<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 14(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For quarterly period ended August 29, 1998
---------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _________________ to _______________________
Commission file number 0-21634
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METRO GLOBAL MEDIA, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 65-0025871
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1060 PARK AVENUE, CRANSTON, RHODE ISLAND 02910
----------------------------------------------
(Address of principal executive offices)
(401)942-7876
---------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,911,904 at September 30, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets F-1
Statements of Income F-2
Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5 to F-8
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 29, 1998 VERSUS THREE
MONTHS ENDED AUGUST 30, 1997.
The Company's revenues increased $2,968,847 to $7,065,068, for the three months
ended August 29, 1998. This represents a 72% increase from revenues of
$4,096,221 for the three months ended August 30, 1997. Revenues consist
principally of sales of prerecorded videocassettes, magazines, electronic
software products and related items. The increase in revenue is primarily
attributable to: (1) revenue of Fanzine ( a newly acquired subsidiary) of
$1,981,736, (2) revenue of Maxstone of $150,331 and (3) an increase in revenue
of Metro, Inc. of $741,285. For the quarter ended August 29, 1998 Fanzine
distributed 14 products, comprised of magazines, posters and calendars. Revenue
is expected to greatly increase in the second quarter due to the release of
Celebrity Style, a new monthly magazine. Revenues for Metro, Inc. increased
$741,285 over the comparable prior period due to increased sales of videos, DVDs
and novelties. For the quarter ended August 29,1998, the Company released 21
feature videocassettes, 55 video compilations, and 3 video packs as compared to
17 feature videocassettes and 36 video compilations, an increase of 49%.
Costs of revenues (including amortization of film costs) for the three month
period ended August 29, 1998 increased to $4,153,050 from $2,846,207 for the
corresponding period in the prior year. Costs of revenues as a percentage of
revenues in the first quarter of fiscal 1998 was 59% as compared to 69.5% in the
first quarter of fiscal 1997. The primary reason for this increase in the cost
of revenue was the following: (1) cost of revenue associated with Fanzine of
$821,920 and (2) increase in cost of revenue of Metro, Inc. of $332,505 due to
the increase in sales. The improvement in the gross margin of 41% for the
quarter ended August 29, 1998 as compared to a gross margin of 31% for the
quarter ended August 30, 1997 is primarily attributable to the gross margin of
Fanzine of 59%.
Selling, general and administrative (SG&A) expenses for the three months ended
August 29, 1998, increased 24% to $1,891,774 from $1,527,257 for the three
months ended August 30, 1997. Selling, general, and administrative expenses, as
a percentage of revenue, improved to 27% in 1998 as compared to 37.1% in the
three months ended August 30, 1997. The primary reason for the improvement in
the percentage is due to Fanzine having $21,556 in selling, general and
administrative expenses on revenue of $1,981,736.
2
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 29, 1998 VERSUS THREE
MONTHS ENDED AUGUST 30, 1997 (CONTINUED)
Operating income for the three month period ended August 29, 1998 was $1,020,244
as compared to operating loss of $(277,243) for the corresponding period in the
prior year. Net income for the quarter ended August 29, 1998 was $577,508 as
compared to a net loss of $(228,458) for the quarter ended August 30, 1997,
resulting in a basic earning (loss) per share of $.10 for the quarter ended
August 29, 1998 and ($.06) for the quarter ended August 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES AT AUGUST 29, 1998
Cash and cash equivalents amounted to $423,988 at quarter-end. Cash used in
operating activities amounted to $195,574 for the three months ended August 29,
1998, whereas net cash of $415,842 was provided by operations for the same
period in the prior fiscal year. The Company's primary sources of cash in
fiscal 1998 consisted of: (1) proceeds from issuance of preferred stock of
$1,317,000, (2) proceeds from notes payable of $1,200,000 and (3) proceeds from
issuance of convertible debentures of $1,000,000. The primary uses of cash for
the quarter ended August 29, 1998 consisted of: (1) cash used in operating
activities of $195,574, (2) investments in motion pictures and other films of
$856,627, (3) acquisition of Fanzine for $2,000,000 and (4) purchases of
property and equipment of $179,106.
Working capital amounted to $2,447,481 in August, 1998 as compared to $3,378,438
in May, 1998. The net increase in accounts receivable of $1,782,164 was
primarily due to the increase of sales for the quarter. Inventory increased
$604,113 due to the increase in purchasing to support the increase in sales.
Accounts payable and accrued expenses increased $464,681 due to increase
purchasing and increased spending for film production.
During 1998, notes payable totaling $300,000 were converted into 250,000 of the
Company's restricted common stock.
On July 1, 1998, the Company entered into an 8% convertible debenture totaling
$200,000. The note is due on July 1, 1999, in either cash or common stock, at a
conversion rate of $2.25 per share. Proceeds from the debenture were used for
working capital.
On August 1, 1998, the Company entered into notes payable totaling $1,000,000.
The notes, which bear interest at 8%, are due August 1, 1999. Proceeds from the
notes were used in the acquisition of Fanzine.
On July 31, 1998, the Company entered into an 8% convertible debenture with a
total offering of $7,000,000. The Company received proceeds of $1,000,000 in
August, 1998 which was used in the purchase of Fanzine. The remaining
$6,000,000 of the offering will be sold at the Company's option at calls of
$500,000 each for a period of two years following the date of this agreement.
The $1,000,000 debenture matures on July 31, 2000. Interest is payable on a
quarterly basis. The holder of the debenture is entitled to convert, after 120
days of the agreement, the principal value into the Company's common stock at a
discounted market price.
3
<PAGE>
During 1998, the Company entered into an Offshore Securities Subscription
Agreement for convertible Preferred Shares pursuant to regulation S of the U.S.
Securities Act of 1933. Under the terms of the agreement, the Company is to
issue 2,175 shares of 1998 Series A Convertible Preferred Stock ("Series A
Shares") at a price of $1,000 per share with a 5% cumulative dividend payable in
common stock at conversion. For the quarter ended August 29, 1998, the Company
received proceeds of $1,317,000, net of offering costs. The Company received
proceeds of $846,500 during the quarter ended May 30, 1998. Proceeds from such
agreement were used to fund working capital.
The Series A Shares are convertible at a rate of 100 shares plus accrued
dividends per week at 80% of the 15 day average closing bid price. These shares
are subject to a 24 month mandatory conversion feature. For the quarter ended
August 29, 1998, 700 shares and accrued dividends were converted into 280,059
shares of the Company's common stock.
In addition to the Series A Shares the Company issued 400,000 warrants to
purchase the Company's common stock at $1.50 per share commencing April 20, 1998
exercisable over 5 years.
Of Metro's total accounts receivable at August 29, 1998, $2,280,072 (33%) as
compared to $2,477,041 (49%) at May 30, 1998 is owed by Capital Video
Corporation ("CVC"), a chain of retail stores of which a former
officer/shareholder of the Company is the sole shareholder. Because of the
amount of this receivable and the concentration of business with CVC, this
receivable is monitored very closely. Metro has the personal guaranty of its
one shareholder. Accordingly, no allowance for related party receivables and no
related party bad debt expense has been recorded in the Company's financial
statements.
At August 29, 1998 the Company estimates 90 new feature films and videos which
will be released during fiscal 1999. The completion of these movies will
require approximately $2,500,000 to $3,000,000. Financing for these activities
has been and will continue to be generated through operating cash flows as well
as funds received from its line of credit.
During June, 1997, Metro, Inc. entered into a line of credit agreement with a
finance company. Under the agreement, Metro, Inc. may borrow up to 75% of
assigned accounts receivable less than 90 days old, up to a maximum of
$1,500,000. The balance due under the line of credit bears interest at the
prime rate plus 5% per annum. In addition, Metro, Inc. shall pay the finance
company a collateral management or notification fee equal to 3/4 of 1% of sales
submitted to the finance company for inclusion in the net security value of
accounts receivable, but no more than $7,500 per month. The outstanding balance
under the line is secured by accounts receivable of Metro, Inc and guaranties of
the Company and certain officers/shareholders. The line of credit expires
during June, 1999, but includes an option for an additional year. As of August
29, 1998, the balance on the line of credit was $548,438.
Capital Expenditures: Capital expenditures in the first quarter ended August 29,
1998 amounted to $179,106 as compared to $56,044 for the quarter ended
August 30, 1997. The Company anticipates that its capital expenditures for 1999
will be approximately $150,000 to $200,000 primarily used for computer
equipment, duplicating and editing equipment. The company currently has a
$150,000 remaining on a lease line available for its use which management
believes is sufficient.
Management believes that funds provided by operations, existing and new line of
credit, are adequate to meet the anticipated short-term and long-term capital
needs. Management believes that inflation has not had a material effect on its
operations.
4
<PAGE>
Forward Looking Statements
This Form 10-QSB Report contains "forward-looking statements," including
statements in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as to expectations, beliefs, plans, objectives and
future financial performance, and assumptions underlying or concerning the
foregoing. Such forward-looking statements involve risks and uncertainties
which could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. One such factor that could cause
actual results or outcomes to differ materially from those discussed in the
forward-looking statements would be government actions or initiatives, such as
attempts to limit or otherwise regulate the sale of adult-oriented materials,
including print, video and online materials.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Company is in the process of working with the service
providers to prepare for the year 2000. Based on information currently
available, the Company does not expect that it will incur significant operating
expenses or be required to incur material costs to year 2000 compliant.
5
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 29, MAY 30,
1998 1998
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
Current assets
- --------------
Cash $ 423,988 $ 184,995
Accounts receivable, less allowance for doubtful accounts of
$193,030 and $163,030, respectively 6,844,419 5,092,255
Inventory 4,331,076 3,726,963
Deferred income taxes 248,500 248,500
Prepaid expenses and other current assets 312,016 78,751
----------- -----------
Total current assets 12,159,999 9,331,464
Motion pictures and other films at cost, less accumulated
amortization of $6,944,101 and $6,575,623, respectively 4,631,128 4,142,979
Property and equipment at cost, less accumulated depreciation and
amortization of $1,787,942 and $1,681,138, respectively 1,967,385 1,479,426
-
Goodwill, net of accumulated amortization of $35,616 7,464,384
Other assets 207,308 483,472
----------- ----------
Total assets $26,430,204 $15,437,341
- ------------ =========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 29 MAY 30,
1998 1998
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
Current liabilities
Note payable - selling shareholders $ 2,000,000 $ -
Current portion of capital lease obligations 346,084 363,956
Short-term borrowings 2,248,438 1,030,272
Accounts payable and accrued expenses 4,397,360 4,232,679
Income taxes payable 720,636 326,119
----------- -----------
Total current liabilities 9,712,518 5,953,026
-------------------------
Convertible debentures 1,000,000
Capital lease obligations, less current portion 357,550 351,538
Deferred income taxes 59,300 59,300
----------- -----------
Total liabilities 11,129,368 6,363,864
----------------- ----------- -----------
Minority interest
Commitments and contingencies 60,585 18,220
----------- -----------
Shareholders' equity
- --------------------
Series A 5% cumulative convertible preferred stock, $.0001 par value, $1,000
stated value, authorized 2,175, issued and outstanding 1,475 and 2,175
shares less 1,320 shares outstanding subscriptions, respectively 1,489,722 857,979
Preferred stock, no par value; authorized 2,000,000 shares; issued
and outstanding, none -
Common stock, $.0001 par value; authorized 10,000,000 shares; issued and
outstanding, 5,911,904 and 4,245,193 shares, respectively 591 424
Additional paid in capital 11,510,937 6,546,580
Retained earnings 2,269,582 1,712,774
Foreign exchange 669 -
----------- -----------
15,271,501 9,117,757
Unearned compensation (31,250) (62,500)
----------- -----------
Total shareholders' equity 15,240,251 9,055,257
-------------------------- ----------- -----------
Total liabilities and shareholders' equity $26,430,204 $15,437,341
------------------------------------------ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-1
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
AUGUST 29, 1998 AND AUGUST 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $7,065,068 $4,096,221
Costs of revenues, including amortization of motion pictures
and other films 4,153,050 2,846,207
---------- ----------
2,912,018 1,250,014
Selling, general and administrative expenses 1,891,774 1,527,257
---------- ----------
Income (loss) from operations 1,020,244 (277,243)
-----------------------------
Other income (expense), net (57,731) (123,560)
---------- ----------
Income (loss) before income taxes 962,513 (400,803)
---------------------------------
Income tax expense (benefit) 385,005 (172,345)
---------- ----------
Net income (loss) $ 577,508 $ (228,458)
========== ==========
Basic earnings (loss) per common share $ 0.10 $ (0.06)
========== ==========
Weighted average number of shares outstanding 5,911,904 3,758,168
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 29, 1998
AND AUGUST 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from (used by) operating activities:
Net income (loss) $ 577,508 $(228,458)
----------- ----------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 475,282 303,995
Amortization of unearned compensation 31,250 -
Bad debt expense 30,000 -
Amortization of goodwill 35,616 -
Common stock issued for consulting services 449,833 -
Minority interest 42,365 -
Foreign exchange 669 -
(Increase) decrease in assets:
Accounts receivable (1,782,164) 612,958
Inventory (604,113) (259,852)
Prepaid expenses and other current assets (233,265) (87,414)
Deferred income taxes - (172,345)
Other assets (77,753) (2,420)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 464,681 268,774
Income taxes payable 394,517 (19,396)
----------- ----------
Total adjustments (773,082) 644,300
----------------- ----------- ----------
Net cash (used) provided by operating activities (195,574) 415,842
------------------------------------------------ ----------- ----------
Cash flows from (used by) investing activities:
- ----------------------------------------------
Investments in motion pictures and other films (856,627) (479,896)
Purchase of property and equipment (179,106) (56,044)
Acquisition of Fanzine (2,000,000)
----------- ----------
Net cash used by investing activities (3,035,733) (535,940)
------------------------------------- ----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED AUGUST 29, 1998
AND AUGUST 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from (used by) financing activities:
- ----------------------------------------------
Proceeds from issuance of Series A convertible preferred stock $1,317,000 $ -
Payments on capital leases (73,600) (55,765)
Net proceeds from line of credit 18,166 221,953
Proceeds from notes payable 1,200,000 -
Proceeds from issuance of common stock 8,734 -
Proceeds from issuance of convertible debenture 1,000,000 -
---------- ---------
Net cash provided by financing activities 3,470,300 166,188
----------------------------------------- ---------- ---------
Increase in cash 238,993 46,090
----------------
Cash, beginning of period 184,995 57,724
---------- ---------
Cash, end of period $ 423,988 $ 103,814
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 49,111 $ 101,869
========== =========
Income taxes $ - $ 14,210
========== =========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During the quarter ended August 28, 1998, a note payable of $300,000 was
converted into 250,000 restricted shares of the Company's common stock.
During the quarter ended August 28, 1998, 700 shares of Series A preferred stock
plus accrued dividends of $5,958 were converted into 280,059 shares of the
Company's common stock.
Property and equipment under capital lease obligations of $61,740 were incurred
for the quarter ended August 28, 1998.
On August 3, 1998, the Company acquired 100% of the outstanding stock of Fanzine
International, Inc. for a preliminary purchase price of $7,500,000. The Company
paid cash of $2,000,000, issued 1,000,000 shares of stock valued at $3,500,000
and issued a note payable for $2,000,000.
See notes to consolidated financial statements.
F-4
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 29, 1998 AND 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Metro Global
Media, Inc. ("Metro Global") and its wholly-owned subsidiaries (collectively the
"Company"). All intercompany balances and transactions have been eliminated in
consolidation.
Financial Statements
The interim financial statements are prepared pursuant to the requirements for
reporting on Form 10-QSB. The May 30, 1998 balance sheet data was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles. The interim financial information
included herein is unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) that are, in the opinion of
management, necessary to a fair presentation of the financial position, results
of operation, and changes in financial position for the interim periods. The
interim financial statements and notes thereto should be read in conjunction
with the financial statements and notes included in the Company's latest annual
report. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The current period results of
operations are not necessarily indicative of results which ultimately will be
reported for the full year ending May 29, 1999.
Earnings Per Share
During the year ended May 30, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which replaces primary and
fully diluted earnings per share with basic and diluted earnings per share.
Under the new requirements the dilutive effect of certain common stock
equivalents is excluded from the computation of basic earnings per share.
Diluted earnings per share is calculated similarly to fully diluted earnings per
share as required under APB 15. All prior period earnings per share data
presented have been restated to conform to the provisions of this statement.
Basic earnings per share is computed by dividing net income available to common
stockholders (net income less preferred stock dividends) divided by the weighted
average number of shares outstanding during the year. Diluted earnings per share
is consistent with basic earnings per share while giving effect to all dilutive
potential common shares that would have been outstanding if the dilutive
potential common shares had been issued, while adding back to income any
preferred dividend or interest expense on convertible securities.
F-5
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 29, 1998 AND 1996
(UNAUDITED)
2. ACQUISITION
On July 31, 1998, the Company acquired 100% of the stock of Fanzine
International, Inc. ("Fanzine") for a preliminary purchase price of $7,500,000.
Fanzine, which began operations on August 1, 1997, publishes event driven,
mainstream magazines translated into seven languages and distributed worldwide.
The acquisition price consists of $4,000,000 cash, and 1,000,000 restricted
shares of the Company's common stock with put option rights at $8.00 per share
to be exercised by the selling shareholder's during the second year on a
quarterly basis, if certain minimum earnings, as defined, are met. However,
during Fanzines' first year of operations, the Company has the right to call the
shares at the greater of $6.00 per share or 75% of the market price. The
acquisition agreement, also, provides for a reduction in purchase price if
Fanzine's results of operations do not meet certain minimum earnings.
Management is presently obtaining an independent valuation to finalize the
preliminary estimated purchase price of $7,500,000. The Company's right to
redeem its shares during the first year and the selling shareholders' right to
put the shares to the Company in the second year could result in an estimated
increase in purchase price ranging from $2,500,000 to $4,500,000.
The acquisition was accounted for as a purchase. The excess of the purchase
price over the fair market values of net assets acquired, which include, among
others, licences, trademarks, and distribution rights, was allocated to goodwill
and is being amortized over fifteen years.
The cash portion of $4,000,000 is being financed by a long-term convertible
debenture. Management anticipates financing the additional consideration to be
paid in the near future, (if any), with Fanzine's cash flow resulting from
profitable operations.
As the consolidated financial statements of the Company only include one month
of operations, the following selected unaudited pro-forma information is being
provided to present a summary of the continued results of the Company and
Fanzine as if the acquisition had occurred on August 1, 1997:
Pro-Forma information (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED AUGUST 31, 1997 (ONLY)
------------------------------------
<S> <C>
Net sales $4,753
Net Loss (80)
Basic Loss Per Share (.02)
</TABLE>
F-6
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 29, 1998 AND 1996
(UNAUDITED)
3. NOTES PAYABLE
During June, 1997, Metro, Inc. entered into a line of credit agreement with a
finance company. Under the agreement, Metro, Inc. may borrow up to 75% of
assigned accounts receivable less than 90 days old, up to a maximum of
$1,500,000. The balance due under the line of credit bears interest at the prime
rate plus 5% per annum. In addition, Metro, Inc. shall pay the finance company a
collateral management or notification fee equal to 3/4 of 1% of sales submitted
to the finance company for inclusion in the net security value of accounts
receivable, but no more than $7,500 per month. The outstanding balance under the
line is secured by accounts receivable of Metro, Inc and guaranties of the
Company and certain officers/shareholders. The line of credit expires during
June, 1999, but includes an option for an additional year. As of August 29,
1998, the balance on the line of credit was $548,438 .
On March 23, 1998, the Company entered into two 8% convertible debentures
totaling $500,000. Both notes are due on March 23, 1999, in either cash or
common stock, at a conversion rate of $2.25 per share. Proceeds from the
debentures were used for working capital.
On July 1, 1998, the Company entered into an 8% convertible debenture totaling
$200,000. The note is due on July 1, 1999, in either cash or common stock, at a
conversion rate of $2.25 per share. Proceeds from the debenture were used for
working capital.
On August 1, 1998, the Company entered into notes payable totaling $1,000,000.
The notes, which bear interest at 8%, are due August 1, 1999. Proceeds from the
notes were used in the acquisition of Fanzine.
4. CONVERTIBLE DEBENTURES
On July 31, 1998, the Company entered into an 8% convertible debenture with a
total offering of $7,000,000. The Company received proceeds of $1,000,000 in
August, 1998 which was used in the purchase of Fanzine. The remaining $6,000,000
of the offering will be sold at the Company's option at calls of $500,000 each
for a period of two years following the date of this agreement.
The $1,000,000 debenture matures on July 31, 2000. Interest is payable on a
quarterly basis. The holder of the debenture is entitled to convert after 120
days of the agreement, the principal value into the Company's common stock at a
discounted market price as is defined in the agreement.
5. SERIES A CONVERTIBLE PREFERRED STOCK
During 1998, the Company entered into an Offshore Securities Subscription
Agreement for convertible Preferred Shares pursuant to regulation S of the U.S.
Securities Act of 1933. Under the terms of the agreement, the Company is to
issue 2,175 shares of 1998 Series A Convertible Preferred Stock ("Series A
Shares") at a price of $1,000 per share with a 5% cumulative dividend payable in
common stock at conversion.
F-7
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 29, 1998 AND 1996
(UNAUDITED)
5. SERIES A CONVERTIBLE PREFERRED STOCK (CONTINUED)
The Series A Shares are convertible at a rate of 100 shares plus accrued
dividends per week at 80% of the 15 day average closing bid price. These Shares
are subject to a 24 month mandatory conversion feature. During the quarter ended
August 29, 1998, 700 shares plus accrued dividends of $5,958 were converted into
280,059 shares of the Company's common stock.
In addition to the Series A Shares the Company issued 400,000 warrants to
purchase the Company's common stock at $1.50 per share commencing April 20, 1998
exercisable over 5 years.
F-8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
None
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
On August 15, 1998, the Company filed Form 8-K with the
Commission to report the acquisition of Fanzine International,
Inc. Attached, as an exhibit, was the Fanzine International,
Inc. balance sheet as of December 31, 1997 and the related
statements of income, shareholders' equity and cash flows for
the period of inception (August 1, 1997) to December 31, 1997
and the Independent Auditors' Report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRO GLOBAL MEDIA, INC.
By: /s/ Janet M. Hoey
----------------------------
Janet M. Hoey, Treasurer
F-9
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