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

                                   Form 10-KSB

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

     For  the fiscal year ended May 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



                                        2


<PAGE>




                                TABLE OF CONTENTS

                                     PART I
                                     ------

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

ITEM 2.  PROPERTIES...........................................................12

ITEM 3.  LEGAL PROCEEDINGS....................................................12

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................12

                                     PART II
                                     -------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS..............................................................13

ITEM 6.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS................................................14

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA...........................17

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES................................................17

                                    PART III
                                    --------

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

ITEM 10. EXECUTIVE COMPENSATION...............................................19

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

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

                                     PART IV
                                     -------

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................25

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



                                        3


<PAGE>


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 On-Line, 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


                                        4


<PAGE>


pursuant to which Metro has acquired perpetual U.S.  distribution rights, and in
some cases limited foreign  distribution  rights,  to the motion picture.  Metro
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. ("I
Gallery"),  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
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 satallite 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.


                                        5


<PAGE>


Metro Inc. - West Coast division:

     Metro's  West  Coast  division,  located  in  Chatsworth,  CA,  duplicated,
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.

     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 beleives 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 distibution business.


                                       6


<PAGE>

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  trade  name 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.

     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.
AmazingDirect.com  which  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 world's
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.

                                       7


<PAGE>
     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.

     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 martketplace 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  distibutor  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.


                                       8

<PAGE>

     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  thoughout  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 itsown 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.

     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 2000, no other  customer  accounted for more than 10% of Metro  Global's
net sales.


                                        9


<PAGE>


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.

     Many of the  communities  in the areas in which  Airborne  intends to offer
Amazing  SuperStores  franchises and licensing  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  and  licensing  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.


                                       10


<PAGE>


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 METROtm,
INTROPICStm, CAL VISTAtm, MAGMAtm, AMAZING MEDIA GROUPtm, AMAZINGtm,  TOXXXICtm,
METRO  PRIME  CUTStm,   TABOOtm,   ONLY  THE  BESTtm,   CASTING  CALLtm,   BABES
ILLUSTRATEDtm, SOHOtm, ARCUStm, SUPERSHOTStm, RAGEtm and PULSEtm. Metro 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  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

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.


                                       11


<PAGE>


     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.

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.

     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

                                       12


<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.
<TABLE>
<CAPTION>

                                                              COMMON STOCK*
                                                           High Bid    Low Bid

<S>                                                       <C>         <C>
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

</TABLE>


     * 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
commisions, 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.


                                       13


<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.

     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.


                                       14


<PAGE>


     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 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.


                                       15


<PAGE>


     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.

     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

                                       16


<PAGE>


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
lines of credit,  are adequate to meet the anticipated  short-term and long-term
capital needs.  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
        ---------------------

        None


                                       17


<PAGE>


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.
<TABLE>
<CAPTION>

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

<S>                   <C>            <C>
Gregory N. Alves      33             President and Director

Alan S. Casale        51             Director

Janet M. Hoey         37             Treasurer, Secretary and Director

</TABLE>

     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,  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.


                                       18


<PAGE>


     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  than 10%
beneficial  owners  except  that:  (1) Briana  Investment  Group,  LLP,  Kenneth
Guarino,  and Alan Casale are late in filing Form 5  statements  with respect to
the fiscal year ended May 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
---------------------------------------------------------------------------------------------------------

                                                   Other               Securities               All
Name and Principal    Fiscal                       Annual              Underlying               Other
Position              Year    Salary       Bonus   Comp.     Awards    Options       Payouts    Comp.

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


                                       19



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

                         Shares          Value
                       Acquired on    Realized ($)     Exercisable /         Exercisable /
Name                  exercise (#)                     Unexercisable         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 compensation to its directors for their
services  in  that  capacity;  however,  directors  who are  not  employees  are
reimbursed  for  out-of-pocket   expenses  incurred  in  connection  with  their
attendance at Board of Directors or committee meetings.


                                       20


<PAGE>


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

     The following table sets forth certain information regarding 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                  Percentage of
                                            Common Stock                Beneficial Ownership
Name and Address                         Beneficially Owned                      (1)
-------------------------------------- ------------------------ ------ ------------------------

Named Executive Officers and
Directors
-------------------------------------- ------------------------ ------ ------------------------
<S>                                    <C>                      <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.



                                       21


<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:

<TABLE>
<CAPTION>

    ------------------- --------------- --------------- -------------- ---------------
                           Current        30-60 days     60-90 days      Over 90 days
    ------------------- --------------- --------------- -------------- ---------------

    <S>                 <C>             <C>             <C>            <C>
    May 27, 2000        $    1,009,961  $      991,775  $     438,812  $       -0-
    ------------------- --------------- --------------- -------------- ---------------

    May 29, 1999        $      684,339  $      599,408  $     561,475  $      574,768
    ------------------- --------------- --------------- -------------- ---------------

</TABLE>

     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 Amazing SuperStore licensing operations.  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.  As of January  1,  2000,  Metro  Global
relocated its corporate offices to Chatsworth, CA.


                                       22


<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.


                                       23


<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 a
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.


                                       24


<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.



                                       25


<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.

10.10Amendment  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.


                                       26


<PAGE>


10.11Amendment 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.

10.12Indemnification  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.

10.13Termination   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.

10.14Description  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.

10.15Registration  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.

10.16Employment  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.

10.17Employment  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.

10.18Employment  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.

10.19Employment  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.

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

10.21License   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.

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

10.23Loan 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.com
       Amazing Media Group, Inc.
       Fanzine International, Inc.

                                       27


<PAGE>


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.

*27.1Financial Data Schedule


(B)  REPORTS ON FORM 8-K

     None


                                       28


<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:  August 25, 2000


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.



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


/s/ Gregory N. Alves       President and Director              August 25, 2000
--------------------
    Gregory N. Alves

/s/ Janet M. Hoey          Treasurer (principal                August 25, 2000
-----------------          financial and accounting Officer)
    Janet M. Hoey          , Secretary and Director


/s/ Alan S. Casale         Director                            August 25, 2000
------------------
    Alan S. Casale

                                       29


<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
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                     Assets
                                     ------


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

<S>                                                                  <C>
  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
------------                                                          ===========

</TABLE>


                 See Notes to Consolidated Financial Statements
                                       F2


<PAGE>


METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 27, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

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


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


<S>                                                                   <C>
  Current portion of capital lease obligations                        $   300,435
  Short-term borrowings                                                 5,716,311
  Accounts payable and accrued expenses                                 6,398,536
  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
------------------------------------------                            ===========


</TABLE>


                 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
                                                                      -----------       -----------
                                                                        9,765,727         7,314,720

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

                                                                       (1,012,231)       (2,179,223)
                                                                      -----------       -----------
Other income and (expenses)

  Interest expense (including $232,523 and $175,575 to
    related parties in 2000 and 1999, respectively)                    (1,093,912)       (2,240,488)
  Interest income                                                         195,320             -0-
  Other income                                                            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
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


Loss Per Share:

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

</TABLE>



                 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   Retained      Other
                              Preferred Stock  Common Stock   Treasury   Paid-in     Earnings  Comprehensive  Unearned
                              Shares    Amt    Shares    Amt   Stock     Capital   (accumulated    Loss     Compensation    Total
                                                                                     deficit)


<S>                           <C>   <C>       <C>        <C>  <C>        <C>         <C>          <C>        <C>         <C>
Balance at May 30, 1998 (as
restated)                     855   $857,979  4,245,193  $424 $   -0-    $ 9,316,063 $(1,473,321) $   -0-    $(64,375)   $8,636,770

Shares issued:
  as compensation                               414,885    42              1,037,550                         (415,380)      622,212
  in connection with
    conversion of Series
    A Preferred Stock        (855)  (857,979)   982,120    98              2,174,902                                      1,317,021
  as interest cost on
    borrowings                                  250,000    25                569,975                                        570,000
  upon exercise of warrants                     400,000    40                599,960                                        600,000
  upon exercise of option                       250,000    25                299,975                                        300,000
Embedded interest on
  convertible debentures                                                     202,092                                        202,092
Dividends on Series A
  Preferred Stock                                                            309,248    (309,248)
Purchase of Treasury Stock                                     (507,500)                                                   (507,500)
Issuance of unexercised
  warrants                                                                   818,847                                        818,847
Issuance of unexercised
  options                                                                    128,000                         (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         -0-      -0-    6,542,198   654  (507,500)  15,456,612  (5,759,509)    (6,765) (360,217)    8,823,275
                              ---   --------  ---------  ---- ---------  ----------- -----------  ---------  --------    ----------
Shares issued:
  as compensation                               235,504    24                141,354                                        141,378
  for services                                  250,000    25                531,225                                        531,250
  upon conversion of debt                     1,800,763   180                753,940                                        754,120
Issuance of unexercised
  warrants                                                                   361,347                                        361,347
Amortization of unearned
  compensation - stock                                                                                                      359,717
Unamortized cost of services                                                (597,294)                                      (597,294)
Net Loss                                                                                (920,923)             359,717      (920,923)
Other comprehensive loss                                                                           (276,283)               (276,283)
                              ---   --------  ---------  ---- ---------  ----------- -----------  ---------  ---------   ----------
Balance, May 27, 2000         -0-      -0-    8,828,465  $883 $(507,500) $16,647,184 $(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
                                                                         ----               ----

Cash flows from operating activities:
<S>                                                                   <C>               <C>
   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
                                                                         ----               ----



Cash flows from investing activities:

<S>                                                                   <C>               <C>
  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
100,000  shares of New  Frontier  common  stock 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  50,000 shares of Common Stock 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.  Goodwill was written off with the 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 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, licences, 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.


                                      F-13

<PAGE>

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


2. Acquisitions / Dispositions (continued)

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 and the 1,000,000 contingent shares of Common Stock
originally  given to the  selling  shareholders.  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).
<TABLE>
<CAPTION>

3. Property and Equipment

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


<S>                                                                   <C>
           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
                                                                      ===========

</TABLE>

<TABLE>
<CAPTION>

4. Motion Pictures and Other Films

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


<S>                                                                   <C>
           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
                                                                      ===========

</TABLE>


                                      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  100,000  shares of New  Frontier  common stock 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  50,000 shares of Common Stock 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.

<TABLE>
<CAPTION>

     Annual Payments under capital lease obligations are due as follows:

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

                <S>                                                  <C>
                   2001                                              $ 300,435
                   2002                                                216,534
                   2003                                                 96,123
                   2004                                                 11,140
                   2005                                                  3,105
                                                                     ---------

                   Total                                             $ 627,337
                                                                     =========

</TABLE>


                                      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.

<TABLE>
<CAPTION>

9.  Income Taxes

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

                                                      2000            1999
                                                      ----            ----
     Current provision (benefit)
<S>                                               <C>             <C>
         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)
                                                  ==========      ===========
</TABLE>

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

                                                      2000            1999
                                                      ----            ----
<S>                                               <C>             <C>
     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)
                                                  ==========      ===========
</TABLE>


     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)
<TABLE>
<CAPTION>

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

<S>                                               <C>             <C>
     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-
                                                  ==========      ===========
</TABLE>

     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 12).
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, 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.

     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. For the year ended May
27, 2000 and May 29,  1999,  Metro  Global  incurred  approximately  $13,493 and
$6,000 of expense, respectively.


                                      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:

<TABLE>
<CAPTION>

                                                        2000            1999
                                                        ----            ----

<S>                                                  <C>            <C>
 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)
</TABLE>

     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:
<TABLE>
<CAPTION>

                                               May 27, 2000        May 29, 1999
                                               ------------        ------------
<S>                                            <C>                  <C>
   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)

</TABLE>

     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:
<TABLE>
<CAPTION>

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

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

</TABLE>

     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
receivable  and the  return of  1,000,000  restricted  shares of Metro  Global's
Common Stock.  The following  table is a summary of the results of  discontinued
operations for the year ended May 27, 2000 and May 29, 1999:
<TABLE>
<CAPTION>

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

<S>                                            <C>                  <C>
  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
                                               ===========          ===========
</TABLE>

     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