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 February 26, 2000
[ ] 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
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(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)
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(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: 8,608,944 at April 10, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements
- -----------------------------------------
Balance Sheet F-1
Statements of Income F-3
Statements of Cash Flows F-5
Notes to Financial Statements F-8 to F-15
Item 2. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
Results of Continuing Operations for the three and nine months ended February
26, 2000 versus the three and nine months ended February 27, 1999.
Metro Global Media, Inc.'s ("Metro Global") revenues from continuing
operations were $7,315,565 for the three months ended February 26, 2000, as
compared to $6,025,835 for the three months ended February 27, 1999, a 21%
increase. This increase in revenue is primarily due to an increase in DVD sales
of approximately $800,000 and an increase in novelty sales of approximately
$400,000. Metro Global's revenues from continuing operations increased
$3,274,231 to $20,377,538 for the nine months ended February 26, 2000 from
$17,103,307 for the nine months ended February 27, 1999. This represents a 19%
increase from revenues for the nine months ended February 27, 1999. Revenues
consist principally of sales of prerecorded videocassettes, magazines,
electronic software products and related items. The increase in revenue during
the nine-month period is primarily attributable to the increased sales of DVDs
of approximately $2,200,000, an increase in magazine sales of approximately
$700,000, an increase in novelty sales of approximately $600,000, an increase in
sales by Metro International of approximately $261,000 and an increase in cable
and foreign film rights revenues of approximately $400,000 over the same period
of the prior year. These increases were partially offset by a decrease in video
and CD-ROM sales of approximately $900,000.
Costs of revenues as a percentage of revenues in the third quarter of
fiscal 2000 were 64%, as compared to 67% in the third quarter of fiscal 1999.
Costs of revenues as a percentage of revenues in the first nine months of fiscal
2000 were 66%, as compared to 68% for the first nine months of fiscal 1999. The
primary reason for this decrease in percentage is the increase in cable and
foreign film rights revenue, which have nominal associated costs.
Selling, general, and administrative expenses, as a percentage of revenue,
increased to 42% for the period ended February 26, 2000, as compared to 38% for
the period ended February 27, 1999. The increase in selling, general and
administrative expenses for the quarter ended February 26, 2000, as compared to
February 27, 1999, is due to an increase of payroll and consulting fees of
approximately $350,000, Internet development costs of $150,000 and advertising
and promotional expenses of $75,000. Selling, general and administrative
expenses, as a percentage of revenue, increased to 40% during the nine month
period ended February 26, 2000, as compared to 37% during the nine month period
ended February 27, 1999. The primary reasons for the increase in selling,
general and administrative expenses during the nine-month period are an increase
in payroll and consulting fees of approximately $835,000, an increase in
advertising and promotional expenses of approximately $100,000, an increase in
Internet development costs of approximately $300,000, an increase in
professional fees of approximately $200,000, and an increase in depreciation
expense of approximately $170,000.
Loss from continuing operations for the three month period ended February
26, 2000 was $720,465, as compared to a loss from continuing operations of
$1,015,440 for the corresponding period in the prior year. Net loss for the
quarter ended February 26, 2000 was $264,623, as compared to a net loss of
$963,425 for the quarter ended February 27, 1999, resulting in a loss per share
of $0.04 for the quarter ended February 26, 2000, as compared to a loss per
2
<PAGE>
share of $0.16 for the quarter ended February 27, 1999. Loss from continuing
operations for the nine month period ended February 26, 2000 was $2,283,794, as
compared to loss from continuing operations of $1,888,367 for the corresponding
period in the prior year. Net loss for the nine months ended February 26, 2000
was $1,358,912, as compared to a net loss of $1,672,492 for the nine months
ended February 27, 1999, resulting in a loss per share of $0.20 for the nine
months ended February 26, 2000, as compared to a loss per share of $0.32 for the
nine months ended February 27, 1999. The primary reason for the decrease in the
loss is due to the extraordinary gain on the debt restructuring of $455,842.
These factors are partially offset by the relocation of Metro's west coast
facility, which involved a shutdown of approximately four weeks during the
quarter ended November 27, 1999.
Liquidity and Capital Resources at February 26, 2000
Cash amounted to $647,634 at quarter-end. Net cash provided by operating
activities amounted to $3,777,804 for the nine months ended February 26, 2000,
as compared to $438,744 for the same period in the prior fiscal year. The
primary sources of cash were cash provided by operating activities of $3,777,804
and net proceeds from a line of credit of $1,797,894. The primary uses of cash
for the nine months ended February 26, 2000 consisted of: (1) net payments on
notes payable of $2,175,000, (2) investments in motion pictures and other films
of $1,938,716, (3) payments on capital leases of $316,307, and (4) purchases of
property and equipment of $388,257.
Accounts payable and accrued expenses increased $2,224,003 due to increased
purchasing, an increase in video and DVD duplication and authoring expense and
an increase in Internet development costs.
On March 23, 1998, Metro Global entered into two 12% convertible debentures
totaling $500,000 with related parties. Both notes were due on March 23, 1999,
in either cash or Common Stock, at a conversion rate of $2.25 per share.
Proceeds from the debentures were used for working capital. In March 1999, the
debentures' due dates, including accrued interest of $60,000 (which was added to
the note principal), were extended until March 23, 2000. On December 31, 1999,
one of the debentures, including the accrued interest due under such debenture,
was converted into 847,778 restricted shares of Metro Global's Common Stock. The
second debenture and accrued interest was assumed by CVC and the receivable due
from CVC was reduced accordingly.
On July 1, 1998, Metro Global entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. Metro
Global recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature. Proceeds from the debenture were used for working capital.
On July 1, 1999, the debenture's due date was extended until July 1, 2001. In
conjunction with the extension, warrants were granted to purchase 50,000 shares
of Metro Global's Common Stock for $2.58 per share. Metro Global recorded
interest expense of $52,000 in connection with the issuance of the warrants. On
December 31, 1999, the debenture and accrued interest were assumed by CVC and
the receivable due from CVC was reduced accordingly.
On August 1, 1998, Metro Global entered into notes payable totaling
$1,000,000 with related parties. The notes, which bear interest at 8%, were due
August 1, 1999. Proceeds from the notes were used in the acquisition of Fanzine
International, Inc. ("Fanzine"). In October 1998, the notes were reduced by
$600,000 for the exercise of warrants. On August 1, 1999, the notes' due dates
were extended for one year. In consideration of the extension, the interest rate
increased from 8% to 10% and warrants were issued to purchase up to 115,000
shares of Common Stock at a price of $2.58, exercisable for a term of five
years. Metro Global recognized interest expense of $100,050 in connection with
the issuance of the warrants. On December 31, 1999, one of the notes and accrued
interest of $281,250 was converted into 781,250 shares of Metro Global's Common
Stock. On December 31, 1999, the other note and accrued interest totaling
$183,250 was assumed by CVC and the receivable due from CVC was reduced
accordingly.
3
<PAGE>
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 $59,137 and $52,566 of the discount to interest expense during
the nine months ended February 26, 2000 and February 27, 1999, respectively.
The $1,000,000 debenture was to mature on July 31, 2000. Interest is
payable on a quarterly basis. The holder of the debenture is entitled to convert
the principal value into Metro Global's Common Stock at a discounted market
price as is defined in the debenture agreement. During the nine months ended
February 26, 2000, $105,000 of convertible debentures plus accrued interest and
penalties were converted into 83,888 restricted shares of Metro Global's Common
Stock. On February 25, 2000, Metro Global entered into a Forbearance and
Modification Agreement with the lender. Under the terms of the agreement, Metro
Global made a payment of $150,000 upon execution of the agreement. The remaining
balance of $850,000 is due in two installments of $450,000 each, due on July 1,
2000 and October 1, 2000. The debenture is secured by 200,000 shares of stock
owned by Metro Global.
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 nine months ended February 27, 1999, 2175 shares of the Series
A shares and accrued dividends were converted into 982,120 shares of Metro
Global's Common Stock. In addition to the Series A Shares, Metro Global issued
400,000 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
4
<PAGE>
extension of the note. Under the terms of the extension, a payment of $550,000
was due by September 30, 1999 and the final payment of $275,000 was due on
December 31, 1999. 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 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. In November 1999, Metro Global
paid the lender an additional $600,000 from the proceeds of the sale of Fanzine.
As of February 26, 2000, the balance of the note payable is $1,200,000. Metro
Global is currently renegotiating the terms of the note.
On June 30, 1999, Metro Global entered into a one-year note payable at an
interest rate of 10% with a related party for $30,000. Proceeds from the note
were used for working capital. On December 31, 1999, the note payable and
accrued interest was converted into 87,847 restricted shares of Metro Global's
Common Stock.
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, who is a principal
shareholder of Metro Global. Additionally, CVC has executed a put on the
inventory of Metro in case of default. As of February 26, 2000, borrowings under
the line of credit totaled $2,740,192.
Of Metro's total accounts receivable at February 26, 2000, $2,151,584, as
compared to $2,719,361 for the nine months ended February 27, 1999, is owed by
CVC, a chain of retail stores, which is wholly owned by a principal shareholder
of Metro Global. Because of the amount of this receivable and the concentration
of business with CVC, this receivable is monitored very closely. All amounts due
from CVC are within terms given by Metro, and are maintained within 60 to 90
days. Accordingly, no allowance for related party receivables and no related
party bad debt expense has been recorded in Metro Global's financial statements.
For the nine months ended February 26, 2000, Metro invested $1,938,716 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.
Capital Expenditures
Capital expenditures in the nine months ended February 26, 2000 amounted to
$388,257 as compared to $444,278 for the nine months ended February 27, 1999.
Metro Global incurred capital lease obligations of $411,799 for the nine months
ended February 26, 2000 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.
5
<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.
Restatement
Metro Global has restated the financial statements for the three and nine
months ended February 27, 1999. 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 $279,204 to a net loss of $963,425
and a decrease in earnings of $0.05 per share to a loss of $0.16 per share for
the three months ended February 27, 1999; and a decrease in earnings of $585,162
to a net loss of $1,672,492 and a decrease in earnings of $0.11 per share to a
loss of $0.32 per share for the nine months ended February 27, 1999.
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 $398,956 of income from the relationship with New
Frontier during the nine months ended February 26, 2000.
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
FEBRUARY 26, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
------
Current Assets
- --------------
<S> <C>
Cash $ 647,634
Accounts receivable, less allowance
for doubtful accounts of $201,299 3,572,378
Accounts receivable, related party 2,151,584
Inventory 4,285,729
Recoverable income tax 339,000
Prepaid expenses and other current assets 370,081
Notes Receivable 2,407,860
------------
Total Current Assets 13,774,266
- -------------------- ------------
Motion pictures and other films at cost, less accumulated
amortization of $10,289,821 5,469,999
Property and equipment at cost, less accumulated
depreciation of $2,701,995 2,277,152
Investment in securities 4,787,474
Other assets 177,238
------------
Total Assets $ 26,486,129
- ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
F-1
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 26, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities
- -------------------
<S> <C>
Current portion of capital lease obligations $ 301,563
Short-term borrowings 4,490,192
Convertible debentures 817,145
Accounts payable and accrued expenses 7,115,218
Income taxes payable 84,269
------------
Total current liabilities 12,808,387
- ------------------------- ------------
Deferred Revenue 4,388,518
Capital lease obligations, less current portion 383,301
------------
Total liabilities 17,580,206
- ----------------- ------------
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 8,807,186 shares and outstanding,
8,608,944 shares 881
Additional paid in capital 16,564,305
Accumulated deficit (7,118,421)
Accumulated other comprehensive loss - foreign exchange (13,771)
------------
9,432,994
Unearned compensation (45,692)
Less cost of Treasury Stock (198,242 common shares) (507,500)
------------
Total shareholders' equity 8,879,802
- -------------------------- ------------
Total liabilities and shareholders' equity $ 26,486,129
- ------------------------------------------ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Nine Months
Three Months Nine Months Feb 27, 1999 Feb 27, 1999
Feb 26, 2000 Feb 26, 2000 As restated As restated
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $7,315,565 $20,377,538 $6,025,835 $17,103,307
Cost of revenues, including
amortization of motion pictures
and other films 4,672,005 13,524,283 4,041,820 11,617,397
---------- ----------- ---------- -----------
2,643,560 6,853,255 1,984,015 5,485,910
Selling, general and
administrative expenses 3,047,817 8,117,966 2,262,635 6,353,703
---------- ----------- ---------- -----------
(404,257) (1,264,711) (278,620) (867,793)
---------- ----------- ---------- -----------
Other income and (expenses)
- ---------------------------
Interest expense, net (435,302) (1,296,579) (842,476) (1,323,920)
Royalty income 53,897 118,969 21,215 108,930
Miscellaneous income(expense) 65,197 131,181 94 787
Minority interest -0- 27,346 (6,998) (10,926)
---------- ----------- ---------- -----------
(316,208) (1,019,083) (828,165) (1,225,129)
---------- ----------- ---------- -----------
Loss from continuing operations (720,465) (2,283,794) (1,106,785) (2,092,922)
Benefit for income taxes -0- -0- 91,345 204,555
---------- ----------- ---------- -----------
Loss from continuing operations (720,465) (2,283,794) (1,015,440) (1,888,367)
Extraordinary gain on debt
restructuring 455,842 455,842 -0- -0-
Gain on sale of discontinued
operations (net of tax) -0- 372,324 -0- -0-
Income (Loss) from discontinued
operations (net of tax) -0- 96,716 52,015 215,875
---------- ----------- ---------- -----------
Net Loss $ (264,623) $(1,358,912) $ (963,425) $(1,672,492)
========== =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Three Months Nine Months Feb 27, 1999 Feb 27, 1999
Feb 26, 2000 Feb 26, 2000 As restated As restated
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------
Loss Per Share:
<S> <C> <C> <C> <C>
Loss from continuing
operations: $ (0.11) $ (0.34) $ (0.17) $ (0.36)
Basic and Diluted
Extraordinary gain on debt
restructuring: $ 0.07 $ 0.07 $ 0.00 $ 0.00
Basic and Diluted
Gain on sale of discontinued
operations: $ 0.00 $ 0.06 $ 0.00 $ 0.00
Basic and Diluted
Income (Loss) from discontinued
operations: $ 0.00 $ 0.02 $ 0.01 $ 0.04
Basic and Diluted
Net loss: $ (0.04) $ (0.20) $ (0.16) $ (0.32)
Basic and Diluted
Weighted average number of shares:
Basic and Diluted 6,798,562 6,717,502 5,958,390 5,165,186
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999
2000 as restated
---- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,358,912) $ (1,672,492)
------------ ------------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation Expense 507,084 354,467
Amortization of motion pictures and other films 1,555,188 1,389,055
Amortization of deferred rent (10,508) (10,508)
Amortization of unearned compensation 314,525 62,500
Amortization of goodwill 200,000 233,333
Amortization of deferred revenue (398,956) -0-
Amortization of deferred expense 83,621 -0-
Amortization of discount on debenture 59,137 52,566
Accrued interest added to note payable principal 68,000 -0-
Gain on sale of Fanzine 372,324 -0-
Discount on issuance of convertible debenture -0- (157,700)
Allowance for doubtful accounts 206,498 90,000
Embedded interest on convertible debentures -0- 218,093
Common Stock issued for consulting services 62,815 499,716
Common Stock issued for compensation 43,000 6,850
Common Stock issued for interest expense -0- 570,000
Issuance of warrants 175,844 388,429
Minority interest (27,346) (7,294)
Foreign exchange (7,006) (1,890)
(Increase) decrease in assets:
Accounts receivable 99,282 (3,400,451)
Inventory (181,649) (257,350)
Prepaid expenses and other current assets 65,208 (511,285)
Other assets (34,348) (182,397)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,224,003 3,164,860
Income taxes payable (240,000) (389,758)
------------ ------------
Total adjustments 5,136,716 2,111,236
- ----------------- ------------ ------------
Net cash provided by operating activities $ 3,777,804 $ 438,744
- ----------------------------------------- ------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999
2000 as restated
---- -----------
Cash flows from investing activities:
<S> <C> <C>
Acquisition of Fanzine $ -0- $ (2,000,000)
Acquisition costs -0- (160,418)
Investments in motion pictures and other films (1,938,716) (2,358,315)
Purchase of property and equipment (388,257) (444,278)
Purchase of treasury stock -0- (507,500)
------------ ------------
Net cash used in investing activities (2,326,973) (5,470,511)
- ------------------------------------- ------------ ------------
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 line of credit 1,797,894 297,314
Proceeds on notes payable 30,000 3,450,000
Payments on notes payable (2,175,000) (275,000)
Payments on convertible debentures (150,000) -0-
Principal payments on capital lease obligations (316,307) (246,599)
Payments on note payable - selling shareholders -0- (1,000,000)
Contribution from joint venture partner -0- 30,000
------------ ------------
Net cash provided by (used in) financing activities (813,413) 5,181,449
- --------------------------------------------------- ------------ ------------
Net increase in cash 637,418 149,682
Cash, beginning of period 10,216 184,995
Cash, end of period $ 647,634 $ 334,677
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 303,892 $ 382,054
============ ============
Income taxes $ 240,000 $ 18,973
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing activities:
During the nine months ended February 27, 1999, a payable of $300,000 was
converted into 250,000 restricted shares of Metro Global's Common Stock by a
related party.
During the nine months ended February 27, 1999, 2175 shares of Series A
Preferred Stock plus accrued dividends of $35,427 were converted into 982,120
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 nine months ended February 27, 1999.
Capital lease obligations of $411,799 and $240,468 were incurred during the
nine months ended February 26, 2000 and February 27, 1999, respectively, when
Metro Global entered into capitalized leases for office equipment and machinery
and equipment.
On July 21, 1999, Metro Global entered into a seven year Licensing
Agreement with New Frontier Media, Inc. Metro Global received 500,000 restricted
shares of New Frontier Common Stock plus warrants to purchase an additional
100,000 shares of New Frontier Common Stock per year for five years. Metro
Global valued the Common Stock and warrants at $4,787,474. The deferred revenue
is being amortized over seven years.
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 nine months ended February 26, 2000, $105,000 of convertible
debentures and accrued interest and penalties of $38,075 were converted into
83,888 restricted shares of Common Stock.
During the nine months ended February 26, 2000, various notes payable
totaling $580,000 plus accrued interest of $38,075 were converted into 1,716,875
restricted shares of Common Stock.
During the nine months ended February 26, 2000, various payables due to
related parties totaling $966,231 were assumed by Capital Video Corp. The
accounts receivable was reduced accordingly.
See notes to consolidated financial statements.
F-7
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (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.
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 nine months ended
February 27, 1999 have been reclassified to conform with the current
presentation.
F-8
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (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 has
received payment of $2,000,000 during the period ending February 26, 2000. Metro
Global will receive $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 nine months ended February 26, 2000 and seven months ended February 27,
1999, respectively:
<TABLE>
<CAPTION>
Feb. 26, 2000 Feb. 27, 1999
------------- -------------
<S> <C> <C>
Revenues $ 6,111,545 $ 7,488,297
Cost of revenues 5,400,953 6,266,708
----------- -----------
710,592 1,221,589
Other expenses 535,524 861,798
----------- -----------
Income before income taxes 175,068 359,791
Income taxes 78,352 143,916
----------- -----------
Income from discontinued operations $ 96,716 $ 215,875
=========== ===========
</TABLE>
F-9
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (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 December 31, 1999, one of the notes and accrued
interest of $281,250 was converted into 781,250 shares of Metro Global's Common
Stock. On December 31, 1999, the other note and accrued interest totaling
$183,250 was assumed by CVC and the receivable due from CVC was reduced
accordingly.
On October 28, 1998, Metro Global entered into a note payable with an
unrelated third party for $1,100,000. The note, which bears no interest, was due
in quarterly installments of $275,000 commencing December 31, 1998. In
consideration of the loan and part of an investment banking consultant
agreement, Metro Global issued the lender 150,000 restricted shares of Metro
Global's Common Stock. Metro Global recorded interest expense of $243,412 in
1999 in connection with the issuance of the restricted stock. Metro Global used
$507,500 of the proceeds to repurchase 198,242 shares of its outstanding Common
Stock from Metro Plus, a company partially owned by a significant shareholder.
For the year ended May 29, 1999, Metro Global made one payment of $275,000. As a
result, default interest at 11% per annum has been accrued on this note. In
September 1999, Metro Global and the lender agreed to a preliminary extension of
the note. Under the terms of the extension, a payment of $550,000 was due by
September 30, 1999 and the final payment of $275,000 was 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. 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
lender agreed to an extension. Under the terms of the extension, Metro Global
paid $1.3 million upon the closing of the financing with Reservoir Capital
Corporation, a new unrelated third party lender. In November 1999, Metro Global
paid the lender an additional $600,000 from the proceeds of the sale of Fanzine.
As of February 26, 2000, the balance of the note payable is $1,200,000. Metro
Global is currently renegotiating the terms of the note.
F-10
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. Debt (continued)
On June 30, 1999, Metro Global entered into a one-year note payable at an
interest rate of 10% with a related party for $30,000. Proceeds from the note
were used for working capital. On December 31, 1999, the note payable and
accrued interest was converted into 87,847 restricted shares of Metro Global's
Common Stock.
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 $59,137 and $52,566 of the discount to interest expense during
the nine months ended February 26, 2000 and February 27, 1999, respectively.
The $1,000,000 debenture was to mature on July 31, 2000. Interest is
payable on a quarterly basis. The holder of the debenture is entitled to convert
the principal value into Metro Global's Common Stock at a discounted market
price as is defined in the debenture agreement. During the nine months ended
February 26, 2000, $105,000 of convertible debentures plus accrued interest and
penalties were converted into 83,888 restricted shares of Metro Global's Common
Stock. On February 25, 2000, Metro Global entered into a Forbearance and
Modification Agreement with the lender. Under the terms of the agreement, Metro
Global made a payment of $150,000 upon execution of the agreement. The remaining
balance of $850,000 is due in two installments of $450,000 each, due on July 1,
2000 and October 1, 2000. The debenture is secured by 200,000 shares of stock
owned by Metro Global.
On March 23, 1998, Metro Global entered into two 12% convertible debentures
totaling $500,000 with related parties. Both notes were due on March 23, 1999,
in either cash or Common Stock, at a conversion rate of $2.25 per share.
Proceeds from the debentures were used for working capital. In March 1999, the
debentures' due dates, including accrued interest of $60,000 (which was added to
the note principal), were extended until March 23, 2000. On December 31, 1999,
one of the debentures, including the accrued interest due under such debenture,
was converted into 847,778 restricted shares of Metro Global's Common Stock. The
second debenture and accrued interest was assumed by CVC and the receivable due
from CVC was reduced accordingly.
On July 1, 1998, Metro Global entered into a 12% convertible debenture
totaling $200,000 with a related party. The note was due on July 1, 1999, in
either cash or Common Stock, at a conversion rate of $2.25 per share. Metro
Global recorded $60,248 of interest expense relating to the embedded beneficial
conversion feature. Proceeds from the debenture were used for working capital.
On July 1, 1999, the debenture's due date was extended until July 1, 2001. In
conjunction with the extension, warrants were granted to purchase 50,000 shares
of Metro Global's Common Stock for $2.58 per share. Metro Global recorded
interest expense of $52,000 in connection with the issuance of the warrants. On
December 31, 1999, the debenture and accrued interest were assumed by CVC and
the receivable due from CVC was reduced accordingly.
F-11
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (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 days old, up to a
maximum of $3,000,000. The accounts receivable borrowing base excludes foreign
receivables and receivables where more than 50% of the balance is over ninety
days old. The borrowings on accounts receivable from CVC, a related party, are
limited to the lesser of 30% of total accounts receivable or $1,600,000.
Additionally, Metro can borrow 40% of inventory, up to a maximum of $1,000,000.
Borrowings under this loan bear interest at prime rate plus 3.5% per annum.
Additionally, Metro must pay a service fee of .35% per month on the average
daily loan balance. Metro must pay an unused fee of .25% on the amount of the
borrowings under $2,000,000. The loan is secured by the assets of Metro. The CVC
accounts receivable are guaranteed to the lender by the sole shareholder of CVC,
who is a principal shareholder of Metro Global. Additionally, CVC has executed a
put on the inventory of Metro in case of default. As of February 26, 2000,
borrowings under the line of credit totaled $2,740,192.
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 nine months ended February 27, 1999, 2175 shares of
the Series A shares and accrued dividends were converted into 982,120 shares of
Metro Global's Common Stock. In addition to the Series A Shares, Metro Global
issued 400,000 detachable warrants to purchase Metro Global's Common Stock at
$1.50 per share commencing April 20, 1998 exercisable over 5 years. In October
1998, all 400,000 warrants were transferred to a related party of Metro Global
and exercised.
F-12
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (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 $398,956 of
income from the relationship with New Frontier during the nine months ended
February 26, 2000.
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 nine
months ended February 27, 1999. 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 $279,204 to a net loss of $963,425
and a decrease in earnings of $0.05 per share to a loss of $0.16 per share for
the three months ended February 27, 1999; and a decrease in earnings of $585,162
to a net loss of $1,672,492 and a decrease in earnings of $0.11 per share to a
loss of $0.32 per share for the nine months ended February 27, 1999.
F-13
<PAGE>
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
George Kinney v. Metro Global Media, Inc., et al.
C.A. No. 99-579 (U.S.D.C.,D.R.I.)
On November 22, 1999, George Kinney, on behalf of himself and all other
similarly situated, commenced a putative class action in the United States
District Court for the District of Rhode Island against Metro Global and
certain of its present or former officers and directors. Plaintiff seeks to
represent a class of all person who acquired securities of Metro Global
between September 13, 1996 and September 13, 1999. The Complaint alleges
claim based on alleged violations of section 10(b) of the Securities
Exchange Act of 1934. Plaintiff alleges that the defendants made a series
of false and misleading statements concerning Metro Global's reported
financial results during the class period that violated generally accepted
accounting principles and ultimately caused Metro Global to restate certain
financial statements. On March 15, 2000, Metro Global and certain
defendants filed a motion to dismiss the complaint. Plaintiff's response is
due no later than Friday, April 14, 2000. Metro Global believes it has
meritorious defenses and intends to vigorously defend this action.
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
--------------------------------
(a) Exhibits
None
(b) Reports on form 8-K
None
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: April 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> 9-MOS
<FISCAL-YEAR-END> MAY-27-2000
<PERIOD-START> NOV-28-1999
<PERIOD-END> FEB-26-2000
<CASH> 647,634
<SECURITIES> 0
<RECEIVABLES> 5,723,962
<ALLOWANCES> 201,299
<INVENTORY> 4,285,729
<CURRENT-ASSETS> 13,774,266
<PP&E> 2,277,152
<DEPRECIATION> 2,701,995
<TOTAL-ASSETS> 26,486,129
<CURRENT-LIABILITIES> 12,808,387
<BONDS> 0
0
0
<COMMON> 881
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,486,129
<SALES> 0
<TOTAL-REVENUES> 20,377,538
<CGS> 13,524,283
<TOTAL-COSTS> 8,117,966<F1>
<OTHER-EXPENSES> 277,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,296,579)
<INCOME-PRETAX> (2,283,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,283,794)
<DISCONTINUED> 469,040
<EXTRAORDINARY> 455,842
<CHANGES> 0
<NET-INCOME> (1,358,912)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
<FN>
<F1>SG&A
</FN>
</TABLE>
