ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT

TO THE 1934 ACT REPORTING REQUIREMENTS

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-KSB

(Mark One)

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

For the fiscal year ended June 30, 2001

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

For the transition period from ___ to ___

Commission File Number: 000-27819

FOCUS ENTERTAINMENT INTERNATIONAL, INC.

(Name of small business issuer in its charter)

|Florida                                                                            | 58-2330633                                                           
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------------
|(State or other jurisdiction of                     incorporation or organization) | (I.R.S. Employer                                  Identification No.)
|1739-B Cheshire Bridge Rd.                               Atlanta, GA               | 30324                                                                
|(Address of principal executive offices)                                           | (Zip Code)                                                           

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, par value $0.001

(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 report(s), and (2) has been subject to such filing requirements for the past 90 days. (1) X Yes  ___ No;  (2) XYes  ___ 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 or any amendment to this Form 10-KSB.  [    ]

The issuer's revenues for its most recent fiscal year:  $13,335,709

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:$178,860

The number of shares outstanding of each of the issuer's classes of common equity, as of February 19, 2002 is 4,900,000.

ITEM 1. DESCRIPTION OF BUSINESS

Corporate History

Focus Entertainment International, Inc.(the "Company") was incorporated under the laws of the State of Florida on February 19, 1991 by Marc Goldberg.  From inception to April 1997, the Company did not conduct active operations and was seeking a viable business to acquire.

On April 25, 1997, the Company entered into an agreement to buy 9 1/2 Weeks, an Adult Fantasy Store, Inc., a Georgia corporation ("9 1/2 Weeks"), and on that same date completed the acquisition of all the outstanding shares of 9 1/2 Weeks in exchange for 4,000,000 shares of the Company's common stock.  There was no market for the Company's common stock at the time of its acquisition of 9 1/2 Weeks, and the stock was valued at the book value of 9 1/2 Weeks assets as of the date of the acquisition. 9 1/2 Weeks operates stores in the state of Georgia, which specialize in adult entertainment. Specifically, these stores rent and sell adult videotapes, sell marital aids, lotions, novelties, adult magazines, clothing, and lingerie, and offer on-premises video viewing booths (referred to herein as "adult fantasy stores").  Michael S. Morrison owned all of the outstanding common stock of 9 1/2 Weeks prior to its being acquired by the Company in April 1997.  On July 1, 1997, the Company entered into an agreement to purchase Morrison Distributors, Ltd., and on that same date acquired all of the outstanding shares of Morrison Distributors, Ltd. for 600,000 shares of the Company's Common Stock. There was no market for the Company's common stock at the time of the acquisition, and the stock was valued at the book value of Morrison Distributors, Ltd.'s assets as of the date of the acquisition.  Morrison Distributors, Ltd. provides purchasing, distribution and warehousing facilities for the Company's adult fantasy stores.  Michael Morrison was the sole shareholder of Morrison Distributors, Ltd., as well as the majority shareholder of the Company, at the time the Company acquired Morrison Distributors, Ltd.

On November 13, 1996, the Company amended its Articles of Incorporation to increase the authorized capital to 50,000,000 shares of Common Stock, $0.001 par value.  On April 29, 1997, the Company amended and restated its Articles of Incorporation to, among other things, define the Company's purpose, remove references to the Florida Close Corporations Act, change the Company's registered agent and insert a statement that shareholders are not entitled to preemptive subscription rights.  On May 6, 1998, 9 1/2 Weeks amended its Articles of Incorporation to change its name to "Midtown Visuals, Inc." ("Midtown") pursuant to the settlement of a lawsuit with Jones Film Company, Inc. under which the Company agreed to cease and desist the use of the "9 1/2 Weeks" name.

As of June 30, 2001, the Company was operating thirteen adult fantasy stores in the metropolitan Atlanta Georgia area and one in Myrtle Beach South Carolina, with the newest store opening in June 2001. In addition, the Company operated a boxing division under the name "Biggs Morrison Boxing" until December 1999. Finally, the Company recently began operating an advertising and graphics design business under the name "Subliminal Design" through a limited liability company named Internet Visuals, LLC.

The Company has formed Georgia limited liability companies (the "Operating Subsidiaries") to own and operate most of its adult fantasy stores.  In most cases, the Company has raised the initial capital to fund the development costs of a store by selling minority interests in an Operating Subsidiary, formed to own the store, to affiliated and unaffiliated investors.  The Company has also repurchased a significant number of minority interests in its Operating Subsidiaries.  Set forth below is a list of each of the Operating Subsidiaries, together with the percentage interest owned by the Company, the percentage interest owned by affiliates of the Company, and the percentage interest owned by nonaffiliates of the Company (as of June 30, 2001):

|Operating Subsidiary      | Percentage Ownership of Company | Percentage Ownership of Affiliates | Percentage Ownership of Nonaffiliates
|------------------------- | ------------------------------- | ---------------------------------- | -------------------------------------
|Innovative Visuals, LLC   | 70.1%                           | 9.9%(1)                            | 20%(2)                               
|N.Y. Video, LLC           | 70.05%                          | 29.95%(1)                          | --                                   
|Exciting Visuals, LLC     | 75.00%                          | 25%(1)                             | --                                   
|Northside Visuals, LLC    | 95.833%                         | 4.1667%(1)                         | --                                   
|Unique Visuals, LLC       | 100%                            | --                                 | --                                   
|Fantastic Visuals, LLC    | 51.25%                          | 6.25%(1)                           | 42.5%(3)                             
|Creative Visuals, LLC     | 100%                            | --                                 | --                                   
|Federal Visuals, LLC      | 95%                             | 5%(1)                              | --                                   
|Cheshire Visuals, LLC     | 100%                            | --                                 | --                                   
|1690 Cobb, LLC            | 100%                            | --                                 | --                                   
|Snellville Visuals, LLC   | 91%                             | 5%(4)                              | 4%(5)                                
|Internet Visuals, LLC     | 100%                            | --                                 | --                                   
|Myrtle Beach Visuals, LLC | 100%                            | --                                 | --                                   

(1)  Owned by Hector A. Prieto, the Company's Chief Operating Officer.

(2)  Owned by Tina Louise Hodges, a nonaffiliate of the Company.

(3)  25% is owned by JFS and Associates, Inc., 5% is owned by Pauline Luthi, and 12.5% is owned by Tina Louise Hodges, all of whom are nonaffiliates of the Company.

(4)  Owned by Erik Clabaugh, the Company's Corporate Secretary.

(5)  Owned by Kenichi Akiyama a nonaffiliate of the Company

On the Company's financial statements, the minority interests in its Operating Subsidiaries are recorded at the initial cost of the holder's investment in the Operating Subsidiary plus the amount of income allocated to the minority interest holder less the amount of any distributions made to the minority interest holder.

Distributions are made to the investors based on formulas set forth in the operating agreements for the Operating Subsidiaries. Under the operating agreements, distributions are to be made to the investors from net cash from operations of the Operating Subsidiary. The term "net cash from operations" is defined as the "gross cash proceeds from operations (including, without limitation, sales and dispositions in the ordinary course of business) less the portion thereof used to pay or establish reserves for all expenses, debt payments, capital improvements, replacements, and contingencies, all as determined by the Manager.  Net cash from operations shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established."  As of June 30, 2001, the Company estimates that $154,314 has been withheld from distribution to minority investors for reserves. Should the reserved amounts be reduced, some, or all of that amount would be due and payable to the minority investors.

The Company's administrative offices are located at 1739-B Cheshire Bridge Rd., Atlanta, Georgia 30324, and its telephone number is (404) 253-1112.  The fax number is (404) 872-1728.

Adult Fantasy Stores

The Company markets and sells the concepts of fantasy, entertainment and "safe sex", while emphasizing the objective of "safe sex," to increase name recognition, sales and a loyal customer base. The Company's primary operations are adult fantasy stores which retail adult videos, marital aids, lotions, novelties, magazines, provocative clothing, and lingerie, and contain adult viewing booths.  The Company's stores, presently located in the metropolitan Atlanta area, operate under the names "Inserection," "Heaven," "New York Video," "Home Video" and "Waterpipe World."

The Company capitalizes on the growing market for adult entertainment and products by offering a wide variety of adult merchandise in upscale stores, which are strategically located.  Each store is operated through a limited liability company, which is either wholly or partially owned by Midtown, with the exception of one store in metropolitan Atlanta, which is operated directly by the Company.  The stores are targeted to sell to an above-average income customer base.  Store locations are chosen on the basis of multiple factors, including: demographics, population density, physical barriers (freeways, rivers), psychological barriers (high-crime areas), traffic counts, accessibility and visibility.

During the past five and one-half years, the Company has opened thirteen locations in metropolitan Atlanta and acquired one in Myrtle Beach, South Carolina.  The Company intends to strengthen its position in the metropolitan Atlanta area by expanding its Georgia operations.  Management believes the Company can leverage its existing strengths to find new, desirable, appropriately zoned locations, or acquire existing operators.  During the next five years, the Company plans to expand its retail outlets, via new stores and acquisitions of existing adult bookstores, adult fantasy stores, and adult novelty stores and other related businesses that management may deem compliments its business model, throughout the Southeastern United States.

The Company's adult fantasy stores offer the following products and services:  Adult video rental and sales; Adult viewing booths; Adult products that are designed to improve the sex life and promote safe sex; Boudoir lingerie and leather products; Adult theme magazines, books, cards, CD-ROMs; and electronically distributed live entertainment.

The Company's adult fantasy stores primarily target 21 to 50 year old males and females with above-average discretionary income.  The Company also targets couples by suggesting its products can enhance their relationships.  Further, the Company advertises to the gay and lesbian community, in part by emphasizing products that are conducive to "safe-sex" practices.

The Company manages its retail business using an "integrated quality systems" approach based on a "hub and spoke" model of distribution that centralizes the warehousing and ticketing of products.  Once products have been processed at the central warehouse, they are shipped to each of the stores.  Management believes this model is unique in the industry, and enables the Company to maintain product-line flexibility while maintaining low costs.

Industry Overview

The market for the Company's products is substantial.  During the 1980's, the availability of adult movies on videocassette and on cable television, as well as the huge growth in telephone sex services, shifted the consumption of adult fantasy products and services from seedy movie theaters and bookstores into the home.  As a result, most of the profits being generated by adult products and services today are being earned by businesses not traditionally associated with the adult fantasy sex industry - "mom and pop" video stores, long-distance carriers, cable companies, and hotel chains that supply in-room adult movies to their guests.  The Company expects the trend to home consumption of adult entertainment to continue.

According to the November 1997 issue of Adult Video News, an industry trade publication, the number of adult video rentals rose from 75 million in 1985 to 490 million by the end of 1992.  The total climbed to 665 million, an all time high, in 1996.  The same issue of Adult Video News estimated that adult video rental market in the United States constituted 13.3% of the total video rental market, and accounted for $3.1 billion in total annual revenues, with above-average profitability.  For example, a popular Hollywood movie on videotape may cost a retailer approximately $60 or more per tape and rent for approximately $4 per night.  A new adult release, by comparison, may cost approximately $15 per tape and rent for approximately $4 a night.

The general market for adult products, which includes adult toys, lingerie, magazines, and videos has been estimated at over $11 billion in the Unites States, and management believes the market is becoming more mainstream, both in terms of social acceptability and accessibility.  The industry is gaining greater exposure with expanded delivery formats--Internet websites, satellite system programming, and increased cable exposure.

Although the Company's existing stores are located primarily in the Atlanta metro area, management of the Company has experience with adult fantasy stores in other parts of the country.  Based on management's experience, the Company's experience with adult fantasy products in the Atlanta metro area is representative of the demand for such products nationwide.

During 1996, Americans spent more than $8 billion on adult videos, peep shows, adult cable programming, adult computer programs, and sex magazines.  Despite having some of the toughest restrictions on sexually explicit materials of any Western industrialized nation, the United States is now the world's leading producer of adult entertainment, producing adult videos at the rate of about 150 new titles a week.

Business Strategy

Because the adult industry continues to become more acceptable, management believes there is an opportunity for earning strong profits through the implementation of the Company's growth strategy.  By placing multiple locations in various cities, the Company has the opportunity to dominate its fragmented competition.  In the past, local municipalities have made their adult zoning requirements more restrictive after the Company has entered the market, thus, entrenching the Company existing locations.  By entering a market and building multiple locations as quickly as possible, management believes the Company can dominate the adult market throughout the Southeast United States.

The Company is currently utilizing a "turn-key focus" strategy, which commits its management, personnel, operations systems, and site selections to growing the Company's business at the corporate level.  Management believes that by focusing human and physical capital at the corporate level, the Company will be able to expand quickly and consistently in retail, electronic and adult fantasy markets.  This strategy builds on the perceived strengths of the Company's existing operations in Atlanta, which management believes include the following:

1.	Development of a retail model for the distribution of adult entertainment and products through clean, attractive locations in stores placed in areas with above-average income;

2.	Continuously striving for new concepts which have a high probability of improving the Company's management, marketing, distribution and competitiveness;

3. 	A comprehensive line of products that enhance the lives of its customers and encourage "safe sex" practices.

4.	A well designed and implemented information system that enables the Company to achieve maximum flexibility in meeting customer demand, while minimizing inventory, handling, and other costs.

5.	Development of a "turn-key" system that allows for the rapid build-out of new stores capable of achieving "above-industry" profit margins.  These systems include a centralized purchasing process, rapid product distribution, and company-wide marketing and promotion.

Competition

Competition in both the video and non-video adult fantasy markets is largely fragmented.  Small independent stores account for a large number of the total outlets that focus on adult entertainment.  There are few strong competitors that offer a complete line of products and services in the United States.  These outlets consist of:

- Nationwide video outlets, such as The Warehouse, Tower Video, Palmer Video and Movies Unlimited, which target the mass video market and carry a small section of cable-cut adult titles;
- Small "mom and pop" video stores, which often carry a more complete line of adult entertainment titles, but which are not part of a large buying and distribution system;
- Convenience stores which may carry a limited number of adult entertainment titles;

There are also a substantial number of competitors in the non-video adult product markets, including:

- National chains, such as Deja Vu, Goalie Entertainment Stores, and General Video of America;
- Small independent stores retailing lingerie, condoms, and adult products;
- Full-line general newspaper and magazine stores;
- On-line Internet World Wide Web sites that target adult products on the Internet.

Future technological developments in the delivery of video by cable or the Internet may one day create significant competition with the traditional rental of videotapes, including adult videotapes.  However, to date such technologies do not present meaningful competition to the Company.

Management believes the fragmented nature of the competition provides an excellent opportunity for the Company to leverage its strengths and employ its "turn-key" growth strategy in order to sustain long-term viability and above industry-average profit margins, in part by capitalizing on smaller, less efficient operators.  Because the Company is larger than the majority of its competitors, products are purchased in bulk quantities, resulting in lower costs and either increased sales or higher margins depending on the particular product or approach which is deemed to be most appropriate for each location.  In addition, the Company's size enables it to successfully compete by offering the latest videos and carrying a wider selection of non-video adult products than its competitors.  The Company's profitability and its compensation packages have also been integral in its ability to afford a well-educated, highly effective management team

Management believes the Company has the infrastructure in place to:

1. Target new locations for growth where there is little direct competition.
2. Acquire under-capitalized or mismanaged, independently owned stores that are properly zoned and have an advantageous physical location, transforming them to meet the Company's high operational and management standards.  While no formal studies exist of profitability in the Company's industry, management believes that the Company has one of the highest sales per square foot and profit margins within the adult fantasy and novelty store industry.  This belief is based upon conversations with industry distributors and middlemen, as well as information about square foot sales of other adult stores that have shared operating data with the Company.

3.	Utilize the "turn-key" system to convert existing "mom-and-pop" stores to a franchise-type operation, under which the Company would train and assist the operators in store design, layout and location, and enable the operator to realize savings in marketing and purchasing dollars.  In return, the Company would receive a franchising fee and a percentage of sales revenue.

Marketing and Advertising

The Company has worked to change the way consumers view adult-related products and has made access to these products easier.  At the heart of the Company's marketing and advertising campaign is the educational theme that "safe sex saves lives," and the Company is committed to providing customers with products which are "safe-sex" oriented.  The Company strives to sustain an image of a clean, exciting store that exists to help to its customers improve their love lives and relationships.  The Company actively searches for store locations in areas with demographics that are more affluent than those in which adult entertainment stores have typically located.  In addition, the Company has designed its stores to be more appealing to an affluent customer base than its competitors, including better interior furnishings and fixtures.

The Company's advertising is focused on building brand recognition for its service mark "Inserection."  The Company reaches its target audiences by advertising in both the print and radio media, and through sponsoring visits of major adult film stars to its stores.  These visits allow customers to meet and talk with the stars of adult videos.

The Company operated a division known as "Biggs Morrison Boxing" until December 1999, which promoted a monthly slate of boxing matches in Atlanta, Georgia. Revenues from the Company's boxing division constituted less than 1% of the total revenues of the Company.

Subliminal Design

The Company has historically handled in-house a significant amount of its graphics design and advertising, in which the Company prepared layouts for print ads, posters, business cards and stationary for its adult fantasy stores and boxing divisions.  The Company segregated its design and advertising department into a division known as "Subliminal Design."  Management may market this division to other adult related businesses in the future for an additional revenue source.  There can be no assurance that this division will generate any revenues for the Company.

Trademarks

The Company has obtained federal service mark approval for the name "Inserection."  The Company plans to utilize the service mark "Inserection" in the development of future stores in order to build brand awareness.

Government Regulation

The Company experiences significant government regulation at the state and local level.  At the local level, most cities and counties have zoning ordinances which either explicitly prohibit retail establishments of the type operated by the Company, or which contain procedures for community opposition and input which make zoning approval an expensive, time-consuming process.  On the other, the Company has found that stores that experience significant community opposition perform better than those that do not, primarily as a result of publicity generated during the zoning approval process.  As a result of zoning restrictions, the Company will not be able to locate its stores in many locations which its experience shows would be profitable.  See "Legal Proceedings."

Some states and localities have statutes or ordinances that prohibit the sale or rental of products normally offered the Company at its stores.  For example, the State of Georgia prohibits the sale of any product designed to stimulate ones genitalia.  See "Legal Proceedings."

Employees

As of February 19, 2002, the Company employed a total of 136 employees, of which 89 were full-time and the balance were part-time.

Other Matters

The Company does not depend on any one supplier for a material portion of the products offered by the Company.  The Company has not spent a material amount on research and development activities in the past two years.  The Company does not require government approval to market any of its products or services.  See "Item 1.  Business - Government Regulation."

ITEM 2. DESCRIPTION OF PROPERTY

The Company owns one piece of real estate at 932 Montreal Court, Clarkston, Georgia 30021.  The Company purchased the property for $266,000.  The property is subject to a mortgage in the original principal amount of $225,000 that is held by the prior owners of the property.  The mortgage bears interest at the rate of 10% per annum, and requires monthly payments of principal and interest sufficient to amortize the loan over 25 years.  On June 16, 2003, the interest rate increases to 4% over the prime rate.  The only tenant of the building is Innovative Visuals, LLC, an Operating Subsidiary of the Company that operates an adult fantasy store in the building.

Other than the property described above, the Company does not own any real estate or real estate mortgages.  The Company's policy is to locate its stores in retail space that the Company leases.  The Company seeks to lease space for at least five years at market rates for the surrounding area, with options to extend the lease term for additional years in the event the store is profitable.  Because of the significant zoning issues which the Company sometimes faces in opening a store, the Company attempts, where possible, to condition any lease on the receipt of a business license to operate a store in the location.

The Company currently leases space at the following locations:

|Location                                                                                          | Store Name                      | Expiration Date    | Renewal Option                       
|------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------ | -------------------------------------
|505 Peachtree Street, N.E.    Atlanta, Georgia 30308                                              | Inserection                     | June 30, 2005      | 5 year option                        
|1023 W. Peachtree St.      Atlanta, Georgia 30309                                                 | Inserection                     | January 8, 2003    | None                                 
|2628 Piedmont Rd.         Atlanta, Georgia 30324                                                  | Heaven                          | June 30, 2005      | None                                 
|6400 Roswell Rd.              Atlanta, Georgia 30328                                              | Inserection                     | January 31, 2006   | 5 year option                        
|7855 Roswell Rd.              Atlanta, Georgia 30350                                              | Inserection                     | February 28, 2006  | 5 year option                        
|850 Northside Dr.              Atlanta, Georgia 30318                                             | Inserection                     | September 30, 2006 | One 5 year option; One 10 year option
|6903 Londonderry Way (1)      Union City, Georgia 30291                                           | New York Video                  | July 31, 2008      | None                                 
|1739 Cheshire Bridge Rd.    Atlanta, Georgia 30324                                                | Inserection                     | November 30, 2001  | One 5 year option                    
|932 Montreal Rd.         Clarkston, Georgia 30021                                                 | Inserection                     | March 31, 2006     | Two 5 year options                   
|1690 Cobb Parkway                  Suite D                                Marietta, Georgia 30602 | Waterpipe World                 | February 28, 2002  | Two 4 year options                   
|1739-B Cheshire Bridge Rd.       Atlanta, Georgia 30324                                           | Focus Entertainment Int'l, Inc. | May 30, 2005       | 5 year option                        
|4143 Fulton Industrial Blvd     Atlanta, Georgia 30336                                            | New York Video                  | January 31,2005    | Two 4 year options                   
|1434-1474 Highway 501 West     Myrtle Beach, South Carolina                                       | Cupid's Arrow - The Love Store  | February 28, 2010  | None                                 
|3522 Satellite Blvd.              Duluth, GA  30136                                               | Home Video                      | March 31, 2006     | None                                 

(1) Subject of pending litigation because the validity of the lease.  (See Item 3: Legal Proceedings)

The Company leases retail, office, and warehouse space under operating leases. The leases require the following minimum annual rental payments:



|Year ending June 30, | Aggregate Lease Payments
|-------------------- | ------------------------
|                     |                         
|2002                 | $ 1,140,188             
|2003                 | $ 1,152,054             
|2004                 | $ 1,164,925             
|2005                 | $ 1,206,049             
|2006                 | $ 665,755               

Rental expense for the years ended June 30, 2001 and 2000 amounted to $1,088,212 and $936,898, respectively.

The Company subleases a portion of the Unique Visuals, LLC location to an unrelated business. Rental receipts for the years ended June 30, 2001, and 2000 amounted to $68,912 and $56,820, respectively, and is included in other income and expense in the accompanying Consolidated Statements of Operations.

ITEM 3. LEGAL PROCEEDINGS

During March 1997, Cheshire Visuals, LLC., filed a lawsuit in the Fulton County Superior Court against the Board of Zoning Adjustment of the City of Atlanta, Georgia, Lisa Wade, Albert Maslia, Maya Hahn, John Aldridge, and Ralph Redding, individually and as Members of the Board of Zoning Adjustment of the City of Atlanta, Georgia, and Bill Campbell individually and as Mayor of Atlanta, and the City of Atlanta, Georgia.  Cheshire Visuals, LLC. is seeking damages for the wrongful denial of a license, which was granted subsequent to the filing of the lawsuit.  Although discovery has been completed, the City of Atlanta has filed a Motion for Summary Judgment.  The company is awaiting a response from the court.

Payless Shoesource, Inc. ("Payless") had filed two lawsuits against the Company in Fulton County State Court.  The Company had leased space for the store operated by N.Y. Video from Payless in Union City, Georgia. Payless alleged that the Company violated a scope of use clause in its lease and sought to dispossess the Company of the premises.  The Company recently lost the case after a trial, and is currently appealing the ruling.  If the appeal is unsuccessful the Company will have to close or move the store.  The expansion arm of the company is currently scouting locations in the adjacent area and hopes to have an alternate location secured by the end of the calendar year.

In March 1997, Mr. Morrison was convicted of violating a Georgia law that prohibits the distribution of devices designed to stimulate the sex organs.  Mr. Morrison's conviction was appealed to the Georgia Supreme Court, which denied the appeal.  Mr. Morrison was ultimately sentenced to pay a $2,000 fine and perform 200 hours of community service.

In June 2001, the Company opened a new store in Gwinnett County, Georgia.  The Company was subsequently sued by the landowner on the grounds that the original purchase agreement included a clause that  did not permit the sale of adult material.  The court issued a ruling in favor of the landowner in October 2001, which caused the Company to close the location in November 2001.

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

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The company's common stock is registered with the United States Securities and Exchange Commission under section 12(g) of the Securities Exchange Act of 1934.  From April 1997 to November 1999, the Company's common stock was traded on the NASDAQ OTC Bulletin Board.  Since November 1999, the Company's common stock has been traded on the "pink sheets" operated by Pink Sheets, LLC.  The Company's symbol is "FEII."   The following table summarizes the low and high prices for the company's common stock for each of the calendar quarters for the fiscal years ended June 30, 2001 and 2000:

|                           | 2001  | 2000 
|-------------------------- | ----- | -----
|                           | High  | Low  
|                           |       |      
|Quarter Ended September 30 | $0.20 | $0.15
|Quarter Ended December 31  | $0.20 | $0.15
|Quarter ended March 31     | $0.60 | $0.20
|Quarter Ended June 30      | $0.36 | $0.36

As of December 31, 2001, the Company had 4,900,000 shares outstanding, which were held by 23 holders of record.  This number does not include an indeterminate number of shareholders whose shares are held by brokers in "street name."   The above quotations reflect inter-dealer prices, without mark-up, markdown or commission and may not represent actual transactions.  The Company has never declared any cash dividends on its Common Stock.  The Company does not plan to declare any cash dividends in the foreseeable future, as the Company anticipates that all cash generated from operations will be used to finance the Company's internal growth and acquisition strategy.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

Certain statements in this Annual Report of Small Business Issuers on Form 10-KSB, particularly under this Item 6, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements, expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed herein.  The words "believe", "expect", "anticipate", "seek" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date the statement was made.

Results of Operations for the Fiscal Year ended June 30, 2001

Revenues

For the fiscal year ended June 30, 2001, the Company had net sales of $13,335,709, as compared to net sales in the fiscal year ended June 30, 2000 of $13,453,168, a decrease of $117,460, or 0.87%.  A comparison of revenues by type in fiscal 2001 to fiscal 2000 is set forth below:

|                                | 2001         | 2000        
|------------------------------- | ------------ | ------------
|                                |              |             
|Product Sales                   | $ 6,151,354  | $ 5,323,635 
|Video Sales                     | 4,131,939    | 4,103,499   
|Video Rentals                   | 2,495,887    | 2,430,778   
|Booth Revenues                  | 701,376      | 1,637,342   
|Boxing Revenues                 | --           | 39,015      
|Misc. Sales                     | 31,201       | 80,660      
|Sales and Credit Card Discounts | (176,048)    | (161,761)   
|                                |              |             
|Totals                          | $ 13,335,709 | $ 13,453,168

The revenue decrease was primarily attributable to a decrease in video viewing booth revenues of $935,966, or 57.16%.  This decrease was partially offset by increases in net product sales of $827,719, or 15.55%, and video rentals of $65,109, or 2.68%.  The Company opened new locations in the Atlanta metropolitan area in March 2000 and June 2001, and purchased an existing store in Myrtle Beach, South Carolina in March 2000. These new locations contributed $342,154, or 41.33% of the increase in product sales and 100% of the increase in video rentals revenues.  Existing locations added the remaining $485,565 of the increase in product sales revenues, but those locations had relatively flat sales in video sales and video rentals revenues when compared to fiscal year 2000.   New locations added $58,470 in video viewing booth revenues for the fiscal year ended June 30, 2001, meaning that existing locations experienced a decline in video viewing booth revenues of $994,436.

The decline in video viewing booth revenues from the existing, or inner-city locations is attributed to competition from discount stores that have opened within the past two years within close proximity to the Company's locations.  With the increased competition in the Atlanta inner-city area, the Company believes the market in such areas has become saturated.

The Company expects revenues from video viewing booths in its inner-city locations to stabilize and product and video sales and rentals to increase due to more effective advertising, no additional store "cannibalization" and overall increases in inner-city commerce due to improved demographics among inner-city residents, and greater inner-city commerce resulting from continued redevelopment of the area.

The Company is actively seeking good locations in the suburban areas around Atlanta to offset the declines in the inner-city locations, as well as pursuing opportunities in neighboring states.

Cost of Goods Sold

For the fiscal year ended June 30, 2001, cost of goods sold were $4,864,884, as compared to cost of goods sold in the fiscal year ended June 30, 2000 of $4,509,911, an increase of $354,973, or 7.87%.  As a percentage of net sales, cost of goods sold increased from 33.50% to 36.48% from 2000 to 2001.  Cost of goods sold as a percentage of net sales increased as a result of increased price competition from discount stores located in close proximity to the Company's locations. Additionally, the overall reduction of video booth revenues is indicative of a change in the overall sales mix to less profitable lines.  A comparison of cost of goods sold by type in fiscal 2001 to fiscal 2000 is set forth below:

|                | 2001               | 2000         
|--------------- | ------------------ | -------------
|                | Cost of Goods Sold | % of Revenues
|                |                    |              
|Product Sales   | $ 3,035,889        | 50.2         
|Video Sales     | 1,789,877          | 44.1         
|All Other Sales | 39,118             | 5.4          
|                |                    |              
|Totals          | $ 4,864,884        | 36.5         

General and Administrative Expenses

For the fiscal year ended June 30, 2001, general and administrative expenses were $7,378,375, as compared to $6,886,700 for the fiscal year ended June 30, 2000 an increase of $491,675 or 7.14%. The increase in general and administrative expenses was primarily the result of a $613,759 increase in expenditures for salaries and wages due to the increase in new employees from the opening of new locations. This increase, and increases in amortization, depreciation and travel and entertainment were partially offset by decreases in consulting, contract services and advertising expenses.

Other Income and Expense

The Company had Other Income, net of Other Expense, of $119,904 in fiscal 2001, as compared to Other Expense, net of Other Income, of $44,165 in fiscal 2000.  The primary difference was a loss totaling $174,509 in fiscal 2000 from the Company's investment in Chamblee Visuals, LLC, which was controlled by Michael Morrison and operated a location in Honolulu, Hawaii.

Income Taxes

In the fiscal year ended June 30, 2001, the Company incurred income tax expense of $312,140, as compared to income tax expense of $531,620 for the fiscal year ended June 30, 2000, a decrease of $219,480, or 41.29%.  The decrease is primarily attributable to decreased income from operations during the year ended June 30, 2001.  Statement of Financial Accounting Standards No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets of a company will not be realized. At June 30, 2001, no valuation allowance was recorded against the deferred tax asset because the Company determined from its projections that it is more likely than not that future taxable income will be sufficient to realize the deferred tax asset.

Liquidity and Capital Resources

As of June 30, 2001, the Company had net working capital of $1,319,174, compared to net working capital of $1,297,753 as of June 30, 2000, an increase of $21,421. During the year ended June 30, 2001, the Company realized cash from operations of $1,406,048, as compared to $1,828,800 for the year ended June 30, 2000.  Despite the Company's cash from operations, the Company's working capital experienced little change from the prior year-end as the result of increases in investments in property and equipment, and repayments on debt.  In particular, during the fiscal year 2001, the Company's expenditures for property and equipment were $411,112 and payments on long and short-term debt were $549,540.

As of June 30, 2001, the Company's long-term debt was $226,032, as compared to long-term debt of $563,516 at June 30, 2000, and its long-term debt maturing within the next year was $356,603 at June 30, 2001 as compared to $548,546 at June 30, 2000.  The Company expects that it will be able to retire its long-term debt coming due in the next fiscal year from cash generated from operations..

During the year ended June 30, 2001, the Company concentrated on reducing its debt and minority interests in its Operating Subsidiaries in order to improve and consolidate its long-term financial position.  Due to the nature of its business, the Company pays higher interest rates than those generally offered to non-adult retail operations.  By strengthening its balance sheet, the Company believes it will be easier to attract new minority investors and borrow funds, if necessary, for future acquisitions.  The Company funds its short-term working capital needs, including the purchase of video and other inventory, primarily through cash from operations. The Company expects that cash from operations and extended vendor terms will be sufficient to fund future video and other inventory purchases and other working capital needs for its existing locations.  There can be no assurance, however, that cash from operations and extended vendor terms will be sufficient to fund future video and other inventory purchases and other working capital to sustain the continued aggressive growth of the Company.  If the Company's cash from operations is insufficient to fund its working capital and future growth needs, it may have to seek financing from other sources.  In the event the Company is unable to obtain additional equity financing and/or debt financing, the Company may not have the liquidity to sustain its growth.

The Company's primary long-term capital needs are for opening and acquiring new locations. The Company expects to fund such needs through cash flows from operations, bank credit facilities, trade credit, and equipment leases.  There can be no assurance the Company will be able to obtain funding from any or all of these sources if the need should arise.

ITEM 7.  FINANCIAL STATEMENTS

Attached hereto as Exhibit A are the Company's financial statements for the year ended June 30, 2001.

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

None.

PART III

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

The following table sets forth certain information concerning directors, executive officers and key employees of the Company.

|Name                | Age | First Year as Director | Present Positions with Company
|------------------- | --- | ---------------------- | ------------------------------
|Michael S. Morrison | 33  | 1997                   | Chairman and President        
|Bobby Scott, Jr.    | 28  | 1998                   | Vice President and Director   
|Hector A. Prieto    | 39  | --                     | Chief Operating Officer       
|Erik Clabaugh       | 28  | --                     | Secretary                     
|David P. Krolik     | 46  | --                     | Chief Financial Officer       

The term of office of each director of the Company ends at the next annual meeting of the Company's stockholders or when such director's successor is elected and qualifies.  No date for the next annual meeting of stockholders is specified in the Company's bylaws or has been fixed by the Board of Directors.  The term of office of each officer of the Company ends at the next annual meeting of the Company's Board of Directors, expected to take place immediately after the next annual meeting of stockholders, or when such officer's successor is elected and qualifies.  Except as otherwise indicated below, no organization by which any officer or director previously has been employed is an affiliate, parent, or subsidiary of the Company.

Directors are entitled to reimbursement for expenses in attending meetings but receive no other compensation for services as directors. Directors who are employees may receive compensation for services other than as director. No compensation was paid during the fiscal years ended June 30, 2001 and 2000 to directors for services in their capacity as director.

The following information sets forth the backgrounds and business experience of the directors and executive officers.

Michael S. Morrison, President and Chairman of the Board of Directors - Mr. Morrison has been the Company's President and Chairman of the board of directors since April 1997.   Mr. Morrison was the founder of Midtown and has been its President since January 1995.  Mr. Morrison's duties include concept creation and implementation, overseeing the development of sales programs, analysis of expansion opportunities, and warehouse distribution.  From March 1991 to January 1995, Mr. Morrison was a General Manager for Wildcat Distributors, Inc., Lennox, California ("Wildcat").  Wildcat is a privately held corporation that owns a chain of adult bookstores located in California.  Mr. Morrison's responsibilities with Wildcat included the supervision of Wildcat's three stores, including the hiring of management, purchasing, and accounting personnel and the development of Wildcat's sales programs.  Wildcat is owned by the estate of Mr. Morrison's mother. In March 1997, Mr. Morrison was convicted of a misdemeanor for violating a Georgia law that prohibits the distribution of devices designed to stimulate the sex organs.  The appeal was denied by the Georgia Supreme Court, and Mr. Morrison's was sentenced to pay a $2,000 fine and perform 200 hours of community service.

In 1995, Mr. Morrison graduated from Oglethorpe University, Atlanta, Georgia, with a bachelor's degree in Business Administration.

Bobby L. Scott, Jr., Vice President - Information Systems and Director - Mr. Scott has been a Vice President of the Company since April 1997, and a member of the Company's board of directors since May 1998.  Mr. Scott was previously the Manager of Information Systems for Morrison Distributors, Ltd.  Mr. Scott is responsible for inventory control and the design implementation and maintenance of the Company's computer and telecommunication systems.  From May 1995 to December 1995, Mr. Scott was a Senior Application Engineer at Scientific Network Design, Inc. of Atlanta, Georgia ("Scientific"), a company co-founded by Mr. Scott.  Mr. Scott's responsibilities with Scientific included strategic planning, installing and maintaining client applications, developing custom programs for clients and preparing sales proposals and quotations. From August 1994 to July 1995, Mr. Scott was an International Pricing Associate for United Parcel Service in Atlanta, Georgia ("UPS").  Mr. Scott was responsible for all international pricing for the Northeast and East Regions of the United States.

In 1997, Mr. Scott graduated from Oglethorpe University, Atlanta, Georgia, with a Bachelor of Arts degree in Economics.

Hector A. Prieto, Vice President, Chief Operating Officer - Mr. Prieto has been a Vice President of the Company since April 1997, when it acquired Midtown Visuals, Inc.  Mr. Prieto is responsible for overseeing the Company's human resources functions and retail operations. Prior to being employed by the Company, Mr. Prieto was employed by Midtown Visuals, Inc. as Chief Operating Officer, where he had similar duties and responsibilities to what he has at the Company.  Prior to joining Midtown Visuals, Inc., Mr. Prieto was the owner and operator of Santa Fe Wholesale, a wholesale clothing distributor located in Burbank, California.  Mr. Prieto received a degree in business administration from the Universidad Santiago de Cali in December 1986.

Erik Clabaugh, Secretary, Head of Expansion - Mr. Clabaugh has been an employee of the Company since April 1997, and was an employee of Midtown from February 1996 to April 1997.  Since joining the Company, Mr. Clabaugh has managed two of the top grossing store locations and has been involved in scouting, leasing, and construction of new retail locations. He is an active, licensed real estate agent in the state of Georgia.  Prior to this, Mr. Clabaugh was the Manager of Wholesale Auctions for the Hix Green family of car dealerships.  Mr. Clabaugh holds a BA in Philosophy from Oglethorpe University.

David P. Krolik, Chief Financial Officer - Mr. Krolik became an employee of the Company in January 2001.  Prior to joining the Company, Mr. Krolik served as Treasurer to two companies, ON Semiconductor in Phoenix, AZ and ZiLOG, Inc. in Campbell, CA, both of which are majority owned by Texas Pacific Group, a venture capital firm with offices in Dallas, TX and San Francisco, CA.  Mr. Krolik's work experience also includes holding the titles of Vice President, Finance, Chief Financial Officer, Treasurer and Controller at UniSil Corporation in Mountainview, CA, LifePort, Inc. in Vancouver, WA and WaferTech in Camas, WA.  Mr. Krolik's responsibilities have included all general accounting functions, investment management, insurance risk management, hedging forward contracts, SEC reporting, cash management, audit coordinator/liaison, accounts receivable and payable supervision and office administration.  Mr. Krolik holds a B.S. in Commerce with a major in Accounting from Rider University in Lawrenceville, NJ.

The Company held no board meetings during the past fiscal year.  There were no in-person meetings. The company has no audit, compensation or executive committees. There is no key man life insurance on any director, officer, or control person.

During 2001, the Company was not subject to the reporting requirements of Sections 13 or 15 of the 1934 Act, and therefore the Company's officers and directors were not required to file the reports required by Section 16 of the 1934 Act.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by the company's Chief Executive Officer, vice president, and chief operating officer during the last three fiscal years.  No other officers of the company earned more than $100,000 a year during any of the last three fiscal years, and therefore pursuant to Item 402(a) of the Regulation S-B, no information is presented with respect to any officer other than the Chief Executive Officer and the Chief Operating Officer.



Summary Compensation Table

|                                                      |                                          | Annual Compensation                                   
|----------------------------------------------------- | ---------------------------------------- | ------------------------------------------------------
|Name and Principal Position                           | Year                                     | Salary                                                
|                                                      |                                          |                                                       
|Michael S. Morrison President and CEO (1)             | 2001          2000          1999         | 239,693  243,000 243,000                              
|                                                      |                                          |                                                       
|Bobby L. Scott            Vice President (2)          | 2001             2000             1999   | 67,866         58,620       43,805                    
|                                                      |                                          |                                                       
|Erik K. Clabaugh  Secretary (3)                       | 2001             2000             1999   | 49,367         48,050       43,650                    
|                                                      |                                          |                                                       
|Hector A. Prieto          Chief Operating Officer (4) | 2001              2000              1999 | 112,725     112,000 103,600                           
|                                                      |                                          |                                                       
|David P. Krolik, Chief Financial Officer (5)          | 2001              2000              1999 | 36,658                --                            --

(1)	Mr. Morrison has been the Chairman and President of the Company since its acquisition of Midtown Visuals, Inc. in April 1997.

(2)	Mr. Scott has been the Vice President of the Company since its acquisition of Midtown Visuals, Inc. in April 1997.

(3)	Mr. Clabaugh has been Secretary of the Company since 1999.

(4)	Mr. Prieto served as Chief Operating Officer of the Company from its acquisition of Midtown Visuals, Inc. in April 1997.

(5)	Mr. Krolik became Chief Financial Officer on March 1, 2001.

In accordance with Item 402 of Regulation S-B of the Securities and Exchange Commission, certain columns of the table required by Item 402(b) of Regulation S-B have been omitted where there has been no compensation paid or awarded to any of the named executives in any fiscal year covered by the table.

The Company does not have any employment agreements, confidentiality agreements or non-compete agreements with any of its named executive officers.

During the fiscal years ended June 30, 1999, 2000 and 2001, the Company made no grants of options or stock appreciation rights (SARS) to any officer or director. Therefore, the required table on options and SARS granted is omitted.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of December 31, 2001, with respect to the beneficial ownership of the Company's voting securities by each person known to the Company to be the beneficial owner of more than five percent (5%) of any class of the Company's voting securities.

|Title ofClass | Name and Address ofBeneficial Owner                            | No. Shares Owned | No. Shares BeneficiallyOwned | Percent ofClass (1)
|------------- | -------------------------------------------------------------- | ---------------- | ---------------------------- | -------------------
|Common Stock  | Michael S. Morrison   127 W. Paces Ferry Rd. Atlanta, GA 30305 | 4,600,500        | 4,600,500                    | 93.9%              

(1) Based on a total of 4,900,000 shares issued and outstanding as of December 31, 2001.

The following table sets forth certain information, as of December 31, 2001, with respect to the beneficial ownership of the Company's Common Stock by (i) all directors of the Company (ii) each executive officer of the Company named in the Summary Compensation Table and (iii) all directors and executive officers of the Company as a group.

|Name and Position                                                                       | No. SharesOwned | No. of Shares BeneficiallyOwned | Percent of Shares Owned(1)
|--------------------------------------------------------------------------------------- | --------------- | ------------------------------- | --------------------------
|Michael S. Morrison,                             President and Director                 | 4,600,500       | 4,600,500                       | 93.89%                    
|Bobby L. Scott, Jr.,                                        Vice President and Director | 400             | 400                             | Less than 1%              
|Erik K. Clabaugh,                                  Secretary                            | 1,000           | 1,000                           | Less than 1%              
|Hector A. Prieto,                                            Chief Operating Officer    | 0               | 0                               | 0%                        
|All Officers and Directors as a Group (5)                                               | 4,601,900       | 4,601,900                       | 93.92%                    

(1) Based on a total of 4,900,000 shares issued and outstanding as of December 31, 2001.

(2) The address for each beneficial owner listed above is the Company's address.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None of the Company's officers, directors, key personnel or principal stockholders is related by blood or marriage.

Loan Transactions with Mr. Morrison or Affiliates

The Company has from time to time made loans to Mr. Morrison.  The loans were not documented by a written agreement, were payable on a demand basis and bore no interest.  The loans have often been made to enable Mr. Morrison to pursue one or more business opportunities in his own name.  The Company elected not to pursue the opportunities in its name, and allow Mr. Morrison to pursue them in his own name, because the board decided to keep the Company's operations focused on its core business, which it defined as the operation of adult fantasy stores in Atlanta metro area.  For example, in some cases, the opportunity was geographically distant from the Company's core operations, and therefore could not fully utilize the Company's existing infrastructure (see discussion of Chamblee Visuals, LLC and Colorado Springs Property).  The Company provided financial support to Mr. Morrison to enable him to pursue the opportunities and because of an unwritten understanding that he would convey the opportunities to the Company at a future date in the event they proved successful and fit the strategic direction of the Company at the time.

Mr. Morrison was indebted to the Company for $55,304 and $2,884 as of June 30, 2001 and 2000, respectively.

In fiscal 2000, the Company borrowed $100,000 from Daugherty and Partners LLC, pursuant to a note bearing interest at 24% per annum that was due in 90 days.  The proceeds were used to take advantage of an opportunity to repurchase a minority interest in an Operating Subsidiary.  At the time of the transaction, Mr. Morrison had an ownership percentage of the lender.  The Company repaid the loan by its due date.

Personal Guarantees by Michael Morrison

Mr. Morrison has personally guaranteed many of the Company's debts since the Company has few financial lenders available to it because of the nature of its business.  At June 30, 2001, the guaranteed debts are a $250,000 note payable to RFF Freedman Family Partnership and a note payable to Videotel (the in the amount of $18,499 (See Note 5 to the Financial Statements).  The balances remaining at June 30, 2001 are $79,180 and $18,499, respectively.  Videotel requires a personal guarantee on all of its video booth system notes in order to finance their systems, and therefore the systems could not have been purchased without Mr. Morrison's personal guarantee.

Acquisition of Morrison Distributors, Ltd.

The acquisition of Morrison Distributors, Ltd. in 1997 was not an arm's length transaction with a non-affiliated party.  Mr. Morrison, an officer, director, and majority shareholder of the Company, was the sole shareholder of Morrison Distributors, Ltd.  While the disinterested members of the Company's board of directors approved the transaction, there are no guarantees that the terms of the transaction were similar to what the Company would have received in an arm's-length transaction with a non-affiliate.  The transaction was executed to make the overall accounting easier for the operation as a whole, since Morrison Distributors, Ltd. operated the purchasing, warehousing and distribution operations for the Company's stores.  Mr. Morrison did not receive any monetary gain from the acquisition.

Transactions with Hector A. Prieto

Mr. Hector Prieto, the chief operating officer of the Company, has sold or purchased interests in the Company's Operating Subsidiaries in the following instances:

During June 23, 1998, Mr. Prieto purchased a 10% interest in Innovative Visuals, LLC for $40,000, which was a 20% discount to the amount paid by other investors for their interests in Innovative Visuals, LLC.  Mr. Prieto received a discount as a finders fee for introducing the other investors to the Company.  The value of the finder's fee was $10,000.

On June 30, 1998, the Company purchased a .1% interest in Innovative Visuals, LLC, and a .05% interest in N.Y. Video, LLC, a subsidiary of the Company, from Mr. Prieto for nominal consideration.

During July 1997, Mr. Prieto purchased a 5% interest in Federal Visuals, LLC for $500, or $100 for each 1% ownership interest.  Unaffiliated investors in Federal Visuals, LLC paid $4,000 for each 1% ownership interest in Federal Visuals, LLC. The value of the finder's fee was $19,500.

On October 1, 1997, Mr. Prieto purchased a 12.5% interest in Northside Visuals, LLC from a third party for $50,000.  Mr. Prieto retained 4.17% of the 12.5% interest in Northside Visuals, LLC and assigned to the Company the remaining 8.33% interest.

During November 1997, Mr. Prieto purchased a 30% interest in N.Y. Video, LLC for $100,000, which was the same amount paid by unaffiliated third parties for their interests in N.Y. Video, LLC.

On February 15, 1996, Mr. Prieto purchased a 25% interest in Exciting Visuals, LLC for $50,000.  Two unaffiliated investors located by Mr. Prieto each paid $50,000 for a 16.7% ownership interest in the Company.  Mr. Prieto received a greater ownership interest in Exciting Visuals, LLC as a finder's fee for introducing the other investors to the Company. The value of the finder's fee was $75,000.

On March 27, 1996, Mr. Prieto purchased a 6.25% ownership interest in Fantastic Visuals, LLC for $20,000, which was a 20% discount to the amount paid by unaffiliated investors for each one percent interest in Fantastic Visuals, LLC. The value of the finder's fee was $5,000.

Mr. Prieto obtained his interests as finder's fees pursuant to oral agreements that were negotiated between Mr. Morrison (on behalf of the Company) and Mr. Prieto on a case-by-case basis.  In each case, the Company agreed to give Mr. Prieto a percentage interest in the Operating Subsidiary as consideration for services rendered by Mr. Prieto in forming the Operating Subsidiary and opening a store, including for locating investors, site location, store design, and preopening services.  Mr. Prieto's percentage interest, and his cost relative to the amount paid by other investors, varied on a case-by-case basis based on the perceived difficulty of opening each store at the time the store was first conceived.  As of June 30, 2001, 2000, 1999 and 1998, Mr. Prieto had received cumulative distributions from the Company's limited liability subsidiaries, based upon his ownership interests therein, of $1,112,912, $957,722, $689,974 and $401,782, respectively. Mr. Prieto has not received any preferential treatment vis-à-vis other interest holders in the Operating Subsidiaries with respect to the distributions that he has received from the Operating Subsidiaries.

Miscellaneous Transactions

During fiscal 2000, the Company obtained maintenance and janitorial help from Gone Fishin, LLC, which is a company owned and controlled by Joseph Steingold (now deceased), the step-father of Michael Morrison, an officer, director, and majority shareholder of the Company.  The Company elected to outsource its maintenance and janitorial services in order to reduce employee benefit costs associated with such employees.  The Company believes that the terms under which it acquired maintenance and janitorial services from Gone Fishin, LLC were equal to or better than the rates that would be charged for comparable services by unrelated vendors.  The Company has subsequently chosen an independent contractor for these services.

Robert Steingold is a financial consultant for the Detroit office of Smith Barney.  Mr. Steingold is the manager of the Company's 401(k) retirement plan, and the stepbrother of Michael Morrison, an officer, director, and majority shareholder of the Company.  The Company understands that the terms under which the retirement plan is managed by Smith Barney, and transactions are conducted on behalf of the plan, are comparable to the terms that Smith Barney offers for similar services to unrelated parties.

Investments at June 30, 2000 consisted of a 10 percent ownership interest in an adult fantasy store located in St. Petersburg, Florida, which was  majority owned, managed, and operated by MacKenzie Davis, who was a minority investor in four of the Company's Operating Subsidiaries until December 30, 1999.  The Company elected to sell its minority position in the Florida store to Mr. Davis for $15,000 payable in three monthly installments beginning on October 1, 2000.  The Company felt that the purchase price was a fair return on its investment.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

|Exhibit No. | Description                                                   
|----------- | --------------------------------------------------------------
|3.1         | Bylaws (1)                                                    
|3.2         | Articles of Amendment and Restatement dated April 22, 1997 (1)
|11          | Statement re: computation of earnings per share (2)           
|22          | Subsidiaries of the Registrant                                
|24          | Consent of Cherry, Bekaert and Holland, L.L.P.                

(1)  Incorporated by reference from the Company's Form 10-SB filed on or about October 6, 1999.

(2)  The information required by this Exhibit can be determined from the Financial Statements included in Part II, Item 7 herein .



SIGNATURES

In accordance with Section 13 of 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

|                     | FOCUS ENTERTAINMENT INTERNATIONAL, INC.                                                                           
|-------------------- | ------------------------------------------------------------------------------------------------------------------
|                     |                                                                                                                   
|Dated: March 5, 2002 | /s/ Michael Morrison                                   By: Michael Morrison, President and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

|Dated: March 5, 2002 | /s/ Michael Morrison                                                 By: Michael Morrison, President                     
|-------------------- | -------------------------------------------------------------------------------------------------------------------------
|                     |                                                                                                                          
|Dated: March 5, 2002 | /s/ Bobby Scott, Jr.                                                    By: Bobby Scott, Jr., Vice President and Director
|                     |                                                                                                                          
|Dated: March 5, 2002 | /s/ David P. Krolik                                                      By: David P. Krolik, Chief Financial Officer    



Exhibit A









FOCUS ENTERTAINMENT INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Financial Statements

for the years ended

June 30, 2001 and 2000







FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Contents

|                                                             | Page 
|------------------------------------------------------------ | -----
|Independent Auditors' Report                                 | 2    
|Financial Statements:                                        |      
|Consolidated Balance Sheets                                  | 3-4  
|Consolidated Statement of Operations                         | 5-6  
|Consolidated Statements of Changes in Stockholders' Equity   | 7    
|Consolidated Statements of Cash Flows                        | 8-9  
|Notes to Consolidated Financial Statements                   | 10-23
|Independent Auditors' Report on Supplementary Information    | 24   
|Consolidated Schedule of General and Administrative Expenses | 25   







Independent Auditors' Report

To the Board of Directors and Stockholders

Focus Entertainment International, Inc. and Subsidiaries

Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of Focus Entertainment International, Inc. and Subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements 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 Focus Entertainment International, Inc. and Subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Cherry, Bekaert and Holland, L.L.P.

Certified Public Accountants

Atlanta, Georgia

December 31, 2001



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

June 30, 2001 and 2000

ASSETS

|                                      | 2001             |  | 2000           
|------------------------------------- | ---------------- |  | ---------------
|Current Assets                        |                  |  |                
|Cash and cash equivalents             | $        401,991 |  | $       373,661
|Inventory                             | 2,588,957        |  | 2,548,797      
|Accounts Receivable                   | -                |  | 23,755         
|Prepaid income taxes                  | -                |  | 75,837         
|Prepaid insurance                     | -                |  | 114,125        
|Prepaid rent                          | 87,942           |  | 83,815         
|                                      |                  |  |                
|Total Current Asset                   | 3,078,890        |  | 3,219,990      
|                                      |                  |  |                
|Property and Equipment                |                  |  |                
|Land and building                     | 279,671          |  | 279,671        
|Computers and software                | 521,714          |  | 387,608        
|Furniture and fixtures                | 652,949          |  | 626,505        
|Leasehold improvements                | 1,177,291        |  | 961,813        
|Store equipment and signage           | 861,716          |  | 826,630        
|Vehicles                              | 54,010           |  | 54,011         
|                                      | 3,547,351        |  | 3,136,238      
|Accumulated Depreciation              | (1,629,755)      |  | (1,291,255)    
|                                      |                  |  |                
|Net Property and Equipment            | 1,917,596        |  | 1,844,983      
|                                      |                  |  |                
|Other Assets                          |                  |  |                
|Advance to employees                  | 1,506            |  | -              
|Due from stockholders                 | 55,304           |  | 2,884          
|Goodwill - net amortization           | 1,230,173        |  | 1,335,558      
|Deferred income taxes                 | 25,000           |  | 25,000         
|Deposits                              | 122,893          |  | 97,977         
|Notes receivable - due after one year | -                |  | 75,000         
|Investments                           | 22,950           |  | 8,715          
|                                      |                  |  |                
|Total other assets                    | 1,457,826        |  | 1,545,134      
|                                      |                  |  |                
|Total assets                          | $     6,454,312  |  | $    6,610,107 



The accompanying notes are an integral part of these financial statement



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (continued)

June 30, 2001 and 2000

LIABILITIES AND STOCKHOLDERS' EQUITY

|                                        | 2001            |  | 2000           
|--------------------------------------- | --------------- |  | ---------------
|                                        |                 |  |                
|Current Liabilities                     |                 |  |                
|Current portion of long term debt       | $       356,603 |  | $       548,546
|Accounts payable                        | 1,122,921       |  | 1,163,623      
|Accrued expenses                        | 243,889         |  | 210,068        
|Income taxes payable                    | 36,303          |  | -              
|                                        |                 |  |                
|Total Current Liabilities               | 1,759,716       |  | 1,922,237      
|                                        |                 |  |                
|Long term Liabilities                   |                 |  |                
|Long term debt (net of current portion) | 226,032         |  | 563,516        
|                                        |                 |  |                
|Total Liabilities                       | 1,985,748       |  | 2,485,753      
|                                        |                 |  |                
|Commitments and Contingencies           |                 |  |                
|                                        |                 |  |                
|Minority Interest                       | 1,049,713       |  | 1,088,198      
|                                        |                 |  |                
|Stockholders' Equity                    |                 |  |                
|Common stock; $.001 par value,          |                 |  |                
|50,000,000 shares authorized,           |                 |  |                
|4,900,000 shares issued and outstanding | 4,900           |  | 4,900          
|Additional paid-in capital              | 254,188         |  | 254,188        
|Retained earnings                       | 3,159,763       |  | 2,777,068      
|                                        |                 |  |                
|Total Stockholders' Equity              | 3,418,851       |  | 3,036,156      
|                                        |                 |  |                
|Total Liability and                     |                 |  |                
|Stockholders' Equity                    | $    6,454,312  |  | $    6,610,107 



The accompanying notes are an integral part of these financial statement



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years Ended June 30, 2001 and 2000

|                                    | 2001           |  | 2000            
|----------------------------------- | -------------- |  | ----------------
|                                    |                |  |                 
|Sales net of returns and allowances |                |  |                 
|Product sales                       | $   10,107,244 |  | $      9,412,597
|Service sales                       | 3,228,465      |  | 4,040,571       
|                                    |                |  |                 
|Total Sales                         | 13,335,709     |  | 13,453,168      
|                                    |                |  |                 
|Cost of goods sold                  | 4,864,884      |  | 4,509,911       
|                                    |                |  |                 
|Gross profit                        | 8,470,825      |  | 8,943,257       
|                                    |                |  |                 
|General and administrative expenses | 7,378,375      |  | 6,886,700       
|                                    |                |  |                 
|Income from operations              | 1,092,450      |  | 2,056,557       
|                                    |                |  |                 
|Other income (expense)              |                |  |                 
|Rental income                       | 68,912         |  | 56,820          
|Gain (loss) on disposal of assets   | 49,511         |  | (100,008)       
|Interest income                     | 6,043          |  | 19,321          
|Interest expense                    | (88,233)       |  | (92,757)        
|Other                               | 83,671         |  | 72,459          
|                                    |                |  |                 
|Total other income (expense)        | 119,904        |  | (44,165)        
|                                    |                |  |                 
|Income before income taxes          | 1,212,354      |  | 2,012,392       







FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years Ended June 30, 2001 and 2000

|                                   | 2001      |  | 2000     
|---------------------------------- | --------- |  | ---------
|                                   |           |  |          
|Provision for income taxes         | $ 312,140 |  | $ 531,620
|                                   |           |  |          
|Minority interest                  | 517,520   |  | 849,898  
|                                   |           |  |          
|Net income                         | 382,694   |  | 630,874  
|                                   |           |  |          
|Basic EPS                          |           |  |          
|Earnings per share of common stock | 0.08      |  | 0.13     
|Average number of common shares    |           |  |          
|outstanding                        | 4,900,000 |  | 4,900,000
|                                   |           |  |          
|Diluted EPS                        |           |  |          
|Earnings per share of common stock | 0.08      |  | 0.13     
|Average number of common shares    |           |  |          
|outstanding                        | 4,900,000 |  | 4,900,000





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years Ended June 30, 2001 and 2000

|                            |  | CommonStock        |  | Additional
Paid-In Capital |  | Retained Earnings |  | Total       
|--------------------------- |  | ------------------ |  | -------------------------- |  | ----------------- |  | ------------
|                            |  |                    |  |                            |  |                   |  |             
|Balance as of June 30, 1999 |  | $            4,825 |  | $                2,700     |  | $       2,146,195 |  | $  2,153,720
|                            |  |                    |  |                            |  |                   |  |             
|                            |  |                    |  |                            |  |                   |  |             
|Issuance of common stock    |  | 75                 |  | 251,488                    |  | -                 |  | 251,563     
|                            |  |                    |  |                            |  |                   |  |             
|                            |  |                    |  |                            |  |                   |  |             
|Net income                  |  |                    |  |                            |  | 630,874           |  | 630,874     
|                            |  |                    |  |                            |  |                   |  |             
|                            |  |                    |  |                            |  |                   |  |             
|Balance as of June 30, 2000 |  | 4,900              |  | 254,188                    |  | 2,777,069         |  | 3,036,157   
|                            |  |                    |  |                            |  |                   |  |             
|Issuance of common stock    |  | -                  |  | -                          |  | -                 |  | -           
|                            |  |                    |  |                            |  |                   |  |             
|                            |  |                    |  |                            |  |                   |  |             
|Net income                  |  | -                  |  | -                          |  | 382,694           |  | 382,694     
|                            |  |                    |  |                            |  |                   |  |             
|Balance as of June 30, 2001 |  | $            4,900 |  | $            254,188       |  | $       3,159,763 |  | $  3,418,851
|                            |  |                    |  |                            |  |                   |  |             





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended June 30, 2001 and 2000

|                                                  | 2001             |  | 2000             
|------------------------------------------------- | ---------------- |  | -----------------
|                                                  |                  |  |                  
|Cash flows from operating activities              | $        382,694 |  | $         630,874
|Net income                                        |                  |  |                  
|Adjustments to reconcile net income to net cash   |                  |  |                  
|Provided by operating activities                  |                  |  |                  
|Depreciation                                      | 338,500          |  | 301,473          
|Amortization                                      | 70,741           |  | 46,226           
|Minority interest                                 | 517,518          |  | 849,898          
|Consulting fees paid with stock                   | -                |  | 251,563          
|Changes in operating assets and liabilities:      |                  |  |                  
|Accounts receivable                               | 23,755           |  | (18,505)         
|Inventory                                         | (40,160)         |  | (477,174)        
|Advances to employees                             | (1,506)          |  | 3,849            
|Prepaid insurance                                 | 114,125          |  | 4,883            
|Prepaid rentals                                   | (4,127)          |  | 810              
|Deposits                                          | (24,916)         |  | (8,675)          
|Accounts payable and accrued expenses             | 29,424           |  | 849,522          
|Income taxes                                      | 75,837           |  | (605,944)        
|                                                  |                  |  |                  
|Net cash provided by operating activities         | 1,481,885        |  | 1,828,800        
|                                                  |                  |  |                  
|Cash flows from investing activities              |                  |  |                  
|Purchase of property and equipment                | (411,111)        |  |                  
|Repurchase of shares from minority interests, net | 34,641           |  | (715,028)        
|Purchase of investments                           | (14,235)         |  | -                
|Proceeds from sale of investments                 | -                |  | 17,429           
|Purchase of goodwill                              | -                |  | (513,072)        
|Notes receivable                                  | 75,000           |  | 241,090          
|                                                  |                  |  |                  
|Net cash for investing activities                 | (315,705)        |  | (1,517,762)      
|                                                  |                  |  |                  
|                                                  |                  |  |                  





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

Years Ended June 30, 2001 and 2000

|                                                   | 2001         | 2000           
|-------------------------------------------------- | ------------ | ---------------
|                                                   |              |                
|Cash flows from financing activities               |              |                
|Proceeds from long-term debt                       | 20,113       | 1,140,387      
|Payment in long term debt                          | (549,540)    | (554,624)      
|Advances to stockholder                            | (52,420)     | (141,232)      
|Minority interest contributions                    | --           | 20,000         
|Minority interest distribution                     | (556,003)    | (648,353)      
|                                                   |              |                
|Net cash provided by (used for)                    |              |                
|financing activities                               | (1,137,850)  | (183,822)      
|                                                   |              |                
|Net increase (decrease) in cash                    | 28,330       | 127,216        
|                                                   |              |                
|Cash and cash equivalents, beginning of year       | 373,661      | 246,445        
|                                                   |              |                
|Cash and cash equivalents, end of year             | $    401,991 | $     373,661  
|                                                   |              |                
|                                                   |              |                
|Supplemental disclosures of cash flow information: |              |                
|                                                   |              |                
|Cashpayments during the year for:                  |              |                
|Interest on debt obligations                       | $     88,233 | $        91,950
|Income taxes                                       | $   200,000  | $   1,140,342  
|                                                   |              |                
|                                                   |              |                





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2001 and 2000

Note 1 - Summary of Significant Accounting Policies

Corporate History

Focus Entertainment International, Inc. was formed in 1991.  From inception until April 1997, the Company was in the developmental stage.  In 1997, the Company acquired all the outstanding shares of 9 1/2 Weeks an Adult Fantasy Store, Inc.  In May 1998, 9 1/2 Weeks changed its name to Midtown Visuals, Inc. ("Midtown").  Midtown operates a chain of thirteen adult fantasy stores.  In 1997, Morrison Distributors, Ltd. was acquired by the Company.  Morrison Distributors purchases the retail inventory and distributes product to the stores.

Company's Activities

Focus Entertainment International, Inc. and its Subsidiaries operate Adult Fantasy Stores which rent adult videos and retail in adult videos, marital aids, lotions, novelties, magazines, provocative clothing, lingerie, tobacco, tobacco related products, and adult viewing booths. The stores operate under the trade names of Inserection, Heaven, New York Video, Cupids Arrow and Inserection Water Pipe World and are located in the metropolitan Atlanta Georgia area in Fulton, Cobb, and DeKalb counties and in Myrtle Beach, South Carolina in Horry county.

Principles of Consolidation

The Company wholly owns Midtown Visuals, Inc. and Morrison Distributors, Ltd.  Midtown owns controlling interest in Unique Visuals, LLC, Exciting Visuals, LLC, Creative Visuals, LLC, Fantastic Visuals, LLC, Northside Visuals, LLC, Cheshire Visuals, LLC, New York Video, Innovative Visuals, LLC, 1690 Cobb, LLC, Snellville Visuals, LLC, Myrtle Beach Visuals, LLC, Peachtree Visuals, LLC, Internet Visuals, LLC, and Federal Visuals, LLC. The financial statements of these subsidiaries have been consolidated.  Minority interests acquired over time have been recorded using the purchase method.  Goodwill was recorded for the excess of the purchase price over the proportionate share of the fair value of net assets acquired.  Significant intercompany balances and transactions have been eliminated in consolidation.

Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles.  Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  Actual results could vary from the estimates that were used.

Inventory

Inventory is stated at the lower of cost or market. Cost of video inventory is determined on the average cost method. All other inventory is valued by the first-in, first-out (FIFO) method.



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 1 - Summary of Significant Accounting Policies (continued)

Prepaid Rent

Rent paid in advance on building leases has been reported as a prepaid.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the assets by accelerated and straight-line methods. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Depreciation expense charged to operations amounted to $338,500 and $301,473 in 2001 and 2000, respectively.

Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Amounts provided for deferred income taxes relate principally to depreciation.

Cash and Cash Equivalents

The Company considers instruments with maturities of three months or less to be cash equivalents for purposes of the statements of cash flows.

Intangible and Long-lived Assets

Goodwill is recognized for financial statement purposes as the excess of the purchase price of interests in subsidiaries from minority investors and the book value of those interests. Goodwill originating from the purchase of the Myrtle Beach store is recognized as the excess of the purchase price of the assets purchased over the fair market value of those assets. Goodwill is being amortized over 240 months.

Goodwill originating in transactions with the majority stockholder is measured using the basis of the majority stockholder established in transactions with outside partners.  Amounts paid to the majority stockholder in excess of the basis is charged to retained earnings.

The Company evaluates the impairment of goodwill and long-lived assets on an ongoing basis in relation to the undiscounted cash flows of the related assets.  No adjustments for impairment have been made.

FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 1 - Summary of Significant Accounting Policies (continued)

Amortization expense charged to operations amounted to $70,741 and $10,194 in 2001 and 2000, respectively.

Investments

Investments of less than 20 percent in investees where the Company does not have significant influence are carried at cost.

Advertising Costs

Advertising costs are charged to operations when the advertising first takes place.  Advertising expense was $213,952 and $277,153 for the years ended June 30, 2001 and 2000, respectively.

Comprehensive Income

There were no items of other comprehensive income for the years ended June 30, 2001 and 2000.

Impact of Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities".  This statement addresses the accounting for derivative instruments, including some types of derivative instruments imbedded in other contracts, and hedging activities.  SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000.  We do not anticipate the adoption of the provisions of SFAS No. 133 will significantly impact our financial reporting.

For the years ended June 30, 2001 and 2000, we have adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information."  SFAS No. 131 requires the presentation of descriptive information about reportable segments consistent with information our management uses to assess performance.  Additionally, SFAS No. 131 requires disclosure of certain information by geographic region.  The adoption of the provision of SFAS No. 131 has not significantly impacted our financial reporting because the Company operates in one business segment and geographic region.

Note 2 - Disclosure about Fair Value of Financial Instruments

Cash and Cash Equivalents

The Company estimates that the fair value of cash equivalents approximates the carrying value due to the relatively short maturity of these instruments.



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 2 - Disclosure about Fair Value of Financial Instruments (continued)

Notes Payable

The Company estimates that the fair value of notes payable approximates carrying value based upon its effective borrowing rate for issuance of debt with similar terms and remaining maturities.

Note 3 - Inventory

Inventory consisted of:



|                   | 2001            | 2000           
|------------------ | --------------- | ---------------
|                   |                 |                
|Retail Video Tapes | $     1,394,184 | $     1,335,196
|Retail Product     | 1,191,041       | 1,213,601      
|Bar Inventory      | 3,732           | -              
|                   |                 |                
|                   | $     2,588,957 | $     2,548,797



Both videos and product are held for sale.  Videos are also available for rental.  Rental videos are generally sold within one year.  Therefore, all videos are classified as a current asset and are not amortized.

Note 4 - Notes Receivable

Notes receivable consist of the following:



|                                                                                                                                                                                                                                                                                                    | 2001               | 2000                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------------------------
|                                                                                                                                                                                                                                                                                                    |                    |                         
|Note receivable from an individual with interest payable annually in arrears at 7 percent. The principal balance is due in sixty equal monthly installments beginning January 20, 2002. The note is unsecured.  Past due interest of $5,250 has been accrued and is reported in accounts receivable | -                  | $            75,000     
|                                                                                                                                                                                                                                                                                                    |                    |                         
|Less current portion                                                                                                                                                                                                                                                                                | -                  | 75,000                  
|                                                                                                                                                                                                                                                                                                    |                    |                         
|Due after one year                                                                                                                                                                                                                                                                                  | $                - | $                      -





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 5 - Long-term debt

Long-term debt consists of:



|                                                                                                                                                                                          | 2001             | 2000            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ----------------
|                                                                                                                                                                                          |                  |                 
|Mortgage note payable to individuals in monthly installments of $2,045, including interest at 10 percent. The note is collateralized by a deed to secure debt on land and building.       | $        217,915 | $        220,515
|                                                                                                                                                                                          |                  |                 
|Note payable to company in 24 monthly installments of $16,667, including interest at 8 percent. The note is collateralized by certain equipment.                                          | 18,499           | -               
|                                                                                                                                                                                          |                  |                 
|Note payable to finance company in monthly installments of $695.  Including interest at 9.755% per annum.  The note is collateralized by a vehicle.                                       | 3,151            | 9,649           
|                                                                                                                                                                                          |                  |                 
|Note payable to premium financing company in monthly installments of $10,157, including interest at 7.17 percent. The note is collateralized by unearned premiums under various policies. | -                | 88,747          
|                                                                                                                                                                                          |                  |                 
|Note payable to limited partnership in monthly installments of $11,768, including interest at 12 percent. The note is collateralized by a guarantee from the majority stockholder.        | 79,180           | 202,722         
|                                                                                                                                                                                          |                  |                 
|Note payable to company in monthly installments of $10,833 including interest at 8 percent. The note is collateralized by minority interests in various subsidiaries.                     | 134,470          | 248,699         
|                                                                                                                                                                                          |                  |                 
|Note payable to company in monthly installments of $1,692, including interest at 8.25 percent. The note is collateralized by equipment.                                                   | -                | 14,721          
|                                                                                                                                                                                          |                  |                 
|Note payable to company in monthly installments of $1,829, including interest at 8.25 percent. The note is collateralized by equipment.                                                   | -                | 15,911          
|                                                                                                                                                                                          |                  |                 



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 5 - Long-term debt (continued)



|                                                                                                                                         | 2001                 | 2000                 
|---------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ---------------------
|                                                                                                                                         |                      |                      
|Note payable to company in monthly installments of $16,667, including interest at 8 percent. The note is collateralized by a subsidiary. | 129,420              | 311,098              
|                                                                                                                                         |                      |                      
|                                                                                                                                         | 582,635              | 1,112,062            
|Less: current portion                                                                                                                    | 356,603              | 548,546              
|                                                                                                                                         |                      |                      
|Net long-term debt                                                                                                                       | $            226,032 | $             563,516



Aggregate maturities of long-term debt are as follows:



|Year ending June 30, |                     
|-------------------- | --------------------
|2002                 | $            353,959
|2003                 | 13,634              
|2004                 | 3,174               
|2005                 | 3,506               
|2006                 | 3,873               
|Thereafter           | 204,489             
|                     |                     
|                     | $            582,635



Interest expense of $88,233 and $92,757 for 2001 and 2000, respectively, is included in the accompanying consolidated statements of operations.

Note 6 - Income Taxes

The following is a summary of the income tax provision for the year ended June 30:



|                    | 2001                 |  | 2000                 
|------------------- | -------------------- |  | ---------------------
|                    |                      |  |                      
|Current:            |                      |  |                      
|Federal             | $            287,169 |  | $             454,479
|State               | 24,971               |  | 77,141               
|Deferred:           |                      |  |                      
|Principally Federal | -                    |  | -                    
|                    |                      |  |                      
|                    | $           312,140  |  | $            531,620 



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 6 - Income Taxes (continued)

Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Amounts provided for deferred taxes relate principally to depreciation.  A reconciliation of income tax at the statutory rate to the company's effective rate is as follows:



|                                        | 2001    | 2000   
|--------------------------------------- | ------- | -------
|                                        |         |        
|Computed at Expected Statutory Rates    | 34.0%   | 34.0%  
|                                        |         |        
|Income Taxable to Minority Interests    | (13.5%) | (13.5%)
|                                        |         |        
|Non-deductible Meals and Entertainment  | 1.2%    | 1.9%   
|                                        |         |        
|State Income Tax Net of Federal Benefit | 3.8%    | 3.8%   
|                                        |         |        
|Other                                   | 0.2%    | 0.2%   
|                                        |         |        
|                                        | 25.7%   | 26.4%  



The Company has subsidiaries that are limited liability companies.  Limited liability companies are not tax paying entities for income tax purposes. Income of the limited liability companies is taxed to the members in their respective returns. Therefore no income tax provision has been made for the income of the minority interest holders.

Note 7 - Earnings Per Share

For the Year Ended June 30, 2001

|                                        | Income (Numerator) | Shares (Denominator) | Per Share Amount
|--------------------------------------- | ------------------ | -------------------- | ----------------
|                                        |                    |                      |                 
|Net income                              | $   479,943        |                      |                 
|                                        |                    |                      |                 
|Basic EPS                               |                    |                      |                 
|Income available to common stockholders | $   476,943        | 4,900,000            | $   0.09        
|                                        |                    |                      |                 
|Diluted EPS                             |                    |                      |                 
|Effect of dilutive securities options   | -                  | -                    |                 
|Income available to common stockholders |                    |                      |                 
|plus assumed conversions                | $   476,943        | 4,900,000            | $   0.09        





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 7 - Earnings Per Share (continued)

For the Year Ended June 30, 2000

|                                        | Income (Numerator) | Shares (Denominator) | Per Share Amount
|--------------------------------------- | ------------------ | -------------------- | ----------------
|                                        |                    |                      |                 
|Net income                              | 630,874            |                      |                 
|                                        |                    |                      |                 
|Basic EPS                               |                    |                      |                 
|Income available to common stockholders | $   630,874        | 4,900,000            | $   0.13        
|                                        |                    |                      |                 
|Diluted EPS                             |                    |                      |                 
|Effect of dilutive securities options   | -                  | -                    |                 
|Income available to common stockholders |                    |                      |                 
|plus assumed conversions                | $   630,874        | 4,900,000            | $   0.13        



All securities that could potentially dilute basic EPS have been included in the computation of diluted EPS.

Note 8 - Concentrations

The Company had nine of thirteen retail locations in 2001 and nine of twelve locations in 2000 in Fulton County Georgia. The Company operates in an industry which is the subject of substantial litigation and adverse public and political opinion. The Company has successfully defended its right to operate this business and feels it will be able to continue to defend this right. The Company is actively pursuing additional locations in other legal jurisdictions in an attempt to diversify the concentration of one legal jurisdiction.

Note 9  - Minority Interest

The Company has formed Limited Liability Companies (LLCs) to operate its locations. Profits and losses of each location are allocated to the investors based on formulas set forth in the operating agreements of the LLCs. Distributions are made to the investors based on formulas set forth in the operating agreements.



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 9  - Minority Interest (continued)

Affiliates of the Company in regards to minority interest are defined as officers or employees of the Company with significant roles.  Minority interest owned by affiliates and non-affiliates is as follows:

Fiscal 2001				June 30, 2001



|Subsidiary                 | Minority Earnings | Minority Distributions | Minority Ownership of Nonaffiliates | Minority Ownership of Affiliates | Minority Equity
|-------------------------- | ----------------- | ---------------------- | ----------------------------------- | -------------------------------- | ---------------
|                           |                   |                        |                                     |                                  |                
|Unique Visuals, LLC        | $-                | $ -                    | -                                   | -                                | $ -            
|Exciting Visuals, LLC      | 178,444           | 106,183                | -                                   | 25.000%                          | 343,859        
|Fantastic Visuals, LLC     | 341,456           | 272,967                | 42.5000%                            | 6.250%                           | 572,445        
|Northside Visuals, LLC     | 3,374             | 20,318                 | -                                   | 4.170%                           | 10,456         
|Cheshire Visuals, LLC      | -                 | -                      | -                                   | -                                | -              
|New York Video, LLC        | 45,152            | 75,735                 | -                                   | 29.950%                          | 102,645        
|Innovative Visuals, LLC    | (44,851)          | 62,100                 | 20.000%                             | 9.900%                           | 26,570         
|1690         Cobb, LLC     | -                 | -                      | -                                   | -                                | -              
|Snellville Visuals, LLC    | (6,057)           | 18,200                 | 4.000%                              | 5.000%                           | (6,262)        
|Federal Visuals, LLC       | -                 | 500                    | 5.000%                              | -                                | -              
|Biggs Morrison Boxing, LLC | -                 | -                      | -                                   | -                                | -              
|Total                      | $   517,518       | $   556,003            |                                     |                                  | $   1,049,713  





Fiscal 2000				June 30, 2000



|                           |             |             |         |         |              
|-------------------------- | ----------- | ----------- | ------- | ------- | -------------
|Unique Visuals, LLC        | $   -       | $  3,172-   | -       | -       | $   -        
|Exciting Visuals, LLC      | 286,485     | 216,429     | -       | 25.000% | 271,598      
|Fantastic Visuals, LLC     | 398,490     | 287,240     | 42.500% | 6.250%  | 503,956      
|Northside Visuals, LLC     | 30,563      | 25,812      | 4.374%  | 4.170%  | 27,400       
|Cheshire Visuals, LLC      | -           | 589         | -       | -       | -            
|New York Video, LLC        | 90,678      | 64,091      | -       | 29.950% | 133,228      
|Innovative Visuals, LLC    | 46,565      | 53,044      | 20.000% | 9.900%  | 133,521      
|1690         Cobb, LLC     | (878)       | -           | -       | -       | -            
|Snellville Visuals, LLC    | (2,005)     | -           | 4.000%  | 5.000%  | 17,995       
|Federal Visuals, LLC       | -           | -           | 5.000%  | -       | 500          
|Biggs Morrison Boxing, LLC | -           | 100         | -       | -       | -            
|Total                      | $   849,898 | $   650,477 |         |         | $   1,088,198











FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 10 - Sales and Cost of Sales

Sales consist of:



|                               | 2001             | 2000              
|------------------------------ | ---------------- | ------------------
|                               |                  |                   
|Product sales                  | $      6,151,355 | $        5,161,874
|Video sales                    | 4,131,939        | 4,103,499         
|Video rentals                  | 2,495,887        | 2,430,778         
|Booth rentals                  | 701,376          | 1,637,342         
|Miscellaneous sales            | 31,201           | 119,675           
|Sales and credit card discount | (176,049)        | -                 
|                               |                  |                   
|Total sales                    | $    13,335,709  | $     13,453,168  

Cost of sales consist of



|                    | 2001             | 2000            
|------------------- | ---------------- | ----------------
|                    |                  |                 
|Product cost        | $      3,035,889 | $      2,806,533
|Video sales cost    | 1,789,877        | 1,682,435       
|Other cost          | 39,118           | 20,943          
|                    |                  |                 
|Total cost of sales | $      4,864,884 | $      4,509,911



Note 11 - 401(k) Plan

The Company has adopted a trusteed contributory 401(k) plan covering substantially all employees. The Company may contribute amounts as determined by the Board of Directors, not in excess of the lessor of the maximum allowable for income tax purposes or a specific percentage of the participant's salary. The Company has made no contributions for the years ended June 30, 2001 and 2000.

Note 12 - Lease Commitments

The Company leases retail, office, and warehouse space under operating leases. The leases require the following minimum annual rental payments:



|Year ending June 30, |          
|-------------------- | ---------
|2002                 | 1,140,188
|2003                 | 1,152,054
|2004                 | 1,164,925
|2005                 | 1,206,049
|2006                 | 665,755  



Rental expense for the years ended June 30, 2001 and 2000 amounted to $1,088,212 and $978,898, respectively.

FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 12 - Lease Commitments (continued)

The Company subleases a portion of the Unique Visuals, LLC location to a unrelated business. Rental receipts for the years ended June 30, 2001 and 2000, amounted to $68,912 and $56,820, respectively, and is included in other income and expense in the accompanying Consolidated Statement of Operations.

Note 13 - Business Combination

On July 1, 1997, before business was transacted, the Company purchased Morrison Distributors, Ltd. from the Company's majority stockholder by exchanging 600,000 shares of the Company's common stock for the outstanding 500 shares of Morrison Distributors, Ltd.'s common stock. This combination of entities under common control was accounted for in a manner similar to pooling of interests accounting.

The following illustrates the pertinent financial data of the combining entities prior to the combination:



|                      | Focus Entertainment    |  | Morrison             
|--------------------- | ---------------------- |  | ---------------------
|                      | International, Inc.    |  | Distributors, Ltd.   
|                      |                        |  |                      
|Retained Earnings     |                        |  |                      
|(accumulated deficit) | $              332,910 |  | $           (551,981)



There were no other changes in stockholders' equity of the companies prior to the combination. There were no intercompany transactions.  There were no transactions prior to the combination which are included in the results of operations presented.

On April 27, 1997, a Stock Purchase Agreement was entered into between the stockholders of 9 1/2 Weeks, Inc. and Focus Entertainment International, inc. which resulted in the merger of the two companies.  The companies were under common control.  The transaction was consummated by the exchange of 4,000,000 shares of Focus Entertainment International, Inc.'s common stock for the outstanding 500 shares of 9 1/2 Weeks, Inc.'s common stock.  The combination was accounted for in a manner similar to pooling of interests accounting.  This transaction was consummated before the beginning of the fiscal years presented.

The following illustrates the pertinent financial data of the combining entities prior to the combination:



|                  | Focus Entertainment    |  |                         
|----------------- | ---------------------- |  | ------------------------
|                  | International, Inc.    |  | 9 1/2 Weeks, Inc.       
|                  |                        |  |                         
|Net income (loss) | $             (40,000) |  | $                247,927
|Revenue           | -                      |  | 9,140,253               



There were no other charges in stockholders' equity of the Companies prior to the combination.  There were no intercompany transactions.



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 14 - Stock Option Agreements

On August 1, 1999 the Company entered into an agreement with Stockbroker Associates, Inc. wherein Stockbroker Associates, Inc. would provide certain consulting services including corporate image advertising, business development and strategy, corporate compensation policies, financial public relations and promotional services. The Company agreed to pay to Stockbroker Associates a weekly fee of $5,000. Additionally, the Company agreed to issue 25,000 shares of its common stock per month commencing on August 1, 1999. The agreement was terminated by the Company on October 12, 1999. 75,000 shares were issued under the agreement. The fair market value of the stock issued was determined by recently quoted market pricing , which the Company felt was reflective of the value of its shares based on earnings, and expensed as consulting fees. The issuance of these 75,000 shares resulted in consulting expense of $251,563.

Note 15 - Contingencies

The Company and its Subsidiaries are the defendants in various lawsuits at June 30, 2001 and 2000.  According to the Company's legal counsel the majority of the lawsuits are frivolous in nature, with no adverse decisions expected. The Company has potential exposure on the following legal actions at June 30, 2001 and 2000:

New York Video, LLC, a subsidiary of the Company is involved in a dispossessory action filed by the landlord of the retail location in Union City, Georgia.  Payless Shoesource, Inc. ("Payless") had filed two lawsuits against the Company in Fulton County State Court.  The Company had leased space for the store operated by N. Y. Video from Payless in Union City, Georgia.  Payless alleged that the Company violated a scope of use clause in its lease and sought to dispossess the Company of the premises.  The Company recently lost the case after a trial, and is currently appealing the ruling.  If the appeal is unsuccessful the Company will have to close or move the store.  Under Georgia law a tenant is entitled to remain in possession while a trial ruling is on appeal. Ultimately loss of possession is possible. This location accounted for $1,190,539 and $1,170,469 of total Net Sales and for $150,759 and $136,056 of Income before taxes for the years ended June 30, 2000 and 1999, respectively.  The current lease agreement expires on July 31, 2008.

The City of Union City, Georgia is disputing certain licensing and building permit violations at the New York Video, LLC location. Litigation is possible on the question of whether or not certain modifications of licensing and building will be necessary. If an unfavorable outcome occurs, management anticipates only a change in licensing with no significant potential loss.

The Company has formed Limited Liability Companies (LLCs) to operate its locations.  Distributions are made to the investors based on formulas set forth in the operating agreements for the LLCs. Under the terms of the operating agreements, distributions are to be made to the investors from net cash from operations of the LLC. The term "net cash from operations" is defined as the gross cash proceeds from operations (including, without limitation, sales and dispositions in the ordinary course of business) less the portion thereof used to pay or establish reserves for all LLC expenses, debt payments, capital improvements, replacements, and contingencies, all as determined by the Manager.



FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 15 - Contingencies (continued)

Net cash from operations shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established. At June 30, 2001, the Company estimates that $154,314 has been withheld from distribution to minority investors for reserves. Should the reserved amounts be reduced, some, or all of that amount would be due and payable to the minority investors.

Note 16 - Acquisitions and Dispositions

Minority Interests

The Company purchases minority interests in its own subsidiaries to increase its control of the business.  In these transactions, the difference in the fair value of net assets acquired and the purchase price is recorded as goodwill.  Any difference between the purchase price paid by the majority shareholder to a minority investor and the price paid by the Company to the majority shareholder for a particular minority interest is deemed a distribution.

|Date     | Subsidiary LLC                           | Percent Acquired | Purchase Price | Purchase Price of Minority Stockholder | Fair Value of Net Assets | Costs Over (Under) Fair Value of Net Assets | Distribution
|-------- | ---------------------------------------- | ---------------- | -------------- | -------------------------------------- | ------------------------ | ------------------------------------------- | ------------
|10/1/97  | Unique            Visuals                | 25.00%           | $162,000       | $                                      | $  41,367                | $120,633                                    | $           
|07/31/98 | Unique            Visuals                | 4.92%            | 30,000         |                                        | 8,513                    | 21,487                                      |             
|12/31/98 | Unique             Visuals               | 6.25%            | 28,000         |                                        | 11,498                   | 16,502                                      |             
|10/01/99 | Unique                           Visuals | 13.83%           | 50,000         |                                        | 28,202                   | 21,798                                      |             
|02/01/98 | Creative          Visuals                | 50.00%           | 250,000        | 250,000                                | 141,436                  | 108,564                                     |             
|06/01/98 | Exciting           Visuals               | 16.67%           | 155,000        |                                        | 67,594                   | 87,406                                      |             
|12/30/99 | Exciting         Visuals                 | 16.67%           | 389,316        |                                        | 179,745                  | 209,571                                     |             
|02/01/98 | Fantastic         Visuals                | 1.25%            | 31,250         | -                                      | (4,365)                  |                                             | 35,615      
|10/01/98 | Northside       Visuals                  | 16.25%           | 103,462        |                                        | 49,167                   | 54,295                                      |             
|03/30/99 | Northside       Visuals                  | 5.94%            | 20,000         |                                        | 17,189                   | 2,811                                       |             
|06/30/99 | Northside       Visuals                  | 3.75%            | 67,400         | 52,190                                 | 9,582                    | 42,608                                      | 15,210      
|12/30/99 | Northside         Visuals                | 5.94%            | 43,407         |                                        | 20,055                   | 23,352                                      |             
|01/31/01 | Northside       Visuals                  | 4.17%            | 22,000         |                                        | 7,298                    | 14,702                                      |             
|07/31/98 | Cheshire        Visuals                  | 37.50%           | 150,000        |                                        | 150,000                  |                                             |             
|11/01/98 | Cheshire           Visuals               | 12.50%           | 65,000         |                                        | 50,000                   | 15,000                                      |             
|06/30/99 | Cheshire         Visuals                 | 5.00%            | 55,800         | 43,207                                 | 2,236                    | 40,971                                      | 12,593      
|06/30/99 | New York        Video                    | 5.00%            | 76,100         | 58,903                                 | 6,288                    | 52,615                                      | 17,197      
|12/30/99 | New York          Video                  | 15.00%           | 130,279        |                                        | 60,169                   | 70,110                                      |             
|05/30/00 | 1690                   Cobb              | 5.00%            | -              |                                        | (878)                    | 878                                         |             
|06/30/99 | Federal           Visuals                | 55.00%           | 188,000        |                                        | 200,500                  | (12,500)                                    |             





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (continued)

June 30, 2001 and 2000

Note 17 - Related Party Transactions

The Company leased a building from a former minority owner before and after his remaining interest was acquired by the Company's majority stockholder.  Lease payments amounted to $73,000 for the year ended June 30, 2000. The lease was terminated November 1, 1999.

The spouse of one of the minority owners provided construction and renovation services to the Company amounting to $98,637 and $219,795 during the years ended June 30, 2001 and 2000, respectively.  The son-in-law of the same minority owner provided electrical work amounting to $12,038 and $33,902 during the years ended June 30, 2001 and 2000, respectively.

Advances to and from the majority stockholder have no stated terms.



Independent Auditors' Report on Supplementary Information

To the Board of Directors and Stockholders

Focus Entertainment International, Inc. and Subsidiaries

Atlanta, Georgia

Our report on our audits of the basic consolidated financial statements of Focus Entertainment International and Subsidiaries for the years ended June 30, 2001 and 2000 appears on page 2.  These audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary schedule of general and administrative expenses is presented for purposes of additional analysis and are not a required part of the basic financial statements.  Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Cherry, Bekaert and Holland, L.L.P.

Certified Public Accountants

Atlanta, Georgia

December 31, 2001





FOCUS ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years Ended June 30, 2001 and 2000

|General and administrative expenses      | 2001        | 2000       
|---------------------------------------- | ----------- | -----------
|                                         |             |            
|Advertising                              | $   213,952 | $   277,153
|Amortization                             | 70,741      | 10,194     
|Auto leases                              | 17,503      | 18,306     
|Auto and truck expense                   | 19,963      | 29,952     
|Bank charges                             | 37,361      | 33,803     
|Computer expenses                        | 59,162      | 95,490     
|Contract services                        | 135,234     | 468,687    
|Contributions                            | 8,961       | 15,700     
|Depreciation                             | 338,500     | 301,473    
|Dues and subscriptions                   | 5,762       | 4,394      
|Insurance - general                      | 162,556     | 144,038    
|Insurance - group                        | 65,523      | 35,365     
|Legal and professional                   | 269,912     | 229,311    
|Office expenses                          | 165,886     | 51,908     
|Payroll fees                             | 20,129      | 19,884     
|Rental - buildings                       | 1,088,212   | 978,898    
|Rental - equipment                       | 11,250      | 14,949     
|Repairs and maintenance                  | 212,733     | 174,992    
|Salaries and wages                       | 3,388,073   | 2,828,120  
|Consulting fees                          | -           | 313,563    
|Special promotions                       | 344,447     | 87,710     
|Taxes and licenses                       | 97,205      | 98,259     
|Taxes - payroll                          | 263,320     | 209,514    
|Penalties and fines                      | 34,216      | 410        
|Telephone                                | 176,508     | 111,677    
|Travel and entertainment                 | 274,168     | 198,966    
|Utilities                                | 207,098     | 133,984    
|                                         |             |            
|Total general and administrative expense | $ 7,378,375 | $ 6,886,700