U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For quarterly period ended November 27, 1999
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission file number 0-21634
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
incorporation or organization) Identification No.)
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: 6,692,069 at December 31, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements
- -----------------------------------------
Balance Sheet F-1
Statements of Income F-3
Statements of Cash Flows F-4
Notes to Financial Statements F-7 to F-15
Item 2. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
Results of Continuing Operations for the three months ended November 27, 1999
versus the three months ended November 28, 1998.
Metro Global Media, Inc.'s ("Metro Global") revenues from continuing
operations were $5,997,803 for the three months ended November 27, 1999, as
compared to $5,994,140 for the three months ended November 28, 1998. Revenues
consist principally of sales of prerecorded videocassettes, magazines,
electronic software products and related items. Revenues remained constant with
the prior corresponding period due to the relocation of Metro, Inc.'s ("Metro")
west coast operation into new facilities in September 1999, which involved a
shutdown for a period of approximately four weeks. Metro Global estimates lost
revenues from this shutdown to approximate $1,000,000.
Costs of revenues (including amortization of film costs) related to
continuing operations for the three month period ended November 27, 1999
increased to $4,173,732 from $4,044,447 for the corresponding period in the
prior year. Costs of revenues as a percentage of revenues in the second quarter
of fiscal 1999 were 70% as compared to 67% in the second quarter of fiscal 1998.
The primary reason for this increase is an increase in amortization expense of
approximately $110,000.
Selling, general and administrative expenses related to continuing
operations for the three months ended November 27, 1999 increased 13% to
$2,509,324 from $2,223,132 for the three months ended November 28, 1998.
Selling, general, and administrative expenses, as a percentage of revenue
increased to 42% for the period ended November 27, 1999 as compared to 37% for
the period ended November 28, 1998. The primary reasons for the increase in
selling, general and administrative expenses are an increase in payroll of
approximately $200,000 and an increase in Internet development costs of
approximately $70,000.
Loss from continuing operations for the three month period ended November
27, 1999 was $778,929 as compared to a loss from continuing operations of
$510,384 for the corresponding period in the prior year. The primary reason for
the increase in the loss is due to the increase in cost of revenues and selling,
general and administrative expenses as mentioned above. This increased loss was
partially offset by an increase in other income of approximately $68,000 due to
interest income from the sale of Fanzine. Net loss for the quarter ended
November 27, 1999 was $377,324 as compared to a net loss of $531,608 for the
quarter ended November 28, 1998, resulting in a loss per share of $.06 for the
quarter ended November 27, 1999, as compared to a loss per share of $.10 for the
quarter ended November 28, 1998.
Results of Continuing Operations for the six months ended November 27, 1999
versus the six months ended November 28, 1998.
Metro Global's revenues from continuing operations increased $1,984,501
from $11,077,472 for the six months ended November 28, 1998 to $13,061,973 for
the six months ended November 27, 1999. This represents an 18% increase from
revenues for the six months
1
<PAGE>
ended November 28, 1998. Revenues consist principally of sales of prerecorded
videocassettes, magazines, electronic software products and related items. The
increase in revenue is primarily attributable to the increased sales of videos
and DVDs of approximately $1,000,000, an increase in magazine sales of
approximately $450,000, an increase in sales by Metro International of
approximately $200,000 and an increase in cable revenues of approximately
$210,000 over the same period of the prior year.
Costs of revenues (including amortization of film costs) related to
continuing operations for the six month period ended November 27, 1999 increased
to $8,852,278 from $7,575,577 for the corresponding period in the prior year.
Costs of revenues as a percentage of revenues in the first six months of fiscal
1999 remained constant at 68% with the first six months of fiscal 1998.
Selling, general and administrative expenses related to continuing
operations for the six months ended November 27, 1999 increased 24% to
$5,070,149 from $4,091,068 for the six months ended November 28, 1998. The
primary reasons for the increase in selling, general and administrative expenses
are an increase in payroll, increase in advertising and promotional expenses,
and an increase in Internet development costs.
Loss from continuing operations for the six-month period ended November 27,
1999 was $1,563,329, as compared to loss from continuing operations of $986,129
for the corresponding period in the prior year. The primary reason for the
increase in the loss are an increase in interest expense of approximately
$390,000 due to increased borrowings and the relocation of Metro's west coast
facility, which involved a shutdown of approximately four weeks. Net loss for
the six months ended November 27, 1999 was $1,094,289 as compared to a net loss
of $709,067 for the six months ended November 28, 1998, resulting in a loss per
share of $.17 for the six months ended November 27, 1999, as compared to a loss
per share of $.14 for the six months ended November 28, 1998.
Liquidity and Capital Resources at November 27, 1999
Cash amounted to $803,719 at quarter-end. Net cash provided by operating
activities amounted to $2,134,884 for the six months ended November 27, 1999, as
compared to $865,884 for the same period in the prior fiscal year. The primary
sources of cash were cash provided by operating activities of $2,134,884 and net
proceeds from a line of credit of $1,957,614. The primary uses of cash for the
quarter ended November 27, 1999 consisted of: (1) net payments on notes payable
of $2,175,000, (2) investments in motion pictures and other films of $1,059,370,
(3) payments on capital leases of $259,531, and (4) purchases of property and
equipment of $207,418.
Accounts payable and accrued expenses increased $1,544,351 due to increased
purchasing, increase in video and DVD duplication and an increase in accrued
interest expense.
On July 1, 1998, Metro Global entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. Metro
Global recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature. Proceeds from the debenture were used for working capital.
On July 1, 1999, the debenture's due date was extended until July 1, 2001. In
conjunction with the extension, warrants were granted to purchase 50,000 shares
of Metro Global's Common Stock for $2.58 per share. Metro Global recorded
interest expense of $52,000 in connection with the issuance of the warrants.
On August 1, 1998, Metro Global entered into notes payable totaling
$1,000,000 with related parties. The notes, which bear interest at 8%, were due
August 1, 1999. Proceeds from the notes were used in the acquisition of Fanzine
International, Inc. ("Fanzine").
2
<PAGE>
In October 1998, the notes were reduced by $600,000 for the exercise of
warrants. On August 1, 1999, the notes due dates were extended for one year. In
consideration of the extension, the interest rate increased from 8% to 10% and
warrants were issued to purchase up to 115,000 shares of Common Stock at a price
of $2.58, exercisable for a term of five years. Metro Global recognized interest
expense of $100,050 in connection with the issuance of the warrants.
On July 31, 1998, Metro Global entered into an 8% convertible debenture
with an unrelated party in the amount of $1,000,000, which was used in the
purchase of Fanzine. In connection with this transaction, Metro Global issued a
warrant for 75,000 shares at a price of $4.11 and a warrant for 25,000 shares at
a price of $3.29, both exercisable over two years. Metro Global recorded a
discount on the debenture of $157,700 for the value of the warrants. Metro
Global amortized $39,424 and $26,283 of the discount to interest expense during
the six months ended November 27, 1999 and November 28, 1998, respectively.
The $1,000,000 debenture was to mature on July 31, 2000. Interest is
payable on a quarterly basis. The holder of the debenture is entitled to convert
the principal value into Metro Global's Common Stock at a discounted market
price as is defined in the debenture agreement. Metro Global has recorded
$35,461 of interest expense relating to the embedded beneficial conversion
feature in the quarter ended August 29, 1998. Metro Global is in technical
default under the terms of the debenture due to the suspension of trading of its
Common Stock on September 14, 1999. During the six months ended November 27,
1999, $105,000 of convertible debentures plus accrued interest and penalties
were converted into 83,888 restricted shares of Metro Global's Common Stock.
Beginning in April 1998, Metro offered 5% convertible Preferred Shares
pursuant to regulation S of the U.S. Securities Act of 1933. Metro Global
received approximately $846,500 and $1,317,000 in net proceeds from the offering
in fiscal 1998 and 1999, respectively. Proceeds from such offering 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 twenty-four month mandatory conversion feature. Dividends are
payable in Common Stock and Metro Global recognized dividends of $146,513 during
the quarter ended August 29, 1998 for the embedded beneficial conversion
feature. For the six months ended November 28, 1998, 1400 shares of the Series A
shares and accrued dividends were converted into 610,481 shares of Metro
Global's Common Stock. In addition to the Series A Shares, Metro Global issued
400,000 warrants to purchase Metro Global Common Stock at $1.50 per share
commencing April 20, 1998 exercisable over 5 years. Metro Global recognized a
dividend of $1,212,000 for the year ended May 30, 1998 for the beneficial
conversion feature. In October 1998, all 400,000 warrants were exercised.
On October 28, 1998, Metro Global entered into a note payable with a third
party for $1,100,000. The note, which bears no interest, was due in quarterly
installments of $275,000 commencing December 31, 1998. In consideration of the
loan and part of an investment banking consultant agreement, Metro Global issued
the lender 150,000 restricted shares of Metro Global's Common Stock. Metro
Global used $507,500 of the proceeds to repurchase 198,242 shares of its
outstanding Common Stock from Metro Plus, a company owned by a majority
stockholder. For the year ended May 29, 1999, Metro Global made one payment of
$275,000. In September 1999, Metro Global and lender agreed to a preliminary
extension of the note. Under the terms of the extension, payments totaling
$550,000 are due by September 30, 1999 and the final payment of $275,000 is due
on December 31, 1999. If all payments are not made by January 1, 2000, Metro
Global must issue the lender 100,000 shares of restricted stock as a penalty. In
October 1999, Metro Global made a $275,000 payment. Metro Global is currently
renegotiating the payments for the final $550,000 due on the note payable.
On December 9, 1998, Metro Global entered into a six-month term loan
agreement with a third party. Under the terms of the agreement, Metro Global
borrowed $3,000,000 at an
3
<PAGE>
interest rate of 10% per year. The proceeds were used toward the acquisition of
Fanzine and to fund working capital. In connection with this transaction, Metro
Global issued warrants to purchase up to 350,000 shares of Common Stock at a
price of $3.00, expiring on December 31, 2001. Metro Global recorded interest
expense of $577,000 for the valuation of the warrants. Additionally, Metro
Global issued 100,000 shares of Common Stock and recorded $187,500 of interest
expense. In September 1999, Metro Global and this lender agreed to an extension,
under which Metro Global paid $1.3 million upon closing financing with Reservoir
Capital Corporation. The balance of the note of $1,800,000, which includes
$100,000 penalty, was exchanged for an 8% convertible debenture. The debenture
is convertible at a rate of not more than 10% of the total debenture per week,
at a price of 80% of the average closing bids for the five days preceding the
conversion. In consideration of the extension, Metro Global issued warrants to
purchase up to 100,000 shares of Common Stock at a price of $1.75 per share with
a two-year expiration. In November 1999, Metro Global paid the lender $600,000
against the convertible debenture from the proceeds of a payment from the sale
of Fanzine. As of November 27, 1999, the balance of the convertible debenture is
$1,100,000.
On June 30, 1999, Metro Global entered into a one-year note payable at an
interest rate of 10% with a related party for $30,000. Proceeds from the note
were used for working capital.
During June 1997, Metro, Inc. ("Metro") entered into a line of credit
agreement with Finova Capital. Under the agreement, Metro was able to borrow up
to 75% of assigned accounts receivable less than 90 days old, up to a maximum of
$1,000,000. The balance due under the line of credit incurred interest at the
prime rate plus 5% per annum plus a collateral management fee. The outstanding
balance under the line was secured by accounts receivable of Metro and
guaranties of Metro Global and certain officers/shareholders. The line of credit
expired during June 1999. On November 11, 1999, the outstanding balance on the
line of credit was repaid with proceeds from the line of credit with Reservoir
Capital Corporation described below.
In September 1999, Metro Global signed a $4,000,000 Loan and Security
Agreement with Reservoir Capital Corporation. Pursuant to the terms, Metro may
borrow up to 70% of accounts receivable less than ninety day old, up to a
maximum of $3,000,000. The accounts receivable borrowing base excludes foreign
receivables and receivables where more than 50% of the balance is over ninety
days old. The borrowings on Capital Video Corporation ("CVC") are limited to the
lesser of 30% of total accounts receivable or $1,600,000. Additionally, Metro
can borrow 40% of inventory, up to a maximum of $1,000,000. Borrowings under
this loan bear interest at prime rate plus 3.5% per annum. Additionally, Metro
must pay a service fee of .35% per month on the average daily loan balance.
Metro must pay an unused fee of .25% on the amount of the borrowings under
$2,000,000. The loan is secured by the assets of Metro. The CVC accounts
receivable are guaranteed by the sole shareholder of CVC. Additionally, CVC will
execute a put on the inventory of Metro in case of default. As of November 27,
1999, borrowings under the line of credit totaled $2,899,912.
Of Metro's total accounts receivable at November 27, 1999, $2,351,916 is
owed by CVC, a chain of retail stores, which is wholly owned by a principal
shareholder of Metro Global. Because of the amount of this receivable and the
concentration of business with CVC, this receivable is monitored very closely.
All amounts due from CVC are predominantly maintained within 60 to 90 day terms.
Accordingly, no allowance for related party receivables and no related party bad
debt expense has been recorded in Metro Global's financial statements.
For the six months ended November 27, 1999, Metro invested $1,059,370 in
new feature films and video. 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.
4
<PAGE>
Capital Expenditures
Capital expenditures in the six months ended November 27, 1999 amounted to
$207,418 as compared to $236,374 for the six months ended November 28, 1998.
Metro Global incurred capital lease obligations of $259,531 for the six months
ended November 27, 1999 primarily for computer equipment, duplicating and
editing equipment.
Management believes that funds provided by operations and the 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.
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.
Restatement
Metro Global has restated the financial statements for the three and six
months ended November 28, 1998. The financial statements were restated to record
dividends on the embedded beneficial conversion feature of the Series A
Preferred Stock, interest on the embedded beneficial conversion feature on
convertible debentures, and changes in estimates. The effect of these
adjustments was a decrease in net income of $768,032 a net loss of $531,608 and
a decrease in earnings of $0.14 per share to a loss of $0.10 per share for the
three months ended November 28, 1998; and a decrease in earnings of $1,522,999
to a net loss of $709,067 and a decrease in earnings of $0.19 per share to a
loss of $0.14 per share for the six months ended November 28, 1998.
Licensing Agreement
On July 21, 1999, Metro Global entered into an agreement with certain
subsidiaries of New Frontier Media, Inc. ("New Frontier"), a publicly traded
company involved in distribution of adult entertainment via cable television and
the internet. New Frontier will receive access to Metro Global's 3,200-plus
library of videos and pictures for internet and cable television exhibition for
a period of seven years. In consideration, Metro Global received 500,000
restricted shares of New Frontier's Common Stock plus warrants to purchase
100,000 additional shares of New Frontier's Common Stock per year for five years
at market price, as defined in the agreement. Metro Global recorded the value of
the Common Stock and warrants as an investment and deferred revenue in the
amount of $4,787,474. The deferred revenue is being amortized over seven years.
Metro Global recognized $227,975 of income from the relationship with New
Frontier during the six months ended November 27, 1999. As of November 27, 1999,
Metro Global recorded a reserve of $782,500 against the investment for a
decrease in the market value of the stock.
5
<PAGE>
As part of the agreement, a subsidiary of New Frontier will provide Metro
Global with advertising on its websites, as well as technical support for Metro
Global's websites, including credit card processing. In consideration, Metro
Global issued New Frontier 250,000 restricted shares of its Common Stock and
warrants to purchase 50,000 shares of Common Stock per year for five years at
market price, as defined in the agreement. Metro Global recorded the value of
the Common Stock and warrants at $716,752. The deferred expense is being
amortized over five years. The unamortized portion of the deferred expense is
recorded as a reduction of additional paid-in-capital in the accompanying
financial statements.
6
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 27, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
------
Current Assets
- --------------
<S> <C>
Cash $ 803,719
Accounts receivable, less allowance for doubtful
accounts of $165,602 3,684,568
Accounts receivable, related party 2,351,916
Inventory 4,208,468
Recoverable income tax 339,000
Prepaid expenses and other current assets 312,972
Notes Receivable 3,350,072
----------
Total Current Assets 15,050,715
- -------------------- ----------
Motion pictures and other films at cost, less accumulated
amortization of $9,768,181 4,880,332
Property and equipment at cost, less accumulated
depreciation of $2,525,322 2,315,751
Investment in securities 4,004,974
Other assets 173,525
-----------
Total Assets $26,425,297
- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements
F-1
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 27, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities
- -------------------
<S> <C>
Current portion of capital lease obligations $ 305,781
Short-term borrowings 4,549,912
Related party convertible debentures 784,000
Notes payable to related parties 474,000
Convertible debentures 842,433
Accounts payable and accrued expenses 6,713,413
Income taxes payable 154,443
-----------
Total current liabilities 13,823,982
- ------------------------- -----------
Deferred Revenue 4,559,499
Capital lease obligations, less current portion 435,859
-----------
Total liabilities 18,819,340
- ----------------- -----------
Minority interest 26,121
Commitments and Contingencies
Shareholders' equity
- --------------------
Preferred Stock, no par value; authorized 2,000,000 shares;
issued and outstanding, none
Common stock, $.0001 par value; authorized 10,000,000
shares; issued 6,890,311 shares and outstanding,
6,692,069 shares 688
Additional paid in capital 15,817,585
Accumulated deficit (6,853,798)
Accumulated other comprehensive loss - foreign exchange (9,835)
Comprehensive loss - market valuation equity securities (782,500)
-----------
8,172,140
Unearned compensation (84,804)
Less cost of Treasury Stock (198,242 common shares) (507,500)
-----------
Total shareholders' equity 7,579,836
- -------------------------- -----------
Total liabilities and shareholders' equity $26,425,297
- ------------------------------------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Three Months Six Months Nov 28, 1998 Nov 28, 1998
Nov 28, 1999 Nov 27, 1999 As restated As restated
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $5,997,803 $13,061,973 $5,994,140 $11,077,472
Cost of revenues, including
amortization of motion pictures
and other films 4,173,732 8,852,278 4,044,447 7,575,577
---------- ----------- ---------- -----------
1,824,071 4,209,695 1,949,693 3,501,895
Selling, general and
administrative expenses 2,509,324 5,070,149 2,223,132 4,091,068
---------- ----------- ---------- -----------
(685,253) (860,454) (273,439) (589,173)
---------- ----------- ---------- -----------
Other income and (expenses)
Interest expense (227,675) (861,277) (298,761) (481,444)
Royalty income 32,536 65,072 55,189 87,715
Miscellaneous income(expense) 65,984 65,984 (1,809) 693
Minority interest 35,479 27,346 8,436 (3,928)
---------- ----------- ---------- -----------
(93,676) (702,875) (236,945) (396,956)
---------- ----------- ---------- -----------
Loss from continuing operations (778,929) (1,563,329) (510,384) (986,129)
Benefit for income taxes -0- -0- (19,280) (113,202)
---------- ----------- ---------- -----------
Loss from continuing operations (778,929) (1,563,329) (491,104) (872,927)
Gain on sale of discontinued
operations (net of tax) 372,324 372,324 -0- -0-
Income (Loss) from discontinued
operations (net of tax) 29,281 96,716 (40,504) 163,860
---------- ----------- ---------- -----------
Net Loss $ (377,324) $(1,094,289) $ (531,608) $ (709,067)
========== =========== ========== ===========
Loss Per Share:
Loss from continuing operations:
Basic and Diluted $ (0.12) $ (0.24) $ (0.09) $ (0.17)
Gain on sale of discontinued
operations:
Basic and Diluted $ 0.06 $ 0.06 $ 0.00 $ 0.00
Income (Loss) from discontinued
operations:
Basic and Diluted $ 0.00 $ 0.01 $ (0.01) $ 0.03
Net loss:
Basic and Diluted $ (0.06) $ (0.17) $ (0.10) $ (0.14)
Weighted average number of shares:
Basic and Diluted 6,570,479 6,570,479 5,297,850 5,068,876
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
1999 as restated
---- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,094,289) $ (709,067)
------------ -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation Expense 287,646 224,464
Amortization of motion pictures and other films 1,032,565 919,803
Amortization of deferred rent (7,005) (7,005)
Amortization of unearned compensation 275,413 62,500
Amortization of goodwill 200,000 133,333
Amortization of deferred revenue (227,975) -0-
Amortization of deferred expense 47,784 -0-
Amortization of discount on debenture 39,425 26,283
Accrued interest added to note payable principal 68,000 -0-
Discount on issuance of convertible debenture -0- (157,700)
Allowance for doubtful accounts 161,498 60,000
Embedded interest on convertible debentures -0- 202,092
Common Stock issued for consulting services 12,815 499,716
Common Stock issued for compensation -0- 6,850
Common Stock issued for interest expense -0- 51,818
Issuance of warrants 175,844 142,298
Minority interest (27,346) 22,149
Foreign exchange (3,070) 1,557
(Increase) decrease in assets:
Accounts receivable (168,240) (1,878,450)
Inventory (104,388) (586,367)
Prepaid expenses and other current assets 122,317 (340,595)
Other assets (30,635) 16,520
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,544,351 2,235,300
Income taxes payable (169,826) (59,615)
------------ -----------
Total adjustments 3,229,173 1,574,951
- ----------------- ------------ -----------
Net cash provided by operating activities $ 2,134,884 $ 865,884
- -------------------------------------------------- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
1999 as restated
---- -----------
Cash flows from investing activities:
<S> <C> <C>
Acquisition of Fanzine $ -0- $(2,000,000)
Gain on sale of Fanzine 372,324 -0-
Acquisition costs -0- (160,418)
Investments in motion pictures and other films (1,059,370) (1,594,884)
Purchase of property and equipment (207,418) (236,374)
Purchase of treasury stock -0- (507,500)
------------ -----------
Net cash used in investing activities (894,464) (4,499,176)
- ------------------------------------- ------------ -----------
Cash flows from financing activities:
Proceeds from the issuance of Series A
convertible Preferred Stock -0- $ 1,317,000
Proceeds from issuance of common stock -0- 8,734
Proceeds from issuance of convertible debentures -0- 1,000,000
Proceeds from exercise of warrants -0- 600,000
Net proceeds from (payments on) line of credit 1,957,614 248,431
Proceeds on notes payable 30,000 1,700,000
Payments on notes payable (2,175,000) -0-
Principal payments on capital lease obligations (259,531) (178,728)
Payments on note payable - selling shareholders -0- (333,333)
Contribution from joint venture partner -0- 30,000
------------ -----------
Net cash provided by (used in) financing activities (446,917) 4,392,104
- --------------------------------------------------- ------------ -----------
Net increase in cash 793,503 758,812
Cash, beginning of period 10,216 184,995
Cash, end of period $ 803,719 $ 943,807
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 152,670 $ 147,002
============ ===========
Income taxes $ 120,000 $ -0-
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing activities:
During the six months ended November 28, 1998, a payable of $300,000 was
converted into 250,000 restricted shares of Metro Global's Common Stock by a
related party.
During the six months ended November 28, 1998, 1400 shares of Series A
Preferred Stock plus accrued dividends of $19,934 were converted into 610,481
shares of Metro Global's Common Stock. Metro Global recognized total dividends
of $309,248 relating to the beneficial conversion feature of this stock during
the six months ended November 28, 1998.
Capital lease obligations of $259,531 and $178,728 were incurred during the
six months ended November 27, 1999 and November 28, 1998, respectively, when
Metro Global entered into capitalized leases for office equipment and machinery
and equipment.
On July 21, 1999, Metro Global entered into a seven year Licensing
Agreement with New Frontier Media, Inc. Metro Global received 500,000 restricted
shares of New Frontier Common Stock plus warrants to purchase an additional
100,000 shares of New Frontier Common Stock per year for five years. Metro
Global valued the Common Stock and warrants at $4,787,474. The deferred revenue
is being amortized over seven years.
As part of the Licensing Agreement, in consideration of certain services,
Metro Global issued New Frontier 250,000 restricted shares of its Common Stock
and warrants to purchase 50,000 shares of Common Stock per year for five years.
Metro Global valued the Common Stock and warrants at $716,752. The deferred
expense is being amortized over five years.
During the six months ended November 27, 1999, $105,000 of convertible
debentures and accrued interest and penalties of $31,045 were converted into
83,888 restricted shares of Common Stock.
See notes to consolidated financial statements.
F-6
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies and Plan of Operation
Consolidation
The consolidated financial statements include the accounts of Metro Global
and its majority owned and controlled subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
Financial Statements
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-QSB. 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
operations, 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 Metro Global'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 27, 2000.
Plan of Operation
On September 14, 1999, the NASDAQ Stock Market halted the trading of Metro
Global's Common Stock due to Metro Global's late filing of its fiscal 1999
Annual Report on Form 10-KSB.
On December 7, 1999, Metro Global's Common Stock was delisted from the
NASDAQ Small Cap Market. On December 22, 1999, Metro Global appealed the
decision to delist the Common Stock. Metro Global's Common Stock is currently
being traded through the facilities of the pink sheets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates based on
management's knowledge and experience. Due to their prospective nature, it is
reasonable to expect actual results to differ from those estimates.
Reclassification
Certain items in the financial statements for the quarter ended November
28, 1998 have been reclassified to conform with the current presentation.
F-7
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
2. Dispositions
Fanzine International, Inc.
On August 3, 1998, Metro Global acquired 100% of the stock of Fanzine for a
cash purchase price of $4,000,000, plus contingent consideration. Fanzine, which
began operations on August 1, 1997, publishes event driven, mainstream magazines
translated into seven languages and distributed worldwide. The contingent
consideration consisted of 1,000,000 restricted shares of Metro Global's Common
Stock with put option rights at $8.00 per share to be exercised by the selling
shareholder's during the second year on a quarterly basis, if certain minimum
earnings, as defined, are met. During Fanzine's first year of operations, Metro
Global had the right to call the shares at the greater of $6.00 per share or 75%
of the market price. Metro Global did not call the shares. The acquisition
agreement also provided for a reduction in purchase price if Fanzine's results
of operations did not meet certain minimum earnings.
The acquisition was accounted for as a purchase. The excess of the purchase
price over the fair market values of net assets acquired, which included, among
others, licenses, trademarks, and distribution rights, was allocated to goodwill
and amortized over ten years. The cash portion of $4,000,000 was financed by a
long-term convertible debenture and other short-term borrowings. On September
29, 1999, Metro Global sold Fanzine's stock back to the selling shareholders
(see note 3).
3. Discontinued Operations
On September 29, 1999, Metro Global signed a Rescission and Purchase
Agreement with the selling shareholders of Fanzine and a company controlled by
them. In consideration of this sale of Fanzine's stock, Metro Global will
receive payments totaling $4,500,000 and the 1,000,000 contingent shares of
Common Stock originally given to the selling shareholders. Payment of the
$4,500,000 is secured by the assets of Fanzine and partly secured by the
personal guarantees of the former Fanzine shareholders. Metro Global will
receive payments of $1,000,000 by October 31, 1999, $1,000,000 by November 30,
1999, $1,000,000 by May 31, 2000 and $1,500,000 by August 31, 2000. The
operations of Fanzine have been classified as discontinued operations in the
accompanying financial statements.
The following table is a summary of the results of discontinued operations
for the six months ended November 27, 1999 and four months ended November 28,
1998, respectively:
<TABLE>
<CAPTION>
Nov. 27, 1999 Nov. 28, 1998
------------- -------------
<S> <C> <C>
Revenues $ 6,111,545 $ 3,946,381
Cost of revenues 5,400,953 3,244,784
----------- -----------
710,592 701,597
Other expenses 535,524 450,252
----------- -----------
Income before income taxes 175,068 251,345
Income taxes 78,352 87,485
----------- -----------
Income from discontinued operations $ 96,716 $ 163,860
=========== ===========
</TABLE>
F-8
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
3. Discontinued Operations (continued)
Income from discontinued operations before income taxes does not include an
allocation of corporate interest expense or amortization of goodwill.
4. Debt
On August 1, 1998, Metro Global entered into notes payable totaling
$1,000,000 with related parties. The notes, which bear interest at 8%, were due
August 1, 1999. Proceeds from the notes were used in the acquisition of Fanzine.
In October 1998, $600,000 of debt was converted into 400,000 shares of Metro
Global's Common Stock. On August 1, 1999, the balance of the notes due dates
were extended for one year. In consideration of the extension, the interest rate
increased from 8% to 10% and warrants were issued to purchase up to 115,000
shares of Common Stock at a price of $2.58, exercisable for a term of five
years. Metro Global recorded interest expense of $100,050 in connection with the
issuance of the warrants.
On October 28, 1998, Metro Global entered into a note payable with an
unrelated third party for $1,100,000. The note, which bears no interest, was due
in quarterly installments of $275,000 commencing December 31, 1998. In
consideration of the loan and part of an investment banking consultant
agreement, Metro Global issued the lender 150,000 restricted shares of Metro
Global's Common Stock. Metro Global recorded interest expense of $243,412 in
1999 in connection with the issuance of the restricted stock. Metro Global used
$507,500 of the proceeds to repurchase 198,242 shares of its outstanding Common
Stock from Metro Plus, a company partially owned by a significant shareholder.
For the year ended May 29, 1999, Metro Global made one payment of $275,000. As a
result, default interest at 11% per annum has been accrued on this note. In
September 1999, Metro Global and the lender agreed to a preliminary extension of
the note. Under the terms of the extension, payments totaling $550,000 were due
by September 30, 1999 and the final payment of $275,000 is due on December 31,
1999. The September 30, 1999 payments are currently in default. Metro Global
made a payment of $275,000 in October 1999. If all payments are not made by
January 1, 2000, Metro Global must issue the lender 100,000 shares of restricted
stock as a penalty. Metro Global is currently renegotiating the payments for the
final $550,000 due on the note payable.
On December 9, 1998, Metro Global entered into a six-month term loan
agreement with an unrelated third party. Under the terms of the agreement, Metro
Global borrowed $3,000,000 at an interest rate of 10% per year. The proceeds
were used toward the acquisition of Fanzine and to fund working capital. In
connection with this transaction, Metro Global issued warrants to purchase up to
350,000 shares of Common Stock at a price of $3.00, expiring on December 31,
2001. Metro Global recorded interest expense of $577,000 in connection with the
issuance of the warrants during 1999. Additionally, Metro Global issued 100,000
shares of Common Stock and recorded $187,500 of interest expense relating to the
issuance of these shares during 1999. In September 1999, Metro Global and the
this lender agreed to an extension. Under the terms of the extension, Metro
Global paid $1.3 million upon the closing of the financing with Reservoir
Capital Corporation, a new unrelated third party lender. The balance of the note
of $1,800,000, which includes a $100,000 penalty, was exchanged for an 8%
convertible debenture. The debenture is convertible at a rate of not more than
10% of the total debenture per week, at a price of 80% of the average closing
bids for the five days preceding the conversion. In consideration of the
extension, Metro Global issued warrants to purchase up to 100,000
F-9
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
4. Debt (continued)
shares of Common Stock at a price of $1.75 per share with a two-year expiration.
In November 1999, Metro Global paid the lender $600,000 against the convertible
debenture from the proceeds of a payment from the sale of Fanzine. As of
November 27, 1999, the balance of the convertible debenture is $1,100,000.
On June 30, 1999, Metro Global entered into a one-year note payable at an
interest rate of 10% with a related party for $30,000. Proceeds from the note
were used for working capital.
5. Convertible Debentures
On July 31, 1998, Metro Global entered into an 8% convertible debenture
with an unrelated party in the amount of $1,000,000, which was used in the
purchase of Fanzine. In connection with this transaction, Metro Global issued a
warrant for 75,000 shares at a price of $4.11 and a warrant for 25,000 shares at
a price of $3.29, both exercisable over two years. Metro Global recorded a
discount on the debenture of $157,700 for the value of the warrants. Metro
Global amortized $39,424 and $26,283 of the discount to interest expense during
the six months ended November 27, 1999 and November 28, 1998, respectively.
The $1,000,000 debenture was to mature on July 31, 2000. Interest is
payable on a quarterly basis. The holder of the debenture is entitled to convert
the principal value into Metro Global's Common Stock at a discounted market
price as is defined in the debenture agreement. Metro Global has recorded
$35,461 of interest expense relating to the embedded beneficial conversion
feature in the quarter ended August 29, 1998. Metro Global is in technical
default under the terms of the debenture due to the suspension of trading of its
Common Stock on September 14, 1999. During the six months ended November 27,
1999, $105,000 of convertible debentures plus accrued interest and penalties
were converted into 83,888 restricted shares of Metro Global's Common Stock.
On March 23, 1998, Metro Global entered into two 12% convertible debentures
totaling $500,000 with related parties. Both notes were due on March 23, 1999,
in either cash or Common Stock, at a conversion rate of $2.25 per share.
Proceeds from the debentures were used for working capital. In March 1999, the
debentures, including accrued interest of $60,000 (which was added to the note
principal), were extended until March 23, 2000.
On July 1, 1998, Metro Global entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. Metro
Global recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature. Proceeds from the debenture were used for working capital.
On July 1, 1999, the debenture's due date extended until July 1, 2001. In
conjunction with the extension, warrants were granted to purchase 50,000 shares
of Metro Global's Common Stock for $2.58 per share. Metro Global recorded
interest expense of $52,000 in connection with the issuance of the warrants.
F-10
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
6. Short-Term Borrowings
Pursuant to a line of credit agreement with Finova Capital, Metro Global's
subsidiary, Metro, was able to borrow up to 75% of assigned accounts receivable
less than 90 days old, up to a maximum of $1,000,000. The balance due under the
line of credit incurred interest at the prime rate plus 5% per annum. In
addition, Metro pays the finance company a management fee equal to 3/4 of 1% of
sales submitted for inclusion in the net security value of the accounts
receivable, but not more than $7,500 per month. The outstanding balance under
the line was secured by the accounts receivable of Metro, and the guarantee of
Metro Global. On November 11, 1999, the outstanding balance on the line of
credit was repaid with proceeds from the line of credit with Reservoir Capital
Corporation described below.
In September 1999, Metro Global signed a $4,000,000 Loan and Security
Agreement with Reservoir Capital Corporation. Pursuant to the terms, Metro may
borrow up to 70% of accounts receivable less than ninety day old, up to a
maximum of $3,000,000. The accounts receivable borrowing base excludes foreign
receivables and receivables where more than 50% of the balance is over ninety
days old. The borrowings on accounts receivable from CVC, a related party, are
limited to the lesser of 30% of total accounts receivable or $1,600,000.
Additionally, Metro can borrow 40% of inventory, up to a maximum of $1,000,000.
Borrowings under this loan bear interest at prime rate plus 3.5% per annum.
Additionally, Metro must pay a service fee of .35% per month on the average
daily loan balance. Metro must pay an unused fee of .25% on the amount of the
borrowings under $2,000,000. The loan is secured by the assets of Metro. The CVC
accounts receivable are guaranteed to the lender by the sole shareholder of CVC.
Additionally, CVC will execute a put on the inventory of Metro in case of
default. As of November 27, 1999, borrowings under the line of credit totaled
$2,899,912.
7. Shareholders' Equity
Series A Convertible Preferred Stock
During April 1998, Metro Global entered into an Offshore Securities
Subscription Agreement for convertible Preferred Shares pursuant to Regulation S
of the U.S. Securities Act of 1933. Under the terms of the agreement, Metro
Global issued 2,175 shares of 1998 Series A Convertible Preferred Stock ('Series
A Shares') at a price of $1,000 per share with a 5% cumulative dividend payable
in Common Stock at conversion. At May 30, 1998, Metro Global received proceeds
of $846,500, net of offering costs representing 855 shares. Substantially all of
the proceeds for the remaining 1320 shares were received in fiscal 1999.
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 twenty-four month mandatory conversion feature. Metro Global
recognized dividends of $146,513 at August 29, 1998 for the embedded beneficial
conversion feature. For the six months ended November 28, 1998, 1400 shares of
the Series A shares and accrued dividends were converted into 610,481 shares of
Metro Global's Common Stock. In addition to the Series A Shares, Metro Global
issued 400,000 detachable warrants to purchase Metro Global's Common Stock at
$1.50 per share commencing April 20, 1998 exercisable over 5 years. In October
1998, all 400,000 warrants were transferred to a related party of Metro Global
and exercised.
F-11
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
8. Licensing Agreement
On July 21, 1999, Metro Global entered into an agreement with certain
subsidiaries of New Frontier, a publicly traded company involved in distribution
of adult entertainment via cable television and the internet. New Frontier will
receive access to Metro Global's 3,200-plus library of videos and pictures for
internet and cable television exhibition for a period of seven years. In
consideration, Metro Global received 500,000 restricted shares of New Frontier's
Common Stock plus warrants to purchase 100,000 additional shares of New Frontier
Common Stock per year for five years at market price, as defined in the
agreement. Metro Global recorded the value of the Common Stock and warrants as
an investment and deferred revenue in the amount of $4,787,474. The deferred
revenue is being amortized over seven years. Metro Global recognized $227,975 of
income from the relationship with New Frontier during the six months ended
November 27, 1999. As of November 27, 1999, Metro Global recorded a reserve of
$782,500 against the investment for a decrease in the market value of the stock.
As part of the agreement, a subsidiary of New Frontier will provide Metro
Global with advertising on its websites, as well as technical support for Metro
Global's websites, including credit card processing. In consideration, Metro
Global issued New Frontier 250,000 restricted shares of its Common Stock and
warrants to purchase 50,000 shares of Common Stock per year for five years at
market price, as defined in the agreement. Metro Global recorded the value of
the Common Stock and warrants at $716,752. The deferred expense is being
amortized over five years. The unamortized portion of the deferred expense is
recorded as a reduction of additional paid-in-capital in the accompanying
financial statements.
9. Restatement
Metro Global has restated the financial statements for the three and six
months ended November 28, 1998. The financial statements were restated to record
dividends on the embedded beneficial conversion feature of the Series A
Preferred Stock, interest on the embedded beneficial conversion feature on
convertible debentures, and changes in estimates. The effect of these
adjustments was a decrease in net income of $768,032 a net loss of $531,608 and
a decrease in earnings of $0.14 per share to a loss of $0.10 per share for the
three months ended November 28, 1998; and a decrease in earnings of $1,522,999
to a net loss of $709,067 and a decrease in earnings of $0.19 per share to a
loss of $0.14 per share for the six months ended November 28, 1998.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
F-12
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED
- --------------------------------------------------------------------------------
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other information
-----------------
On December 7, 1999, the NASDAQ Listing Qualifications Panel informed
Metro Global that Metro Global's securities would be delisted from
NASDAQ's SmallCap Market effective at the close of business on
December 7, 1999. Trading of Metro Global's common stock had been
halted by the NASDAQ Stock Market since September 14, 1999, following
Metro Global's announcement that it did not timely file its 1999
Annual Report on Form 10-KSB. The NASDAQ Listing Qualifications Panel
took this action despite its acknowledgement, "that [Metro Global]
currently appears to be in compliance with the filing, audit committee
and independent director requirements" for continued listing. Metro
Global has requested a review by the NASDAQ Listing and Hearing Review
Council of the NASDAQ Panel's decision. Metro Global's common stock
has commenced trading with the National Quotations Bureau through its
publication known as the pink sheets.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
2.1 Rescission and Purchase Agreement by and among Metro Global Media,
Inc., Metro, Inc., Fanzine International, Inc., Goldtree Publishing,
Inc., Robert Maiello, Philip P. Salvatore, Bart Senior and Michael
Levine, as filed with the Commission on October 4, 1999 as Exhibit 2.1
to the Report on Form 8-K and incorporated herein by reference.
2.2 Security Agreement between Fanzine International, Inc. and Metro
Global Media, Inc., as filed with the Commission on October 4, 1999 as
Exhibit 2.2 to the Report on Form 8-K and incorporated herein by
reference.
2.3 Security Agreement between Fanzine International, Inc. and Metro
Global Media, Inc., as filed with the Commission on October 4, 1999 as
Exhibit 2.3 to the Report on Form 8-K and incorporated herein by
reference.
2.4 Promissory Note from Robert Maiello, Michael Levine, Bart Senior
and Philip P. Salvatore to Metro Global Media, Inc., as filed with the
Commission on October 4, 1999 as Exhibit 2.4 to the Report on Form 8-K
and incorporated herein by reference.
2.5 Promissory Note from Goldtree Publishing, Inc. to Metro Global
Media, Inc., as filed with the Commission on October 4, 1999 as
Exhibit 2.5 to the Report on Form 8-K and incorporated herein by
reference.
F-13
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998 (UNAUDITED
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
2.6 Personal Guarantee of Michael Levine, as filed with the Commission
on October 4, 1999 as Exhibit 2.6 to the Report on Form 8-K and
incorporated herein by reference.
2.7 Personal Guarantee of Robert Maiello, as filed with the Commission
on October 4, 1999 as Exhibit 2.7 to the Report on Form 8-K and
incorporated herein by reference.
2.8 Personal Guarantee of Philip Salvatore, as filed with the
Commission on October 4, 1999 as Exhibit 2.8 to the Report on Form 8-K
and incorporated herein by reference.
2.9 Personal Guarantee of Bart Senior, as filed with the Commission on
October 4, 1999 as Exhibit 2.9 to the Report on Form 8-K and
incorporated herein by reference.
10.1 License Agreement dated July 21, 1999 between Colorado Satellite
Broadcasting, Inc. and Metro Global Media, Inc. on behalf of itself
and its wholly owned subsidiary, Metro, Inc., as filed with the
Commission on October 7, 1999 as Exhibit 10.21 to the Annual Report on
Form 10-KSB and incorporated herein by reference.
10.2 Loan and Security Agreement dated September 30, 1999 by and
between Metro Global Media, Inc., Metro, Inc. and Reservoir Capital
Corporation, as filed with the Commission on October 7, 1999 as
Exhibit 10.23 to the Annual Report on Form 10-KSB and incorporated
herein by reference.
27.1 Financial Data Schedule filed herewith
(b) Reports on Form 8-K
1. Report on Form 8-K, filed June 28, 1999, as amended on July 13,
1999, August 23, 1999 and October 7, 1999, reporting under Item 4.
Change in Registrant's Certifying Accountants, the resignation of
Grant Thornton, LLP as Metro Global's certifying accountants.
2. Report on Form 8-K, filed September 15, 1999, reporting under Item
5. Other Events, that Metro Global did not timely file its 1999 Annual
Report on Form 10-KSB and that on September 14, 1999, the NASDAQ Stock
Market halted the trading of Metro Global Media, Inc.'s Common Stock.
3. Report on Form 8-K, filed October 4, 1999, reporting under Item 2.
Acquisition and Disposition of Assets, that on September 29, 1999,
Metro Global Media, Inc. sold Fanzine back to its former stockholders
and a company controlled by them.
4. Report on Form 8-K, filed October 29, 1999, reporting under Item 5.
Other Events, that on October 25, 1999, A. Daniel Geribo resigned as a
member of Metro Global's Board of Directors, as well as a member of
the Compensation and Audit Committees.
F-14
<PAGE>
SIGNATURE
In accordance with 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.
Date: January 11, 2000
By: /s/ Janet M. Hoey
-------------------------------------------
Janet M. Hoey,
Treasurer(principal financial
and accounting officer), Secretary
and Director
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-27-2000
<PERIOD-START> AUG-30-1999
<PERIOD-END> NOV-27-1999
<CASH> 803,719
<SECURITIES> 0
<RECEIVABLES> 6,036,484
<ALLOWANCES> 165,602
<INVENTORY> 4,208,468
<CURRENT-ASSETS> 15,050,715
<PP&E> 2,315,751
<DEPRECIATION> 2,525,322
<TOTAL-ASSETS> 26,425,297
<CURRENT-LIABILITIES> 13,823,982
<BONDS> 0
0
0
<COMMON> 688
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,425,297
<SALES> 0
<TOTAL-REVENUES> 5,997,803
<CGS> 4,173,732
<TOTAL-COSTS> 2,509,324<F1>
<OTHER-EXPENSES> 133,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (227,675)
<INCOME-PRETAX> (778,929)
<INCOME-TAX> 0
<INCOME-CONTINUING> (778,929)
<DISCONTINUED> 29,281
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (377,324)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
<FN>
<F1>SG&A
</FN>
</TABLE>
