       3,129,453
                                                                   -------------
                                                                   $   5,716,311
                                                                   =============

9.  INCOME TAXES

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

                                                        2000           1999
                                                        ----           ----
    Current provision (benefit)
        Federal                                      $ 492,034      $(140,622)
        State and local                                 96,361        (26,228)
                                                     ---------      ---------
                                                       588,395       (166,850)
                                                     ---------      ---------
    Deferred (benefit)
        Federal                                       (679,000)           -0-
        State and local                               (221,000)           -0-
                                                     ---------      ---------
                                                      (900,000)           -0-
                                                     ---------      ---------
    Total                                            $(311,605)     $(166,850)
                                                     =========      =========

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

                                                        2000           1999
                                                        ----           ----
    Taxes (benefit) computed at 34%                  $(600,898)   $(1,459,957)
    Valuation allowance                                118,636        582,485
    Permanent differences                              121,837        500,023
    Other                                               48,820        210,599
                                                     ---------    -----------
                                                     $(311,605)   $  (166,850)
                                                     =========    ===========

         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 as
follow:

                                      F-18
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

9.  INCOME TAXES (CONTINUED)

                                                     2000            1999
                                                     Asset           Asset
                                                  (Liability)     (Liability)
                                                  -----------     -----------

       Excess depreciation                        $ (187,000)     $ (200,000)
       Unearned management compensation              122,000         122,000
       Allowance for doubtful accounts                83,000          96,000
       Inventory capitalization                      156,000         175,000
       State net operating loss carry forward        132,000         200,000
       Other net deferred assets                   1,712,000         (21,000)
                                                  ----------      ----------
                                                   2,018,000         372,000
       Less valuation allowance                   (1,118,000)       (372,000)
                                                  ----------      ----------
       Net deferred tax asset                     $  900,000             -0-
                                                  ==========      ==========

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

10.  SHAREHOLDERS' EQUITY

Series A Convertible Preferred Stock

         During April 1998, Metro Global entered into an Offshore Securities
Subscription Agreement for convertible preferred shares pursuant to Regulation S
of the U.S. Securities Act of 1933. Under the terms of the agreement, Metro
Global issued 2,175 shares of 1998 Series A Convertible preferred stock (`Series
A Shares') at a price of $1,000 per share with a 5% cumulative dividend payable
in Common Stock at conversion. At May 30, 1998, Metro Global received proceeds
of $846,500, net of offering costs representing 855 shares. Substantially all of
the proceeds for the remaining 1,320 shares were received in fiscal 1999.

         The Series A Shares were convertible at a rate of 100 shares plus
accrued dividends per week at 80% of the 15 day average closing bid price. These
Shares were subject to a twenty-four month mandatory conversion feature. Metro
Global recognized dividends of $309,248 at May 29, 1999, for the embedded
beneficial conversion feature. 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 (see note 12).

Consultant Stock Compensation Plan

         Metro Global's Consultant Stock Compensation Plan allows Metro Global
to compensate consultants and certain other persons who have provided service to
Metro Global through the award of 500,000 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 29, 1999, Metro Global issued 390,092 shares
of Common Stock valued at $988,858. During the year ended May 27, 2000, Metro
Global issued 135,504 shares of Common Stock valued at $98,378. As of May 27,
2000, 16,404 shares are available under this plan.

                                      F-19
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

10.  SHAREHOLDERS' EQUITY (CONTINUED)

Equity Incentive Plan

         During the year ended May 31, 1997, Metro Global adopted an Equity
Incentive Plan (the `Plan') which 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 29, 1999, options to purchase 20,000 shares
of Common Stock were exercised. 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 27, 2000.

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 ended and 595,207 shares remain unawarded.

Stock Options

         Pursuant to an employment agreement, Kenneth Guarino, a significant
shareholder 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. Metro Global recognized $137,500 of additional expense in fiscal 1997
for the extension (see note 12).

         Effective April 1, 1999, Metro Global entered into a one year
consulting agreement with Kenneth Guarino. Under the agreement, the former
executive 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 $21,333 to consulting expense for the year ended May 29, 1999 and
$106,667 for the year ended May 27, 2000. The consulting agreement was
terminated effective October 25, 1999.

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

                                      F-20
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

11. COMMITMENTS AND CONTINGENCIES

Operating Leases

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

<TABLE>
<CAPTION>
                                    Office                     Machinery
                                   Warehouse                      And
         Year        Total         Premises       Vehicles     Equipment
     ----------------------------------------------------------------------
         <S>          <C>            <C>         <C>           <C>
         2001         $558,378       $524,897    $ 7,615       $ 25,866
         2002          544,795        524,897      2,538         17,360
         2003          512,618        504,178        -0-          8,440
         2004          283,909        276,264        -0-          7,645
         2005              -0-            -0-        -0-            -0-
                    ----------     ----------    -------       --------
        Total       $1,899,700     $1,830,236    $10,153       $ 59,311
                    ==========     ==========    =======       ========
</TABLE>

         The lease on the Rhode Island warehouse and office facilities (see note
12) 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.

         Metro Global had three leases on California buildings which expired on
July 1, 1999. On July 15, 1999, Metro Global signed a lease for new space in
California. The lease has a term of four years and eleven and one half months
expiring on June 30, 2004, with a renewable option for sixty months.

         The lease on the New York City space, which houses Fanzine and
Maxstone, expires on May 30, 2003. The lease was assumed by Fanzine effective
September 29, 1999 upon the sale of Fanzine.

         Rent expense under office and warehouse operating leases totaled
$557,522 and $458,897 during the years 2000 and 1999, respectively

Uninsured Cash

         Metro Global maintains its cash in various banks. Accounts at each bank
are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000.

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
person who acquired securities of Metro Global between September 13, 1996 and

                                      F-21
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

11.      COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 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, 200 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's reply to the
plaintiffs opposition is due September 1, 2000. Metro Global believes it has
meritorious defenses and intends to vigorously defend this action.

         Metro Global used three vendor in 2000 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 41% and 40% of Metro Global's sales
(from continuing operations) during the years ended May 27, 2000 and May 29,
1999, respectively.

12.      RELATED PARTY TRANSACTIONS

         Metro Global has significant tenant, borrower and customer
relationships with companies owned and managed by shareholders of Metro Global
(see Notes 6 and 11). Significant related party transactions for the years 2000
and 1999 are summarized below:

         Capital Video Corporation ("CVC"), which is owned by Kenneth Guarino, a
significant shareholder, operates approximately thirty video and magazine retail
stores in the New England and New York areas and accounted for approximately 41%
and 40% of Metro Global sales for the years May 27, 2000 and May 29, 1999,
respectively. Metro Global accounts receivables include $2,440,548 due from CVC
at May 27, 2000. No allowance for doubtful related party receivables and no
related party bad debt expense has been recorded in the accompanying 2000 and
1999 consolidated financial statements. During fiscal 2000 and 1999, Metro
Global recorded from CVC $105,777 and $90,569, respectively, 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. Castle Properties is principally owned by Mr. Guarino's wife. A
portion of the facility rented from Castle is sublet to CVC on a month-to-month
basis. Sublease income during the years 2000 and 1999 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 27,
2000 and 1999 was $200,633 and $200,061, respectively. 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,
which in management's opinion, represents fair market value of the rent for the
corporate office space utilized by Metro Global. For the year ended May 27, 2000
and May 29, 1999, Metro Global incurred approximately $13,493 and $6,000 of
expense, respectively, which in management's opinion, represents fair market
value of the rent for the corporate office space utilized by Metro Global.

                                      F-22
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

12.      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 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. 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. In consideration of the
services, Metro Global paid Mr. Guarino $10,000 per month. In addition, Metro
Global granted Mr. Guarino options to purchase up to 100,000 shares of Metro
Global's Common Stock at a price of $2.00 per share, exercisable for a period of
5 years. Metro Global recorded consulting expense of $106,667 and $21,333 in
connection with the issuance of the warrants and reimbursed approximately
$82,000 and $70,000 of expenses to Mr. Guarino during the years ended May 27,
2000 and May 29, 1999, respectively. In October 1999, the consulting agreement
was terminated.

         In October 1998, Metro Global repurchased 198,242 shares of its
outstanding Common Stock from Metro Plus, a company partially owned by Mr.
Guarino. Metro Global paid $2.56 per share, which was the market price on the
date of the transaction.

         A film production company owned by Mr. Alves, the President of Metro
Global, was paid approximately $110,000 and $76,000 during fiscal 2000 and 1999,
respectively.

         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.

                                      F-23
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

13.  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 27, 2000 and May 29, 1999 (see note 10).

         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 reserves 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 27, 2000
and May 29, 1999 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:

                                                        2000          1999
                                                        ----          ----

    Net loss - as reported                           $(920,923)  $(3,976,940)
    Net loss - pro forma                             $(929,923)  $(4,003,940)
    Basic and diluted loss per share - as reported       (0.13)         (.77)
    Basic and diluted loss per share - pro forma         (0.13)         (.78)

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended May 30, 1998: dividend yield
0.00%, expected volatility 58.08%, risk free interest rate of 7.50%, and
expected lives of ten years. No options were granted during the years ended May
27, 2000 or May 29, 1999.

         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-24
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

14.  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) and a certain trade
accounts receivable included in other assets, 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.

15.  EARNINGS PER SHARE

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

                                                 May 27, 2000     May 29, 1999
                                                 ------------     ------------

    Loss from continuing operations              $(1,455,743)     $(4,127,141)
     Preferred Stock dividends                           -0-         (309,248)
                                                 -----------      -----------
     Loss from continuing operations
       attributable to common shareholders       $(1,455,743)     $(4,436,389)
                                                 ===========      ===========

     Basic and Diluted EPS:
       Basic and Diluted common shares             7,119,146        5,511,084
       Basic and Diluted EPS from continuing
         operations                                  $ (0.21)         $ (0.80)

         The weighted average shares attributable to the dilutive instruments
listed below were not included in the computation of diluted earnings per share
because to do so would have been antidilutive for the periods presented:

                                                 May 27, 2000     May 29, 1999
                                                 ------------     ------------

    Stock Options                                     -0-           106,187
    12% convertible debentures                        -0-           338,736
    8% convertible debentures                         -0-           317,460

         At May 27, 2000 and May 29, 1999, warrants to purchase 1,200,000 and
550,000, respectively, 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.

                                      F-25
<PAGE>

METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 27, 2000 AND MAY 29, 1999
--------------------------------------------------------------------------------

16.  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. Intersegement 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 $919,083 and $764,931 at May 27, 2000 and May 29,
1999, respectively. There was no concentration of sales to any one country.
Foreign assets are immaterial at May 27, 2000.

17.  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 payable 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 and May 29, 1999:

                                                  May 27, 2000    May 29, 1999
                                                  ------------    ------------

   Revenues                                        $5,354,250     $11,733,545
   Cost of revenues                                 5,335,696      10,127,236
                                                   ----------     -----------
                                                       18,554       1,606,309

   Other expenses                                     722,204       1,321,608
                                                   ----------     -----------

   Income (Loss) before income taxes                 (703,650)        284,701

   Income tax (expense) / Benefit                     285,682        (134,500)
                                                   ----------     -----------

   Income (Loss) from discontinued operations       $(417,968)       $150,201
                                                   ==========     ===========

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

         Metro Global is currently winding down Maxstone and accordingly
accounted for Maxstone's income, net of tax of $44,461 as discontinued
operations in the accompanying financial statements.

                                      F-26