As filed with the Securities and Exchange Commission on September 19, 2001
Registration No. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------

FORM S-1
Registration Statement Under
The Securities Act Of 1933
------------------------
PRIVATE MEDIA GROUP, INC.
(Exact name of Registrant as specified in its charter)

Nevada 2721 87-0365673
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code) Identification No.)
incorporation or
organization)

Carretera de Rubi 22-26,
08190 Sant Cugat del Valles
Barcelona
Spain
34-93-590-7070

(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)

Berth H. Milton, Chief Executive Officer
Private Media Group, Inc.
Carretera de Rubi 22-26
08190 Sant Cugat del Valles
Barcelona, Spain
34-93-590-7070

(Name, Address, including zip code, and telephone number, including
area code, of agent for service)

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

Samuel S. Guzik, Esq Thomas J. Friedmann, Esq
Guzik & Associates Shearman & Sterling
1800 Century Park East, Fifth Floor Broadgate West
Los Angeles, CA 90067 9 Appold Street
310-788-8600. London, UK EC2A 2AP
44-20-7655-5000

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

Approximate date of proposed sale to the public: As soon as practicable
after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|

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

CALCULATION OF REGISTRATION FEE

----------------------------------------------------------------------------------------------------------------------------
Title of each class of Proposed maximum
securities to be Amount to be offering price per Proposed maximum aggregate Amount of
registered registered(1) share(2) offering price(2) registration fee
----------------------------------------------------------------------------------------------------------------------------

Common Stock, $.001 par 7,400,000 $7.92 $58,608,000 $14,652
value
----------------------------------------------------------------------------------------------------------------------------

(1) Includes 900,000 shares of common stock which may be sold upon exercise of
the underwriters' over-allotment option, if any, and shares of common stock
that are to be offered outside the United States in transactions that are
not subject to registration under the Securities Act of 1933, as amended,
but that may be resold from time to time in the United States in
transactions subject to a registration under the Securities Act of 1933, as
amended. Offers and sales outside the United States are being made under
Regulation S of the Securities Act 1933, as amended, and are not covered by
this Registration Statement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended, and based
on the closing price of the Registrant's Common Stock on September 10,
2001, as reported on the Nasdaq National Market.

================================================================================
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933, as amended, or until the registration statement shall
become effective on such date as the commission, acting pursuant to section
8(a), may determine.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION dated , 2001

PRELIMINARY PROSPECTUS
6,500,000 Shares

Private Media Group, Inc.

Common Stock
----------------

We are offering 5,800,000 shares and the selling shareholders named in
this prospectus are offering 700,000 shares of our common stock in the United
States and in international offerings in the Federal Republic of Germany and
other countries. The U.S. underwriters and the selling shareholders will
initially offer 975,000 shares in the United States and concurrently, the
international underwriters and the selling shareholders will offer 5,525,000
shares in Germany and other countries. In addition, to the extent that the U.S.
and international underwriters sell more than 6,500,000 shares, Commerzbank
Aktiengesellschaft has the option, on behalf of the U.S. and international
underwriters, to purchase up to an additional 900,000 shares from the selling
shareholders named in this prospectus. We will not receive any proceeds from the
sale of shares by the selling shareholders. The offering price and underwriting
discounts and commissions for both offerings are identical.
----------------

Our common stock is quoted on the Nasdaq National Market under the
symbol "PRVT". On , 2001, the last reported sale price was (euro)o per
share. We have applied to list the common stock on the Frankfurt Stock Exchange.

This investment involves risk. See "Risk Factors" beginning on page 8.
----------------

PRICE (euro) A SHARE ($ A SHARE)
----------------

Per Share Total
--------------- -----------

Public Offering Price................................................(euro) (euro)
Underwriting Discounts and Commissions...............................(euro) (euro)
Proceeds, before expenses, to Private Media Group....................(euro) (euro)
Proceeds, before expenses, to selling shareholders ..................(euro) (euro)

Neither the U.S. Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these shares or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.

Commerzbank Aktiengesellschaft expects to deliver the shares to
purchasers on , 2001.

----------------
COMMERZBANK
AKTIENGESELLSCHAFT
----------------
, 2001

TABLE OF CONTENTS

Page Page
---- ----

General Information................................ iii Security Ownership of Certain Beneficial
Owners and Managers....................... 58
Summary............................................ 1 Selling Shareholders......................... 60
Risk Factors....................................... 8 Description of Capital Stock................. 61
Use of Proceeds.................................... 15 United States Federal Income
Capitalization..................................... 15 Tax Consequences....................... 63
Price Range of Common Stock........................ 16 German Tax Consequences...................... 66
Dividend Policy.................................... 16 Underwriting................................. 68
Private Media Group, Inc. ......................... 17 The Offering................................. 73
Selected Consolidated Financial Information Experts...................................... 74
and Operating Data................................. 19 Legal Matters................................ 74
Management's Discussion and Analysis Information Available to You................. 74
of Financial Condition and Results Index to Financial Statements................ F-1
of Operations...................................... 21
Business........................................... 29
Management......................................... 51

GENERAL INFORMATION

Responsibility for the Contents of the Prospectus

Private Media Group and the underwriters assume responsibility for the
contents of this prospectus in accordance with Article 13 of the German
Securities Sales Prospectus Act (Wertpapier - Verkaufsprospektgesetz) and
Articles 77 and 45 of the German Stock Exchange Act (Boersengesetz). Private
Media Group and the underwriters hereby declare that, to the best of their
knowledge, the information contained in this prospectus is correct and no
material facts have been omitted.

This prospectus is being published as a preliminary offering circular
in accordance with Article 10 of the German Securities Sales Prospectus Act and
the rules and regulations of the U.S. Securities Act of 1933, as amended,
respectively, and may be supplemented. Such supplements and the offering terms
that are missing will be published in accordance with the provisions of the
German Securities Sales Prospectus Act and the rules and regulations of the U.S.
Securities Act of 1933, as amended, respectively.

Subject Matter of the Prospectus

The subject matter of this prospectus in its function as a preliminary
offering circular (Unvollstaendiger Verkaufsprospekt) is an offering of up to
7,400,000 shares of common stock of Private Media Group with a par value of $
0.001 per share as follows:

o 5,800,000 shares of common stock issued by Private Media
Group,

o 700,000 shares of common stock from the selling shareholders
named in this prospectus, and

o up to 900,000 additional shares of common stock from the
selling shareholders named in this prospectus to cover the
over-allotment option granted to Commerzbank.

Each share will have full rights to dividends, if any are declared,
from the date of its issuance for the fiscal year ending December 31, 2001, as
well as for all subsequent fiscal years.

The subject matter of this prospectus in its function as a company
report (Unternehmensbericht) are 33,974,746 shares of common stock with a par
value of $ 0.001 which will be all of the common stock of Private Media Group
issued and outstanding upon completion of this offering.

iii

Forward-looking Statements

This prospectus includes forward-looking statements. Statements other
than statements of historical fact included in this prospectus, including the
statements under the headings "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus regarding future events or
prospects, are forward-looking statements. The words "may," "will," "expect,"
"anticipate," "believe," "estimate," "plan," "intend," "should" or variations of
these words, as well as other statements regarding matters that are not
historical fact, constitute forward-looking statements. We have based these
forward-looking statements on our current view with respect to future events and
financial performance. These views involve a number of risks and uncertainties
which could cause actual results to differ materially from those we predict in
our forward-looking statements and from our past performance. Although we
believe that the estimates and projections reflected in our forward-looking
statements are reasonable, they may prove incorrect, and our actual results may
differ, as a result of the following uncertainties and assumptions:

o our business development, operating development and financial
condition;

o our expectations of growth in demand for our products and
services;

o our expansion and acquisition plans;

o the impact of expansion on our revenue potential, cost basis
and margins;

o the effects of regulatory developments and legal proceedings
on our business;

o the impact of exchange rate fluctuations; and

o our ability to obtain additional financing.

We do not intend to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise except to the
extent required by law. You should interpret all subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf as
being expressly qualified by the cautionary statements in this prospectus. As a
result, you should not place undue reliance on these forward-looking statements.

Presentation of Financial Information

We have prepared the financial statements contained in this prospectus
in accordance with accounting principles generally accepted in the United States
of America, or US GAAP. You should read the financial statements and the notes
to the financial statements included elsewhere in this prospectus together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Currency

For the purposes of this prospectus, (1) "U.S. dollars" or "$" means
the lawful currency of the United States of America, (2) "SEK" or "Swedish
Kronor" means the currency of the Kingdom of Sweden and (3) "(euro)" or "euro"
means the single currency introduced at the start of the third stage of European
Economic and Monetary Union on January 1, 1999 under the Treaty of Rome
establishing the European Economic Community, as amended by the Treaty on the
European Union, signed at Maastricht on February 7, 1992.

Intellectual Property

Private, Private Media, our Private logo, Pirate, Triple-X, Triple-X
Files, Private Black Label, Private XXX, Gaia, Private Sex, Private Life,
Private Style, www.privatespeed.com, Private Gold, Private Blue,
www.private.com, www.prvt.com, www.privatecinema.com, www.privatelive.com,
www.privategold.com, www.privatechannels.com, www.sexclub.sex.se,
www.privateusa.com, www.private.com.ar, www.private.com.au, www.maxs.se,
www.sex.se, www.clubx.com.au, and www.privategold.com are some of our trademarks
and trade names. Other marks used in this prospectus are the property of their
owners, which includes us in some instances. Information on these websites is
not a part of this prospectus.

Definitions

In this prospectus, any reference to "we," "us" or "Private Media
Group" refers to Private Media Group, Inc. and its consolidated subsidiaries,
and not to any of the underwriters. Milcap Media Group refers to Milcap Media
Group SL (Spain) and Milcap Media Limited refers to Milcap Media Limited
(Cyprus).

SUMMARY

This summary highlights information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially the risks of investing in our common stock
discussed in the "Risk Factors" section beginning on page 8.

Private Media Group

Overview

We are a leading international provider of high quality adult media
content for a wide range of media platforms. We acquire still photography and
motion pictures tailored to our specifications from independent directors and
process these images into products suitable for popular media formats such as
print publications, digital versatile disks, or DVDs, videotapes and electronic
media content for Internet distribution. We distribute our adult media content
directly, and through a network of local affiliates and independent
distributors, through multiple channels, including (1) newsstands and adult
bookstores, (2) mail order catalogues, (3) cable, satellite and hotel television
programming and (4) over the Internet via proprietary websites and evolving
broadband delivery services. In addition to media content, we market and
distribute branded leisure and novelty products oriented to the adult
entertainment lifestyle and generate additional sales through the licensing of
our Private trademark to third parties. In the first six months of 2001, we had
net sales of SEK 180.2 million and net income of SEK 52.4 million.

Our business was founded in 1965 and achieved initial success through
our flagship publication, Private, the first full color, hardcore sex
publication in the world. Today, we produce four X-rated periodical magazines:
Private, Pirate, Triple X and Private Sex, as well as several special feature
publications each year. As of June 30, 2001, we had compiled a digital archive
of more than two million photographs and all of our print publications,
currently 324 issues. We expect to add two additional issues and hundreds of
photographs each month. Approximately 300,000 copies of our print publications
are distributed each month at an average retail price of approximately
(euro)11.50. We distribute our publications through a network of approximately
250,000 points of sale in more than 35 countries, with strong market positions
in Europe, Latin America, Australia and Canada. We believe that our distribution
network has the potential to reach nearly 500,000 points of sale in our existing
markets.

Since 1992, we have also acquired, processed and distributed adult
motion picture entertainment. We acquire motion pictures that meet our exacting
standards for entertainment content and production value from independent
directors, either under exclusive contracts or on a freelance basis. We then
edit and process these motion pictures to ensure consistent image quality and
prepare and customize them for distribution in several formats, including DVDs,
videocassettes, broadcasting, which includes cable, satellite and hotel
television programming, and the Internet. Our proprietary motion pictures and
those produced by joint ventures in which we participate have received 61
industry awards since 1994, evidencing our success in setting high quality
standards for our industry. As of June 30, 2001, our film library contained more
than 400 titles, and we expect to add approximately 50 additional titles by the
end of 2001.

Since 1997, we have expanded our presence in emerging electronic
markets for adult media content, such as the Internet, DVDs and broadcasting. We
believe that these markets comprise the fastest growing segment of the adult
entertainment industry. We launched our first Internet website, www.private.com,
in 1997. In 1999, we launched two additional websites, www.privatecinema.com and
www.privatelive.com. We also generate incremental sales by licensing our
trademarks and proprietary adult media content for use on the websites of other
companies.

We license our content to cable and satellite television operators as
well as to hotels. We have also launched two television channels, Private Gold
and Private Blue, that broadcast our content. Consumers pay for these products
either on a pay-per-view basis or by subscription.

In May 2001, we launched our www.privatespeed.com website to deliver
our proprietary motion pictures to our customers using broadband connections
over the Internet. This website utilizes advanced networking technology to
furnish our customers with instant access to our motion picture archive by
buying blocks of viewing time. We are also preparing to distribute our adult
media content through fixed and third generation mobile telecommunications
technologies. While broadband and other high-speed Internet and telephonic
connections remain in their infancy today, we believe that these technologies
represent a substantial growth opportunity for us in the future.

We operate in a highly regulated industry. This requires us to be
socially aware and sensitive to government strictures, including laws and
regulations designed to protect minors and to prohibit the distribution of
obscene material. We take great care to comply with all applicable governmental
laws and regulations in each jurisdiction where we conduct business. Moreover,
we do not knowingly engage the services of any business or individual that does
not adhere to the same standards. Since 1965, we have never been held to have
violated any laws or regulations regarding obscenity or the protection of
minors.

Market Opportunity

Demand for adult entertainment products has grown substantially in
recent years. In 1999, the total worldwide adult entertainment market was
estimated to be $56 billion. We believe that our target market, including print
publications, videocassettes, DVDs, broadcasting and the Internet, comprises
approximately $40 billion of that figure. We believe that two principal factors
are driving growth in our industry: the relaxation of social and legal
restrictions on distribution of adult entertainment products and new
technologies that facilitate the distribution of high quality adult media
content to consumers in the privacy of their own homes. As a result of
liberalized regulation of adult entertainment products, we now distribute our
products in physical form in 35 countries worldwide with an aggregate current
population of 1.1 billion, as compared to six European countries with a
population of 144 million when the current management took control in 1991. We
expect this liberalizing trend to continue, which should expand our potential
markets further in the future.

The proliferation of easy to use electronic equipment, such as video
cassette recorders, or VCRs, and DVD players, which allow consumers to view high
quality video products in the privacy of their home, has boosted demand for
adult media content compatible with these formats. The installed base of DVD
players in Western Europe and the United States is expected to increase almost
200% by 2002 compared to 2000. Also, the evolution of the Internet as a channel
of commerce and content distribution has stimulated additional demand for adult
media content. Advances in satellite, cable and hotel communications systems
furnish another relatively new channel for the delivery of media content,
including adult entertainment, into private homes, hotels and businesses.

We expect these regulatory and technological developments to fuel
increasing demand worldwide for adult media content of all kinds, including
demand for products in our principal market niche: explicit, unrated adult media
content. In addition, we believe that market demand for content to fill new
media outlets will lead mainstream media content providers to seek still more
adult media content in the future. We expect that the high quality standards of
the mainstream media, technological demands of multiple delivery formats and
global marketing and distribution costs will increase capital requirements for
providers of adult media content. The adult entertainment industry is currently
characterized by a large number of relatively small producers and distributors.
We believe that the factors discussed above will cause smaller, thinly
capitalized producers to seek partners or exit the adult entertainment business,
leading to a consolidation of the adult entertainment industry.

Our Competitive Strengths

We believe the following strengths, among others, will enable us to
exploit the growing global market for adult entertainment:

Extensive library of high quality adult media content

We have an extensive library of high quality adult media content. We
hold exclusive worldwide rights to this entire content archive. We believe that
this electronic archive constitutes one of the largest libraries of high quality
adult media content in the world.

Recognized brand name

Established market position and distribution network

We have a well-established worldwide distribution network for our print
and motion picture products and services which has been built up over the past
35 years, including some 250,000 points of sale in over 35 countries as of June
30, 2001. This broad distribution network provides an effective channel to
introduce new products and services and new formats for existing products and
services. We believe that our broad, multi-format distribution network affords
our customers convenient access to high quality adult media content in the
format of their choice.

Flexible operating structure and access to substantial capital

Experienced professional management

Our management team has extensive experience in the production and
distribution of adult media content and in general business administration.
Berth Milton, our Chief Executive Officer, has extensive knowledge of our
industry and has successfully founded and developed other profitable businesses.
Other members of our management team have broad expertise in content production,
sales and marketing, technology and finance.

Our Strategy

Our vision is to be the world's preferred content provider of adult
entertainment to consumers anywhere, at any time, and across all distribution
platforms and devices. We have developed the strategies described below to
increase sales and operating margins while maintaining the quality of our
products and services and the integrity of our brand name.

o Develop strategic alliances and joint ventures with businesses
outside of the adult entertainment industry to broaden our
distribution channels.

o To be at the forefront of the adult entertainment industry in
adapting new technology and distribution channels, such as
broadband distribution of our motion pictures.

o Increase market share through strategic acquisitions.

o To complete the digitalization of our entire movie and
photograph library in order to prepare our library for
distribution in new electronic media.

o Continue to increase and strengthen brand awareness.

Private Media Group was incorporated in 1980 in the State of Utah under
the name Glacier Investment Company, Inc. for the purpose of acquiring or
merging with an established company, and we subsequently changed our domicile to
the State of Nevada in 1991. In 1998, we acquired the adult entertainment
businesses conducted by Milcap Media Limited since 1965 and by Cine Craft
Limited. We changed our name to Private Media Group, Inc. in November 1997 in
connection with that acquisition. Our principal executive office is located at
22-26 Carretera e Rubi, 08190 Sant Cugat del Valles, Barcelona, Spain, and our
telephone number is 34-93-590-7070. Our corporate website is located at
www.prvt.com. Information on the website is not a part of this prospectus.

Risk Factors

Investing in our common stock involves substantial risks. See the "Risk
Factors" section of this prospectus for a description of risks you should
carefully consider before investing in our common stock.

The Offering

The global offering(1)................ 6,500,000 shares of which 5,800,000
shares are offered by us and 700,000
shares are offered by the selling
shareholders. The global offering
consists of the U.S. offering and the
international offering.

The international offering............ We and the selling shareholders are
offering 5,525,000 shares to retail and
institutional investors in Germany and
to institutional investors in other
countries.

The U.S. offering..................... We and the selling shareholders are
offering 975,000 shares in a public
offering in the United States.

Over-allotment option................. The selling shareholders have granted
Commerzbank the option to purchase up to
900,000 additional shares to cover
over-allotments, if any.

Common stock to be outstanding
after this offering(2).............. 33,974,746 shares.

Offering period.......................

Date of allocation of stock...........

Form, delivery and payment............ The shares will be represented by one or
more global certificates to be deposited
with DTC. Payment for the shares sold in
the offering will be due on or about
____, 2001. Delivery of the shares is
expected to be made on the same date
through the book-entry facilities of the
DTC and its participants, Clearstream
and Euroclear.

Price per share of common stock.......

Use of proceeds....................... For expansion of international
operations, an expansion of product
portfolio, working capital and general
corporate purposes.

Designated sponsors in the
Frankfurt Stock Exchange............ Commerzbank and _______.

Transfer agent and registrar.......... InterWest Transfer Company, Inc.

Paying agent.......................... Commerzbank AG.

Lock-up agreements.................... We have entered into lock-up agreements
with the Deutsche Boerse AG and with the
underwriters. Some of our shareholders
have entered into lock-up agreements
with us and the underwriters.

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

(1) All of the shares offered by Private Media Group will be provided
through a new issuance of common stock.

(2) We expect 33,974,746 shares to be outstanding after this offering,
based on 28,174,746 shares outstanding as of August 17, 2001 and
excluding:

o 21,000,000 shares of common stock issuable upon the
conversion of 7,000,000 shares of our outstanding $4.00
Series A Convertible Preferred Stock;
o 101,918 shares of common stock representing accrued but
unissued stock dividends;
o 1,647,850 shares of common stock subject to outstanding
options at a weighted average exercise price of
approximately $5.20 per share;
o 105,000 shares of common stock issuable upon exercise of
outstanding warrants at an average exercise price of
approximately $5.24 per share; and
o 208,464 shares of common stock issuable upon exercise of
outstanding warrants at an average exercise price of $9.63
per share.

Summary Consolidated Financial Information and Other Operating Data

In the table below, we provide you with summary historical consolidated
financial and other operating data of Private Media Group. We have prepared the
summary historical consolidated financial data from our consolidated financial
statements for the three years ended December 31, 2000 and the six-month periods
ended June 30, 2001 and 2000. The financial statements for the three fiscal
years ended December 31, 2000 have been audited by Ernst & Young AB, independent
auditors. The interim consolidated financial statements for the six-month
periods ended June 30, 2001 and 2000 have not been audited. Our interim
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, which we consider necessary for a fair presentation of our
consolidated financial position and results of operations for these periods.

The consolidated balance sheet data included below is presented on an
actual basis as of June 30, 2001 and as adjusted to give effect to the sale of
5,800,000 shares of common stock we are offering, at an assumed public offering
price of (euro)9.00 ($8.30 based on a convenience translation of 1.084 euros per
U.S. dollar) per share, after deducting the estimated underwriting discounts and
estimated offering expenses.

This summary historical financial data and other operating data should
be read along with our historical consolidated financial statements and related
notes, "Selected Consolidated Financial Information and Operating Data,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in or appearing elsewhere in this
prospectus.

Six Months Ended June 30, Year Ended December 31,
---------------------------------- -----------------------------------------------
2000(1) 1999(1)(2) 1998(1)(2)
2001 2001 (Restated) 2000 2000(1) (Restated) (Restated)
------- ------- ---------- ------- -------- ---------- ----------
Euros SEK Euros SEK
(in thousands, except operating and per share data)

Statement of Income Data:
Net Sales........................ 19,631 180,217 116,829 28,114 258,084 175,426 166,317
Cost of Sales.................... 6,859 62,963 51,992 10,759 98,770 84,624 72,851
Operating Income................. 5,520 50,681 22,474 6,802 62,436 25,141 39,729
Net income....................... 5,713 52,450 21,168 5,775 53,009 19,567 35,064
Income applicable to common
Shareholders.................. 4,904 45,016 15,049 4,375 40,162 7,292 29,422
Weighted average of shares
outstanding................... 28,023,684 27,006,125 27,002,220 25,269,792 23,372,505
Basic income per share........... 0.18 1.61 0.56 0.16 1.49 0.29 1.26
Fully diluted income per share... 0.12 1.06 0.43 0.12 1.09 0.29 0.76

Operating Data:
Magazines (issues)............... 13 26 26 24
Videos (titles).................. 41 86 76 68
DVDs (titles).................... 60 82 19 0

Web pages available.............. 500,000 320,000 155,000 60,000
Internet subscriptions........... 37,000 58,000 14,000 0
Broadcasting (potential
viewers)(3)...................... 28,000,000 5,500,000 0 0
Broadband (minutes sold)......... 160,000 0 0 0

As of December 31,
As of 1999
June 30, 2001 2000 (Restated)
------------------------------------ -------------------- ----------
As
Actual Adjusted Actual
----------------------- ----------- --------------------------------
Euro SEK SEK Euro SEK SEK
(in thousdands)

Balance Sheet Data:
Cash and cash equivalents 2,398 22,017 455,772 1,567 14,381 7,370
Working capital 20,158 185,053 618,808 15,306 140,510 98,794
Total assets 52,152 478,753 912,508 42,273 388,063 256,654
Total debt 1,160 10,646 10,646 583 5,356 6,555
Net shareholders' equity 40,075 367,886 801,641 32,944 302,423 211,014

(1) We have revised our previously reported basic earnings per share
presentation for the six month period ended June 30, 2000 and for the
twelve month periods ended December 31, 2000, 1999 and 1998,
respectively, to properly reflect the issuance of shares of our common
stock as dividends earned on our outstanding convertible preferred stock.
This reduced our previously reported basic earnings per share by SEK 0.22
per share in the six month period ended June 30, 2000 and SEK 0.47 per
share, SEK 0.48 per share and SEK 0.24 per share, for the twelve month
periods ended December 31, 2000, 1999 and 1998, respectively. The
restatement had the effect of reducing previously reported diluted
earnings per share by SEK 0.08 per share for the six month period ended
June 30, 2000 and had no effect on our previously reported diluted
earnings per share for the twelve month periods ended December 31, 2000,
1999 and 1998, respectively, except for the twelve month period ended
December 31, 1999, for which there was a reduction of SEK 0.12 per share.

(2) In connection with the preparation of our 2000 financial statements, we
determined that the previously issued 1996, 1998 and 1999 financial
statements required restatement for the following items:

o to give effect to inter-company contractual arrangements
which affect the character and amount of taxable income
reported in some countries. We have increased the previously
reported provision for income taxes and income taxes payable
to provide for estimated taxes due under these arrangements,
along with related penalties and interest which may become
due as a result of these changes;

o to consolidate the accounts and results of operations of the
companies, Private Circle, and Viladalt S.L., the activities
of which we may be deemed to control. In April 2001, we
entered into an agreement to sell our interest in Private
Circle;

o to recognize additional compensation expense in 1999 for
stock options granted to a part-time officer who is also a
consultant; and

o to give effect to additional income tax expense in 1996
related to an error in calculating deductible allowances
recorded by our Spanish subsidiary in its 1996 income tax
return. The Spanish taxing authorities disallowed these
allowances in an examination during 2000.

(3) Information provided by joint venture partners.

Solely for the convenience of the reader, we have translated this
financial data into euros at the rate of SEK 9.18 per euro, the exchange rate of
the Swedish Riksbank on June 30, 2001. You should not construe these
translations as a representation that the amounts shown could have been, or
could be, converted into euros at that or any other rate.

Unless we indicate otherwise, all information in this prospectus (1)
assumes the underwriters' option to purchase additional shares in the offering
will not be exercised and (2) reflects a three-for-one stock dividend
distributed to holders of record of shares of our common stock on May 30, 2000,
and a one-for-five reverse stock split in December 1997.

RISK FACTORS

You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties below are not the only ones
we face. Additional risks and uncertainties not presently known to us, or that
we currently deem immaterial, may also impair our business operations. If any of
the following risks actually occur, our business, financial condition or results
of operations could be materially and adversely affected. In that case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.

We may have difficulty managing our growth.

We are experiencing significant growth. This growth exposes us to
increased competition, greater operating, marketing and support costs and other
risks associated with entry into new markets and the development of new products
and services and will place a strain on our operational, human and financial
resources. To effectively manage growth, we must:

o attract and retain qualified personnel including, in
particular, accounting personnel;

o upgrade and expand our infrastructure so that it matches our
level of activity;

o manage expansion into additional geographic areas; and

o improve and refine our operating and financial systems and
managerial controls and procedures.

If we do not effectively manage our growth, we will not be successful
in executing our business plan, which could materially adversely affect our
business, results of operations and financial condition.

Our business involves the provision of sexually explicit content which can
create negative publicity, lawsuits and boycotts.

We are engaged in the business of providing adult-oriented, sexually
explicit products worldwide. Many people regard our primary business as
unwholesome. Various national and local governments, along with religious and
children's advocacy groups, consistently propose and enact legislation to
restrict the provision of, access to, and content of such entertainment. These
groups also often file lawsuits against providers of adult entertainment,
encourage boycotts against such providers and mount negative publicity
campaigns. In this regard, our magazines, and some of our distribution outlets
and advertisers, have from time to time been the target of groups who seek to
limit the availability of our products because of their content. We expect to
continue to be subject to these activities.

The adult-oriented content of our websites may also subject us to
obscenity or other legal claims by third parties. We may also be subject to
claims based upon the content that is available on our websites through links to
other sites and in jurisdictions that we have not previously distributed content
in. Implementing measures to reduce our exposure to this liability may require
us to take steps that would substantially limit the attractiveness of our
websites and/or their availability in various geographic areas, which could
negatively impact their ability to generate revenue.

In addition, some investors, investment banks, market makers, lenders
and others in the investment community may refuse to participate in the market
for our common stock, financings or other activities due to the nature of our
primary business. These refusals may negatively impact the value of our common
stock and our opportunities to attract market support.

We face online security risks in connection with our Internet business.

Online security breaches could materially adversely affect our
business. Any well-publicized compromise of security could deter use of the
Internet in general or use of the Internet to conduct transactions that involve
transmitting confidential information or downloading sensitive materials in
particular. In offering online payment services, we will increasingly rely on
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as consumer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
could compromise or breach the algorithms that we use to protect our consumers'
transaction data. In addition, experienced programmers may attempt to steal
proprietary information or cause interruptions in our services. To prevent such
developments we may need to expend significant capital and other resources to
protect against these problems.

Continued imposition of tighter processing restrictions by credit card
associations and acquiring banks would make it more difficult to generate
revenues from our websites.

Our ability to accept credit cards as a form of payment for our online
products and services is critical to us. There are ongoing efforts by credit
card associations to restrict the processing of credit cards for online
adult-related content. To protect against such restrictions, we must invest
heavily in new technologies to protect against fraud. Unlike a merchant handling
a sales transaction in a non-Internet environment, e-commerce merchants are
fully responsible for all fraud perpetrated against them.

Our ability to accept credit cards as a form of payment for our online
products and services could be restricted or denied for many reasons, including:

o Visa Tier 1 capital ratio requirements for financial
institutions have significantly reduced the total dollar sales
volume of Visa credit card activity that any bank can process
in any given month;

o if we experience excessive chargebacks and/or credits;

o if we experience excessive fraud ratios;

o if there is a breach of our security resulting in a theft of
credit card data;

o if there is a change in policy of the acquiring banks and/or
credit card associations with respect to the processing of
credit card charges for adult-related content;

o tightening of credit card association chargeback regulations
in international commerce;

o banks might choose not to accept accounts with adult-related
content, in a similar manner to one bank in Spain which we
previously used.

Recently, American Express has instituted a policy of not processing
credit card charges for online, adult-related content. If other credit card
processing companies were to implement a similar policy, this could have a
material adverse effect on our business, results of operations and financial
condition.

We outsource our production and distribution

We acquire still photography and motion pictures from independent
directors and we rely on third-party distributors to deliver our products to
end-users through multiple distribution channels, including newsstands, the
Internet and broadcasting. Our relationship with such directors and distributors
is contractually based. We cannot guarantee that our contracts with directors
will be fulfilled or that we will enter into new ones, in which case we may not
have adequate content for our magazines and movies. Also, we cannot guarantee
that our contracts with distributors will be renewed, in which case we may not
be able to sell new products through some or all channels or into some
countries. Failure to secure new production contracts, to secure the fulfillment
of current contracts or to maintain our current distribution contracts could
have a material adverse effect on our business, results of operations and
financial condition.

We are dependent upon key employees.

Our future success depends, to a significant degree, on the continued
services of our executive officers and other key personnel, including Berth
Milton, Marten Kull, Javier Sanchez and Johan Gillborg. We intend to acquire
key-man life insurance on the lives of Messrs. Milton and Kull naming us as the
beneficiary. We have not yet procured such insurance and there is no guarantee
that we will be able to obtain such insurance in the future.

Mr. Milton is the founder of our principal operating division, Milcap
Media Group, and has taken part in the management and marketing operations since
the acquisition of the trademark Private from his father in 1990. We cannot
guarantee that we will be successful in retaining his services in the future.

We do not presently have employment agreements with any of our
executive officers or key personnel described above. The loss of the services of
any of them or an inability to continue to attract, motivate and retain highly
qualified and talented personnel, including software development technical
personnel, could have a material adverse effect on our business and operating
results.

Our business is highly competitive.

We compete in all aspects of our business, including price, promptness
of service and product quality. We compete with a number of other businesses,
offering various adult-oriented leisure-time activities, including Playboy
Enterprises, Inc., Vivid Entertainment, General Media International, Inc.
(Penthouse), Video Company Of America and Beate Uhse AG. Some of our competitors
have significantly greater market presence, name recognition and financial and
technical resources than we do. In addition, these companies may develop
products or services that are more effective than our products or services
and/or they may be more successful than us in marketing their products or
services. We believe that the adult entertainment market will continue to shift
towards the use of explicit sexual content, our principal market, resulting in
increased competition in this area of our business. In our Internet business, we
compete with other adult media content websites as to the content of their
programming and the subscription fees that are offered to members. In addition,
if free adult media content on the Internet becomes more widely available, this
may negatively impact our ability to attract fee-paying members. To the extent
that current and potential competitors compete on the basis of price, this could
result in lower margins for our products.

We are subject to rapidly changing technology.

We are engaged in businesses that have undergone rapid technological
change over the past few years. Therefore, we face risks inherent in businesses
that are subject to rapid technological advancement and changes in consumer
demands. This includes the possibility that a technology that we have invested
in may become obsolete, requiring us to invest in new technology. For example,
we recently discontinued production of our CD-Rom line of products in favor of
DVDs and videos.

Our future success will depend, in part, on our ability to adapt to
rapidly changing technologies, to enhance existing services and to develop and
introduce a variety of new services to address changing demands of our
consumers.

New technological discoveries may render our equipment uneconomical or obsolete.

As technologies change, the equipment used in our markets may become
obsolete. As a result, we subcontract and intend to continue to subcontract
capital intensive or technically complex businesses such as editing, video and
videocassette duplication, DVD replication and other similar businesses.
However, we may not have access to these subcontractors when their services are
required, and their services may not be available on favorable terms.

We depend upon the future growth of the Internet and the continued viability of
the infrastructure supporting it.

The growth of our Internet operations relies on rapid technological
changes in Internet-driven markets and increased use of the Internet by
consumers. These technological changes may not continue and the
telecommunications infrastructure supporting the Internet may not be
sufficiently developed to support the adoption of new technologies.

Our future success also depends, in part, upon the continued growth of
the Internet. This growth is a recent phenomenon and the current rate of growth
may not be sustained in future periods. There is some evidence that the rate of
growth of Internet usage has decreased in the last year. Factors that could
negatively influence the growth of the Internet in the future include:

o the availability of an Internet infrastructure sufficient to
support its growth;

o delays in the development or adoption of new standards and
protocols required to handle increased Internet activity;

o increased governmental regulation of the Internet; and

o piracy, particularly in new jurisdictions.

Portions of the Internet have experienced outages due to damage to
portions of the Internet's infrastructure. If outages or delays frequently occur
in the future, Internet usage (including usage of our websites) could grow more
slowly, stagnate or decline. Any actual or perceived failure of the Internet
could undermine the benefits of our

products and services. In particular, delays and outages could result in slower
response times and adversely affect usage of our websites.

Increased government regulation in the United States or abroad could limit our
ability to deliver content and expand our business.

New laws or regulations relating to the Internet, or more aggressive
application of existing laws, could decrease the growth of our websites, prevent
us from making our content available in various jurisdictions or otherwise have
a material adverse effect on our business, financial condition and operating
results. These new laws or regulations could relate to liability for information
retrieved from or transmitted over the Internet, taxation, user privacy and
other matters relating to our products and services. For example, the U.S.
government has recently enacted laws regarding website privacy, copyrights and
taxation. Moreover, the application to the Internet of other existing laws
governing issues such as intellectual property ownership and infringement,
pornography, obscenity, libel, employment and personal privacy is uncertain and
developing.

Cable system operators could also become subject to new governmental
regulations that could further restrict their ability to broadcast our
programming. If new regulations make it more difficult for cable operators to
broadcast our programming, our operating performance would be adversely
affected. For a more complete discussion of current and pending government
regulation affecting our business, see "Business-Government Regulation."

Our Internet gaming activities are subject to a developing body of regulations.

We recently entered into a licensing and profit sharing agreement with
an online gaming business which offers sports betting as well as casino-style
gambling. In return for licensing revenue we permit this business to use our
trade names and media content. Although our agreement with this third party
places responsibility for compliance with Internet gaming regulations on the
third party, we may nonetheless be deemed to be a full partner in the joint
venture and thus we may become subject to the gaming regulations of each
jurisdiction in which this third party conducts business. In many instances, the
application of these regulations is still evolving and is, therefore, subject to
a great deal of uncertainty. However, it is our understanding that online gaming
is prohibited in most U.S. states and possibly by federal law and the laws of
other countries. Therefore, we face the risk of prosecutions under U.S. state
and federal laws, either directly or on the basis of aiding and abetting online
gambling. Furthermore, a number of other jurisdictions have recently enacted
regulations designed to prohibit or curtail access to Internet gambling in their
jurisdictions. Any such prosecutions in the United States and the regulations of
other jurisdictions could have a material adverse effect on our business,
results of operations and financial condition.

In addition, any country in which citizens have access to the Internet
could claim that we are required to qualify to do business as a foreign
corporation in that country because of the availability of our online gaming
facilities in that country.

We are currently in a significant legal dispute with the Swedish tax authority.

On June 7, 1999, the Swedish tax authority instituted a proceeding
against one of our subsidiaries, Milcap Media Limited, in the Administrative
Court in Stockholm. The Swedish tax authority then obtained an order to seize
assets of up to SEK 17.7 million of Milcap Media Limited in connection with the
proceeding.

We cannot predict the final outcome of the appeal, nor when final
decision will be rendered. In addition, we have requested postponement of the
payment of taxes and fines pending the outcome of the appeal, but as yet the
Swedish tax authority has delivered no decision as to postponement.

We face risks relating to our proprietary intellectual property rights.

We rely on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and non-disclosure
agreements to protect our proprietary products. Despite these precautions, it
may be possible for unauthorized third parties to copy parts of, or otherwise
obtain and use, our products without

authorization, or to substantially use our concepts and market them, trading on
our established customer base. Products sold over the Internet are particularly
vulnerable to piracy, particularly in some developing countries. In addition, we
cannot be certain that others will not develop substantially equivalent or
superseding products, thereby reducing the value of our proprietary rights.
Confidentiality agreements with our employees or license agreements with our
customers may not provide meaningful protection for our proprietary information
in the event of any unauthorized use or disclosure of that proprietary
information.

We do not believe that our products infringe the proprietary rights of
third parties, and we are not currently engaged in any intellectual property
litigation or proceedings. Nonetheless, in the future we could become the
subject of infringement claims or legal proceedings by third parties with
respect to current or future products. In addition, we may initiate claims or
litigation against third parties for infringement of our proprietary rights or
to establish the validity of our proprietary rights. We cannot be sure that any
lawsuits or other actions brought by us will be successful or that we will not
be found to infringe the intellectual property rights of third parties. In
addition, to the extent we may desire, or are required, to obtain licenses to
patents or proprietary rights of others, there can be no guarantee that any such
licenses will be made available on terms acceptable to us, if at all.

Our future capital requirements and need for additional financings are
uncertain.

We believe that our available capital resources will be adequate to
fund our working capital requirements based upon our present and anticipated
level of operations for the 12-month period following the date of this
prospectus. However, unanticipated future events may cause us to seek additional
working capital sooner. In addition, we intend to expand our business activities
in the next 12 months, which may require additional sources of funding. A
shortage of capital would affect our ability to fund our working capital
requirements. If we require additional capital, funds may not be available on
acceptable terms, or at all. In addition, if we raise additional capital through
the sale of equity or debt securities, the issuance of these securities could
dilute existing shareholders. If funds are not available, this could materially
adversely affect our financial condition and results of operations.

Enforcement of civil liabilities against Private Media Group and its management
may be difficult.

Private Media Group is a corporation organized under the laws of the
State of Nevada. Our agent for service of process in the United States is
Gateway Enterprises, Inc., whose address is 3230 Flamingo Road, Suite 156, Las
Vegas, Nevada 89121. Presently, most of our directors and officers reside
outside the United States. As a result, it may not be possible for investors to
effect service of process within the United States upon them or to enforce, in
courts outside the United States, judgments against these persons obtained in
U.S. courts based upon the civil liability provisions of the U.S. federal
securities laws. In addition, since substantially all of our assets are located
outside the United States, any judgment obtained in the United States against us
may not be collectible within the United States.

There are risks associated with our foreign operations.

Substantially all of our operations are conducted outside the United
States. In addition, our growth strategy contemplates increased services to
foreign customers and to domestic customers distributing programming to
international markets. As a consequence of the global nature of our business, we
will be exposed to market risks from changes in interest rates and foreign
currency exchange rates that may adversely affect our results of operations and
financial condition. By virtue of our significant operations outside the United
States, we will be subject to the risks normally associated with cross-border
business transactions and activities, including those relating to delayed
payments from customers in some countries or difficulties in the collection of
receivables generally.

In addition, we will be exposed to the risk of changes in social,
political and economic conditions in the countries where we engage in business.
Political and economic instability in these countries could adversely affect our
business activities and operations. Unexpected changes in local regulatory
requirements, tariffs and other trade barriers and price or exchange controls
could limit operations and make the repatriation of profits difficult. In
addition, the uncertainty of differing legal environments could limit our
ability to effectively enforce our rights in some markets.

We are subject to risks relating to performers.

Our film, video and photo productions are subject to U.S. and foreign
regulations which govern the terms and conditions under which sexually explicit
media productions may occur. We have adopted practices and procedures intended
to ensure compliance with these regulations. Although these measures are
intended to protect us from liability under applicable U.S. and foreign laws
governing sexually explicit media productions, we cannot guarantee that we will
not be subject to successful legal attacks in the future.

Future acquisitions could create significant risks for us.

We may acquire complementary or ancillary businesses in the future. We
may not be able to integrate acquired businesses into our operations or operate
any such businesses on a profitable basis. Acquisitions may not result in
profitable operations. In addition, acquisition opportunities may not become
available, or may not be accomplished, on favorable terms. Because we may issue
securities as full or partial payment for an acquisition, fluctuations in our
common stock may have an adverse effect on our ability to make additional
acquisitions.

Outstanding options, warrants and convertible preferred stock could have an
adverse effect.

As of August 17, 2001, we had a significant number of outstanding
warrants and options, including 208,464 warrants for our common stock
exercisable at $9.63 per share and options for our common stock under the 1999
Employee Stock Option Plan, which has 3,600,000 authorized option shares. The
holders of these securities have, at nominal cost, the opportunity to profit
from a rise in the market price of our common stock without presently assuming
the risks of ownership. In addition, 7,000,000 shares of our convertible
preferred stock are currently outstanding. Holders of our convertible preferred
stock are entitled to convert each share of preferred stock into three shares of
our common stock and to receive a quarterly dividend payable in our common
stock. Any such exercise or conversion would dilute the interest of other equity
security holders. As long as these securities remain outstanding, our ability to
obtain additional capital may be adversely affected. The holders of these
securities may exercise their conversion or exercise rights at a time when we
would be able to obtain any needed capital through a new offering of our
securities on terms more favorable to us than those provided by these existing
warrants, options and preferred shares.

Of the 28,174,746 shares of our common stock outstanding on August 17,
2001, more than 248,889 are currently "restricted securities," as that term is
defined in Rule 144 as promulgated by the SEC under the Securities Act. In
addition, the 21,000,000 common shares issuable upon conversion of the 7,000,000
outstanding preferred shares are currently held by an affiliate of ours, and
therefore are currently restricted shares. As restricted shares, these shares
may be resold pursuant to an effective registration statement or under the
requirements of Rule 144 or other applicable exemption from registration under
the Securities Act.

There is no limit on the amount of restricted securities that may be
sold by a non-affiliate of ours after the restricted securities have been held
by the owner for a period of two years. Sales of our common stock under Rule 144
or any other exemptions from the Securities Act, if available, or subsequent
registrations of our common stock held by current shareholders, may have a
depressive effect upon the price of our common stock.

Members of our board of directors, our executive officers, some holders
of our common stock and the holder of our Series A Convertible Preferred Stock,
have agreed that they will not, directly or indirectly,

o offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contact to sell,
grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of our common
stock or any securities convertible into or exchangeable or
exercisable for common stock, whether now owned or later
acquired by them or with respect to which they have or later
acquire the power of disposition, or file any registration
statement under the Securities Act with respect to any of the
above,

o or enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership or our
common stock, whether any such swap or transaction is to be
settled by delivery of common stock or other securities, in
cash or otherwise,

for a period of six months following the first quotation of our shares on the
Frankfurt Stock Exchange and during an additional period of six months after the
expiration of the initial six month period. During the additional six month
period, members of our board of directors, executive officers, some holders of
our common stock and the holder of our Series A Convertible Preferred Stock may
engage in the transactions described above providing they obtain the written
consent of Commerzbank. During this period, members of our board of directors,
executive officers, some holders of our common stock and the holder of our
Series A Convertible Preferred Stock have also agreed to instruct the transfer
agent for our common stock not to record any share transfers except for those
permitted by Commerzbank.

There are risks relating to the issuance of additional shares of preferred
stock, including deterring attempts by third parties to acquire us.

Our board of directors has the authority to issue up to 10,000,000
shares of preferred stock, of which 7,000,000 are currently issued and
outstanding, and to determine their price, and other rights, preferences,
privileges and restrictions without any further vote or action by our
stockholders. The rights of the holders of common stock are subject to, and may
be adversely affected by, the rights of the holders of any preferred stock,
including preferred stock that we may issue in the future. If preferred stock is
issued, it may rank senior to our common stock in respect of the right to
receive dividends and to participate in distributions or payments in the event
of our liquidation, dissolution or winding up. The provisions in our articles of
incorporation authorizing preferred stock could delay, defer or prevent a change
of control and could adversely affect the voting and other rights of holders of
our common stock, including the loss of voting control to others, which could
make it more difficult for a third party to acquire control of us.

We have agreed not to issue any shares of preferred stock for a period
of six months following the first quotation of our shares on the Frankfurt Stock
Exchange and during an additional period of six months after the expiration of
the initial six month period.

We are controlled by existing management and shareholders.

Following this offering, our officers and directors will beneficially
own or control more than 40% of our issued and outstanding stock. These
shareholders effectively exercise control over all matters requiring approval by
our shareholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control, which could have
a material adverse effect on our stock price.

USE OF PROCEEDS

We estimate that the net proceeds from this offering, after payment of
commissions ((euro)3,132,000) and expenses ((euro)1,818,000) will be
approximately (euro)52.2 million based on an assumed offer price of (euro)9.00.
We will not receive any of the proceeds from the sale of shares by the selling
shareholders. We expect to use the proceeds of this offering to expand our
operations into other countries, to expand our product portfolio and for working
capital and for general corporate purposes.

The amounts that we actually expend for working capital and other
general corporate purposes will vary significantly depending on a number of
factors, including our future revenue growth, if any, and the amount of cash
that we generate from operations. As a result, we will retain broad discretion
over the allocation of the net proceeds from this offering. A portion of the net
proceeds may also be used for the acquisition of businesses that are
complementary to ours, new technologies and hiring of additional management and
administrative personnel. We have no current plans, agreements or commitments
for acquisitions of any businesses, products or technologies. Pending these
uses, we plan to invest the net proceeds of this offering in short-term
investment grade interest-bearing obligations.

CAPITALIZATION

The following table shows our capitalization as of June 30, 2001, on an
actual basis and as adjusted to reflect the sale of 5,800,000 shares of our
common stock offered by us under this prospectus based on the estimated offering
price of (euro) 9.00 ($8.30) based on a convenience translation of 1.084 euros
per U.S. dollar) and after deducting estimated offering expenses and
underwriting discounts and commissions. The outstanding share information in the
table below excludes:

o 21,000,000 shares of common stock issuable upon the conversion
of 7,000,000 shares of our outstanding $4.00 Series A
Convertible Preferred Stock;

o 101,918 shares of common stock representing accrued but
unissued stock dividends;

o 1,647,850 shares of common stock subject to outstanding
options at a weighted average exercise price of approximately
$5.20 per share;

o 105,000 shares of common stock issuable upon exercise of
outstanding warrants at an average exercise price of
approximately $5.24 per share; and

o 208,464 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $9.63 per share.

June 30, 2001
-----------------------------------
As adjusted for
Actual the Offering
-------------- -----------------
(SEK in thousands)

Cash and cash equivalents........................................... 22,017 455,772
======= =======
Total debt(1)....................................................... 10,646 10,646
------- -------
Shareholders' equity:
Common Stock, $0.001 par value, 100,000,000(2) shares authorized;
28,138,598 shares issued and outstanding at June 30, 2001;
33,974,746 shares issued and outstanding as adjusted............. 8,313 8,376
and outstanding as adjusted......................................
Preferred Stock, 10,000,000 shares authorized; 7,000,000
shares of $4.00 Series A Convertible Preferred Stock issued
and outstanding at June 30, 2001, and as adjusted................ 0 0
Additional paid-in capital.......................................... 109,482 543,174
Stock dividends pending distribution................................ 7,434 7,434
Retained earnings................................................... 244,855 244,855
Other comprehensive income.......................................... (2,198) (2,198)
------- -------
Total shareholders' equity....................................... 367,886 801,641
------- -------
Total capitalization........................................... 378,532 812,287
======= =======

------------------
(1) Including current and long-term debt.

(2) We increased our authorized common stock share capital from 50,000,000
to 100,000,000 in August 2001.

PRICE RANGE OF COMMON STOCK

Our common stock has traded on the Nasdaq National Market since
February 1, 1999 under the symbol "PRVT". Previously, our common stock traded on
the OTC Bulletin Board since March 29, 1996. The following table sets forth the
range of representative high and low bid prices for our common stock for the
periods indicated, as reported on the Nasdaq National Market since February 1,
1999, and before that as reported by the OTC Bulletin Board.

High Low
---- ---
Fiscal 2001:
Third Quarter (through September 10, 2001).......... $8.80 $7.51
Second Quarter...................................... $9.40 $4.54
First Quarter....................................... $8.88 $4.94

Fiscal 2000:
Fourth Quarter...................................... $10.93 $5.75
Third Quarter....................................... $10.13 $5.38
Second Quarter...................................... $12.63 $8.19
First Quarter....................................... $13.00 $5.82

Fiscal 1999:
Fourth Quarter...................................... $6.50 $4.50
Third Quarter....................................... $6.93 $3.93
Second Quarter...................................... $8.93 $4.13
First Quarter (from February 1, 1999)............... $4.83 $3.43

On September 10, 2001, the last sale price reported on the Nasdaq
National Market was $7.92 per share. As of April 16, 2001, there were
approximately 600 holders of record of our common stock.

DIVIDEND POLICY

Shares of our common stock have full rights to dividends, if any are
declared, with respect to 2001. We have never declared or paid cash dividends on
our capital stock. We do not presently anticipate paying any cash dividends on
our capital stock in the near future. We currently intend to retain all
available funds and any future earnings to fund the development and growth of
our business.

PRIVATE MEDIA GROUP, INC

History of Private Media Group, Inc.

We were incorporated under the name Glacier Investment Company, Inc. in
the State of Utah, on September 23, 1980. In 1991, we changed our domicile to
the State of Nevada and in November 1997, we changed our corporate name to
Private Media Group and declared a one-for-five reverse split of our common
stock. The operational headquarters of Private Media Group are at Carretera de
Rubi 22-26, 08190 Sant Cugat del Valles, Barcelona, Spain. The fiscal year of
Private Media Group is the calendar year. Under our articles of incorporation
the purpose of Private Media Group is to engage in any lawful business. The
duration of Private Media Group is unlimited.

Development of Share Capital

On December 19, 1997, we entered into acquisition agreements with
Milcap Media Limited and Cine Craft Limited to acquire all of their outstanding
capital stock in exchange for 22,500,000 shares of common stock, 7,000,000
shares of our $4.00 Series A Preferred Stock, and 2,625,000 common stock
purchase warrants. We completed these acquisitions on June 12, 1998.

On January 28, 2000, we acquired all of the outstanding shares of
Extasy Video B.V. for total consideration of SEK 27.3 million. The consideration
consisted of 208,464 shares of our common stock and warrants to purchase 208,464
of our common stock. The warrants are exercisable during the period January 28,
2001 to January 28, 2004 at an exercise price of $9.63.

In May 2000, we authorized a three-for-one stock dividend, which was
distributed to holders of record of our common stock on May 30, 2000.

As of June 16, 2000, our shareholders and board of directors approved
an increase in our authorized capital stock, consisting of an increase in the
number of our authorized common shares from 50,000,000 to 100,000,000. This
increase was effected in August 2001 upon the filing of a Certificate of
Amendment of Private Media Group's articles of incorporation with the Nevada
Secretary of State.

As of January 1, 2001, we acquired Coldfair Holdings Ltd., a company
incorporated and organized under the laws of the Republic of Cyprus, for a total
consideration of SEK 13.4 million payable in 248,889 shares of our common stock.
Coldfair Holdings, is a company engaged in the marketing and sale of adult
entertainment products and services.

On April 8, 2001, our subsidiary, Peach Entertainment Distribution AB
(Sweden), sold its interest in Private Circle, Inc., a company engaged in the
design, production and marketing of trendy casual apparel, for an adjusted
consideration of SEK 27.1 million as of May 2001.

Effective February 27, 2001, we acquired the inventory and certain
contracts of our U.S. distributor, Private North America, Inc., in exchange for
$875,000 and the assumption of Private North America's obligations under some
contracts.

Subsidiaries

The following table shows the subsidiaries of Private Media Group,
specifying their nation or state of incorporation, primary activity, their
equity owner, the percentage of shares held directly or indirectly by Private
Media Group, the income from investment and amounts due to Private Media Group
and share capital as of June 30, 2001:

Income Amounts
from due to
Invest- Private
Share- ment in Media Share
Subsidiary Primary Activities Equity Owner holding 2000 Group Capital
(SEK in thousands)

Cine Craft Limited, Gibraltar Owner of Trademarks Private Media Group, Inc. 100% - - 12
Coldfair Holdings Limited, Cyprus Internet Web Site Private Media Group, Inc. 100% - - 5,596
Milcap Media Limited, Cyprus Dormant Private Media Group, Inc. 100% - - 7,980
Private.Com PLC, UK Dormant Private Media Group, Inc. 100% - - -
Private North America, Ltd., USA Distribution in the U.S. Private Media Group, Inc. 100% - 900 11
Private Benelux B.V., The Netherlands Distribution in Belgium,
the Netherlands, Luxemborg Private Media Group, Inc. 100% - 156
Fraserside Holdings Limited, Cyprus Owner of Video & Photo
Rights Private Media Group, Inc. 100% - 1,171 15
Peach Entertainment Distribution AB,
Sweden Worldwide Distribution Fraserside Holdings, Ltd 100% - - 100
Milcap Publishing Group Italy
Srl, Italy Publisher in Italy Peach Entertainment AB 100% - - 90
Milcap Media Group S.L., Spain Distribution Southern Europe Peach Entertainment AB 98.75% - 23,840 107
Private France SAS, France Distribution in France &
Switzerland Milcap Media Group S.L. 100% - - 325
Symbolic Productions SL, Spain Dormant Milcap Media Group S.L. 100% - - 27
Milcap Publishing Group AB,
Sweden Dormant Milcap Media, Ltd. 100% - - 300
Viladalt S.L. Dormant Private Media Group, Inc. 69% - - 3,651

Legal Proceedings

On December 20, 1999, the Swedish tax authority rendered an official
decision assessing income to Milcap Media Limited for a total amount of SEK
150.0 million. We are appealing this assessment. If upheld, the effective tax on
this income assessment would be SEK 42.0 million plus fines of SEK 16.8 million.
Interest would also be payable on these amounts. We believe the assessment is
without merit and have filed an appeal with the Administrative Court in
Stockholm. The final outcome of the appeal is expected to take several years and
we have asked for a postponement of payment of the taxes and fees until the case
is settled. Due to the early stages of this matter and the uncertainty regarding
the ultimate resolution, we have not provided for any amounts in our financial
statements for this dispute.

Except as disclosed above and in the section entitled "Business,"
neither Private Media Group nor its subsidiaries is or has been, during the last
three years, involved in any litigation or arbitration proceedings which have
had or might have a material influence on our financial condition or results of
operations, nor are we aware of any such proceedings being pending or
threatened.

Accountants

Ernst & Young AB, Adolf Fredriks Kyrkogata 2, SE-103 62 Stockholm,
Sweden, have been appointed auditors for Private Media Group and its
consolidated subsidiaries for fiscal year 2001. Our consolidated financial
statements for the last five fiscal years were audited by Ernst & Young AB and
have been given an unqualified audit opinion.

SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER OPERATING DATA

The following table presents selected consolidated financial
information and other operating data for the five years ended December 31, 2000.
The selected financial information has been derived from our consolidated
financial statements which have been audited by Ernst & Young AB, independent
auditors. The interim consolidated financial data for the six-month periods
ended June 30, 2001 and 2000 are derived from our unaudited financial
statements. Our unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which we consider necessary for a fair
presentation of our financial position and results of operations for these
periods.

Operating results for the six-month periods ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2001. This selected consolidated financial information and
other operating data, should be read along with our historical consolidated
financial statements and related notes, "Summary Consolidated Financial
Information and Other Operating Data," "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in or appearing elsewhere in this prospectus.

Six Months
Ended June, 30 Year Ended December 31,
-------------------------------- -------------------------------------------------------------------------
2000(1) 1999(1)(2) 1998(1)(2) 1996((2)(3)
2001 2001 Restated 2000(1) 2000(1) Restated Restated 1997(3) Restated
------- ------ ---------- ------- ------- ---------- ---------- -------- ------------
Euros SEK Euros SEK
(in thousands, except operating and per share data)

Statement of Income
Data:
Net sales........ 19,631 180,217 116,829 28,114 258,084 175,426 166,317 144,543 128,927
Cost of sales.... 6,859 62,963 51,992 10,759 98,770 84,624 72,851 75,674 66,963
Gross Profit..... 12,772 117,255 64,837 17,354 159,314 90,802 93,465 68,869 61,964
Selling, general
and
administrative
expenses....... 7,252 66,574 42,363 10,553 96,878 65,661 53,738 33,682 27,033
Operating income. 5,520 50,681 22,474 6,802 62,436 25,141 39,729 35,187 34,931
Sale of controlled
entity......... 1,877 17,229 - - - - - - -
Interest expense. 155 1,423 932 196 1,799 2,674 745 321 259
Interest income.. 68 623 2,252 335 3,077 975 483 69 72
Income before
income taxes... 7,310 67,109 23,794 6,941 63,714 23,442 39,468 34,935 34,744
Income taxes.... 1,597 14,659 2,626 1,166 10,705 3,875 4,404 -2,052 5,893
Net income....... 5,713 52,450 21,168 5,775 53,009 19,567 35,064 36,987 28,851
Other Comprehensive
Income:
Foreign currency
translation
adjustments.... (176) (1,618) 459 (89) (818) (98) 368 365 (365)
Comprehensive
income......... 5,537 50,832 21,627 5,685 52,191 19,469 35,432 37,352 28,486

Income applicable
to common
shareholders... 4,904 45,016 15,049 4,375 40,162 7,292 29,422 36,987 28,851
Weighted average
of shares
outstanding.... 28,023,684 27,006,125 27,002,220 25,269,792 23,372,505 22,500,000 22,500,000
Basic income per
share.......... 0.18 1.61 0.56 0.16 1.49 0.29 1.26 1.64 1.28
Fully diluted
income per
share.......... 0.12 1.06 0.43 0.12 1.09 0.29 0.76 0.81 0.66
Dividends declared
per Share...... - - - - - - - - -

Operating Data:
Magazine (issues).......... 13 26 26 24
Videos (titles)............ 41 86 76 68
DVDs (titles).............. 60 82 19 0

Web pages available........ 500,000 320,000 155,000 60,000
Internet subscriptions..... 37,000 58,000 14,000 0
Broadcasting (potential
viewers)(4)................ 28,000,000 5,500,000 0 0
Broadband (minutes sold)... 160,000 0 0 0

As of June 30, As of December 31,
-------------------------------- -------------------------------------------------------------------------
2000 1999(2) 1998(2) 1996(2)(3)
2001 2001 Restated 2000 2000 Restated Restated 1997(3) Restated
------- ------ ---------- ------ ------ ---------- ---------- ---------- -----------
Euros SEK Euros SEK
(in thousands, except operating and per share data)

Balance Sheet Data
Cash and cash
equivalents.... 2,398 22,017 8,439 1,567 14,381 7,370 4,165 3,698 3,445
Working capital.. 20,158 185,053 124,515 15,306 140,510 98,794 65,582 44,990 87,717
Total assets..... 52,152 478,753 323,660 42,273 388,063 256,654 215,797 172,264 127,598
Total debt....... 1,160 10,646 5,381 583 5,356 6,555 9,501 11,903 816
Total shareholders'
equity......... 40,075 367,886 264,822 32,944 302,423 211,014 168,702 130,954 100,260

(1) We have revised our previously reported basic earnings per share
presentation for the six month period ended June 30, 2000 and for the
twelve month periods ended December 31, 2000, 1999 and 1998,
respectively, to properly reflect the issuance of shares of our common
stock as dividends earned on our outstanding convertible preferred
stock. This reduced our previously reported basic earnings per share by
SEK 0.22 per share in the six month period ended June 30, 2000 and SEK
0.47 per share, SEK 0.48 per share and SEK 0.24 per share, for the
twelve month periods ended December 31, 2000, 1999 and 1998,
respectively. The restatement had the effect of reducing previously
reported diluted earnings per share by SEK 0.08 per share for the six
month period ended June 30, 2000 and had no effect on our previously
reported diluted earnings per share for the twelve month periods ended
December 31, 2000, 1999 and 1998, respectively, except for the twelve
month period ended December 31, 1999, for which there was a reduction
of SEK 0.12 per share.

o to give effect to inter-company contractual arrangements which
affect the character and amount of taxable income reported in
some countries. We have increased the previously reported
provision for income taxes and income taxes payable to provide
for estimated taxes due under these arrangements, along with
related penalties and interest which may become due as a
result of these changes;

o to recognize additional compensation expense in 1999 for stock
options granted to a part-time officer who is also a
consultant; and

(3) The 1997 and 1996 figures are from the historical combined financial
statements of Milcap Media Limited and Cine Craft.

(4) Information provided by joint venture partners.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

You should read this section together with the consolidated financial
statements and the notes and the other financial data in this prospectus. The
matters that we discuss in this section, with the exception of historical
information, are "forward-looking statements" within the meaning of the Private
Securities Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause our actual results to
differ materially from those expressed or implied by such forward-looking
statements. Potential risks and uncertainties relate to factors such as (1) the
timing of the introduction of new products and services and the extent of their
acceptance in the market; (2) our expectations of growth in demand for our
products and services; (3) our ability to successfully implement expansion and
acquisition plans; (4) the impact of expansion on our revenue, cost basis and
margins; (5) our ability to respond to changing technology and market
conditions; (6) the effects of regulatory developments and legal proceedings
with respect to our business; (7) the impact of exchange rate fluctuations; and
(8) our ability to obtain additional financing.

Overview

We are an international provider of adult media content. We acquire
still photography and motion pictures from independent directors and process
these images into products suitable for popular media formats such as print
publications, DVDs, video cassettes and electronic media content for Internet
distribution. In addition to media content, we also market and distribute
branded leisure and novelty products oriented to the adult entertainment
lifestyle and generate additional sales through the licensing of our Private
trademark to third parties.

In June 1998, we acquired Milcap Media Limited, its subsidiaries and
Cine Craft. Prior to these acquisitions, we were a holding company. Milcap Media
Limited, its subsidiaries and Cine Craft were the acquirees, but for accounting
purposes were they were deemed to be the acquirors. We became a U.S. reporting
company following the 1998 acquisitions.

We operate in a highly competitive, service-oriented market and are
subject to changes in business, economic and competitive conditions. Nearly all
of our products compete with other products and services that utilize adult
leisure time and disposable income.

Due to the highly fragmented structure of the adult entertainment
industry, we expect increasing consolidation. We believe that, as a public
company with sufficient working capital and future financing capabilities, we
are in a position to acquire several privately-held competitors.

We generate revenues primarily through:

o sales of movies on DVD and videocassette formats;

o sales of adult feature magazines;

o Internet subscriptions and licensing;

o broadcasting movies through cable, satellite and hotel
television programming; and

o brand name and trademark licensing.

Over time, we expect net sales from magazines and videocassettes to
decline as a percentage of sales in relation to net sales from DVDs, the
Internet and broadcasting.

We recognize net sales from the sale of magazines, videocassettes, DVDs
and other related products where we do not grant distributors rights-of-return
upon transfer of title, which generally occurs upon delivery. We recognize net
sales of magazines where we do grant distributors rights-of-return upon transfer
of title, which generally occurs upon delivery and, we record a related
allowance for estimated returns. We recognize net sales of videocassettes and
DVDs under consignment agreements with distributors on the basis of reported
sales by such distributors. We defer and recognize ratably revenues from the
sale of subscriptions to our websites over the related subscription period. We
also recognize revenues from the licensing of our magazines and use of our
trademarks and photo and movie library. Virtually all of our net sales are made
for cash or in cash equivalents such as checks, credit cards or electronic fund
transfers.

Even though we recognize net sales upon delivery, we generally provide
extended payment terms to our distributors of between 90 and 180 days. Although
our extended payment terms increase our exposure to accounts

receivable write-offs, we believe our risk is minimized by our generally
long-term relationships with our distributors. In addition, we view our extended
payment terms as an investment in our distribution channels which are important
to the growth of our business.

Our primary expenses include:

o acquisition of content for our library of photographs and
videos;

o printing, processing and duplication costs; and

o selling, general and administrative expenses.

Our magazines and DVD and videocassette covers are printed by
independent third-party printers in Spain and the United Kingdom. We introduced
DVDs as a motion picture medium in 1999. The production of each DVD master disc,
prior to duplication, costs approximately $10,000. DVDs have a relatively low
cost of duplication, inclusive of box and packaging, of approximately $1.75 per
unit. We released 83 titles on DVDs during 2000 and 19 titles during 1999,
including both new and archival material. We plan to introduce 120 titles on
DVDs in 2001. We plan to increase the number of new and archival releases each
year.

Our cost of sales has decreased relative to net sales due to our use of
new mediums for our products, such as the Internet, DVDs and broadcasting. These
new media provide us with additional sales of our existing content. However, our
selling, general and administrative expenses have increased in relation to these
media due to, among other things, our Internet development costs and ongoing
administrative costs. We maintain a staff of 40 full-time Internet employees and
invest extensively in advanced computer and communications infrastructure.

In addition, our selling, general and administrative costs have
increased due to the expansion of our administrative headquarters in Barcelona.

We also incur significant intangible expenses in connection with the
amortization of our library of photographs and movies and capitalized
development costs, which include the Internet and broadcasting. We amortize
these tangible and intangible assets on a straight-line basis for periods of
between three and ten years. In the future, we expect fewer capitalized
development costs in relation to the Internet and cable, satellite and hotel
television programming. We will increasingly expense future investments in these
media as incurred.

In connection with the preparation of our 2000 financial statements, we
determined that the previously issued 1996, 1998 and 1999 financial statements
required restatement for the following items:

o to give effect to inter-company contractual arrangements which
affect the character and amount of taxable income reported in
some countries. We have increased the previously reported
provision for income taxes and income taxes payable to provide
for estimated taxes due under these arrangements, along with
related penalties and interest which may become due as a
result of these changes. We intend to amend some of our
previously filed tax returns as soon as it is practicable;

o to recognize additional compensation expense in 1999 for stock
options granted to a part-time officer who is also a
consultant; and

We have revised our previously reported basic earnings per share
presentation for the six month period ended June 30, 2000 and for the twelve
month periods ended December 31, 2000, 1999 and 1998, respectively, to properly
reflect the issuance of common shares as dividends earned on our outstanding
convertible preferred stock. This reduced our previously reported basic earnings
per share by SEK 0.22 per share in the six month period ended June 30, 2000 and
SEK 0.47, SEK 0.48 and SEK 0.24 per share for the twelve month periods ended
December 31, 2000, 1999 and 1998, respectively. The restatement had the effect
of reducing previously reported diluted earnings per share by SEK 0.08 per share
for the six month period ended June 30, 2000 and had no effect on previously

reported diluted earnings per share for the twelve month periods ended December
31, 2000, 1999 and, 1998, respectively, except for the 1999 year for which there
was a reduction of SEK 0.12 per share.

The impact of the restatement adjustments discussed above have been
reflected in the following management's discussion and analysis of financial
condition and results of operations.

Results of Operations

Six months ended June 30, 2001 compared to the six months ended June
30, 2000

Net sales. For the six months ended June 30, 2001, we had net sales of
SEK 180.2 million, compared to net sales of SEK 116.8 million for the six months
ended June 30, 2000, an increase of 54.3%. We attribute this change mainly to an
increase in DVD, Internet, which includes subscriptions and licensing sales, and
broadcasting, which includes cable, satellite and hotel-television programming
sales. Sales from broadcasting increased 170% to SEK 14.3 million compared to
the six months ended June 30, 2000. DVD sales increased 149% to SEK 48.0 million
for the six months ended June 30, 2001. Movie sales in videocassette format
increased slightly during the same period. Internet sales for the same period
increased 109% to SEK 37.7 million. We attribute the growth in sales of DVDs to
the increasing number of DVD players being sold in all of our markets. We
attribute the growth in broadcasting sales to the growing digital satellite and
cable television market. We attribute the growth in Internet sales to the
increasing number of people who are able to connect to the Internet. Sales from
broadcasting, DVD and Internet provide additional net sales from content
previously sold on videocassette. We believe that the growth in broadcasting,
DVD and Internet sales will continue through the remainder of 2001.

Net sales of magazines remained approximately the same during the
period compared to the six months ended June 30, 2000.

During the six months ended June 30, 2001, DVD, Internet and
broadcasting sales, taken as a whole, increased 135%, to SEK 100.0 million,
compared to the six months ended June 30, 2000.

In May, 2001 we sold our interest in our subsidiary, Private Circle,
which engaged in the design, production and marketing of trendy apparel.
Accordingly, revenues and expenses associated with Private Circle did not have a
significant impact in the second quarter of 2001. Also, during the second
quarter of 2001 we acquired the assets of Private North America, our North
American distributor. As a result of the change in ownership, revenues
associated with Private North America during this quarter declined and
operations were briefly suspended, causing a temporary decline in revenues from
North American distribution activities. Our distribution operations in North
America are now fully operational.

Cost of Sales. Our cost of sales was SEK 63.0 million for the six
months ended June 30, 2001 compared to SEK 52.0 million for the six months ended
June 30, 2000, an increase of SEK 11.0 million, or 21.1%. The increase is
primarily the result of an increase in sales volume. Cost of sales as a
percentage of sales was 34.9% for the six months ended June 30, 2001 a reduction
of 9.6% compared to the six months ended June 30, 2000. This improvement was due
to lower costs associated with DVD, Internet and broadcasting sales.

Gross Profit. In the six months ended June 30, 2001, we realized a
gross profit of SEK 117.3 million, or 65.1% of net sales, compared to SEK 64.8
million, or 55.5% of net sales for the six months ended June 30, 2000. This
represented an increase of 9.6% in gross profit in relation to net sales. We
attribute this increase to increased sales in product lines with higher margins
such as DVD, Internet and broadcasting.

Selling, general and administrative expenses. Our selling, general and
administrative expenses were SEK 66.6 million for the six months ended June 30,
2001 compared to SEK 42.4 million for the six months ended June 30, 2000, an
increase of SEK 24.2 million, or 57.1%. We attribute this increase to our
continued development expenses related to Internet, DVD and broadcasting related
activities and we expect this to continue in 2001.

Operating profit. We reported an operating profit of SEK 50.7 million
for the six months ended June 30, 2001 compared to SEK 22.5 million for the six
months ended June 30, 2000, an increase of SEK 28.2 million, or 126%. The
increase is primarily attributable to increased sales and higher margins.

Sale of controlled entity. We reported a net gain of SEK 17.2 million
for the six months ended June 30, 2001 for the sale of our subsidiary, Private
Circle.

Interest expense. Our interest expense was SEK 1.4 million for the six
months ended June 30, 2001, compared to SEK 0.9 million for the six months ended
June 30, 2000, representing an increase of SEK 0.5 million. We attribute this
increase to higher average short-term borrowings outstanding during the six
months ended June 30, 2001, compared to the six months ended June 30, 2000.

Income taxes. We estimate income taxes for the interim period based on
the effective tax rate expected to be applicable for our full fiscal year. Our
income tax expense was SEK 14.7 million for the six months ended June 30, 2001,
compared to SEK 2.6 million for the six months ended June 30, 2000. We attribute
this increase of SEK 12.1 million to increased DVD, Internet and broadcasting
sales, higher margins and a one-time tax provision of SEK 4.0 million relating
to the sale of certain land and a building.

Net income. Our net income was SEK 52.4 million for the six months
ended June 30, 2001, compared to SEK 21.2 million for the six months ended June
30, 2000. We attribute this increase in net income in 2001 of SEK 31.3 million
primarily to increased DVD, Internet and broadcasting sales, higher margins from
these sales and the net gain on the sale of Private Circle.

2000 compared to 1999

Net sales. Our net sales in 2000 were SEK 258.1 million compared to SEK
175.4 million (restated) in 1999, an increase of SEK 82.7 million, or 47.1%. We
attribute this increase primarily to sales of movies and Internet subscription
and sales, offset by decreases in CD-Rom sales, magazine sales and sales of
Private Circle. Sales from broadcasting for 2000 increased 467% to SEK 17.4
million compared to 1999. DVD sales increased 498% to SEK 50.2 million compared
to 1999. Sales of movies in videocassette format increased slightly in 2000.
Internet sales increased 206% to SEK 50.7 million. Sales of magazines decreased
marginally in 2000 compared to 1999. Our acquisition of Extasy B.V. also
contributed SEK 9.7 million to net sales for 2000. In 2000, our total DVD,
Internet and broadcasting sales, increased SEK 90.3 million, or 322%, to SEK
118.3 million compared to 1999.

Cost of Sales. Our cost of sales were SEK 98.8 million for 2000
compared to SEK 84.6 million for 1999, an increase of SEK 14.1 million, or
16.7%. The increase is primarily the result of an increase in sales volume.

Gross Profit. Our gross profit for 2000 was SEK 159.3 million, or 61.7%
of net sales, compared to SEK 90.8 million, or 51.8% of net sales for 1999, an
increase of 9.9%. We attribute this increase in gross profit margin primarily to
an increase in sales of movies on DVD, broadcasting and Internet sales. These
products generally have higher profit margins.

Selling, general and administrative expenses. Our selling, general and
administrative expenses were SEK 96.9 million for 2000 compared to SEK 65.7
million for 1999, an increase of SEK 31.2 million, or 47.5%. We attribute this
increase primarily to continued development expenses in connection with Internet
related activities and the use of DVDs as a motion picture distribution medium.

Interest expense. Our interest expense was SEK 1.8 million for 2000
compared to SEK 2.7 million for 1999, a decrease of SEK 0.9 million. We
attribute this decrease to lower average short-term borrowings outstanding in
2000 compared to 1999.

Income taxes. Our income tax expense was SEK 10.7 million for 2000
compared to SEK 3.9 million for 1999, an increase of SEK 6.8 million. We
attribute this increase to more of our profits being recorded in jurisdictions
with higher corporate tax rates.

Net income. Our net income was SEK 53.0 million in 2000 compared to SEK
19.6 million for 1999, an increase of SEK 33.4 million. We attribute this
increase primarily to increased DVD, Internet and broadcasting sales and higher
margins on these products.

1999 compared to 1998

Net sales. Our net sales were SEK 175.4 million for 1999 compared to
SEK 166.3 million for 1998, an increase of SEK 9.1 million, or 5.5%. The
increase was mainly attributable to sales of movies in DVD format and Internet
sales, offset by a decrease in CD-Rom sales, and sales of movies in
videocassette format. Sales of movies in DVD format for 1999 were SEK 8.4
million. We cannot compare 1999 to 1998 as we introduced DVD sales in 1999. The
bulk of our DVD sales for 1999 took place during the three months ended December
31, 1999. Internet sales increased 185% in 1999 to SEK 16.6 million. Sales of
magazines remained approximately the same in 1999

compared to 1998. We believe that the growth in DVD and Internet sales will
continue in 2000. The net sales reported does not include revenue from the
agreements made and announced during 1999 concerning Penthouse/Private
co-production and distribution and the UK licensing of the magazines Private
Life and Private Style. Net sales arising from the agreements will be reported
according to U.S. GAAP.

Cost of Sales. Our cost of sales were SEK 84.6 million for 1999
compared to SEK 72.9 million for 1998, an increase of SEK 11.8 million, or 16.2
The increase is primarily the result of an increase in sales volume.

Gross Profit. Our gross profit for 1999 was SEK 90.8 million, or 51.8%
of net sales, compared to SEK 93.5 million, or 56.2% for 1998, a decrease of
4.4%. We attribute this decrease to (1) lower margins on sales from Private
Circle, (2) lower margins on sales from movies in videocassette format and (3)
increased amortization of our library of photographs and movies.

Selling, general and administrative expenses. Our selling, general and
administrative expenses were SEK 65.7 million for 1999 compared to SEK 53.7
million for 1998, an increase of SEK 11.9 million, or 22.2%. We attribute this
increase primarily to our investment in Internet-related activities and Private
Circle, the use of DVDs as a motion picture medium and the listing of our common
stock on the Nasdaq National Market in February 1999.

Interest expense. Our interest expense was SEK 2.7 million in 1999
compared to SEK 0.7 million in 1998, an increase of SEK 1.9 million. We
attribute this increase to higher average short-term borrowings outstanding in
1999 compared to 1998, partially offset by reduced long-term borrowings.

Income taxes. Our income tax expense was SEK 3.9 million in 1999
compared to SEK 4.4 million in 1998, a decrease of SEK 0.5 million, or 11.4%. We
attribute this decrease to a decrease in profits recorded in jurisdictions with
higher corporate tax rates.

Net income. Our net income was SEK 19.6 million in 1999 compared to SEK
35.1 million in 1998, a decrease of SEK 15.5, or 44.2%. We attribute this
decrease primarily to increased cost of sales and general and administrative
expenses offset by increased sales.

Liquidity and Capital Resources

We generate cash from our operating activities, the exercise of
warrants and public and private sales of our equity securities, including the
sale of common stock in this offering. Our principal uses of cash typically
include acquisitions and joint ventures, building our library of photographs and
movies and Internet infrastructure development.

We reported a working capital surplus of SEK 185.1 million at June 30,
2001, an increase of SEK 44.6 million compared to the year ended December 31,
2000. The increase is principally attributable to increased accounts receivable
and prepaid expenses and other current assets.

We reported a working capital surplus of SEK 140.5 million for the year
ended December 31, 2000, an increase of SEK 41.7 million compared to the year
ended December 31, 1999. The increase was principally attributable to increased
accounts receivable related to increased sales and increased inventories and
prepaid expenses and other current assets.

We reported a working capital surplus of SEK 98.8 million for the year
ended December 31, 1999, an increase of SEK 33.2 million compared to the year
ended December 31, 1998. The increase was principally attributable to increased
accounts receivable related to increased sales and increased inventories and
prepaid expenses and other current assets.

Operating Activities

Net cash provided by our operating activities was SEK 42.0 million for
the six months ended June 30, 2001 compared to SEK 22.7 million for the six
months ended June 30, 2000, and was primarily the result of net income and
adjustments to reconcile net income to net cash flows from operating activities.
We adjusted our net income of SEK 52.4 million to reconcile it to net cash flows
from operating activities. Adjustments included (1) depreciation of SEK 3.4
million, (2) tax provision on assets held for sale of SEK 4.0 million, (3)
amortization of goodwill of SEK 1.4 million, and (4) amortization of photographs
and movies of SEK 19.0 million and were offset by our gain from the sale of a
controlled entity of SEK 17.2 million, providing for a total of SEK 63.1
million. We reduced the total of

SEK 63.1 million by the increases in trade accounts receivable and a related
party receivable, inventories and prepaid expenses and other current assets
totaling SEK 36.4 million, and offset this reduction by SEK 15.3 million from
accounts payable trade, income taxes payable and accrued other liabilities.

Net cash provided by our operating activities was SEK 68.4 million for
2000 compared to SEK 24.1 million for 1999, and primarily resulted from net
income and adjustments to reconcile net income to net cash flows from operating
activities. We adjusted our net income of SEK 53.0 million to reconcile it to
net cash flows from operating activities. Adjustments included (1) stock-based
compensation of SEK 0.2 million, (2) amortization of goodwill of SEK 1.6
million, (3) amortization of our library of photographs and movies of SEK 31.6
million, and (4) depreciation of SEK 7.9 million and were offset by deferred
taxes of SEK 0.6 million, providing for a total of SEK 93.7 million. We reduced
the total of SEK 93.7 million by the increases in trade accounts receivable,
inventories and prepaid expenses and other current assets totaling SEK 71.3
million, and we offset this reduction by SEK 46.0 million from related party
receivable, accounts payable trade, income taxes payable and accrued other
liabilities.

Net cash provided by our operating activities was SEK 24.1 million for
1999, compared to SEK 35.0 million for 1998, and was primarily the result of
changes in operating assets and liabilities in 1999. We adjusted our net income
of SEK 19.6 million to reconcile net income to net cash flows from operating
activities. Adjustments included (1) amortization of our library of photographs
and videos of SEK 29.4 million, (2) depreciation of SEK 2.9 million and (3)
deferred taxes of SEK 0.1 million, providing for a total of SEK 52.9 million. We
reduced the total of SEK 52.9 million by the increases in trade accounts
receivable, related party receivable, inventories, prepaid expenses and other
current assets and accrued other liabilities totaling SEK 32.5 million, and we
offset this reduction by SEK 3.7 million from accounts payable trade and income
taxes payable.

Investing Activities

Net cash used in our investing activities for the six months ended June
30, 2001 was SEK 39.4 million compared to SEK 25.2 million for the six months
ended June 30, 2000. The investing activities were primarily investments in our
library of photographs and videos of SEK 30.8 million, which were carried out in
order to maintain the 2001 release schedule for both video cassettes and DVDs.
In addition to investing in our library of photographs and movies, we invested
SEK 16.0 million in short-term investments, SEK 4.5 million in capital
expenditures, SEK 9.1 million in a subsidiary and SEK 1.5 million in assets held
for sale. Our investments were offset by SEK 21.4 million from cash from sale of
controlled entity and SEK 1.1 million in other assets. The decrease over the
comparable six-month 2000 period was principally due to increased short-term
investments as a result of cash received from sale of a controlled entity,
investments in our library of photographs and movies in order to maintain
inventory levels and the expansion of DVD distribution primarily through the
acquisition of assets from Private North America to expand distribution
operation in the United States.

Net cash used in our investing activities for 2000 was SEK 71.1 million
compared to SEK 39.7 million in 1999. The investing activities were primarily
investments in our library of photographs and videos of SEK 51.9 million, which
were carried out in order to start up DVD sales, increase content quality and
maintain the 2000/2001 release schedule. In addition to investing in our library
of photographs and movies, we invested SEK 10.9 million in capital expenditures,
SEK 0.9 million in assets held for sale and SEK 6.7 million in other assets. The
increase over the comparable twelve-month 1999 period was due principally to
increased investments in our library of photographs and movies, capital
expenditures and investments in other assets.

Net cash used in our investing activities for 1999 was SEK 39.7 million
compared to SEK 34.1 million in 1998. The investing activities were primarily
investments in our library of photographs and movies of SEK 33.7 million, which
were carried out in order to maintain the 1999/2000 release schedule. In
addition to investing in our library of photographs and movies, we invested SEK
5.3 million in capital expenditures and SEK 2.4 million in other assets. Our
investments were offset by SEK 1.6 million generated from assets held for sale.
The increase over the comparable 1998 period was principally due to increased
investments in other assets.

Financing Activities

Net cash provided by our financing activities for the six months ended
June 30, 2001 was SEK 6.6 million compared to SEK 3.2 million for the six months
ended June 30, 2000, primarily from long-term borrowings and conversion of
warrants. The increase over the comparable six-month 2000 period was primarily
due to increased borrowings offset by fewer conversions of warrants.

Net cash provided by our financing activities for 2000 was SEK 10.5
million compared to SEK 18.9 million for 1999, attributable to SEK 11.7 million
from conversion of warrants and an increase in short-term borrowings of SEK 0.2
million on our line of credit, offset by our repayments on long-term borrowings
of SEK 1.4 million. We attribute the decrease over the comparable 1999 period
primarily to fewer conversions of warrants.

Net cash provided by our financing activities for 1999 was SEK 18.9
million compared to SEK 0.8 million used in financing activities for 1998,
attributable to SEK 21.8 million from conversions of warrants, offset by a
decrease in short-term borrowings of SEK 1.3 million on our line of credit and
repayments on long-term loans of SEK 1.6 million. We attribute the increase over
the comparable 1998 period primarily to conversions of warrants.

Recent Developments and Outlook

We expect continued growth during the remainder of this fiscal year and
in 2002, particularly in the DVD, Internet and broadcasting segments. We believe
that our recently introduced website, www.privatespeed.com, will ultimately
generate strong net sales growth with favorable margins. We expect increases in
the rate of production of new movies in 2001 and beyond to result in improved
revenue growth.

We expect that the net proceeds from this offering, our available cash
resources and cash generated from operations will be sufficient to meet our
presently anticipated working capital and capital expenditure requirements for
at least the next 12 months. However, we may need to raise additional funds to
support more rapid expansion or respond to unanticipated requirements. If
additional funds are raised through the issuance of equity securities, our
shareholders' percentage ownership will be reduced, they may experience
additional dilution, or these newly issued equity securities may have rights,
preferences, or privileges senior to those of our current shareholders.
Additional financing may not be available when needed on terms favorable to us,
or at all. If adequate funds are not available or are not available on
acceptable terms, we may be unable to develop or enhance our products and
services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could harm our business.

Seasonality

Our businesses are generally not seasonal in nature. However, June,
July and August are typically impacted by smaller orders from some European and
U.S. distributors, due to the holiday season, while November and December sales
are generally higher due to the printing of special issues such as The Best of
Private.

Euro Conversion

A significant amount of our business activities is carried in out in
one of the eleven member countries of the European Union who have adopted the
euro as their currency. The transitional period for the introduction of the euro
will end as of January 1, 2002 at which time the euro will replace all local
currencies in the eleven member states. For all future fiscal periods beginning
after December 31, 2001, we intend to submit our accounting reports using the
euro as our primary reporting currency. Although the euro conversion may affect
cross-competition by creating cross-border price transparency, we believe that
this development is unlikely to affect our business due to the low per item cost
of our magazines, movies and other products.

Quantitative and Qualitative Disclosures About Market Risk

We transact our business in various foreign currencies and,
accordingly, we are subject to exposure from adverse movements in foreign
currency exchange rates. The principal currencies in which our revenues and
expenses are incurred are the Swedish Kronor, various Euro-zone currencies and
the U.S. dollar. To date, the effect of changes in foreign currency exchange
rates on revenues and operating expenses has not been material.

We do not use financial instruments or derivatives to hedge our
operations in foreign currencies or for speculative trading purposes.

New Accounting Standards Not Yet Adopted

On July 20, 2001, the Financial Accounting Standards Boards issued
Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 eliminates the use of the pooling-of interests method of accounting for
business combinations and clarifies the criteria used to recognize intangible
assets separately from goodwill in accounting for

a business combination under the purchase method. SFAS 141 is effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001 and this statement supercedes APB Opinion No. 16 "Business
Combinations" and related interpretations.

Under SFAS 142, goodwill and indefinite lived intangible assets will no
longer be amortized but will be reviewed annually for impairment (or more
frequently if indicators of impairment arise). Further separable intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their expected useful lives (with no maximum life specified;
whereas under prior rules a maximum life of 40 years was required).

The amortization provisions of SFAS 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, companies are required to
adopt Statement 142 in fiscal years beginning after December 15, 2001 (i.e.
January 1, 2002 for calendar year companies). Early adoption is permitted for
companies with fiscal years beginning after March 15, 2001 provided that their
first quarter financial statements have not been issued. Because of the
different transition dates for goodwill and intangible assets acquired on or
before June 30, 2001 and those acquired after that date, pre-existing goodwill
and intangibles will be amortized during this transition period until adoption
whereas new goodwill and indefinite lived intangible assets acquired after June
30, 2001 will not.

Adoption of these new standards may have a material impact on our
reported goodwill amortization expense and potentially on the carrying value of
goodwill. Goodwill amortization expense for the six months ended June 30, 2001
and the year ended December 31, 2000 amounted to SEK 1.4 million and SEK 1.6
million, respectively and the net carrying value of goodwill as of June 30, 2001
was SEK 27.2 million.

BUSINESS

OVERVIEW

We are a leading international provider of high quality adult media
content for a wide range of media platforms. We acquire still photography and
motion pictures tailored to our specifications from independent directors and
process these images into products suitable for popular media formats such as
print publications, DVDs, videotapes and electronic media content for Internet
distribution. We distribute our adult media content directly, and through a
network of local affiliates and independent distributors, through multiple
channels, including (1) newsstands and adult bookstores, (2) mail order
catalogues, (3) cable, satellite and hotel television programming and (4) over
the Internet via proprietary websites and evolving broadband delivery services.
In addition to media content, we also market and distribute branded leisure and
novelty products oriented to the adult entertainment lifestyle and generate
additional sales through the licensing of our Private trademark to third
parties. In the first six months of 2001, we had net sales of SEK 180.2 million
and net income of SEK 52.4 million.

Our business was founded in 1965 and achieved initial success through
our flagship publication, Private, the first full color, hard-core sex
publication in the world. Today, we produce four X-rated periodical magazines:
Private, Pirate, Triple X and Private Sex, as well as several special feature
publications each year. As of June 30, 2001, we had compiled a digital archive
of more than two million photographs and all of our print publications,
currently 324 issues. We expect to add two additional issues and hundreds of
photographs each month. Approximately 300,000 copies of our print publications
are distributed each month at an average retail price of approximately
(euro)11.50. We distribute our publications through a network of approximately
250,000 points of sale in more than 35 countries, with strong market positions
in Europe, Latin America, Australia and Canada. We believe that our distribution
network has the potential to reach nearly 500,000 points of sale in our existing
markets.

In May 2001, we launched our www.privatespeed.com website to deliver
our proprietary motion pictures to our customers using broadband connections
over the Internet. This website utilizes advanced networking technology to
furnish our customers with instant access to our motion picture archive by
buying blocks of viewing time. We are also preparing to distribute our adult
media content through fixed and third generation mobile telecommunications
technologies. While broadband and other high-speed Internet and telephonic
connections are in their infancy, we believe that these technologies represent a
substantial growth opportunity for us in the future.

Market Opportunity

Demand for adult entertainment products has grown substantially in
recent years. In 1999, the total worldwide adult entertainment market was
estimated to be $56 billion. We believe that our target market, including print
publications, videocassettes, DVDs, broadcasting and the Internet, comprises
approximately $40 billion of that figure. We believe that two principal factors
are driving growth in our industry: the relaxation of social and legal
restrictions on distribution of adult entertainment products and new
technologies that facilitate the distribution of high quality adult media
content to consumers in the privacy of their own homes. As a result of
liberalized regulation of adult entertainment products, we now distribute our
products in physical form in 35 countries worldwide with an aggregate current
population of 1.1 billion, as compared to six European countries with a
population of 144 million when the current management took over in 1991. We
expect this liberalizing trend to continue, which should expand our potential
markets further in the future.

The proliferation of easy to use electronic equipment, such as VCRs and
DVD players, which allow consumers to view high quality video products in the
privacy of their home, has boosted demand for adult media content compatible
with these formats. The installed base of DVD players in Western Europe and the
United States is expected to increase almost 200% by 2002 compared to 2000.
Also, the evolution of the Internet as a channel of commerce and content
distribution has stimulated additional demand for adult media content. In
addition, advances in cable, satellite and hotel communications systems furnish
another relatively new channel for the delivery of media content, including
adult entertainment, into private homes, hotels and businesses.

We expect these regulatory and technological developments to fuel
increasing demand worldwide for adult media content of all kinds, including
demand for products in our market niche for explicit: unrated adult media
content. In addition, we believe that market demand for content to fill new
media outlets will lead mainstream media content providers to seek still more
adult media content in the future. We expect that the high quality standards of
the mainstream media, technological demands of multiple delivery formats and
global marketing and distribution costs will increase capital requirements for
providers of adult media content. The adult entertainment industry is currently
characterized by a large number of relatively small producers and distributors.
We believe that the factors discussed above will cause smaller, thinly
capitalized producers to seek partners or exit the adult entertainment business,
leading to a consolidation of the adult entertainment industry.

Our Competitive Strengths

We believe the following strengths, among others, will enable us to
exploit the growing global market for adult entertainment:

Extensive library of high quality adult media content

We have an extensive library of high quality adult media content. As of
June 30, 2001, our library included still photographs developed for more than
300 back-issues of magazines and more than 400 motion pictures. We hold
exclusive worldwide rights to this entire content archive. This has enabled us
to enter into global distribution arrangements with a wide range of media
content providers, including leading international companies. To facilitate
electronic distribution of our products, we have converted our entire archive of
print images into a digital format. We are currently digitizing our motion
picture archive as well, and have now stored approximately 40% of our existing
motion pictures in digital form. We believe that this electronic archive
constitutes one of the largest libraries of high quality adult media content in
the world.

Recognized brand name

We believe that our target customers associate the Private brand name
with high quality adult entertainment products and services. This name
recognition attracts leading producers of adult media content, as well as
distributors and prospective joint venture partners interested in working with
the Private Media Group. We believe that the strength of our brand name leads to
more favorable economic terms than we could otherwise obtain in our processing
and distribution contracts, and enables us to negotiate favorable revenue
sharing arrangements and joint ventures from which we derive significant
licensing fees and royalty income. We have entered into joint venture and
co-branding agreements with leading participants in our industry and other
related industries, including Playboy and Penthouse. We seek to strengthen
awareness of our brand name by consistently featuring the Private label
prominently in our product packaging, cross-promoting our own products,
selectively sponsoring athletes and distributing under the Private label
complementary or ancillary non-media products that are consistent with an adult

entertainment lifestyle. We believe that these activities engender a loyal
customer base which, in turn, enables us to grow even with relatively modest
external advertising and marketing costs.

Established market position and distribution network

We have a well-established worldwide distribution network for our print
and motion picture products and services which has been built up over the past
35 years, including some 250,000 points of sale in over 35 countries as of June
30, 2001. In many markets, we believe that our established presence hinders our
competitors' ability to break into the market. In some cases, exclusive
distribution agreements improve our market position further. This broad
distribution network provides an effective channel to introduce new products and
services and new formats for existing products and services. For example, we
were able to utilize our existing video distribution channels to reach customers
with our DVD-based products. In electronic media categories, we have entered
into strategic alliances with a number of leading service providers, such as
Terra/Lycos and T-Online, to facilitate widespread distribution. In addition, we
have assembled an internal team of Internet specialists to maintain and improve
our Internet infrastructure and electronic products and services. We believe
that our broad, multi-format distribution network affords our customers
convenient access to high quality adult media content in the format of their
choice.

Flexible operating structure and access to substantial capital

We acquire adult media content from third-party directors on a project
basis. This approach gives us substantial flexibility in terms of production
volume and delivery time, significantly reduces our fixed production overhead
and largely eliminates the risk to us of cost overruns in production. Because of
our multiple product and service formats and broad distribution network, we can
afford to hire top directors in the industry, which we believe results in a
higher quality product for our customers. Similarly, we reduce our fixed
processing costs by outsourcing editing and duplication functions for most of
our products, although we retain oversight of the overall production process for
cost and quality control purposes. As a public company with access to the
capital markets and, in recent years, significant operating cash flow, we
believe that we will have sufficient financial resources to increase our
production and grow through acquisitions without sacrificing our high quality
standards.

Experienced professional management

Our Strategy

Develop strategic alliances and joint ventures with businesses outside
of the adult entertainment industry to broaden our distribution channels. We are
entering into strategic alliances and joint ventures with leading media
companies outside of the adult entertainment industry to distribute our adult
media content for use on popular and newly developing media formats, including
revenue sharing relationships with cable and satellite television operators and
Internet service providers with significant market positions. We expect these
initiatives to widen the scope of our distribution network, enabling us to reach
new customers while supplying our partners and licensees with content.

To be at the forefront of the adult entertainment industry in adapting
new technology and distribution channels such as broadband distribution of our
motion pictures. By actively seeking out and utilizing advanced technologies to
distribute our content such as DVDs, broadband, Internet and cable and satellite
television, we expect to increase revenues with minimal incremental cost. For
example, we have recently launched a streaming video, or "video-on-demand,"
product that exploits broadband technology over our new privatespeed.com website
to deliver high quality adult media content directly to customers via the
Internet. We believe that this broadband

technology, in particular, offers us a significant opportunity to increase our
net sales and operating margins and simplify our distribution chain. In
addition, we were one of the first adult entertainment companies to embrace the
DVD format.

Increase market share through strategic acquisitions. The adult
entertainment industry is currently fragmented and consolidating. We expect this
trend to continue as small, privately owned companies seek to exit from the
business. We plan to expand our market presence and increase our market share by
acquiring local distributors in the markets in which we compete. In addition, we
may seek to acquire existing business enterprises in other related businesses
opportunistically. To finance future acquisitions, we expect to use a
combination of cash flow generated by our operating activities and, in some
instances, our common stock. As one of the few companies in our industry with
publicly listed common stock, we believe that we will have a significant
advantage over most of our competitors in financing such consolidating
acquisitions.

To complete the digitalization of our entire movie and photograph
library in order to prepare our library for distribution in new electronic
media. We have developed an extensive library of motion pictures and other
pictorial content. Until recently, this library was archived on a master print,
which would allow duplication in traditional media. New forms of electronic
distribution provide us with an opportunity to use this content by distributing
it on new forms of media, such as DVD, Internet and broadband. To facilitate
electronic distribution of our products, we have converted our entire archive of
print images into a digital format. We are currently digitizing our motion
picture archive as well, and have now stored over 40% of our existing motion
pictures in digital form.

Continue to increase and strengthen brand awareness. We have developed
strong brand awareness within each of our magazines and videos' targeted
markets. We own the worldwide rights to all of our content. We seek to
strengthen awareness of our brand name by consistently featuring the Private
label prominently in our product packaging, cross-promoting our own products,
selectively sponsoring sports and distributing under the Private label
complementary or ancillary non-media products that are consistent with an adult
entertainment lifestyle.

Our Principal Products and Markets

Magazine Publications

We are the publisher of Private, an international X-rated magazine.
Private was founded 35 years ago, and was the first full color, hardcore sex
publication in the world. Today, we produce four X-rated magazines which are
released bi-monthly: Private, Pirate and Triple X and Private Sex. In addition,
special editions are released monthly and a book, The Best of Private, is
released annually. Our newest magazine, Private Life, which is produced by our
licensees, is the first softcore magazine we have distributed. We distribute
these magazines through newsstands and other retail outlets.

Movie Productions

Since 1992, we have acquired and distributed adult motion picture
entertainment. These productions generally feature men and women in a variety of
erotic and sexual situations, generally in both hardcore and softcore versions.
We distribute these movies primarily on videocassettes, DVDs, through cable,
satellite and hotel television programming and over the Internet. We maintain
the ownership and copyrights of every film we finance and produce.

We expect to produce approximately 80 X-rated and 24 R-rated movies
this year, with distribution through a worldwide network that covers
approximately 60,000 points of sale, including primarily videoshops and adult
book stores. We believe we have the potential to reach more than 155,000 points
of sale. Our first two monthly video labels were Private Film and Private Video
Magazine. Both labels received critical acclaim in leading international
magazines as well as numerous industry awards from industry associations and
major adult entertainment film festivals, including Adult Video News, Impulse
d'Oro and Golden X. They were followed by the introduction of our monthly labels
Triple X, Private Stories and Private Gold. In May 1997, we introduced Gaia, a
bi-monthly label. In 1999, we introduced four new monthly labels Pirate Video
Deluxe, Private XXX, The Matador Series and Peep Show Special and a bi-monthly
label Private Black Label. In 2000, in addition to several compilations, we
introduced the label Private & Penthouse Video in conjunction with Penthouse.

As of June 30, 2001, we owned more than 400 movie titles, and by the
end of 2001 we expect the total to increase to 450 titles. All titles are
available on videocassette and approximately 40% are available on DVD. These

products are sold by distributors, primarily to retail stores and wholesalers
worldwide. Several of our original motion picture programs have also been
re-edited and licensed to cable, satellite and hotel television operators.

Internet

Our Internet team has combined the quality of our extensive media
library with the newest technology to create what we believe to be one of the
best adult websites, www.private.com. We believe that the rapid growth of the
e-commerce market and increased access to the Internet by consumers has created
an excellent opportunity for us to utilize our proprietary assets through
marketing and distribution on the Internet. Private.com offers its more than
80,000 members access to high quality adult content, including over 200,000
pages of magazine pictures, photosets, stories, an interactive search categories
gallery and access to video clips from more than 400 Private movies. Private
members also get access to live, webcam, and contact/personals content. We
acquire customers primarily through advertising in DVDs, videos, magazines and
broadcast programming with minimal incremental cost. We also acquire new
customers by establishing partnerships with leading portals including Excite,
Lycos, T-online, Prisacom and other e-commerce websites.

Due to Private.com's recognized brand name among adult site purveyors,
we have many customers who have the confidence to make credit card payments to
us. Current subscriptions prices are $29.95 for a month's subscription and
$149.95 for an annual subscription. Consumers wishing to avoid credit card
payments or not having a credit card can access Private.com content through
so-called "dialer access" by dialing into a premium rate number and paying a per
minute fee that varies depending on the country. Private also cross-sells its
retail products through the Private.com shop. For example, Private.com is able
to offer a consumer who views content on its website an opportunity to purchase
that content, in a magazine, DVD or video, in its on-line store. The Private.com
website is currently generating traffic of approximately 2.5 million visits per
month and more than 60 million pages are viewed per month. We currently maintain
a staff of 40 full time Internet employees with more than 10 focusing on
technology, and the balance dedicated to website production, sales and marketing
and customer support.

We have also developed a website called privatespeed.com, offering
broadband customers access to Private's complete collection of movies and video
content through video-on-demand. Privatespeed has a two pronged strategy for
acquiring customers for its prepaid service: by partnering with broadband
Internet service providers, or ISP's who host our content and distribute
products to their installed customer bases and by targeting broadband customers
directly, who view the content over the Internet. To date, privatespeed.com has
sold over 150,000 minutes directly to consumers since it launched in May 2001
with minimal marketing activity. We are currently negotiating agreements with
leading broadband ISP's. We believe that with Privatespeed.com we are well
positioned among adult entertainment companies to take advantage of the
transition to broadband content distribution.

In addition, we are licensing the right to use our trademarks and media
library on the Internet to third parties with independent websites. This
licensing activity generates significant royalty income. In addition, we market
our products on the Internet through distributor sites and shopping sites.

Other Markets

In April 1996, we launched our Private Collection International, Inc.
line of adult pleasure products. We also license the Private name in connection
with various lines of clothes, nutritional supplements, energy soft drinks,
personal skin care products and on-line gaming. Channels of distribution for
licensed products include conventional distribution channels, e-commerce and
television home shopping.

INDUSTRY OVERVIEW

The adult entertainment industry has evolved rapidly in recent years.
In spite of often intense political campaigning, there has been a general trend
towards wider acceptance of adult entertainment content among the general public
and mainstream media channels. New technologies have lowered costs and changed
the way in which adult content is produced, distributed and viewed. Lower costs,
in particular, have lowered barriers to entry and increased competition in the
adult entertainment industry. The trend toward wider acceptance of
sexually-explicit material and ongoing technological developments has created a
large and growing global market for adult content.

Historically, the adult entertainment industry has attracted a
considerable level of government and regulatory attention primarily over
obscenity leading to limitations on either the explicitness of content or the
availability. Traditionally, to view adult material, consumer's were required to
purchase films in a public environment or to go to an adult movie theatre or
peepshow.

Through a process of evolution rather than revolution the adult
entertainment industry has become more acceptable over time, with a relaxation
of the regulations and guidelines governing the industry. For example, in the
United Kingdom, one of Europe's more restrictive countries with respect to adult
entertainment, there has been a gradual relaxation of what is suitable for
public viewing. The British Board of Film Classification, BBFC, has introduced
the 'R18' category, allowing distribution of hardcore adult videos through
licensed sex shops for the first time. The approval from the BBFC, and
subsequent theatrical release, of films such as 'The Idiots' and 'Intimacy' have
also broadened what is regarded as acceptable adult content.

New technologies have helped to legitimize the industry and increase
the size of the market. During the 1980s, the introduction of adult movies on
videocassette and through broadcasting on cable and satellite television
increased acceptance of adult media content by confining it to the privacy of
the consumer's home. More recently, the Internet has become a primary
distribution platform for both suppliers and consumers of adult media content
providing low-cost delivery and increased privacy. Although currently
unexploited, third generation mobile and handheld devices are likely to increase
the market even further in the future, making adult media content viewing
mobile.

The production and distribution of adult media content is very
competitive. Hundreds of companies are now producing and distributing movies to
wholesalers and retailers, as well as directly to consumers. The low cost of
high quality video cameras and equipment has significantly lowered the barrier
to entry for production of adult media content. According to Adult Video News,
approximately 10,000 new adult video titles were released in the United States
in 1999, up from 8,950 in 1998 and 1,275 in 1990. The bulk of this production is
represented by low quality, amateur productions, made for only a few thousand
dollars, as opposed to the larger, professionally produced movies with high
production values. Around 20 major producers, such as Private, Vivid, Video
Company of America and Metro, release most high budget adult videos and DVDs,
see "Business-Competition." In addition, because it costs as little as $5,000 to
establish an Internet presence, there is significant competition among
distributors of adult media content over the Internet. The proliferation of
websites distributing adult media content has itself fueled a greater and
ongoing demand for the creation and licensing of new adult media content.

In 1999, the Observer stated that Forbes estimated that the global
adult entertainment market was $56 billion. This estimate covered memberships
and subscriptions, escort services, magazines, sex clubs, telephone sex lines,
cable and satellite pay-per-view programming, adult videos and toys and other
related products and services. In 1998, Forrester Research estimates the U.S.
adult entertainment market at $10 billion per annum. This compares to total U.S.
cinema box office receipts for mainstream motion pictures of $7.7 billion in
2000 ($6.95 billion in 1998), indicating the size and importance of the adult
market within the entertainment industry.

Video and DVD Sales & Rental

Bringing adult movies into the privacy of the home through the
introduction of videocassettes along with cable and satellite services all but
eliminated the adult theatre business. The introduction of the DVD and its rapid
acceptance by the public is gradually shifting the balance of home viewing from
videos to DVDs. DVDs offer better picture and sound quality than videos,
worldwide compatibility and other add-ons. The DVD format also benefits
suppliers and retailers. Several languages can be combined onto one DVD, so only
the DVD cover needs to

be changed for different territories. Also, back catalogue sales should
initially increase as consumers look to replace their videocassette library with
the new format.

Although DVDs will not replace videocassettes completely in the near
term because of their ability to record as well as their current high level of
market penetration, currently comprising approximately 93 million households in
the United States, rentals and sales of DVDs are likely to increase
significantly as more DVD players are sold. IDC Research anticipates that the
number of household with DVD players in the United States will increase to 43.6
million in 2002 from 15.0 million in 2000. Similar growth is expected in Western
Europe, with the number of households with DVD players increasing to 13.5
million in 2002 from 4.7 million in 2000, according to the International
Recording Media Association.

In the U.S. market, total rental and retail spending on video and DVD
titles in 2000 was over $19 billion, a 10% increase over 1999, according to the
Video Software Dealers Association. In 2000, total sales and rentals of adult
videos in the United States were approximately $4.0 billion according to Adult
Video News estimates, including sales through general interest retailers and
dedicated adult stores. In 2001, PR Week reported that the Free Speech Coalition
estimated that 20% of all U.S. households with either cable or satellite
television or a VCR watch adult movies.

The provision of in-room entertainment services by major hotel chains
throughout the world also serves as a distribution channel for adult media
content. In addition to a selection of mainstream films, hotel guests often will
have a choice of softcore, and frequently hardcore, adult videos available on a
pay-per-view basis. In the United States, these services are provided by
companies such as On Command and Lodgenet, which supply approximately 950,000
and 800,000 hotel rooms, respectively. Estimates by analysts cited to by the Los
Angeles Times in 2001 suggest that adult movies generate approximately half of
total hotel pay-per-view revenue in the United States, approximately $250
million annually. Outside of the United States, excluding more restrictive
countries such as the United Kingdom, hotel guests also have access to hardcore
material on a pay-per-view basis.

Broadcasting

Cable and satellite television has also brought adult media content
into the privacy of the home. Technological developments, in particular the
evolution of digital broadcasting, should not only increase the number of
channels that can be delivered directly to the home, but should also lead to
video on demand. The development of these services should benefit the adult
entertainment industry by providing a greater number of special interest
channels providing pay-per-view services. This should also increase the need for
new adult media content.

In the United States, in addition to softcore channels such as Playboy
TV, AdulTVision, Spice Channel and The Adam & Eve Channel, there are several
hardcore video channels available, including Eurotica, Exotica, Exxxtasy, True
Blue, X!, Xxxcite and XXXplore, that offer uncensored hardcore material. In
2001, the Asian Wall Street Journal stated that according to Kagan World Media,
of a total pay-per-view revenue for satellite and cable television operators in
the United States of $1.73 billion, around 27%, or $465.0 million, can be
attributed to adult movies.

In 1999, Playboy and Spice Entertainment Companies, Inc. entered into
an agreement resulting in the combination of the two companies. Playboy also
acquired three television networks - the Hot Network, the Hot Zone and Vivid TV
- in July 2001 which has altered Playboy's focus from softcore to hardcore
programming.

At the end of 2000, according to Screen Digest, there were over 64
million subscribers to cable and satellite television in Western Europe.
According to Forrester Research, in the United States there were approximately
83 million subscribers to satellite and cable television services at the end of
2000. The number of cable and satellite television subscribers is expected to
continue to increase, as well as gradually shift from analogue to digital
services.

Internet

The adult entertainment industry was among the first to commercially
exploit the Internet as a distribution channel, and among the only industries to
generate a profit on the Internet. The Internet offers near-complete privacy for
users, a seemingly endless selection of adult media content and can provide
immediate delivery. Datamonitor research estimated that adult content accounted
for 69% of paid content on the Internet in 1998.

Pay sites contain most of the adult media content on the Internet, but
free sites are also common and are primarily supported by advertising from pay
sites. Free sites get a few cents for each viewer who "clicks" on an advertising
banner. The banner then transports these viewers to a site that tries to entice
the user into paying for content using their credit cards. In 1999, Datamonitor
estimated that there were well over 100,000 sexually-oriented sites, of which
only about 14,000 generate revenues. Of the revenue generating sites, only a
handful of these account for the majority of overall revenues on the Internet
for adult media content.

According to searchterms.com, 'sex' is the third largest category
searched for on the internet after 'autos' and 'travel', but above 'shopping',
'games' and 'MP3'. Of the 1,387,529,000 web pages indicated as available by the
Google search engine, searching for 'sex' results in 46,800,000 pages and 'porn'
results in 17,900,000. Furthermore, in June 2001, Internet monitoring company
NetValue estimated the following numbers of internet users were visiting adult
sites at least once per month: 5.3 million in Germany; 3.8 million in the United
Kingdom; 2.7 million in France; 2.4 million in Italy and 1.5 million in Spain.
In the United States, PR Week reported that Nielsen/Net and Media Metrix
estimated that approximately 21 million Americans visit an adult content site at
least once per month.

A number of well-established Internet businesses have recognized the
revenue potential of adult media content and now provide those services.
Freenet.com, Germany's second largest internet service provider has launched
Fundorado.de offering hardcore movies, photographs and sex chat groups on a
monthly subscription basis. In the United Kingdom, online retailer
Lastminute.com has recently introduced a range of adult games and toys to its
site. However, this development has also been subject to criticism leading to
withdrawals such as Yahoo!'s reversal of its decision to sell adult videos on
its sites after receiving numerous complaints from consumers.

The use of the Internet for viewing adult media content is expected to
increase significantly as home Internet access increases and broadband services
become more widely available. IDC estimates that in 2005 the number of home
Internet users will reach 194.1 million in the United States as compared to
100.8 million in 2000 and 196.4 million in Western Europe as compared to 80.3
million in 2000. Forrester Research estimates broadband services will reach 46.7
million households in the US by 2005 as compared to 5.0 million in 2000 and 28.7
million in Western Europe as compared to 400,000 in 2000.

The increased availability of adult media content on the Internet has
attracted considerable attention. Concerns have arisen with respect to child
protection and the distribution of illegal material. In response to the issue of
child protection, a number of software packages have become available that
control the content that can be accessed from a personal computer. Products such
as Surfcontrol, NetNanny, Websense and others can be employed to filter sites
for inappropriate material, blocking access for unauthorised users.

MAGAZINE PUBLICATIONS

Our publishing operations include the publication of the adult
magazines identified in the table below, special editions consisting of
previously published material and occasional newsstand specials, calendars and
paperback books. All of these magazines, together with local editions, are
printed under various trade names and are distributed in over 35 countries. We
publish several customized editions of our four principal magazines. Each
edition contains the same editorial material but provides locally targeted
content reflecting local governmental regulation regarding explicit adult
publications. Most of our magazines feature pictures of men and women engaged in
erotic and sexually explicit situations. We distribute approximately 300,000
copies of our print publications per month at an average retail price of
approximately (euro)11.50. Our most popular publications are Private, Pirate,
Private Sex and Triple X.

MAGAZINE LIBRARY As of December 31,
----------------------------- --------------------------------------
2000 1999
------------ -------------
Title No of Issues No of Issues
------------ -------------
Private...................... 162 156
Pirate....................... 64 58
Triple-X..................... 38 32
Private Sex.................. 29 25
Special Editions............. 6 3
Best of Private (Book)....... 12 11
------------ -------------
Total 311 285
============ =============

(Printed, not sold) Quantities of Magazines Produced
----------------------------- --------------------------------------
Title 2000 1999
----------------------------- ------------ -------------

Private...................... 697,500 813,970
Pirate....................... 515,100 641,750
Triple-X..................... 518,050 642,900
Private Sex.................. 391,840 530,800
Special Editions............. 54,000 58,000
Best of Private (Book)....... 200,050 181,300
------------ ------------
Total........................ 2,376,540 2,868,720
============ ============

Our publications offer a variety of features and have gained a loyal
customer base and a reputation for excellence by providing a high standard of
quality to the adult entertainment industry, while we maintain circulation
leadership as the best-selling hardcore magazine publisher. All of our
publications have long been known for their graphic excellence and features, and
publish the work of top artists and photographers in the field. They are also
renowned for their pictorials of beautiful people. Our magazines command some of
the highest prices in the industry.

All of our publications are printed by independent third parties. We
have a longstanding relationship with several printers in Spain, and a printer
in the United Kingdom. Our U.K. printer also prints adult magazines that compete
with our products. Nonetheless, we believe that generally there is an adequate
supply of printing services available to us at competitive prices, should the
need for an alternative printer arise. All of our production and printing
activities are coordinated through our operating facility maintained by our
wholly-owned subsidiary, Milcap Media Group.

Circulation

Our magazines have historically generated most of their revenues from
firm sales distribution. However, now distributors with rights to return
represent approximately 50% of our production. Single copy retail sales normally
occur in adult book stores and similar establishments. Newsstand retail sales
are permitted in most European countries, including France, Italy, Spain,
Germany, Denmark, Sweden, Finland the Benelux countries and Portugal.

Our magazines are distributed to newsstands and other public retail
outlets through a network of national distributors, who maintain a local network
of several wholesale distributors and licensors. We have entered into national
distribution agreements covering over 35 countries and generally deal with a
magazine distributor for local distribution of our publications. We ship copies
of each issue in bulk to our wholesalers, who distribute on to local retailers.

Independent distributors who distribute our magazines do so under
individual distribution agreements. These agreements are normally subject to
automatic yearly extensions unless either party terminates the arrangement.

For the past few years, we have sought to expand the use of our
magazines' content and other assets across different media formats. Our primary
focus in recent years has been the re-editing and digitizing of every Private
magazine for use on our websites. This content was initially available on our
websites in May 1998 and we completed the digitization of our still photo
archive in 2000.

Production, Distribution and Fulfillment

Four independent printers in Spain currently print most of our
magazines, books, brochures and video and DVD covers. Printing costs vary based
upon the price of component raw materials. The principal raw materials necessary
for publication of our magazines are coated and uncoated paper. Paper prices are
affected by a variety of factors, including demand, capacity, pulp supply and by
general economic conditions. Our printers have a number of paper supply
arrangements and we believe that those arrangements provide an adequate supply
of paper for our needs. In any event, we believe that alternative sources are
available at competitive prices.

With respect to color separation, pre-press and related services, we
currently use our own scanning facilities and have the support of two
independent suppliers for color separations. We are also using the latest

technologies in this field, such as digital imposition and computer-to-plate
process technology, or CTP. CTP eliminates the need for the production of
film/color separations during the pre-printing process, saving time and money
while improving quality. In simple terms, CTP allows printers to receive
computer disks containing electronic files (both text and graphics) and output
those files directly to a plate. The result is a top quality image which takes
minutes instead of hours to produce. We are nearing completion of our planned
implementation of CTP process technology for printing.

We print and ship all of our proprietary magazines from Barcelona,
Spain with the exception of our U.K. licensee, who receives all our magazines in
digital format and prepares its own layout and color separations before printing
locally adapted softcore editions of all our magazine titles. We determine the
amount of printed publications bi-monthly with input from each of our national
distributors.

Most of our products are packaged and delivered directly by the printer
or supplier, while Milcap Media Group provides warehousing, customer service and
payment processing. Milcap Media Group employs a staff of 20 professionals to
manage the production and to oversee the printing and distribution of our
magazines.

Licensed Publishing

In 1999, we signed a licensing agreement with K-OS Publications (UK)
Limited for the publication and distribution in Britain of two new softcore
titles bearing the Private trademark. "Private Life" magazine was first
published in the United Kingdom at the end of 1999, while "Private Style"
magazine is set to launch in 2001.

MOVIE PRODUCTIONS

In 1992, we began releasing movies under the Private label.

Our adult movie are in genres similar to our magazines and books under
the titles listed in the table below. Normally, we spend between $25,000 and
$125,000 per movie. This amount excludes the computation of the post-production,
master production, duplication and distribution costs. Generally, Milcap Media
Group creates and designs all artwork for promotional items and packaging and
contracts for printing services. Since 1997, independent laboratories have
duplicated all of our videocassettes for us. Similarly, since 1999 all DVDs have
been duplicated by independent laboratories as well. A number of our titles,
including Private Film, Private Video Magazine, Triple X, Private Stories,
Private Gold and The Matador Series are released on a monthly basis while others
are released on a bimonthly or less frequent basis. As of June 30, 2001, we
owned more than 400 movie titles, and by the end of 2001 we expect the total to
increase to 450 titles. All titles are available on videocassette and
approximately 40% are available on DVD. We sell approximately 75,000 videos and
80,000 DVDs per month. We continue to expand our video operations in
international markets and presently market our video products in over 35
countries.

We finance all of our adult movies, and we contract with video and
movie producers on a flat fee basis. All producers generally assume production
costs and obligations, including among other things, the delivery of rights and
model releases. Historically, we have principally financed new movies with the
cash flow generated by previous productions. To date, we have not solicited any
external financing for any of our acquisitions.

2000 1999
------------ -------------
MOVIE LIBRARY No of Titles No of Titles
------------------------------------- ------------ -------------

Private Video Magazine............... 26 26
Private Film......................... 28 28
Triple-X Video....................... 32 32
Private Video Stories................ 27 27
Private Gold......................... 45 39
Gaia................................. 6 6
Pirate Video......................... 12 12
Triple-X Files....................... 12 12
Casting-X............................ 25 19
Best of Private...................... 6 3
Private Black Label.................. 16 10
Pirate Video Deluxe.................. 12 6
Private XXX.......................... 12 6
Special Compilations................. 22 16
Amanda's Diary....................... 5 5
Peep Show Special.................... 12 6
Horny Housewives..................... 9 4
The Matador Series................... 8 2
The Story............................ 2 2
Private Movie........................ 1 1
Private & Penthouse Video............ 5 0
Private Super F******................ 7 1
Softcore Versions.................... 46 27
------------ -------------
Total................................ 376 290
------------ -------------

We have licensed many of our original programs to cable television
networks and adult pay-per-view television channels. These licenses generally
grant the television channel owner a specific right of transmission and we
retain the intellectual property rights of every production. We edit many of our
new feature video and film releases into several versions depending on the media
through which they are to be distributed. In general, versions edited for cable,
satellite and hotel television programming are less sexually explicit than the
versions edited for home video distribution.

Distribution

We distribute our productions worldwide via masters, videocassettes and
DVD's that are sold or rented in video stores, sex shops, newsstands and other
retail outlets, and where permitted, through direct mail. Our website has
contributed to increasing video and DVD sales, and we expect this new medium to
become a significant distribution channel in the future.

We have entered into distribution agreements in over 35 countries.
Under these distribution agreements, our subsidiaries Peach Entertainment
Distribution or Milcap Media Group, agrees to provide a specific minimum number
of new titles each month during the term of the agreement, and a licensee
normally serves as the exclusive distributor throughout its own country or
language territory. Under the various distribution agreements, licensees are
normally required to purchase a minimum number of units for each monthly period
during the term of the agreement.

In countries such as Germany, we have expanded our relationships with
our national distributor by entering into exclusive multi-year, multi-product
output agreements. In countries such as the United States, the Benelux
countries, France and Spain, we have established local subsidiaries for the
purpose of owning or controlling local distribution. In the near future, we
intend to renegotiate some of our national distributorship agreements in order
to vertically integrate Private Media Group into the chain of distribution. In
general, we believe that national
39

distribution agreements enable us to have an ongoing branded presence in
international markets and to generate higher and more consistent revenues, than
we could achieve selling directly to retailers.

Video Duplication/Production Techniques

Masters are customized and duplicated by our subsidiary Peach
Entertainment Distribution and from there they are sent to different
distributors and VHS duplication centers. Some distributors receive a master
directly and do their own duplication.

All artwork to print the video covers is created at Milcap Media Group.
Most countries receive their own pre-printed covers from Spain and some
countries print their own covers from CD-Roms when delivered.

The DVD Market

Distribution of DVDs represents one of our fastest growing markets. We
believe we set a high standard for DVDs in the adult entertainment industry,
with each DVD released by us possessing five language options as well as four
other subtitled languages. We believe that our multi-language DVD format
provides a significant competitive advantage for us because it attracts
consumers worldwide and expands our international marketing and sales potential.
This global format allows us to reduce our overall unit production costs and
increase profit margins. Currently, the majority of DVDs released by our
competitors in the United States and worldwide are produced in only one
language. As a result, they have to either license titles country-by-country or
manufacture each title in separate languages, thus loosing out on economies of
scale. As the manufacture of each DVD master disc, prior to duplication, costs
approximately $10,000, this further drives down our competitors' profit margins.

Currently, mainstream movie titles are released on DVD in six Regional
Codes or Zones This is required primarily because producers often do not control
the worldwide rights to their titles. Our DVDs are playable in any region, in
every country in the world, because we own and control the global rights to
everything we have produced.

Our DVDs are also "Internet Activated," which means that when a
consumer plays the DVD in a personal computer (PC), that person also gets a
direct link to our websites, where they can view our content by purchasing a
subscription or visit our extensive on-line shopping area. We also sometimes add
'extras' to our DVDs, including alternative endings to movies, interviews with
the stars, biographical data on the actors, their roles in other in-house
productions and publications, and multiple-angle views.

Broadcasting

In 2000, we signed an exclusive joint venture agreement with
International Film Productions and Distributions, Ltd., "IFPD", to create two
new adult television channels to be broadcast worldwide. IFPD is a
European-based television broadcasting company associated with major content
providers that specializes in the distribution of cable and satellite television
channels.

Under the terms of our joint venture agreement, IFPD has agreed to
ensure the promotion and broadcasting of our new adult channels, Private Gold
and Private Blue, to a worldwide audience and we have agreed to provide all
adult media content and trademarks. The Private Gold channel will present
hardcore material, while the Private Blue channel will broadcast softcore
material. We will receive 65% of the gross profits generated from the broadcast
of, and advertising on, these channels. We also have an option to acquire up to
65% of the equity in IFPD at face value.

In 2000, we also started broadcasting our Private Blue channel in the
United Kingdom under an exclusive joint venture agreement with Zone Vision
Enterprises, a UK-based television company, and IFPD. These channels operate on
digital and analog platforms throughout continental Europe. We receive 35% of
the net profit generated from those broadcasting and advertising revenues.
Private Blue is available through the analog and digital satellite platforms of
BSkyB and the Telewest cable network in the United Kingdom. We also launched in
Turkey on the DigiTurk platform, and in Hungary and Slovakia on the UPC
networks, and in the Netherlands with MediaKabel. Currently available to over
6.6 million addressable subscribers in the UK alone, Private Blue has also
secured an international satellite feed on the SIRIUS 2 satellite. This means
that our Private Blue signal is available for further expansion to subscribers
in all territories of Europe from 23.00 to 05.00 Central European time every day
of the year.

Our Private Gold television channel, broadcasting under Dutch license,
successfully launched in Hungary on the HCA Cable Association platform and in
Hungary, Slovakia and the Czech Republic on cable systems and the UPC Direct
satellite network in 2000. Private Gold also secured an international satellite
feed on the AMOS 1 satellite. This will allow us to expand to subscribers in all
territories in Europe from 24.00 to 04.00 Central European time, every day of
the year. A second satellite feed, on the ASTRA satellite with Cryptoworks
encryption, also became available in 2000. ASTRA is one of the leading satellite
systems for direct-to-home transmission of television, radio and multimedia
services in Europe. ASTRA currently has a fleet of nine satellites and transmits
to 22 European countries.

In 2001, we entered into an agreement with Canal Digital AS which
provides for the distribution of the Private Gold television channel through
Canal Digital in Sweden, Denmark and Finland as part of an exclusive joint
venture agreement with IFPD. Canal Digital is jointly owned by the French
company Canal+ and the Norwegian company Telenor. Canal Digital operates in the
Nordic countries and is one of the leading suppliers of digital programs and
services in the Nordic region. Canal Digital has more than 1.1 million card
customers and over 700,000 subscribers to its services in the Nordic region.

In 2001, the Private Gold and Private Blue television channels were
contracted for distribution throughout Latin America by Pramer S.C.A. Pramer is
the largest company in Latin America dedicated to producing, distributing and
commercializing content for cable and satellite television. Pramer will be
responsible for the satellite distribution, advertising and commercialization of
the Private Blue and Private Gold channels throughout Latin America. Both
channel signals are transmitted on the NSS 806 satellite that covers the entire
South American continent making the channels available to all of Latin America's
15 million satellite and cable subscribers.

In June 2001, we signed an agreement with Wizja TV to broadcast Private
Gold in Poland. Wizja TV is one of the largest Direct to Home platforms in
Poland with approximately 400,000 subscribers.

We believe that currently our Private Gold and Private Blue channels
are available to approximately 28 million potential viewers worldwide.

In addition to the expansion of Private Gold and Private Blue, we
signed other agreements concerning broadcasting of our content in 2000,
including our agreement with media[netCom] AG.

In August, 2000 we entered into a two-year motion picture licensing
agreement with Playboy, which calls for us to supply Playboy with motion picture
content for Playboy's television networks throughout the Americas. Under the
agreement, Playboy will receive the exclusive rights to broadcast our content on
their networks over the term of the agreement for a fixed payment amount.

We also entered into agreements with Canal+ in 2000 to supply adult
film content for Canal+'s television networks throughout Europe. Canal+ receives
the exclusive rights to broadcast 75 titles from our library on their networks.
The territories included are France, French speaking Belgium, the Netherlands,
Luxembourg, Scandinavia, Spain and Italy. CANAL+ is one of Europe's largest
Pay-TV operators with approximately 15.5 million subscriptions to its different
offerings and approximately 5.8 million digital subscribers as of June 30, 2001.

INTERNET SERVICES

Our Internet team has combined our extensive media library with the
newest technology to create what we believe to be one of the best adult
websites, www.private.com. We believe that the rapid growth of the e-commerce
market and increased access to the Internet by consumers has created an
opportunity for us to use our proprietary content assets through distribution
over the Internet. During the first six months of 2001, Private.com offered its
more than 84,000 paying members (approximately 37,000 subscribers and 47,000
dial-up callers) access to high quality adult media content, including over
200,000 pages of magazine pictures, photosets, stories, interactive search
galleries and access to video clips from more than 400 Private movies. Private
members also get access to live, webcam, and contact/personals content. Private
acquires customers primarily through our placements in DVDs, videos, magazines
and broadcast programming with minimal incremental cost. We also acquire new
customers by establishing partnerships with leading portals, including Excite,
Lycos, T-online, Prisacom and other leading e-commerce websites.

subscription and $149.95 for an annual subscription. Consumers wishing to avoid
credit card payments or not having a credit card can access Private.com content
through so-called "dialer access" by dialing into a premium rate number and
paying a per minute fee that varies depending on the country. Private.com
generates additional sales from our customer base by cross-selling our retail
products such as videos and DVDs through the Private.com shop. Private.com can
offer a consumer who views content on the website an immediate opportunity to
purchase that content, on magazine, DVD or video, in our on-line store. Our
websites are currently generating traffic of approximately 2.5 million visits
per month and more than 60 million pages views served per month. In 2000,
Private.com won the "Award du X" at the Erotic Trade Fair in Brussels, Belgium.
We currently maintain a staff of 40 full time Internet employees with more than
10 focusing on technology and the concentrating on website production, sales and
marketing and customer support.

We have also developed a website called Privatespeed.com, offering
broadband customers access to our complete collection of movies and video
content through video-on-demand. Privatespeed has a two pronged strategy for
acquiring customers to its prepaid service: by partnering with broadband ISP's
who host our content and distribute products to their installed customer bases
and by targeting broadband customers directly, who view the content over the
Internet. Privatespeed.com has sold over 150,000 minutes directly to consumers
since it launched in May 2001. We are currently negotiating agreements with
leading broadband ISP's. We believe that with Privatespeed.com we are well
positioned among adult entertainment companies to take advantage of the
transition to broadband content distribution.

We market all of our products directly by e-mail, and had an e-mail
list on June 30, 2001 of approximately 800,000 addresses. We also have direct
links from our DVD and CD-Rom products to our Internet sites, where we can
update such products quickly. We utilize a secure Web Pay application developed
by Verisign which allows on-line processing of credit card payment transactions.
We have in place a well-known protection program, netnanny, cyberpatrol, for
minors which can be controlled by adults to limit access to our websites.

Licensees

We license the right to use our trademarks and photo and video library
to third parties.

In December 1997, Milcap Media Limited entered into an Internet license
agreement with Cyber Entertainment Network, which is in the business of
developing and operating various adult websites. Under this agreement, we
granted Cyber Entertainment use of the website Privategold.com. We provide this
website with adult content and receive a percentage of the gross revenues from
fees collected through the sale of memberships to the website. We received more
than $160,000 per month in the year 2000 under this arrangement, an increase of
100% over 1999. We understand that Privategold.com received, as of January 2001,
350,000 visits per day.

Our local German distributor VPS-Film Entertainment entered into a new
agreement for the distribution of video-on-demand from our extensive video
library on broadband Internet connections via the media[netCom] network in 2000.
Media[netCom]'s customer distributes to local networks for further distribution
to consumers. The 30 month agreement calls for our distributor to provide
content for the entertainment service and for media[netCom] to market the
service to its customer base of local networks.

Our reseller program implemented through our websites,
www.privatecash.com and www.prvtshops.com, provides other websites with
promotional material designed to sell our products. The reseller program aims to
attract adult industry and non-adult industry website owners and potential
website owners to sell our products by means of a 25% commission program. We
then fulfill orders through our network of distributors.

TRADEMARK LICENSING

The Private Collection

Together with several licensees, we have developed a program to market
and distribute high-quality branded merchandise over our websites and the
websites of those licensees. Our licensed product lines include clothing,
novelties, accessories, fragrances, leather goods, eyewear, nutritional
supplements, aphrodisiacs and condoms. These products have been marketed
principally through mail-order and retail outlets, including department and
specialty stores.

On November 30, 1995, Milcap Media Limited entered into a license
agreement with Private Collection and granted Private Collection worldwide
rights to own, operate, distribute, subcontract, market, advertise and promote
merchandise including, rubber goods, vibrating products, pumps, electric items,
lotions, lubricants, potions, aphrodisiacs, realistic rubber and latex products,
condoms, dolls, jelly products, massagers, playing cards and other items that
fall into these product groups, except the rights to greeting and trading cards,
leather and other apparels and lingerie which were licensed on a non-exclusive
basis.

In 1999, the ownership of Private Collection was transferred to Doc
Johnson Enterprises, a worldwide leader in the adult manufacturing and
distribution business with more than 20 years of experience and a reputation for
creative, innovative novelty products, and we renegotiated our 1995 agreement.
Under the new five-year agreement, Doc Johnson Enterprises has the exclusive
worldwide right to manufacture, distribute, sub-contract, market, advertise and
promote a range of adult novelty products under the brand name "The Private
Collection." We, in turn, are entitled to receive royalty income on a quarterly
basis, with a guaranteed minimum payment. We also have a right to purchase at a
special rate an unlimited amount of products manufactured under the agreement
for our own distribution through the Internet, television home shopping and
other similar media.

Under the terms of the agreement, Doc Johnson Enterprises has agreed to
maintain Private's high standards, to market "The Private Collection" with a
pricing policy similar to that of comparable merchandise under the Doc Johnson
brand name and to market the Private collection in a manner similar to that used
by Doc Johnson for its own brands. We have agreed to promote "The Private
Collection" through our own products and services.

Nutritional Supplements, Drinks and Other Similar Products

In October 1997, we entered into a licensing agreement with RH-Patent &
Original AB to expand the market for nutritional supplements such as Private
Passion, Private Kick, Cold Relief, Metabolize 2000, Sleep Eeze, Maxi Charge,
and personal care products such as Brazilian Bronze, Waistline Management,
Cellulite Regulator Gel and Tight Factor.

RH-Patent & Original markets existing government approved products such
as guarana-based energy drinks and aphrodisiacs, under labels such as Private,
Private Passion and Private Kick, and distributes such products through its
existing distribution network and in new markets. These products are also
promoted for mail order and on the Internet

In 1999, we signed an exclusive agreement with K-OS Distribution (UK)
Limited for the distribution in Britain and Ireland of its Private Dynamite
energy drink. Under the five-year agreement, K-OS can engage sub-distributors,
licensees and selling agents within the specified territory to distribute,
promote and sell the product. Private Dynamite is a premium-priced energy drink
that can be drunk by itself or used as a mixer.

PROPRIETARY RIGHTS

General

We believe that our branded magazine titles and logos are valuable
assets and are vital to the success and future growth of our businesses. We have
filed trademark registration applications with respect to most of our trade
names and logos. We believe that the name recognition and image that we have
developed in each of our markets significantly enhance customer response to our
sales promotions. We intend to aggressively defend our trademarks throughout the
world, and we constantly monitor the marketplace for counterfeit products. We
initiate legal proceedings from time to time to prevent unauthorized use of our
trademarks.

Piracy Problems

According to figures from the Motion Picture Association of America,
annual losses from video piracy are an estimated $250 million a year in the
United States alone, and close to $3.0 billion a year worldwide; adult video
represents approximately 14% of the video business.

Piracy involving adult entertainment products and services is most
prevalent in markets where pornography is illegal and in developing countries,
including Eastern European countries, such as Russia, Poland and Romania. Piracy
is so prevalent in many of these countries that we cannot distribute our
products there, as piracy undercuts our price structure and eliminates profit
margins. It is very difficult to enforce our proprietary rights in these
markets.

Another piracy problem concerns the Internet. We are currently unable
to confirm that all mail order sites selling Private products actually sell our
original products and not pirated copies. The problem stems from distribution
procedures, which in the case of Internet, is straight from the Internet
provider's order page to the consumer. Also, video streaming over the Internet
renders it difficult for us to control the origin of what is shown.

Our legal counsel handles most piracy problems and attempts to resolve
these matters or litigate them on a case-by-case basis.

COMPETITION

General Considerations

Our products compete with other products and services that utilize
leisure time or disposable income of adult consumers. The businesses in which we
compete are highly competitive and service-oriented. We have few long-term or
exclusive service agreements with our customers. Business generation is based
primarily on customer satisfaction with key factors in a purchase decision,
including reliability, timeliness, quality and price. We believe that our
extensive and longstanding international operations, our brand name, image and
reputation, as well as the quality of our content and our distributors, provide
a significant competitive advantage over many of our competitors.

Although we believe our magazines and videos are well-established in
the adult entertainment industry, we compete with entities selling adult
oriented products in retail stores, as well as through direct marketing. Many of
these products are similar to ours.

Over the past few years, the adult entertainment industry has undergone
significant change. Traditional producers of softcore content as well as
mainstream providers of media content have shifted to producing hardcore
content. As a result, we face greater competition to distribute hardcore
content. This shift has also led to industry consolidation, creating fewer, more
financially formidable competitors.

Magazines

We meet with minimal direct competition from other publishers of
hardcore adult magazines and paperback books. We believe that our print
publications are dissimilar to other adult publications in style and format. The
only similar business of which we are aware was represented by Rodox N.V., a
Dutch/Danish corporation, which recently decided to discontinue its publishing
operation.

We do not believe there is presently any significant competition in
this segment of our business. Magazines such as Playboy and Penthouse and
similar print publications do not compete directly with our publications, since
we consider them to be softcore publications. There are several hardcore
publications in each country where our magazines are sold. In general, these are
printed in limited editions and are of lower quality than our publications.

Video & DVD

The distribution of adult entertainment videocassettes and DVDs is a
highly competitive business. Each format competes with the other as well as with
other forms of entertainment. Revenue generation for motion picture
entertainment products depends, in part, upon general economic conditions, but
the competitive position of a producer or distributor is still greatly affected
by the quality of, and public response to, the entertainment product it makes
available to the marketplace. Competition arises from established adult video
producers and from independent companies distributing low-quality material.

Our primary competitors in the movie industry are adult motion picture
studios, with in-house production and post-production capabilities. These
include U.S. producers such as Video Company of America and Vivid Film, owned by
Playboy, as well as Wicked Pictures, Evil Angel Productions and Metro Global
Media Inc. Other competitors are smaller, but locally or regionally they are
capable of quickly identifying niche markets that could compete for our
customers. In addition, we also compete with other forms of media, including
broadcast, cable and satellite television, direct marketing, electronic media
and adult entertainment websites.

Broadcasting

The distribution of adult movies on cable and satellite television
systems and hotel pay-per-view systems is highly competitive. Competition in
this area is increasing in line with increasing consumer demand for hardcore
adult entertainment generally. Our strongest geographical market position for
cable and television and distribution is in Europe, with our adult channels,
Private Gold and Private Blue, and licensing arrangements with established
European television networks, such as Canal Plus.

The strength of consumer demand for adult oriented cable programming is
evidenced by the acquisition by Playboy of two hardcore U.S. cable channels from
Vivid Film in July 2001. Until recently, Playboy's business has been largely
confined to softcore adult entertainment and it has resisted entry into hardcore
markets. Competition in this market has also been impacted by an increase in the
number and availability of satellite "direct-to-home" transmission channels. Our
cable and satellite television activities in the United States to date have been
limited to licensing our content to channel operators, such as Playboy.

In licensing, we experience competition from our video and DVD
competitors. Our position in U.S. markets is not well established, and
competition in this market is strong.

In the United States, cable companies such as Time Warner Cable,
TeleCommunications, Inc., or TCI and Cablevision Systems offer softcore services
like the Playboy Channel. Other cable companies like American Cable
Entertainment, Comcast Corporation and Greater Media offer explicit adult
programming, such as that available from Spice and Exxxtasy Networks.

The four largest cable providers are: TCI, Time Warner Cable, MediaOne
and Comcast. TCI is the largest U.S. cable provider. In addition to softcore
channels such as Playboy TV, AdulTVision, Spice Channel and The Adam & Eve
Channel, there are seven hardcore video channels available in the U.S.
exclusively on C-Band satellite television dishes, which are: Eurotica, Exotica,
Exxxtasy, True Blue, X!, Xxxcite and XXXplore. Exotica, Exxxtasy and True Blue
(offered by New Frontier Media, Inc.) offer uncensored hardcore material.
Exxxtasy is the only U.S. hardcore adult channel being broadcast to Australia
and the Pacific Rim.

We have only recently entered the hotel pay-per-view market, which is
an extremely competitive market. This is due primarily to our unwillingness to
enter into a typical hotel pay-per-view agreement, which requires a licensor
such as Private to license the movies to a hotel provider on a fixed fee basis
for each film or video. We have recently entered into license agreements with a
major hotel chain which provides for license fees based upon the number of rooms
they service, and we are now intensifying our efforts to penetrate this segment
of the market.

Internet

The Internet market for adult oriented content is expanding quickly.
There are numerous adult media content websites competing with ours, most of
which are free. Although consumer access to free websites may cause us to limit
our ability to raise our prices, we see our chief competitors as adult pay
websites that charge for their services and are operated by companies that
possess global distribution, broadcasting and branding. Currently, there are few
companies that fit this description, including Playboy.com, Penthouse.com and
Vividvideo.com.

EMPLOYEES

As of March 31, 1999, 2000 and 2001 we employed 67, 93 and 120 people,
respectively, on a full-time basis. As of June 30, 2001, we had 140 employees.

Our full-time editorial and post-production staff consists of an
editor-in-chief, six executive editors and approximately seven editors,
associate editors and assistant editors who oversee the quality and consistency
of the artwork and editorial copy and manage the production schedule of each
issue. The production of each issue requires the editors to coordinate the
activities of a writer, a pencil artist, an inker, a colorist and a printer over
a two-month period. The majority of this work is performed on our premises in
Barcelona, Spain.

The photographers and directors consist of freelancers who generally
receive a flat fee. We have entered into agreements with some photographers,
movie directors and writers under which such people have agreed to provide their
services to us on an exclusive basis, generally for a period of one to three
years.

We believe that we have a good relationship with our employees.
Currently, none of our employees is represented by a labor union.

GOVERNMENT REGULATION

We operate in a highly regulated industry. This requires us to be
socially aware and sensitive to government strictures, including laws and
regulations designed to protect minors or which prohibit the distribution of
obscene material. We take great care to comply with all applicable governmental
laws and regulations in each jurisdiction where we conduct business. Moreover,
we do not knowingly engage the services of any business or individual that does
not adhere to the same standards. Since 1965, we have never been held to have
violated any laws or regulations regarding obscenity or the protection of
minors.

Regulation of the Adult Entertainment Industry in the U.S.

The following is a description of some of the laws and regulations in
the United States which impact the adult entertainment industry. It is not an
exhaustive description of all such laws. Moreover, we conduct business in over
35 countries around the world, each of which has its own regulatory framework.
This regulatory environment is constantly changing in the geographical areas in
which we conduct business, and in some instances laws which are enacted are
subsequently determined by the courts to be unconstitutional.

The Classification and Rating Administration of the Motion Picture
Association of America, MPAA, a motion picture industry trade association,
assigns ratings for age group suitability for theatrical and home video
distribution of motion pictures. Submission of a motion picture to the MPAA for
rating is voluntary, and we do not submit our motion pictures to the MPAA for
review. However, with the exception of several titles which have been re-edited
for cable television, most of the movies distributed by us, if so rated, would
most likely fall into the "NC-17 - No Children Under 17 Admitted" rating
category because of their depiction of nudity and sexually explicit content.

The right to distribute adult videocassettes, magazines and DVD
products in the United States is protected by the First and Fourteenth
Amendments to the United States Constitution, which prohibits Congress or the
several States from passing any law abridging the freedom of speech.

The First and Fourteenth Amendments, however, do not protect the
dissemination of obscene material, and several states and communities in which
our products are distributed have enacted laws regulating the distribution of
obscene material, with some offenses designated as misdemeanors and others as
felonies, depending on numerous factors. The consequences for violating these
state statutes are as varied as the number of states enacting them. Similarly,
specific U.S. federal regulations prohibit the dissemination of obscene
material. The potential penalties for individuals (including directors, officers
and employees) violating the Federal obscenity laws include fines, community
service, probation, forfeiture of assets and incarceration. The range of
possible sentences requires calculations under the Federal Sentencing
Guidelines, and the amount of the fine and the length of the period of the
incarceration under those guidelines are calculated based upon the retail value
of the unprotected materials. Also taken into account in determining the amount
of the fine, length of incarceration or other possible penalty are whether the
person accepts responsibility for his or her actions, whether the person was a
minimal or minor participant in the criminal activity, whether the person was an
organizer, leader, manager or supervisor, whether multiple counts were involved,
whether the person provided substantial assistance to the government, and
whether the person has a prior criminal history. In addition Federal law
provides for the forfeiture of: (1) any obscene material produced, transported,
mailed, shipped or received in violation of the obscenity laws; (2) any
property, real or personal, constituting or traceable to gross profits or other
proceeds obtained from such offense; and (3) any property, real or personal,
used or intended to be used to commit or to promote the commission of such
offense, if the court in its discretion so determines, taking into consideration
the nature, scope and proportionality of the use of the property in the offense.

With respect to the realm of potential penalties facing an organization
such as ours, the forfeiture provisions detailed above apply to corporate assets
falling under the statute. In addition, a fine may be imposed, the amount of
which is tied to the pecuniary gain to the organization from the offense or
determined by a fine table tied to the severity of the offense. Also factored
into determining the amount of the fine are the number of individuals in the
organization and whether an individual with substantial authority participated
in, condoned, or was willfully ignorant of the offense; whether the organization
had an effective program to prevent and detect violations of the

law; and whether the organization cooperated in the investigation and accepted
responsibility for its criminal conduct. In addition, the organization may be
subject to a term of probation of up to five years.

Federal and state obscenity laws define the legality or illegality of
materials by reference to the U.S. Supreme Court's three-prong test set forth in
Miller v. California, 413 U.S. 1593 (1973). This test is used to evaluate
whether materials are obscene and therefore subject to regulation. Miller
provides that the following must be considered: (a) whether "the average person,
applying contemporary community standards" would find that the work, taken as a
whole, appeals to the prurient interest; (b) whether the work depicts or
describes, in a patently offensive way, sexual conduct specifically defined by
the applicable state law; and (c) whether the work, taken as a whole, lacks
serious literary, artistic, political or scientific value. The Supreme Court has
clarified the Miller test in recent years, advising that the prurient interest
prong and patent offensiveness prong must be measured against the standards of
"an average person, applying contemporary community standards," while the value
prong of the test is to be judged according to a reasonable person standard.

We are engaged in the wholesale distribution of our products to U.S.
wholesalers and/or retailers. We have taken steps to ensure compliance with all
Federal, State and local regulations regulating the content of motion pictures
and print products, by staying abreast of all legal developments in the areas in
which motion pictures and print products are distributed and by specifically
avoiding distribution of motion pictures and print products in areas where the
local standards clearly or potentially prohibit these products. In light of our
efforts to review, regulate and restrict the distribution of our materials, we
believe that the distribution of our products does not violate any statutes or
regulations.

Many of the communities in the areas in which we offer or intend to
offer products or franchises, have enacted zoning ordinances restricting the
retail sale of adult entertainment products. We supply products only in
locations where the retail sale of adult entertainment products is permitted.

In February 1996, the U.S. Congress passed the Telecommunications Act.
Some provisions of the Telecommunications Act are directed exclusively at cable
programming in general and adult cable programming in particular. In some cable
systems, audio or momentary bits of video of premium or pay-per-view channels
may accidentally become available to non-subscribing cable customers. This is
called "bleeding." The practical effect of Section 505 of the Telecommunications
Act is to require many existing cable systems to employ additional blocking
technology in every household in every cable system that offers adult
programming, whether or not customers request it or need it, to prevent any
possibility of bleeding, or to restrict the period during which the programming
is transmitted from 10:00 p.m. to 6:00 a.m. Penalties for violation of the
Telecommunications Act are significant and include fines and imprisonment.
Surveying of cable operators and initial results indicate that most will choose
to comply with Section 505 by restricting the hours of transmission. We believe
that our revenues will be marginally adversely affected as a result of
enforcement of Section 505. However, as digital technology (which is unaffected
by Section 505) becomes more available, we believe that ultimately the impact
will be insignificant.

The National Defense Authorization Act of 1997 was signed into law in
September 1996. One section of that legislation that began as the Military Honor
and Decency Act or the Military Act, bans the sale or rental of sexually
oriented written or videotaped material on property under the jurisdiction of
the Department of Defense. A Federal Court has permanently enjoined enforcement
of the Military Act and has prohibited the Department of Defense from changing
its acquisition and stocking practices based on the Military Act. The government
has filed an appeal and a decision by the Appellate Court is pending. The
Military Act, if applicable to our products and enforceable, would prohibit the
sale of our magazines and videos at commissaries, PX's and ship stores, and
would adversely affect a portion of our sales attributable to such products.
Based on preliminary estimates and current sales levels at such locations, we
believe that any such impact would be immaterial.

As discussed above, federal and state government officials have
targeted "sin industries," such as tobacco, alcohol, and adult entertainment for
special tax treatment and legislation. In 1996, U.S. Congress passed the
Communications Decency Act of 1996, or the CDA. Recently, the U.S. Supreme
Court, in ACLU v. Reno, held certain substantive provisions of the CDA
unconstitutional. Businesses in the adult entertainment and programming
industries expended millions of dollars in legal and other fees in overturning
the CDA. Investors should understand that the adult entertainment industry may
continue to be a target for legislation. In the event we must defend ourselves
and/or join with other companies in the adult programming business to protect
our rights, we may incur significant expenses that could have a material adverse
effect on our business and operating results.

Child Pornography and Non-Mainstream Content

Roughly 90% of the adult material produced and distributed over the
past 15 years contains mainstream sexual acts between consenting adults. The
rest could be classified as specialty material which does not contain explicit
sex, but which still involves consenting adults (i.e. fetish, bondage, etc.).
Mainstream sex acts means intercourse, oral sex, anal sex, group sex, etc. Our
adult movies do not contain any depictions, let alone actual performances of
rape, sex with coercion, animals, urination, defecation, violence, incest or
child pornography.

Since 1990, the Free Speech Coalition has worked with the U.S.
government to create a workable regulatory system designated to prevent minors
from working in the adult industry. Child Protection Restoration and Penalties
Enhancement Act of 1990 (18 U.S.C. section 2257) requires, in essence, that no
one can work without having copies of their passport or driver's license, and a
declaration under perjury of their age and true name, on file with a designated
Custodian of Records, and available for inspection by law enforcement.

As indicated above, all of our products are all in compliance with 18
U.S.C. Section 2257 and all models performing in our productions are 18 years of
age or older.

Internet Regulation

Government regulation of the Internet is a rapidly developing area and,
therefore, adds additional uncertainty to our business. New laws or regulations
relating to the Internet, or more aggressive application of existing laws, could
decrease the growth of our websites, prevent us from making our content
available in various jurisdictions or otherwise have a material adverse effect
on our business, financial condition and operating results. These new laws or
regulations could relate to liability for information retrieved from or
transmitted over the Internet, taxation, user privacy and other matters relating
to our products and services. For example, the U.S. government has recently
enacted laws regarding website privacy, copyrights and taxation. Moreover, the
application to the Internet of other existing laws governing issues such as
intellectual property ownership and infringement, pornography, obscenity, libel,
employment and personal privacy is uncertain and developing.

Regulation of the Internet outside the United States

We may also be subject to claims based upon the content that is
available on our websites through links to other sites and in jurisdictions that
we have not previously distributed content in. Implementing measures to reduce
our exposure to this liability may require us to take steps that would
substantially limit the attractiveness of our websites and/or their availability
in various geographic areas, which could negatively impact their ability to
generate revenue.

Regulation of the Internet Gaming Industry

We recently entered into a licensing and profit sharing agreement with
an online gaming business which offers sports betting as well as casino-style
gambling using our trade names and media content. Although our agreement with
this third party places responsibility for compliance with Internet gaming
regulations on the third party, we may nonetheless be deemed to be a full
partner in the joint venture and thus we may become subject to the gaming
regulations of each jurisdiction in which this third party conducts business. In
many instances the application of these regulations is still evolving and is,
therefore, subject to a great deal of uncertainty. However, it is our
understanding that online gaming is prohibited in most states and possibly by
U.S. federal law. Therefore, we face the risk of prosecutions under U.S. state
and federal laws. Furthermore, a number of other jurisdictions have recently
enacted regulations designed to prohibit or curtail access to Internet gambling
in their jurisdictions. Any such prosecutions in the United States and the
regulations of other jurisdictions could have a material adverse effect on our
business, results of operations and financial condition.

PROPERTIES

Leases

In 1997, we relocated our principal administrative and operating
offices from Stockholm to Barcelona. The Barcelona facility houses our
administrative, editorial and operational offices, the data center, customer
service, and some of the warehouse and fulfillment facilities. With the
acquisition of our French distributor at the end of 1997, we also inherited some
office space in Paris, France. Currently, we lease office space in Barcelona,
Spain, Knegsel, the Netherlands, and Paris, France.

Since May 27, 1997, Milcap Media Group is a lessee under an initial
five-year term representing its operating corporate office. The lease was
effective from the May 27, 1997. It is located at Carretera de Rubi 22-26, 08190
Sant Cugat del Valles, Barcelona, Spain. Average monthly base rental expense is
approximately $13,400. We recognize the rent expense on a straight-line basis
over the extended term of the lease. Additionally, the lease requires us to pay
our proportionate share of the building's real estate taxes and operating
expenses. The majority of this space is used by all of our operating groups,
primarily for post production.

Private Benelux is the lessee under a lease which terminates on July
31, 2006 (de Dintel 20) and July 31, 2008 (de Dintel 18) located in Knegsel.
Average monthly base rental expense is approximately $2,716. We recognize the
rent expense on a straight-line basis over the extended term of the lease.
Additionally, the lease requires us to pay our proportionate share of the
building's real estate taxes and operating expenses. We use the majority of this
space for operating our distribution in the Benelux countries.

Private France is the lessee under an expired term lease, which is now
currently month-to-month, for approximately 50 square meters of corporate
headquarters space located at 17, rue Charles de Gaulle - 78680 Epone, France.
Subsequent to the term of the lease, the average monthly base rental expense is
approximately $1,001. The rent expense is being charged to operations, on a
monthly basis.

Private North America is the lessee under a lease effective April 1,
2001, with a term of 5 years, for a 21,500 square foot office and warehouse
facility located in Sun Valley, California. Average monthly base rental expense
is $11,300. The rent expense is being charged to operations on a monthly basis.
Additionally, the lease requires us to pay our proportionate share of the
building's real estate taxes and operating expenses.

Private Media Group maintains an office in the United States at 3230
Flamingo Road, Suite 156, Las Vegas, Nevada 89121. Presently, no office space is
rented and the above address is simply a mailing address.

LEGAL PROCEEDINGS

On June 7, 1999 the Swedish tax authority, Skattemyndigheten i
Stockholm, instituted a proceeding against Milcap Media Limited, our wholly
owned subsidiary, in the Administrative Court in Stockholm to seize assets as
security in the event that the tax authority issues an assessment for corporate
income tax against Milcap Media Limited. Although no tax assessment had been
issued at that time, the Swedish tax authority was of the opinion that Milcap
Media Limited had a permanent establishment in Sweden and therefore owed
corporate income tax in Sweden for the income tax years 1995, 1996, 1997 and
1998. For purposes of the seizure proceedings, the tax authority has filed a
seizure request for an arbitrary amount of SEK 17.7 million, which is not based
upon the actual financial results of Milcap Media Limited. As a consequence, the
Swedish tax authority has filed and obtained an order from the Administrative
Court in Stockholm, without prior notice to Milcap Media Limited, to seize
assets of Milcap Media Limited having a value of up to SEK 17.7 million.

On December 20, 1999, Milcap Media Limited received an official
notification from the tax authority with a statement that the tax authority had
arbitrarily assessed Milcap Media Limited with income for the tax years
mentioned above for a total amount of SEK 150 million, which is not based upon
the actual financial results of Milcap Media Limited. The effective tax on the
arbitrary income assessment would amount to around SEK 42 million plus fines of
SEK 16.8 million. In addition, interest is payable on those amounts. However,
Milcap Media Limited is appealing the assessment to the Administrative Court in
Stockholm. The final outcome of the appeal is expected to take several years and
we have applied for a postponement of payment of the taxes and fees until the
case is settled. No final decision has been given.

We believe that the opinion of the tax authority is without legal basis
as Milcap Media Limited conducts no operations in Sweden and has no permanent
establishment in Sweden. Accordingly, we believe that the opinion of the tax
authority is incorrect and that no tax will be due when the case finally
determined.

In March 2000, Milcap Media Group entered into an agreement with a
construction contractor, ACOMO S.L., providing for the construction of a new
office building and warehouse facility located in Barcelona, Spain. Under the
terms of the agreement, Acomo was to construct the facility and transfer title
to the land and building to Milcap Media Group for a total purchase price of
approximately 2,705 million pesetas, approximately SEK 149.3 million.
Subsequently, Milcap Media Group entered into an agreement with Viosland Trade
S.L., a company deemed to be controlled by our principal shareholder, whereby
Viosland agreed to acquire Milcap Media Group's interest in the project and to
assume all financial obligations to Acomo. Milcap Media Group granted a
guarantee to Acomo in the event of non-payment by Viosland. As of June 30, 2001,
972 million pesetas, approximately SEK 53.7 million, has been paid to Acomo in
respect of construction in progress.

In July 2001, Acomo filed a civil action against Milcap Media Group and
Viosland in Barcelona (Common Trial N. 298/2001) for approximately 479 million
pesetas, approximately SEK 26.4 million, which Acomo claims is due for payment
under the agreement, plus all future amounts which may fall due for payment over
the course of the agreement. Milcap Media Group has filed an answer to this
action, contending, among other things, that Acomo has not complied with some
terms in the agreement and that accordingly no payment has fallen due. In any
event, Viosland has committed to pay any amount found payable by Milcap Media
Group.

We are from time to time a defendant in suits for defamation and
violation of rights of privacy, many of which allege substantial or unspecified
damages, which we vigorously defended.

We are presently engaged in litigation, most of which is generally
incidental to the normal conduct of its business and is immaterial in amount. We
believe that our reserves are adequate and that no such action will have a
material adverse impact on our financial condition. However, there can be no
assurance that our ultimate liability will not exceed our reserves.

MANAGEMENT

Directors, Executive Officers and Key Employees

The following table sets forth all of the current directors, executive
officers and key employees of Private Media Group, their ages and the offices
they hold with us. Executive officers and employees serve at the discretion of
the Board of Directors. All directors hold office until the next annual meeting
of shareholders and until their successors have been duly elected and qualified.
The directors can be contacted at our headquarters in Barcelona, Spain.

Name Age Position With Private Media Group or Subsidiary
------------------------------------ --- -----------------------------------------------

Directors
---------

Berth H. Milton..................... 46 Chief Executive Officer, President and Director

Bo Rodebrant........................ 48 Director

Robert L. Tremont................... 57 Director

Other Executive Officers and Key
--------------------------------
Employees
---------

Claes Henrik Marten Kull............ 36 Chief Marketing Officer, Private Media Group;
Marketing Manager, Milcap Media Group

Javier Sanchez...................... 40 Chief Operating Officer, Private Media Group;
General Manager, Milcap Media Group

Johan Gillborg...................... 39 Secretary and Chief Financial Officer, Private
Media Group; Chairman, Private France;
Chairman, Private Benelux; Administrator,
Milcap Media Group

Philip Christmas.................... 40 Vice President, Chief Financial Officer
designate, Private Media Group, Chief Financial
Officer, Milcap Media Group

Ad Heesbeen......................... 46 Managing Director of Private Benelux B.V.

Jean-Pierre Michel.................. 46 Managing Director of Private France S.A.

The following sets forth certain information with respect to the
persons who are members of the Board of Directors, executive officers or key
employees of Private Media Group:

Berth H. Milton was appointed to the Board of Directors of Private Media Group
in February 1998 and was the Corporate Secretary from June 1998 until February
1999. In February 1999 Mr. Milton was appointed Chairman of the Board and Chief
Executive Officer of Private Media Group. Mr. Milton has been Administrator of
Milcap Media Group from its inception until June 2000 and has been acting as an
advisor to the Milcap Media Group since 1991. Mr. Milton is active in several
international industry and real estate projects and developments.

Bo Rodebrant was appointed as a Director of Private Media Group in August 1998.
Mr. Rodebrant has operated his own accountancy and management consulting
services, R&S Ekonomiservice, since 1986. Prior to that time he co-founded an
ice cream business, Hemglass, which was the largest of its kind in Stockholm,
Sweden. The business was sold by Mr. Rodebrant in 1986. Mr. Rodebrant holds a
degree in construction engineering which he received in 1974.

Robert L. Tremont was appointed to our Board of Directors in September 1998.
Since 1980 Mr. Tremont has owned and operated a number of businesses in the
adult entertainment industry. Mr. Tremont is a principal in

Sundance Associates and Private Collection, which companies were the exclusive
distributors for most of our products in the United States and Mexico until
April 2001, when we assumed the distribution of our products through the
acquisition of specified assets from Mr. Tremont's controlled company, Anton
Enterprises d.b.a Private North America. He has also been active in political
and lobbying activities for the adult entertainment industry, serving for
several years as President of the Free Speech Coalition. Mr. Tremont received a
Bachelors of Arts degree from the University of Minnesota and a Masters of Arts
degree from the University of the Americas in Mexico City.

Claes Henrik Marten Kull joined the Milcap Media Group in 1992 as a sales
manager, and has been Milcap Media Group's Marketing Manager since 1993, and was
appointed Chief Marketing Officer of Private Media Group in August 1998, with
his main responsibilities being to identify and open up new markets and
negotiate with distributors. Since he began working for the Private Media Group
in 1992, it has commenced distribution in approximately 25 new countries. From
1991 to 1992 he operated his own business (his business partner was Johan
Gillborg) which acted as a sub-contracted sales force for Securitas Direct of
Sweden. From 1988 to 1991 he managed a private import and trading corporation,
which became the start of his career as an entrepreneur and sales professional.

Javier Sanchez was appointed as the Chief Operating Officer of Private Media
Group, Inc. in August 1998, and has been the General Manager of Milcap Media
Group, member of the Board of Milcap Media Group and Private France, and
minority shareholder of Milcap Media Group since its incorporation in 1991. He
has been a member of the Board of Milcap Publishing Group AB since its
incorporation in 1994 until 1997. From 1988 to 1991 he was the Operations
Director of a mid-size printing company near Barcelona. From 1984 to 1987 he was
the Production Manager of a major printing company in Barcelona.

Johan Gillborg was appointed as Chief Financial Officer of Private Media Group
in August 1998 and has been the Chairman and Managing Director of Milcap
Publishing Group AB from 1994 until January 2000. During the year 2000 he became
Chairman of Private Benelux and Private France. Following the completion of the
2001 offering, Mr. Gillborg will take the position as Director of Business
Development. Mr. Gillborg joined the group in 1992 as Marketing Consultant. From
1991 to 1992 he operated his own business which acted as sub-contracting sales
force for Securitas Direct of Sweden (together with Mr. Kull). From 1988 to
1990, Mr. Gillborg served as a general manager in the hotel business in the
United Kingdom and Portugal. Mr. Gillborg holds a Bachelor's Degree in Business
Administration from Schiller International University in London.

Philip Christmas was appointed Vice President, in August 2001 and is expected to
assume the position of Chief Financial Officer of Private Media Group following
the completion of this offering. Prior to this time Mr. Christmas was employed
by PricewaterhouseCoopers and its predecessor firm, Coopers & Lybrand, since
1988. While employed by PricewaterhouseCoopers he was responsible for carrying
out audits of multinational and local companies and, more recently, he has
provided transaction services to clients acquiring businesses in Spain. Mr.
Christmas is a member of the Institute of Chartered Accountants of England and
Wales and of ROAC (Official Register of Auditors) in Spain.

Ad Heesbeen has been the Managing Director of Private Benelux (formerly known as
Extasy Video B.V.) since 1989, when he founded the distribution business which
was purchased by Private Media Group in 2000. Prior to founding Extasy Video,
Mr. Heesbeen was partner in Exclusief Film & Video B.V., a mainstream video
distribution company which was founded in 1986.

Jean-Pierre Michel has been the Managing Director of Private France S.A. since
1994, when he started the distribution business which was purchased by Milcap
Media Limited Group in 1997. Prior to joining the Milcap Media Group, Mr. Michel
was the COO of Polygram France and was mainly active in the marketing division.
Prior thereto he was active in the video and magazine industry and was sales
manager for Antares, Sevres, France and Echo S.A., Boulogne, France.

Committees of the Board of Directors

Our Board of Directors currently has three committees: (1) an Audit
Committee, (2) a Compensation Committee, and (3) an Executive Committee.

Our Audit Committee is currently comprised of two directors, Bo
Rodebrant and Robert Tremont, and our Chief Financial Officer, Johan Gillborg.
The Audit Committee reviews and recommends to the Board, as it deems

necessary, our internal accounting and financial controls and the accounting
principles and auditing practices and procedures to be employed in preparation
and review of our financial statements. The Audit Committee makes
recommendations to our board of directors concerning the engagement of
independent public accountants and the scope of the audit to be undertaken by
the accountants.

Our Compensation Committee is currently comprised of Messrs. Milton and
Sanchez. The Compensation Committee reviews and, as it deems appropriate,
recommends to our board of directors policies, practices and procedures relating
to the compensation of the officers and other managerial employees and the
establishment and administration of employee benefit plans. It exercises all
authority under any employee stock option plans as the Committee therein
specified, unless our board of directors resolution appoints any other committee
to exercise such authority, and advises and consults with our officers as may be
requested regarding managerial personnel policies. The Compensation Committee
also has such additional powers as may be conferred upon it from time to time by
our board of directors.

The Executive Committee is comprised of Messrs. Milton, Kull and
Sanchez. The Executive Committee is authorized, subject to certain limitations,
to exercise all of the powers of our board of directors during periods between
board meetings.

Compensation of Directors

None of our directors received any compensation during the most recent
fiscal year for serving in their position as a director. No plans have been
adopted to compensate directors in the future. However, in 1999, we adopted the
1999 Employee Stock Option Plan which authorizes stock options to be issued to
directors.

We may in the future, at its discretion, compensate directors for
attending board of directors and committee meetings and reimburse the directors
for out-of-pocket expenses incurred in connection with attending such meetings.

Executive Compensation

The following table summarizes all compensation paid to our Chief
Executive Officer and to our other most highly compensated executive officers
other than the Chief Executive Officer whose total annual salary and bonus
exceeded $100,000, the Named Executive Officers, for services rendered in all
capacities to us during the fiscal years ended December 31, 2000, 1999 and 1998.
No other executive officer of Private Media Group earned compensation in excess
of $100,000 in each of these periods.

Summary Compensation Table
Name and Principal Position Fiscal Annual Compensation
During Fiscal 2000 Year Salary ($)
---- ---- ----------

Berth H. Milton............. 2000 151,000
President and CEO (1) 1999 151,000
1998 144,000

Javier Sanchez.............. 2000 150,262
Chief Operating Officer, 1999 150,262
Private Media Group, Inc. 1998 143,274
General Manager, Milcap
Media Group

Aggregate compensation for
all executive officers and
directors................... 2000 678,953
1999 491,769
1998 460,779

----------

(1) Mr.Milton was appointed as our CEO in February 1999.

Compensation Committee Report

We maintain a Compensation Committee, which currently consists of one
director, who is also our Chief Executive Officer, Berth Milton, and our Chief
Operating Officer, Javier Sanchez. The Compensation Committee approves salary
practices for the Chief Executive Officer, and sets performance objectives and
establishes the compensation of the Chief Executive Officer, subject to the
review and approval of our board of directors' outside independent directors.
The compensation of other executive officers is reviewed and set by the Chief
Executive Officer, after review and consultation with the other members of the
Compensation Committee.

Our policy in compensating executive officers is to establish methods
and levels of compensation that will provide strong incentives to promote our
profitability and growth and reward superior performance. Compensation of
executive officers includes salary as well as stock-based compensation in the
form of stock options under our Employee Stock Option Plan. During 2000, salary
accounted for all the executive officers' direct compensation. No new stock
option grants were made. However, initial stock option grants in 1999 to
executive officers continue to vest quarterly. We believe that the existing
compensation of our executive officers should be sufficient to attract and
retain highly qualified personnel and also provide meaningful incentives for
measurably superior performance.

To date we have relied upon cash flow from operations as our principal
source of working capital. As a result, we have placed special emphasis on
equity-based compensation, in the form of options, to preserve our cash for
operations. This approach also serves to match the interests of our executive
officers with the interest of our shareholders. We seek to reward achievement by
our executive officers of long and short-term performance goals, which are
measured by factors including improvements in revenue and profitability, and
successfully developing new products and markets.

Included in the factors considered by the Compensation Committee in
setting the compensation of our Chief Executive Officer were growth in sales,
and the development new products, expansion of our markets and establishing
strategic business relationships.

During 2000, we made significant progress in connection with our
efforts to increase sales, develop new products and establish strategic business
relationships. Although we made substantial progress in the growth of our
business, Mr. Milton, our Chief Executive Officer, voluntarily elected to forego
any increase in his compensation for 2000, in order to maximize our use of
working capital.

Compensation Committee Interlocks and Insider Participation

Our Compensation Committee is currently comprised of Messrs. Milton and
Sanchez, who are our Chief Executive Officer and Chief Operating officer,
respectively, and served in these capacities during the 2000 fiscal year. During
the last fiscal year, none of our executive officers served on our board of
directors or Compensation Committee of any other entity whose officers served
either on our board of directors or Compensation Committee.

Performance Graph

The following graph compares on a cumulative basis the yearly
percentage change, assuming dividend reinvestment, over the three fiscal years
in (a) the total shareholder return on our common stock with (b) the total
return on the Standard & Poors SmallCap 600 Index and (c) the total return on a
peer group. The Standard & Poors SmallCap 600 index includes companies with an
average market capitalization of approximately $615.6 million, with the largest
company having a capitalization of approximately $3.4 billion. The peer group is
an index weighted by the relative market capitalization of the following two
companies, which were selected for being in an industry related to ours
(provider of adult content). The two are Playboy and New Frontier Media. The
comparisons in the graph are required by the SEC and are not intended to
forecast or be indicative of possible future performance of our common stock.

COMPARISON OF CUMULATIVE TOTAL RETURN SINCE LISTING*
AMONG PRIVATE MEDIA GROUP, INC., S&P SMALLCAP 600 INDEX
AND PEER GROUP

December 31, December 31, February 28,
2000 1999 1999
------------ ------------ ------------

Private Media Group, Inc........... 195 152 100
S&P SmallCap 600 Index............. 138 124 100
Peer Group......................... 40 90 100

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

* $100 invested on 2/28/99 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.

Employee Stock Option Plan

Our 1999 Employee Stock Option Plan was adopted by our board of
directors and shareholders in 1999. The Plan allows us to grant options to
purchase common stock to designated employees, executive officers, directors,
consultants, advisors and other corporate and divisional officers of Private
Media Group.

The Plan authorizes us to grant stock options exercisable for up to an
aggregate of 3,600,000 shares of common stock. No stock options may be granted
under the Plan, after the Plan expires, on March 1, 2004. If a stock option
expires, terminates or is cancelled for any reason without having been exercised
in full, the shares of common stock not purchased under the Plan are available
for future grants.

The purchase price (exercise price) of option shares must be at least
equal to the fair market value of such shares on the date the stock option is
granted or such later date we may specify. The stock option is exercisable for a
period of ten years from the date of grant or such shorter period as is
determined by us. Each stock option may provide that it is exercisable in full
or in cumulative or non-cumulative installments, and each stock option is
exercisable from the date of grant or any later date specified in the option. We
have the authority under the Plan to take certain actions, including the
authority to accelerate vesting schedules and to otherwise waive or adjust
restrictions applicable to the exercise of stock options.

Unless otherwise provided by us, an optionee may not exercise a stock
option unless from the date of grant to the date of exercise the optionee
remains continuously in our employ. If the employment of the optionee terminates
for any reason other than death, disability or retirement at or after the age of
65, (1) the stock options then currently exercisable will remain exercisable for
a period of 90 days after that termination of employment (except that the 90 day
period is extended to 12 months if the optionee dies during such 90 day period),
unless those stock options expire prior to the expiration of 90 days, and (2)
the stock options then not exercisable will terminate as of the date of
termination of employment.

Our board of directors may at any time suspend, amend or terminate the
Plan. Shareholder approval is required, however, to (1) materially increase the
benefits accruing to optionees, (2) materially increase the number of securities
which may be issued (except for adjustments under anti-dilution clauses), or (3)
materially modify the requirements as to eligibility for participation. The Plan
authorizes us to include in stock options provisions which permit the
acceleration of vesting in the event of a change in control of Private Media
Group as defined under the Plan.

As of August 17, 2001, 1,647,850 options were outstanding under the
Plan with an average exercise price of $5.20. Options for 1,952,150 shares of
common stock remained available for grant as of such date. Future grants under
the Plan will be made at our discretion.

Option Grants in the Last Fiscal Year

We did not grant any stock options to the individuals named in the
Summary Compensation Table above in the year ended December 31, 2000.

The following table summarizes information regarding the number and
value of all options to purchase our common stock held by the named executive
officers.

AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at at Fiscal Year
Fiscal Year End End($)*
--------------- -------

Shares Acquired on Exercisable/ Exercisable/
Name Exercise(#) Value Realized ($) Unexercisable Unexercisable**
---- ----------- ------------------ ------------- ---------------

Berth H. Milton - - 135,000 45,000 394,387 131,462
Javier Sanchez - - 135,000 45,000 394,387 131,462

___________

*Based on the closing price of our common stock on the last trading day of the
fiscal year ended December 31, 2000.

** Weighted average exercise price for vested options only has been used.
Unvested options vest quarterly, and the exercise price of the unvested
(unexercisable) options is the fair market of the common stock on each vesting
date.

Related Party Transactions

We have a short-term loan to an entity controlled by Mr. Milton in the
amount of SEK 6.8 million, SEK 4.5 millio and SEK 4.8 million at December 31,
1999, 2000 and June 30, 2001, respectively. The loan bears interest at the rate
of 10% per annum and has no maturity date.

On March 31, 1998, two of our wholly owned subsidiaries, together with
Zebra Forvaltings AB, Sweden "Zebra", an affiliated company of Berth Milton,
purchased all of the outstanding capital stock of Viladalt, Spain from its
shareholders, none of whom is related to Private Media Group or Mr. Milton, for
the sum of approximately $2.7 million. It was agreed that our subsidiaries would
own 69% of the Viladalt shares, Zebra would own 31% of the Viladalt shares, and
that each party would be responsible for its proportionate share of the purchase
price. To avoid the appearance of a conflict of interest, Zebra agreed to sell
its interest in Viladalt to us at Zebra's cost when and if the Viladalt interest
was sold by us. The principal asset of Viladalt is a country house in the
Barcelona, Spain area known as Casa Retol de la Sarra. The Viladalt property was
acquired by us as a real estate investment and has been utilized as a filming
location for certain of our film and video productions. In July, 2001, Viladalt
entered into an agreement to sell certain land and building for a consideration
of SEK 29.0 million. The sale closed in July, 2001 and we received the cash
consideration and repaid related outstanding long-term borrowings of SEK 9.5
million.

Peach Entertainment Distribution was a party to an exclusive
Distribution Agreement with Sundance Associates, Inc. which had been in effect
since 1995. Robert Tremont, a Director of Private Media Group, is the sole
shareholder of Sundance. The Distribution Agreement granted to Sundance the
exclusive rights to distribute in the United States and Mexico specified
products, including magazines, videocassettes, DVDs, CD-ROMs and laser discs.
Royalties were paid by Sundance to Peach Entertainment Distributors in
accordance with an agreed royalty schedule. The Distribution Agreement
automatically renewed for successive one year terms and was cancelable by either
party prior to the end of each one year term. During the 12 month periods ended
December 31, 1998, 1999 and 2000, Sundance paid royalties to Peach Entertainment
Distributors of $2.2 million, $2.1 million and $ 2.8 million, respectively. On
April 1, 2001, we acquired the inventory and certain contracts of our U.S.
distributor, Anton Enterprises, Inc. d.b.a. Private North America, for a total
consideration of SEK 9,091,250, payable quarterly in 12 equal payments
commencing in July 2001. Anton Enterprises, Inc. d.b.a. Private North America
was under the control of Mr. Tremont and had taken over the Distribution
Agreement from Sundance.

Our Spanish subsidiary, Milcap Media Group, has issued a guarantee of
indebtedness to Viosland, a company deemed to be controlled by our principal
shareholder. The guarantee relates to the financing of the construction of a new
office and warehouse located in Barcelona, Spain, part of which is proposed to
be leased by us

at its fair rental value upon completion of construction. The guarantee requires
Milcap Media Group to pay the general contractor for costs of construction if
not paid by Viosland. We do not believe that Milcap Media Group will be required
to pay any significant amounts related to this guarantee.

The foregoing transactions were approved by a majority of our
disinterested directors and are believed to be on terms no less favorable to us
than could be obtained from unaffiliated third parties on an arms-length basis.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table presents certain information as of August 17, 2001,
regarding the beneficial ownership of common stock, both before and after giving
effect to the sale of shares of common stock in this offering, by (1) each of
our directors, our Chief Executive Officer and certain other executive officers,
individually, (2) all persons known by us to be beneficial owners of five
percent or more of our common stock, and (3) all of our directors and executive
officers as a group. Unless otherwise noted, the persons listed below have sole
voting and investment power and beneficial ownership with respect to such
shares. The table assumes that the underwriters do not exercise their
over-allotment option

Percent Percent
Number of Shares Beneficially Beneficially
Beneficially Owned Shares Owned Before Owned After
Name and Address (1) Before Offering (1) Offered Offering Offering
-------------------- ------------------- ------- -------- --------

Berth H. Milton (2) 23,763,001 - 48.1% 43.0%

Senate Limited (3) 5,025,000 - 17.8% 14.8%
3 Bell Lane, Gibraltar

Chiss Limited (4) 4,200,000 - 14.9% 12.4%
3 Bell Lane, Gibraltar

Bajari Properties Limited (5) 1,875,000 - 6.7% 5.5%
7 Myrtle Street, Douglas, Isle of Man

Pressmore Licensing Limited 1,875,000 - 6.7% 5.5%
P.O. Box N-341, Nassau, Bahamas

Perrystone Trading Limited 1,875,000 - 6.7% 5.5%
P.O. Box 171, Providenciales, Turks & Caicos

Solidmark (Gibraltar) Ltd. 1,875,000 - 6.7% 5.5%
3 Bell Lane, Gibraltar

Churchbury Limited 1,776,000 600,000 6.3% 3.5%
3 Bell Lane, Gibraltar (6)

Kingston Finance Ltd. 1,875,000 - 6.7% 5.5%
Wickhams Cay, Road Town, Tortola, BVI

Marten Kull (7) 360,000 - 1.3% 1.1%

Johan Gillborg (8) 240,000 - * *

Javier Sanchez (9) 172,500 - * *

Bo Rodebrant (10) 57,000 - * *

All Executive Officers and Directors 24,592,501 - 49.3% 44.2%
as a group (11)

____________
* Denotes less than 1%

(1) Beneficial ownership is determined in accordance with rules of the SEC,
and includes generally voting power and/or investment power with
respect to securities. Shares of common stock which may be acquired
upon exercise or conversion of warrants, options or preferred stock
which are currently exercisable or exercisable within 60 days of August
17, 2001, are deemed outstanding for computing the beneficial ownership
percentage of the person holding such securities but are not deemed
outstanding for computing the beneficial

ownership percentage of any other person. Except as indicated by
footnote, to the knowledge of Private Media Group, the persons named in
the table above have the sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them.

(2) Includes 21,000,000 shares of common stock issuable upon conversion of
7,000,000 of ours $4.00 Series A Convertible Preferred Stock and
101,918 shares of common stock which have accrued as dividends on the
Preferred Stock. Mr. Milton is indirectly the beneficial owner of the
7,000,000 shares of $4.00 Series A Convertible Preferred Stock and
622,583 shares of common stock owned of record by Slingsby Enterprises
Limited. The amount also includes (i) 1,875,000 shares of common stock
owned by Bajari Properties Limited, of which Mr. Milton is the sole
shareholder, (ii) 142,500 shares issuable upon exercise of options
issued under our Employee Stock Option Plan. His address is c/o Private
Media Group, Carretera de Rubi 22-26, 08190 Sant Cugat del Valles,
Barcelona, Spain.

(3) Cornelia Strehl is the sole shareholder of Senate Limited and,
therefore, may be deemed to be the beneficial owner of these shares.

(4) Andrea Armas is the sole shareholder of Chiss Limited and, therefore,
may be deemed to be the beneficial owner of these shares.

(5) Berth Milton is the sole shareholder of Bajari Properties Limited.
Therefore, these shares may be deemed to be beneficially owned by Mr.
Milton and are also reflected as being beneficially owned by Mr.
Milton, individually, in the above table.

(6) Jacqueline Baker is the sole shareholder of Churchbury Limited and,
therefore, may be deemed to be the beneficial owner of these shares.

(7) Includes 135,000 shares issuable upon exercise of options issued under
our Employee Stock Option Plan. Mr. Kull's address is c/o the Private
Media Group, Carretera de Rubi 22-26, 08190 Sant Cugat del Valles,
Barcelona, Spain.

(8) Includes 135,000 shares issuable upon exercise of options issued under
our Employee Stock Option Plan. Mr. Gillborg's address is c/o Private
Media Group, Carretera de Rubi 22-26, 08190 Sant Cugat del Valles,
Barcelona, Spain.

(9) Includes 142,500 shares issuable upon exercise of options issued under
our Employee Stock Option Plan. Mr. Sanchez's address is c/o Private
Media Group, Carretera de Rubi 22-26, 08190 Sant Cugat del Valles,
Barcelona, Spain.

(10) Includes 57,000 shares issuable upon exercise of options issued under
our Employee Stock Option Plan. Mr. Rodebrant's address is c/o Private
Media Group, Carretera de Rubi 22-26, 08190 Sant Cugat del Valles,
Barcelona, Spain.

(11) Includes 21,000,000 shares of common stock issuable upon conversion of
the outstanding 7,000,000 shares of $4.00 Series A Convertible
Preferred Stock, 622,583 shares of common stock owned of record by
Slingsby Enterprises Limited, 1,875,000 shares of common stock owned by
Bajari Properties Limited, 101,918 shares of common stock which have
accrued as dividends on the Preferred Stock and 612,000 shares issuable
upon exercise of outstanding options under our Employee Stock Option
Plan.

SELLING SHAREHOLDERS

The following table sets forth information with respect to the
ownership of shares of Private Media Group's common stock, including outstanding
options and warrants, immediately before and after completion of the offering.

Shares Percentage
Shares Percentage owned ownership
owned ownership Number of after after
Number of after after Shares offering offering
Shares sold offering offering sold assuming assuming
assuming no assuming no assuming no assuming no full full
Percentage exercise of exercise of exercise of exercise of exercise of exercise of
ownership the over- the over- the over- the over- the over- the over-
Shares owned before allotment allotment allotment allotment allotment allotment
Shareholder before offering offering option option option option option option
----------------------- --------------- -------- ----------- ----------- ----------- ----------- ----------- -----------

AJJM Heesbeen Beheer BV 416,928 1.5% 100,000 316,928 0.9% 100,000 316,928 0.9%
Churchbury Limited 1,776,000 6.3% 600,000 1,176,000 3.5% 600,000 1,176,000 3.5%
Perrystone Trading
Limited 1,875,000 6.7% - 1,875,000 5.5% 850,000 1,025,000 3.0%
Ulf Ashund 80,000 0.3% - 80,000 0.2% 50,000 30,000 0.1%
----------------------- --------- ---- ------- --------- ----- --------- --------- -----
Total selling
shareholders*.......... 4,147,928 14.7% 700,000 3,447,928 10.1% 1,600,000 2,547,928 7.5%

________________
* Includes shareholders that have agreed to sell shares if the over-allotment
option is exercised.

The following table sets forth certain information with respect to the
common stock of Private Media Group immediately before and after completion of
the offering, based on common stock outstanding as of August 17, 2001.

Shares Percentage
Shares Percentage owned ownership
owned ownership Number of after after
Number of after after Shares offering offering
Shares sold offering offering sold assuming assuming
assuming no assuming no assuming no assuming no full full
Percentage exercise of exercise of exercise of exercise of exercise of exercise of
ownership the over- the over- the over- the over- the over- the over-
Shares owned before allotment allotment allotment allotment allotment allotment
Name before offering offering option option option option option option
----------------------- --------------- -------- ----------- ----------- ----------- ----------- ----------- -----------

Shares of selling
shareholders* 3,939,464 14.0% 700,000 3,239,464 9.5% 1,600,000 2,339,464 6.9%
Shares in lock-up 15,926,553 56.5% 15,926,553 46.9% 15,926,553 46.9%
Other shares 8,308,729 29.5% 14,808,729 43.6% 15,708,729 46.2%
----------------------- ---------- ---- ------- ---------- ------ --------- ---------- -------
Total................. 28,174,746 100.0% 700,000 33,974,746 100.0% 1,600,000 33,974,746 100.0%

________________
* Excludes unexercised options and warrants.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.001, of which (1) 28,174,746 shares were outstanding as of
August 17, 2001, and (2) 10,000,000 shares of preferred stock, $.001 par value,
of which 7,000,000 shares of $4.00 Series A Convertible Preferred Stock were
issued and outstanding as of August 17, 2001.

Common Stock

Holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the shareholders entitled
to vote. Shareholders are not entitled to cumulate their votes for the election
of directors. Holders of our common stock are entitled to such dividends as our
board of directors may declare from time to time, in the manner and on the terms
and conditions provided by law and our articles of incorporation. Upon our
liquidation, dissolution or winding, the holders of our common stock are
entitled to receive ratably our net assets available after (1) payment of all
debts and other liabilities, and (2) payment in full to holders of our preferred
stock then outstanding, if any, of any amount required to be paid under the
terms of such preferred stock. Holders of our common stock to not have any
preemptive rights.

Our outstanding shares of common stock are, and the shares offered by
us in this offering will be, when issued and paid for, validly issued, fully
paid and non-assessable.

Preferred Stock

Our Articles of Incorporation authorize the issuance of up to
10,000,000 shares of preferred stock. Our board of directors is authorized,
without further shareholder action, to issue such shares in one or more series,
and to fix the rights, preferences, privileges and restrictions of such shares,
including dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, amounts payable upon liquidation and the number of shares
constituting any series or the designation of such series. If such preferred
stock is issued, it will rank senior to our common stock in respect of rights to
receive dividends and to participate in distributions or payments in the event
of any liquidation, dissolution or winding up of Private Media Group. Our
issuance of preferred stock may have the effect of delaying, deferring,
discouraging or preventing a third party from acquiring a majority of our
outstanding voting stock or other change in control of us without further action
by the shareholders, and may adversely affect the voting and other rights of the
holders of the common stock, including the loss of voting control to others. Our
board of directors does not at present intend to seek shareholder approval prior
to issuing any such preferred stock, unless required to do so by law or
applicable listing standards.

Each share of the 7,000,000 outstanding preferred stock has been
designated as $4.00 Series A Convertible Preferred Stock, and provides for a 5%
annual stock dividend to be paid quarterly in shares of common stock, valued at
the average closing price of common stock for the 20 consecutive days prior to
the quarterly record date, as reported by Nasdaq or NASD, Inc. OTC Bulletin
Board. Each outstanding share of preferred stock is convertible at any time into
three shares of common stock. However, if at any time our common stock has a
closing price of less than $1.34 per share for 20 consecutive days, the
outstanding preferred stock may be converted, at the option of the holder of
such preferred stock, into common stock at a 20% discount to the five day
average closing price, prior to the date of conversion.

Slingsby Enterprises Limited, Dublin, Ireland currently owns 100% of
our 7,000,000 $4.00 Series A Convertible Preferred Stock. Slingsby Enterprises
Limited is directly or indirectly controlled by Berth H. Milton, our Chief
Executive Officer and a Director of Private Media Group.

Warrants

On January 28, 2000, we acquired all of the outstanding shares of
Extasy Video for total consideration of SEK 27.3 million. The consideration
included warrants to purchase 208,464 shares of our common stock. The warrants
are exercisable during the period January 28, 2001 to January 28, 2004 at an
exercise price of $9.63 per share. Each of the outstanding warrants contains
anti-dilution provisions that protect the warrant holders against dilution in
certain events, including but not limited to stock dividends, stock splits,
reclassification, or mergers. A warrant holder will not possess any rights as a
shareholder. Shares of common stock, when issued upon the exercise of the
warrants in accordance with the terms thereof, will be fully paid and
non-assessable.

Indemnification

We have the power to indemnify our directors and officers against
liability for certain acts pursuant to the laws of Nevada, our state of
incorporation. In addition, under our Articles of Incorporation, no director,
officer or agent is personally liable to the corporation or its shareholders for
monetary damages arising out of a breach of such person's fiduciary duty to us,
unless such breach involves intentional misconduct, fraud or a knowing violation
of law, or the payment of an unlawful dividend. We also maintain a standard form
of officers' and directors' liability insurance policy that provides coverage to
us, and our officers and directors for specified liabilities.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following discussion describes the material U.S. federal income tax
consequences that may be relevant to the purchase, ownership and disposition of
shares of our common stock. This discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations ("Regulations"), administrative and judicial interpretations
thereof, all as in effect on the date hereof and all of which are subject to
change, possibly with retroactive effect, and differing interpretations. In
addition, this discussion deals only with shares of our common stock held as
capital assets within the meaning of Section 1221 of the Code. This discussion
does not address all of the tax consequences that may be relevant to prospective
purchasers of shares of our common stock in light of their particular
circumstances or to persons subject to special tax rules, such as the U.S.
federal income tax treatment of insurance companies, financial institutions,
dealers in securities or foreign currencies, tax-exempt investors, persons
holding shares of our common stock as a position in a "straddle," conversion or
other integrated transaction, persons owning, directly, indirectly or
constructively, 10% or more of the total combined voting power of all classes of
our stock or U.S. Holders whose functional currency (as defined in Section 985
of the Code) is not the U.S. dollar. Former citizens or long-term lawful
permanent residents of the United States may be subject to special tax rules for
a period of 10 years after cessation of citizenship or permanent resident
status. Prospective purchasers of shares of our common stock should consult with
their own tax advisors regarding the application of the U.S. federal income tax
laws to their particular situations as well as to any additional tax
consequences of purchasing, holding or disposing of shares of our common stock,
including the applicability and effect of the tax laws of any state, local or
foreign jurisdiction.

As used in this section, the term "U.S. Holder" means a beneficial
owner of shares of our common stock, who or that is for U.S. federal income tax
purposes (1) a citizen or individual resident of the United States, (2) a
corporation or certain other entities created or organized in or under the laws
of the United States or of any political subdivision thereof, (3) an estate the
income of which is subject to U.S. federal income taxation regardless of its
source or (4) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust. A
"resident" of the United States generally includes an individual who (1) is
lawfully admitted for permanent residence in the United States, (2) is present
in the United States for 183 days or more during a calendar year, or (3) (a) is
present in the United States for 31 days or more during a calendar year, (b) is
present in the United States for an aggregate of 183 days or more, on a weighted
basis, over a 3-year period ending in such calendar year, and (c) does not have
a closer connection to a "tax home" that is located outside the United States.

As used in this section, the term "non-U.S. Holder" means any person
who is not a U.S. Holder as defined above.

Consequences to U.S. Holders

Taxation of Dividends

To the extent provided below, a U.S. Holder will be required to include
in gross income as a dividend any cash or the fair market value of any property
distributed by us when received by or on behalf of such U.S. Holder.

A distribution by us with respect to shares of our common stock
(including a pro rata redemption of shares of our common stock or distributions
of additional shares if any holder may elect instead to receive cash or other
property or if some holders receive cash while others receive additional shares)
will be treated first as a dividend includible in gross income to the extent of
our current and accumulated earnings and profits, as determined under U.S.
federal income tax principles, then as a tax-free return of basis in the shares
of our common stock to the extent of the U.S. Holder's adjusted tax basis in
such shares of our common stock, with the balance of the distribution, if any,
treated as a gain realized by the U.S. Holder from the sale or disposition of
the shares of our common stock that is includible in gross income. Dividends
paid by us may be eligible for the dividends received deduction generally
allowed to corporations under the Code.

Sale or Other Disposition of the Shares

Upon a sale or other disposition of shares of our common stock
(including upon our liquidation or dissolution or as a result of certain non-pro
rata redemptions of Shares), a U.S. Holder will recognize capital gain or loss
in an amount equal to the difference between the amount realized and such U.S.
Holder's tax basis in the shares

of our common stock. Such gain or loss generally will be U.S. source gain or
loss. In the case of a U.S. Holder that is an individual, capital gains
generally will be subject to U.S. federal income tax at preferential rates if
specified minimum holding periods are met. The deductibility of capital losses
is subject to limitations.

Consequences to Non-U.S. Holders

Taxation of Dividends

Dividends paid to a non-U.S. Holder generally will be subject to the
withholding of United States federal income tax at a rate of 30% unless such
non-U.S. Holder is entitled to a lower rate under an income tax treaty.
Dividends include (1) distributions of property, (2) cash or property received
in pro rata redemption of shares of our common stock and (3) distributions of
additional shares if any holder may elect instead to receive cash or other
property or if some holders receive cash while others receive additional shares.

The United States-Germany income tax treaty reduces the rate of
withholding on dividends received by a German resident who qualifies for treaty
benefits to 15%. In the case of a German corporation that beneficially owns at
least 10% of our voting shares, the rate is reduced to 5%.

To claim such lower rate of withholding, a non-U.S. Holder must provide
a properly completed Internal Revenue Service Form W-8 BEN to the person
otherwise required to withhold the United States tax. A non-U.S. person holding
our shares through a United States partnership or other fiscally transparent
entity may be subject to withholding on its shares of our dividends unless it
provides a Form W-8 BEN to the entity or its agents. A non-U.S. holder that
fails to claim a reduced withholding rate to which it is entitled may claim a
refund from the Internal Revenue Service.

Dividends that are effectively connected with a non-U.S. Holder's
conduct of a trade or business within the United States (and, generally, if a
treaty applies, attributable to the holder's permanent establishment within the
United States) are subject to U.S. federal income tax on a net income basis at
regular, graduated individual or corporate rates. In order to avoid the
withholding of tax from dividends effectively connected with its U.S. trade or
business, a non-U.S. holder must provide Internal Revenue Service Form W-8ECI to
the person otherwise required to withhold. In addition, a non-U.S. Holder that
is a foreign corporation may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, as adjusted
for certain items, unless a lower rate applies under a United States income tax
treaty with such non-U.S. Holder's country of residence (under the United
States-Germany income tax treaty, the rate of the branch profits tax is 5%). For
this purpose, dividends, gain or income in respect of a share will be included
in earnings and profits subject to the branch tax if the dividends, gain or
income is effectively connected with the conduct of the United States trade or
business of the holder.

Sale or Other Disposition of the Shares

Gain recognized by a non-U.S. Holder on the sale or other disposition
of shares of our common stock is not subject to United States federal income tax
unless (1) the gain is effectively connected with the non-U.S. holder's United
States trade or business (and, generally, if a treaty applies, attributable to
the non-U.S. holder's United States permanent establishment) or (2) such
non-U.S. Holder is an individual present in the United States for at least 183
days during the taxable year of the disposition and certain other conditions are
met. Gain effectively connected with the conduct of a United States trade or
business is subject to tax on a net income basis at regular, graduated
individual or corporate tax rates (and a preferential rate applies to an
individual's gain on shares held for at least one year).

U.S. Gift and Estate Taxes

Gifts of shares of our common stock made by non-U.S. Holders generally
will not be subject to United States federal gift tax. Shares of our common
stock held by a non-U.S. Holder at the time of death will be included in the
non-U.S. Holder's gross estate for United States federal estate tax purposes
unless a treaty provides otherwise. A non-U.S. Holder's United States taxable
estate generally includes property situated within the United States, shares of
United States corporations and certain debt obligations of United States
obligors.

Under the United States-Germany estate tax treaty, the U.S. federal
estate tax does not apply to shares of our common stock held by a non-U.S.
Holder that is a German domiciliary unless the shares of our common stock

form part of the business property of such non-U.S. Holder's United States
permanent establishment or pertains to a fixed base situated in the United
States and used for the performance of independent personal services.

U.S. Information Reporting and Backup Withholding

Dividend payments with respect to shares of our common stock and
proceeds from the sale of shares of our common stock may be subject to
information reporting requirements and backup withholding tax at rates of up to
30.5%.

A U.S. Holder will not be subject to backup withholding if the U.S.
Holder either provides a duly completed IRS Form W-9 (Request for Taxpayer
Identification Number and Certification) or otherwise establishes an exemption
from backup withholding.

A non-U.S. Holder that is the beneficial owner of shares of our common
stock can establish an exemption from backup withholding and information
reporting by providing a duly completed IRS Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner) or, in the case of a non-U.S. Holder whose shares of
our common stock are effectively connected with the holder's U.S. trade or
business, an IRS Form W-8ECI to the person otherwise required to withhold.

Any amounts withheld under the backup withholding rules from a payment
to a holder may be credited against the holder's U.S. federal income tax
liability, and the holder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS and furnishing any required information.

GERMAN TAX CONSEQUENCES

General

The following section discusses certain German tax consequences of
acquiring, owning and disposing of shares of Private Media Group. This
discussion does not purport to be a comprehensive description of all tax
considerations relevant to a decision to invest in Private Media Group. This
discussion is based on the tax law applicable in Germany as of the date of this
prospectus and on the Act for the Reduction of Tax Rates and Reform of Business
Taxation of October 23, 2000 ("Tax Reduction Act") including further
modifications to this act. The modified Tax Reduction Act has become partly
effective on January 1, 2001. Many provisions with respect to dividends and
capital gains will become applicable in general as of January 1, 2002. This tax
legislation may be subject to amendments, possibly with retroactive effect. On
August 15, 2001, the German Government released a proposal of amendments to the
Tax Reduction Act. Apart from certain explanatory details, this discussion
addresses only corporate income tax, income tax and dividend withholding tax, as
applied to dividends and capital gains, as well as the inheritance and gift tax,
and is limited to certain aspects of these types of taxes. This summary does not
address the tax treatment of holders subject to special rules, such as dealers
in securities, investment funds, foundations, financial institutions or banks,
and the individual tax circumstances of particular shareholders. Prospective
purchasers of the shares are advised to consult their tax advisors about the tax
consequences of the acquisition, ownership and disposition of shares. Only a tax
advisor will be able to appropriately take into account the particular
circumstances of respective shareholders.

Taxation of Dividends received by Individuals

Only one half of the dividends received by individual shareholders
resident in Germany (i.e., having their domicile or habitual abode in Germany)
will be subject to income tax (Halbeinkunfteverfahren). The other half is not
subject to income tax. Likewise, only one half of the expenses related to the
taxable dividend income will be deductible for tax purposes. The taxable amount
is subject to German income tax at regular rates (up to a top tax rate of 48.5 %
plus 5.5 % solidarity surcharge thereon, total tax burden 51.17 %). The
US-withholding tax (see above under "United States Federal Income Tax
Consequences - Consequences to Non US-Holders") can generally be credited
against the German income tax.

However, dividend payments to individuals resident in Germany whose
shares are held as private assets are tax free to the extent that such payments,
together with other investment income (proceeds after deduction of half the
actual income related expenses, or the standard amount for income-related
expenses of DM 100 (or DM 200 for married couples filing jointly), do not exceed
the annual tax-free savings allowance of DM 3,000 (DM 6,000 for married couples
filing jointly).

Individuals resident in Germany whose shares form part of the assets of
a trade or business and corporations and partnerships conducting a trade or
commercial business are subject to a trade tax on income. Half of the dividends
received will be included in the taxable annual gross income for trade tax
purposes. The trade tax rate generally ranges from 15% to 21% of the trade
taxable basis, depending on the municipality in which the shareholder maintains
its permanent establishment. Under special conditions an individual will be
entitled to a credit against his income tax liability. This credit is granted as
compensation for the trade tax burden and is determined pursuant to a certain
formula.

Taxation of Dividends received by Corporations

Dividends received by corporations resident in Germany are generally
exempted from corporate and trade income tax. However, 5% of dividends received
from non-resident corporations are deemed to be non deductible expenses for tax
purposes. As a result, 5 % of such dividends will be subject to taxation.
Therefore, only 95% of the received dividend is tax exempted. The US-withholding
tax (see above under "United States Federal Income Tax Consequences -
Consequences to Non-US-Holders") can generally not be credited against the
German corporate income tax.

For a corporate shareholder not resident in Germany that holds shares
as assets of a permanent establishment in Germany, the same tax exemption
applies.

Taxation of Capital Gains

One half of any capital gain realized on the disposal of shares held by
a shareholder resident in Germany as part of business assets or by a shareholder
not resident in Germany as part of a permanent establishment of a fixed base in
Germany is taxable at regular rates (Halbeinkunfteverfahren).

Where the shares are held as private assets by shareholders resident in
Germany, however, one half of any capital gain will only be taxed if the shares
are disposed of within one year after their acquisition, or - after the
expiration of this period - if the shareholder, at any time during the five
years immediately preceding the disposal, has held, directly or indirectly, at
least 1 % of the corporation's issued share capital (a so-called substantial
participation).

Capital gains realized on the disposal of shares by a corporation
resident in Germany and subject to corporate income tax are in principle tax
exempted. However, according to government's proposals of August 15, 2001,
capital gains can be subject to trade tax, if the shares are held through a
partnership. The same tax exemption applies to a corporate shareholder not
resident in Germany holding the shares as assets of a permanent establishment in
Germany. Capital losses from the disposal of shares by a corporation are in
principle not deductible.

Inheritance and Gift Tax

Under German tax law, the transfer of shares upon death or by way of
gift is generally subject to German inheritance and gift tax, if, inter alia,

(i) the shares are part of the assets of a trade or business of the
decedent or donor for which a permanent establishment is maintained or a
permanent representative has been appointed in Germany; or

(ii) the decedent or donor, or the heir at the time of the death or the
donee at the time of the gift, has his domicile or habitual abode in Germany, or
is a German national not resident in Germany who has not resided continuously
abroad for more than five years.

The few double taxation conventions on inheritance and gift tax
currently in force, e.g., the convention entered into with the United States,
usually provide that the German inheritance and gift tax may only be levied in
(ii) above and, subject to certain restrictions, item (i) above.

Other German Taxes

The sale or transfer of shares is not subject to transfer tax, stamp
duty or similar tax in Germany. No net wealth tax is currently imposed in
Germany.

Further Amendments as from January 1, 2003

The maximum income tax rate for individuals will be reduced as follows:
from 2003, to 47%; and from 2005, to 42%.

UNDERWRITING

Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus, we have agreed to sell
to the underwriters named below, for whom Commerzbank Aktiengesellschaft is
acting as representative for the international underwriters and Commerzbank
Capital Markets Corporation is acting as representative for the U.S.
underwriters, the following number of shares:

International Underwriter Number of Shares
------------------------- ----------------

Commerzbank Aktiengesellschaft.............................

Subtotal.............................................. 5,525,000
---------

U.S. Underwriter

Commerzbank Capital Markets Corporation....................

Subtotal.............................................. 975,000
---------

Total...................................................... 6,500,000
---------

All sales in the United States will be made through Commerzbank Capital
Markets Corporation, a U.S. registered broker-dealer.

The underwriting agreement provides that the underwriters are obligated
to purchase all of the shares in the offering if any are purchased, other than
those shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of shares may be terminated.

The selling shareholders have granted to Commerzbank, on behalf of the
underwriters, a one-time 30-day option to purchase up to 900,000 additional
shares from them at the public offering price less the underwriting discounts
and commissions. Commerzbank may exercise this option only to cover any
over-allotments of shares. If Commerzbank exercises this option, each
underwriter will be obligated, subject to conditions contained in the
underwriting agreement, to purchase a number of additional shares proportionate
to that underwriter's initial amount reflected in the table above.

The underwriters propose to offer the shares initially at the public
offering price on the cover page of this prospectus and to selling group members
at that price less a concession of (euro) per share. The underwriters and
selling group members may allow a discount of (euro) per share on sales to other
broker/dealers. After the offering commences, the public offering price and
concession and discount to broker/dealer may be changed by the representatives.

The following table summarizes the compensation and estimated expenses
we will pay.

Per Share
Without With Total Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------

Underwriting discounts and commissions
paid by us......................... (euro) (euro) (euro) (euro)
Expenses payable by us................ (euro) (euro) (euro) (euro)

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

Pursuant to an agreement among the U.S. and international underwriters,
each U.S. underwriter has agreed that, as part of its distribution of the shares
and subject to specified exceptions, it has not offered or sold, and will not
offer or sell, directly or indirectly, any shares or distribute any prospectus
relating to the shares to any person outside the United States or to any other
dealer who does not so agree. Each international underwriter has agreed or will
agree that, as part of its distribution of the shares and subject to specified
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares in
the United States or to any other dealer who does not so agree. The foregoing
limitations do not apply to stabilization transactions or to transactions
between the U.S. and international underwriters. As used in this prospectus,
"United States" means the United States of America, including each state and the
District of Columbia, its territories, possessions and other areas subject to
its jurisdiction. An offer or sale will be made in the United States if it is
made to (1) any individual resident in the United States or (2) any corporation,
partnership, pension, profit-sharing or other trust or entity, including any
such entity acting as an investment adviser with discretionary authority, whose
office most directly involved with the purchase is located in the United States.

We have agreed that we will not offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any of our shares
or securities convertible into or exchangeable or exercisable for any of our
shares, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, for a period of six months following the first quotation
of our shares on the Frankfurt Stock Exchange and during an additional period of
six months after the expiration of the initial six-month period. During the
additional six month period, we may engage in the transactions described above
providing we obtain the written consent of Commerzbank.

Members of our board of directors, our executive officers, some holders
of our common stock and the holder of our Series A Convertible Preferred Stock
have agreed with the underwriters that they will not, directly or indirectly:

(1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contact to sell,
grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of our common stock or any
securities convertible into or exchangeable or exercisable for
common stock, whether now owned or later acquired by them or
with respect to which they have or later acquire the power of
disposition, or file any registration statement under the
Securities Act with respect to any of the above, or

(2) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership or our common stock, whether
any such swap or transaction is to be settled by delivery of
common stock or other securities, in cash or otherwise,

for a period of six months following the first quotation of our shares on the
Frankfurt Stock Exchange and during an additional period of six months after the
expiration of the initial six month period. During the additional six month
period, members of our board of directors, executive officers, five percent of
shareholders and the holder of our Series A Convertible Preferred Stock may
engage in the transactions described above providing they obtain the written
consent of Commerzbank. During this period, members of our board of directors,
executive officers, five percent shareholders and the holder of our Series A
Convertible Preferred Stock also agree to us instructing the transfer agent for
our common stock not to record any share transfers except for those permitted by
Commerzbank.

We and the selling shareholders have agreed to indemnify the
underwriters, their officers, directors or control persons against liabilities
under the Securities Act, or contribute to payments which such persons may be
required to make in respect of those liabilities.

The several underwriters are offering the shares when, as and if
offered to and accepted by them. This offering is subject to approval of legal
matters by counsel to the underwriters, including the validity of the shares,
and other conditions specified in the underwriting agreements, such as the
receipt by the underwriters of officers' certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.

Under the underwriting agreement, the underwriters may terminate the
underwriting agreement under specified circumstances at any time prior to
admission of the shares for trading on the Frankfurt Stock Exchange, which is
expected on _______, 2001.

Our shares are quoted on the Nasdaq National Market under the symbol
PRVT. We have applied to have our shares approved for listing on the Frankfurt
Stock Exchange under the symbol "___".

In connection with the offering, Commerzbank, acting as representative
of the underwriters, may engage in stabilizing transactions, over-allotment
transactions, syndicate covering transactions, penalty bids and passive market
making in accordance with Regulation M under the Exchange Act.

o Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not
exceed a specified maximum.

o Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated
to purchase, which creates a syndicate short position. The
short position may be either a covered short position or a
naked short position. In a covered short position, the number
of shares over-allotted by the underwriters is not greater
than the number of shares that they may purchase in the
over-allotment option. The underwriters may close out any
short position by either exercising their over-allotment
option and/or purchasing shares in the open market.

o Syndicate covering transactions involve purchases of the
shares in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, Commerzbank will consider, among other things, the
price of shares available for purchase in the open market as
compared to the price at which they may purchase shares
through the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open
market. A naked short position is more likely to be created if
Commerzbank is concerned that there could be downward pressure
on the price of the shares in the open market after pricing
that could adversely affect investors who purchase in the
offering.

o Penalty bids permit Commerzbank to reclaim a selling
concession from a syndicate member when the shares originally
sold by the syndicate member is purchased in a stabilizing or
syndicate covering transaction to cover syndicate short
positions.

o In passive market making, market makers in the shares who are
underwriters or prospective underwriters may, subject to
limitations, make bids for or purchases of shares until the
time, if any, at which a stabilizing bid is made.

These stabilizing transactions, syndicate covering transactions and
penalty bids may give the effect of raising or maintaining the market price of
our shares or preventing or retarding a decline in the market price of the
shares. As a result, the price of shares may be higher than the price that might
otherwise exist in the open market. The underwriters may effect these
transactions on the Nasdaq National Market, the Frankfurt Stock Exchange or
otherwise and, if commenced, may discontinue such transactions at any time.

Offers and sales of our shares outside the United States are being made
in reliance on Regulation S.

No public offering outside the United States and Germany

No action has been or will be taken in any jurisdiction, except in the
United States and Germany, that would permit a public offering of our shares, or
the possession, circulation or distribution of this prospectus or any other
material relating to Private Media Group or our shares in any jurisdiction where
action for that purpose is required. Accordingly, our shares may not be offered
or sold, directly or indirectly, and neither this prospectus not any other
offering material or advertisements in connection with our shares may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.

Stamp and other taxes

Purchasers of the shares offered by this prospectus may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price listed on the cover
page of this prospectus.

THE OFFERING

General

We are offering 5,800,000 shares and the selling shareholders named in
this prospectus are offering 700,000 shares of our common stock in the United
States and in international offerings in Germany and other countries. The U.S.
underwriters will initially offer 975,000 shares in the United States and
concurrently, the international underwriters will offer 5,525,000 shares in
Germany and other countries. In addition, to the extent that the U.S. and
international underwriters sell more than 6,500,000 shares, Commerzbank has the
option, on behalf of the U.S. and international underwriters, to purchase up to
an additional 900,000 from the selling shareholders named in this prospectus.
This over-allotment option is expected to run from _________, 2001 to ________,
2001.

Upon completion of this offering, we will have outstanding an aggregate
of 33,974,746 shares, assuming no exercise of outstanding options. Of these
shares, all of the shares sold in this offering will be freely tradable in the
United States without restriction or further registration under the Securities
Act, unless such shares are purchased by "affiliates", as that term is defined
in Rule 144 under the Securities Act. 248,889 shares held by existing
shareholders are "restricted securities", as that term is defined in Rule 144
under the Securities Act. Restricted Securities may be sold in the U.S. public
market only if registered or if they qualify for an exemption from registration
under Rule 144 under the Securities Act.

Listing and Trading

Our common stock is currently quoted on the Nasdaq National Market and
we have applied to quote supplementally the shares offered by us in this
prospectus on the Nasdaq National Market. We have applied to have all our common
stock admitted to the Frankfurt Stock Exchange on _________, 2001. We expect
trading on the Frankfurt Stock Exchange to commence on __________, 2001.

Lock-up Agreements Required by the Frankfurt Stock Exchange

In addition to the lock-up agreements with Commerzbank described in the
underwriting section of this prospectus and under the rules and regulations of
the Frankfurt Stock Exchange, some of Private Media Group's existing
shareholders have undertaken towards Private Media Group, and Private Media
Group has undertaken towards the Deutsche Boerse AG, each to the extent
permitted by law, that for a period of six months following the date of listing
of the shares on the Frankfurt Stock Exchange they will not offer or sell shares
directly or indirectly, neither on an exchange nor in an off-exchange
transaction, or announce such action, or take any other action that is
economically equivalent to a sale.

Price Range, Offer Price and Allocation

The price range per share within which investors may submit purchase
orders, including orders with price limits, is expected to be fixed on or about
_________, 2001. A notice regarding the availability of the price range is
expected to be published on or about _________, 2001 in one mandatory German
newspaper .

The share price will be determined by Commerzbank together with Private
Media Group, based upon the lower of the average share price on the Nasdaq
National Market from the beginning of the marketing period, expected to be
__________, 2001, up to and including the end of the offering period, expected
to be _________, 2001, and the closing price for the shares on the last day of
the offering period. That figure then may be further discounted to reach a final
price per share. The offer price is expected to be published in one mandatory
German newspaper on or about ________, 2001. Investors who place orders with an
underwriter may obtain information from such underwriter concerning the offer
price and the number of their respective allotted shares on or about _______,
2001.

The underwriters remain free to reject any purchase order in whole or
in part. Commerzbank and Private Media Group have not yet agreed on the
procedure according to which, in the case that the offering is oversubscribed,
the allocation of the offered shares to private investors will take place.

Recognition of the Principles for Allocation

We have recognized the principles for allocation of share issues to
private investors established by the Exchange Expert Commission at the German
Federal Ministry of Finance and are committed to observe these principles. The
underwriters are similarly obliged to recognize and observe these principles.
Once the bookbuilding period is over, we and the underwriters will determine the
procedure to be adopted with respect to the allocation of the offered shares and
will accordingly publish the allocation procedure.

Recognition of German Takeover Code

We have recognized the rules of the German Takeover Code established by
the Exchange Expert Commission at the German Federal Ministry of Finance.

Form, Payment and Delivery

The shares will be represented by one or more global certificates to be
deposited with DTC. Payment for the shares sold in the offering will be due on
or about ________, 2001. Delivery of the shares is expected to be made on the
same date through the book-entry facilities of the DTC and its participants,
Clearstream and Euroclear.

Notices

Notices concerning the shares will be published by Private Media Group
in one mandatory German newspaper.

Voting Rights

Generally, shareholders are entitled to one vote per share.

Dividend Rights

The shares have full rights to dividends paid or declared by Private
Media Group, Inc. after the date of issuance of the shares in respect of the
fiscal year beginning January 1, 2001 and all subsequent fiscal years.

Paying Agent

Commerzbank Aktiengesellschaft will act as paying agent in Germany with
respect to payments of dividends, the exercise of subscription rights and other
activities concerning the shares.

Transfer Agent and Registrar

InterWest Transfer Co., Inc., Salt Lake City, Utah, U.S.A., will act as
transfer agent and registrar.

Designated Sponsors

Commerzbank Aktiengesellschaft and _____________.

Securities Identification Numbers

The securities identification number for the shares is 913,311. The
ISIN Code U.S. is o, and the Common Code is .

Ticker Symbols

Nasdaq National Market Symbol.................. PRVT
Frankfurt Stock Exchange Symbol................

EXPERTS

Ernst & Young AB, independent auditors, have audited our consolidated
financial statements at December 31, 2000, 1999 and 1998, and for each of the
three years in the period ended December 31, 2000, as set forth in their report
included elsewhere herein. We have included our consolidated financial
statements in the prospectus and elsewhere in the Registration Statement in
reliance on Ernst & Young AB's report, given on their authority as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be
passed upon for us by Guzik & Associates, Los Angeles, California. Certain
matters of Nevada law relating to Private Media Group and the validity of the
common stock will be passed upon for us by Woodburn and Wedge, Reno, Nevada,
special Nevada counsel to Private Media Group, and certain matters relating to
Milcap Media Group, will be passed upon by EBAME ASSOCIATS, special Spanish
counsel to Private Media. Shearman & Sterling, Frankfurt, Germany, and London,
England, will pass upon certain legal matters for the underwriters. Samuel S.
Guzik, a principal of Guzik & Associates, beneficially owns 30,000 shares of our
common stock and holds options to acquire an additional 45,000 shares of our
common stock at $4.17 per share.

INFORMATION AVAILABLE TO YOU

Private Media Group files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You can inspect and copy the registration statement on Form S-1 of which this
prospectus is a part, as well as reports, proxy statements and other information
filed by us, at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and its regional office at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can obtain
copies of such material from the Public Reference Room of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You can call the SEC
at 1-800-732-0330 for information regarding the operation of its Public
Reference Room. The SEC also maintains a World Wide Web site at
http:\\www.sec.gov that contains reports, proxy and information statements, and
other information regarding registrants (like Private Media Group) that file
electronically.

This prospectus provides you with a general description of the common
stock being registered. This prospectus is part of a registration statement that
we have filed with the SEC. This prospectus, which is a part of the registration
statement, does not contain all the information contained in the registration
statement. Some items are contained in schedules and exhibits to the
registration statement as permitted by the rules and regulations of the SEC.
Statements made in this prospectus concerning the contents of any documents
referred to in the prospectus are not necessarily complete. With respect to each
such document filed with the SEC as an exhibit to the registration statement,
please refer to the exhibit for a more complete description, and each such
statement is qualified by such reference. To see more detail, you should read
the exhibits and schedules filed with our registration statement.

Our historic and future annual and interim reports may also be
inspected at the offices of Commerzbank Aktiengesellschaft, Kaiserplatz, 60261
Frankfurt am Main, Germany.

You should rely only on the information provided in this prospectus or
any prospectus supplement. We have not authorized anyone else to provide you
with different information. We will not make an offer of the shares of our
common stock in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of those documents.

Private Media Group

INDEX OF FINANCIAL STATEMENTS

Unaudited, Consolidated Financial Statements

Unaudited, Consolidated Balance Sheets as at June 30, 2001 and
audited Consolidated Balance Sheets as at December 31, 2000....................................... F-2

Unaudited, Consolidated Statements of Income and Comprehensive Income for the
six months ended June 30, 2000 and 2001........................................................... F-3

Unaudited, Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 2001............................................................................ F-4

Notes to Unaudited, Consolidated Financial Statements................................................ F-5

Consolidated Financial Statements

Report of Independent Auditors....................................................................... F-9

Consolidated Balance Sheets as at December 31, 1998, 1999 and 2000................................... F-10

Consolidated Statements of Income and Comprehensive Income for the Years
Ended December 31, 1998, 1999 and 2000............................................................ F-11

Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1998, 1999 and 2000.................................................................. F-12

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000.................................................................. F-13

Notes to Consolidated Financial Statements........................................................... F-14

F-1

PRIVATE MEDIA GROUP, INC.
PART I.
FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

December 31, June 30,
(Unaudited)
----------------- ---------------------------
2000 2001 2001
----------------- ------------- -----------
SEK SEK EUR
(in thousands)

ASSETS
Cash and cash equivalents....................................... 14,381 22,017 2,398
Short-term investments (Note 5)................................. - 15,961 1,739
Trade accounts receivable - net................................. 116,555 144,359 15,725
Related party receivable........................................ 4,515 4,827 526
Inventories - net (Note 3)...................................... 56,677 68,143 7,423
Prepaid expenses and other current assets....................... 29,340 31,204 3,399
----------------- ------------- -----------
TOTAL CURRENT ASSETS............................................ 221,468 286,511 31,210

Library of photographs and videos - net......................... 104,183 115,927 12,628
Property, plant and equipment - net............................. 18,150 24,507 2,670
Goodwill - net (Note 4)......................................... 15,843 27,177 2,960
Asset held for sale............................................. 20,976 22,468 2,448
Other assets.................................................... 7,443 2,164 236
----------------- ------------- -----------
TOTAL ASSETS.................................................... 388,063 478,753 52,152
================= ============= ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings........................................... 674 1,237 135
Accounts payable trade.......................................... 49,022 53,089 5,783
Income taxes payable............................................ 21,403 36,309 3,955
Deferred tax liability.......................................... 130 130 14
Accrued other liabilities....................................... 9,729 10,693 1,165
----------------- ------------- -----------
TOTAL CURRENT LIABILITIES....................................... 80,958 101,458 11,052

Long-term borrowings............................................ 4,682 9,409 1,025

SHAREHOLDERS' EQUITY
$4.00 Series A Convertible Preferred Stock...................... - - -
10,000,000 shares authorized, 7,000,000
shares issued and outstanding
Common Stock, $.001 par value, 50,000,000....................... 8,310 8,313 906
shares authorized 27,750,920 and 28,138,598
issued and outstanding at December 31, 2000
and June 30, 2001, respectively
Additional paid-in capital...................................... 88,127 109,482 11,926
Stock dividends to be distributed............................... 6,728 7,434 810
Retained earnings............................................... 199,838 244,855 26,673
Accumulated other comprehensive income.......................... (580) (2,198) (239)
----------------- ------------- -----------
TOTAL SHAREHOLDERS' EQUITY...................................... 302,423 367,886 40,075
----------------- ------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................... 388,063 478,753 52,152
================= ============= ===========

See accompanying notes to consolidated financial statements.

F-2

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

Six-months ended
June 30,
(unaudited)
--------------------------------------
2000 2001 2001
Restated
------------ ------------ ----------
SEK SEK EUR
(in thousands)

Net sales......................................... 116,829 180,217 19,632
Cost of sales..................................... 51,992 62,963 6,859
------------ ------------ ----------
Gross profit...................................... 64,837 117,255 12,773
Selling, general and administrative expenses...... 42,363 66,574 7,252
------------ ------------ ----------
Operating profit.................................. 22,474 50,681 5,521
Sale of controlled entity......................... - 17,229 1,877
Interest expense.................................. 932 1,423 155
Interest income................................... 2,252 623 68
------------ ------------ ----------
Income before income tax 23,794 67,109 7,310
Income taxes...................................... 2,626 14,659 1,597
------------ ------------ ----------
Net income........................................ 21,168 52,450 5,713
------------ ------------ ----------
Other comprehensive income:
Foreign currency adjustments...................... 459 (1,618) (176)
------------ ------------ ----------
Comprehensive income.............................. 21,627 50,832 5,537
============ ============ ==========

Income applicable to common shares................ 15,049 45,016 4,904
============ ============ ==========

Net income per share:
Basic (restated).................................. 0.56 1.61 0.18
============ ============ ==========
Diluted........................................... 0.43 1.06 0.12
============ ============ ==========

See accompanying notes to consolidated financial statements.

F-3

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Six-months ended June 30,
(unaudited)
--------------------------------------
2000 2001 2001
Restated
------------ ------------- -----------
SEK SEK EUR
(in thousands)

Cash flows from operating activities:
Net income.................................................. 21,168 52,450 5,713
Adjustment to reconcile net income to net cash
flows from operating activities:
Deferred Taxes.............................................. (725) - -
Depreciation................................................ 2,419 3,392 370
Stock-based compensation.................................... 100 - -
Tax provision on asset held for sale........................ - 4,000 436
Amortization of goodwill.................................... 439 1,415 150
Gain on sale of controlled entity........................... - (17,229) (1,877)
Amortization of photographs and videos...................... 14,515 19,050 2,075
Effects of changes in operating assets and liabilities:
Trade accounts receivable................................... (12,175) (27,202) (2,963)
Related party receivable.................................... (298) (312) (34)
Inventories................................................. (5,155) (7,006) (763)
Prepaid expenses and other current assets................... (11,566) (1,849) (201)
Accounts payable trade...................................... 772 3,466 378
Income taxes payable........................................ 1,527 10,907 1,188
Accrued other liabilities................................... 11,638 962 105
------------ ------------- -----------
Net cash provided by operating activities................... 22,658 42,043 4,580
Cash flows from investing activities:
Purchase of short-term investments.......................... - 15,961 1,739
Investment in library of photographs and videos............. 19,334 30,794 3,354
Capital expenditures........................................ 863 4,524 493
Investment in subsidiary.................................... - 9,091 990
Cash from sale of controlled entity......................... - (21,444) (2,336)
Investments in asset held for sale.......................... 401 1,493 163
Investments in (sale of) other assets....................... 3,930 (1,066) (116)
Cash acquired in acquisition................................ 673 - -
------------ ------------- -----------
Net cash used in investing activities....................... 25,201 39,352 4,287
Cash flow from financing activities:
Conversion of stock-options and warrants.................... 4,330 1,273 139
Long-term borrowings (repayments on loans), net............. (699) 4,728 515
Short-term borrowings (repayments), net..................... (475) 562 61
------------ ------------- -----------
Net cash (used in) provided by financing activities......... 3,155 6,563 715
Foreign currency translation adjustment..................... 458 (1,618) (176)
------------ ------------- -----------
Net increase in cash and cash equivalents.................. 1,070 7,637 832
Cash and cash equivalents at beginning of the period........ 7,370 14,381 1,567
------------ ------------- -----------
Cash and cash equivalents at end of the period.............. 8,439 22,017 2,398
============ ============= ===========

Cash paid for interest...................................... 229 996 109
============ ============= ===========

Cash paid for taxes......................................... 383 2,130 232
============ ============= ===========

See accompanying notes to consolidated financial statements.

F-4

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation and accounting policies

The accompanying unaudited consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") for interim financial information. Accordingly they do
not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of financial position and results of operations have been included.
Operating results for the six months period ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on form
10-KSB for the year ended December 31, 2000.

The accompanying financial statements have been presented in Swedish
Kronor ("SEK") which is the principal currency in which Private Media Group,
Inc. generate their cash flows.

Solely for the convenience of the reader, the accompanying consolidated
financial statements as of June 30, 2001 and for the six months then ended have
been translated into euros ("EUR") at the rate of SEK 9.18 per EUR 1.00 the
exchange rate of the Swedish Riksbank on June 30, 2001. The translations should
not be construed as a representation that the amounts shown could have been, or
could be, converted into euros at that or any other rate.

Short term investments

The Company considers highly liquid investments with insignificant
interest rate risk and original maturities of three months or less to be cash
and cash equivalents. Investments with maturities greater than three months are
classified as short-term investments. All of the Company's investments are
classified as available-for-sale and are reported at fair value with unrealized
gains and losses, net of tax, recorded as a component of comprehensive income
included in stockholders' equity. Realized gains and losses and declines in
value judged to be other-than-temporary on available-for-sale securities are
included in investment income. Gross unrealized gains and losses on short-term
investments were not significant at June 30, 2001. The Company manages its cash
equivalents and short-term investments as a single portfolio of highly
marketable securities, all of which are intended to be available for the
Company's current operations.

2. Restatement

As previously reported in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2000, in connection with the preparation of the
Company's 2000 annual financial statements, management of the Company determined
that the previously issued 1996, 1998 and 1999 financial statements required
restatement. Certain of the items requiring restatement also affected certain
previously issued interim consolidated financial statements, including the
consolidated financial statements contained in the Company's Form 10-QSBs for
the quarters ended March 31, June 30 and September 30, 2000. The impact of the
restatement on the June 30 and September 30, 2000 net income was a reduction of
SEK 2,820 thousand (SEK 0.06 per diluted share) and SEK 3,748 thousand (SEK 0.08
per diluted share) in each quarter respectively. Accordingly, the previously
issued interim financial statements for the three and six months ended June 30,
2000, have been restated.

The Company has revised its previously reported basic earnings per
share presentation for the six month period ended June 30, 2000, to properly
reflect the issuance of common shares as dividends earned on its outstanding
convertible preferred stock. This had the effect of reducing previously reported
basic earnings per share by SEK 0.22 per share, for the six month period ended
June 30, 2000. The impact of this change on the Company's previously reported
basic earnings per share for the three month periods ended March 31, 2001 and
2000 was a reduction of SEK 0.13 per share and SEK 0.12 per share, respectively.
This change had no effect on previously reported diluted earnings per share in
any of these periods.

F-5

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Inventories

Inventories consist of the following:

December 31, June 30,
------------------- -------------------
2000 2001
------------------- -------------------
SEK SEK
(in thousands)
Magazines.................... 23,585 23,361
Video cassettes.............. 20,516 22,710
DVDs......................... 8,210 18,401
Other........................ 4,366 3,671
------------------- -------------------
56,677 68,143
=================== ===================

4. Acquisitions

Coldfair Holdings Ltd.

On January 1, 2001, the Company acquired all of the outstanding shares
of Coldfair Holdings Ltd. ("Coldfair") for total consideration of SEK
13,356,000. The consideration consisted of 248,889 shares of the Company's
common stock. The excess of the purchase price over the fair market value of the
net assets acquired has resulted in goodwill of SEK 7,760,246.

The allocation of the purchase price is as follows:

SEK
-------------------
Current assets................................. 615,819
Fixed assets and other intangibles............. 5,580,900
Current liabilities............................ (600,965)
Goodwill....................................... 7,760,246
-------------------
13,356,000
===================

The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Coldfair has been included
in the Company's consolidated financial statements since the date of
acquisition. Goodwill is being amortized on a straight line basis over 10 years.

Anton Enterprises, Inc. d.b.a. Private USA.

On April 1, 2001, the Company acquired the inventory and certain
contracts of its U.S. distributor, Anton Enterprises, Inc. d.b.a. Private USA,
for a total consideration of SEK 9,091,250. The excess of the purchase price
over the fair market value of the net assets acquired has resulted in goodwill
of SEK 4,631,259. Goodwill is being amortized on a straight line basis over 10
years.

The allocation of the purchase price is as follows:

SEK
-------------------
Current assets................................ 4,459,991
Goodwill...................................... 4,631,259
-------------------
9,091,250
===================

The Company's pro forma revenues and net income, assuming these
acquisitions occurred on January 1, 2000 and 2001, respectively would not have
been materially different from reported results.

F-6

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Sale of controlled entity

On April 8, 2001, the Company's Swedish subsidiary Peach Entertainment
Distribution AB entered into an agreement to sell its interest in Private
Circle, Inc. a company, the activities of which, the Company may be deemed to
control for cash of SEK 21,444 thousand. This agreement was consummated on May
3, 2001 and the final consideration paid in cash was SEK 2l7,139 thousand.
Through the sale of Private Circle, Inc. the Company realized a net gain of SEK
17,229 thousand. SEK 15,961 thousand has been invested in short-term
investments.

6. Earnings per share

The following table sets forth the computation of basic and diluted
earnings per share:

Six-months ended
June 30,
---------------------------
2000 2001
Restated
------------ ------------

Numerator: (SEK in thousands)

Net income (numerator diluted EPS).......... 21,168 52,450
============ ============

Less: Dividends on preferred stock.......... 6,119 7,434
------------ ------------

Income applicable to common shares
(numerator basic EPS)....................... 15,049 45,016
============ ============

Denominator:

Denominator for basic earnings per share -
Weighted average shares..................... 27,006,125 28,023,684

Effect of dilutive securities:
Preferred stock............................. 21,000,000 21,000,000
Common stock warrants and options........... 1,130,176 543,373
Stock dividends to be distributed........... 68,245 101,918
------------ ------------

Denominator for diluted earnings per share -
weighted average shares and assumed
conversions................................. 49,204,547 49,668,975
============ ============

Earnings per share (SEK)
Basic....................................... 0.56 1.61
============ ============
Diluted..................................... 0.43 1.06
============ ============

F-7

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Subsequent events

In July, 2001, the Company's Spanish subsidiary Viladalt S.L. entered
into an agreement to sell certain land and building for a consideration of SEK
29.0 million. The sale closed in July, 2001 and the Company received the cash
consideration and repaid related outstanding long-term borrowings of SEK 9.5
million.

In June 2000, the Company's shareholders and board of directors
approved an increase in the Company's authorized capital stock, consisting of an
increase in the number of authorized common shares from 50,000,000 to
100,000,000. This increase was effected in August 2001 upon the filing of a
Certificate of Amendment of the Company's articles of incorporation with the
Nevada Secretary of State.

8. Recent Accounting Pronouncements

On July 20, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 eliminates the use of the pooling-of interests method of accounting for
business combinations and clarifies the criteria used to recognize intangible
assets separately from goodwill in accounting for a business combination under
the purchase method. SFAS 141 is effective for any business combination
accounted for by the purchase method that is completed after June 30, 2001 and
this statement supercedes APB Opinion No. 16 "Business Combinations" and related
interpretations.

Under SFAS 142, goodwill and indefinite lived intangible assets will no
longer be amortized but will be reviewed annually for impairment (or more
frequently if indicators of impairment arise). Further separable intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their expected useful lives with no maximum life specified;
whereas under prior rules a maximum life of 40 years was required.

The amortization provisions of SFAS 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, companies are required to
adopt Statement 142 in fiscal years beginning after December 15, 2001 (i.e.,
January 1, 2002 for calendar year companies). Early adoption is permitted for
companies with fiscal years beginning after March 15, 2001 provided that their
first quarter financial statements have not been issued. Because of the
different transition dates for goodwill and intangible assets acquired on or
before June 30, 2001 and those acquired after that date, pre-existing goodwill
and intangibles will be amortized during this transition period until adoption
whereas new goodwill and indefinite lived intangible assets acquired after June
30, 2001 will not.

Adoption of these new standards will have an impact on the Company's
reported goodwill amortization expense and potentially on the carrying value of
goodwill. Goodwill amortization expense for the six months ended June 30, 2001
amounted to SEK 1,414,901, and the net carrying value of goodwill as of that
date was SEK 27,177,100.

9. Contingent Liabilities

In December 1999 the Company received final notification from the
Swedish Tax Authority assessing its subsidiary in Cyprus for the tax years
1995-1998 for a total amount of SEK 42,000,000 plus fines amounting to SEK
16,800,000 plus interest. The Company believes the assessment is without merit
and is in the process of appealing the assessment to the Administrative Court in
Stockholm. The final outcome of the appeal is expected to take several years and
the Company has asked for a postponement of payment of the taxes and fees until
the case is settled. No final decision has been given.

10. Quantitative and Qualitative Disclosures about Market Risk.

We do not use financial instruments or derivatives to hedge our
operations in foreign currencies or for speculative trading purposes.

F-8

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and

Shareholders of Private Media Group, Inc.

We have audited the accompanying consolidated balance sheets of Private
Media Group, Inc, as of December 31, 1998, 1999 and 2000 and the related
consolidated statements of income and comprehensive income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in Sweden and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Private Media Group, Inc, at December 31, 1998, 1999 and 2000 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000, in conformity with generally
accepted accounting principles in the United States of America.

As described in Note 3, certain financial information of the Company
has been restated.

Stockholm, Sweden

April 10, 2001, except for the first paragraph of Note 3, as to which the date
is August 15, 2001.

Ernst & Young AB
----------------

/s/ Tom Bjorklund
-----------------

Tom Bjorklund

F-9

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEETS

December 31,
--------------------------------------------------
1998 1999 2000 2000
Restated Restated
------------------------- ---------- ----------
SEK SEK SEK EUR
(in thousands)

ASSETS
Cash and cash equivalents......................... 4,165 7,370 14,381 1,567
Trade accounts receivable - net (Note 5).......... 55,650 67,992 116,555 12,697
Related party receivable (Note 15)................ 5,178 6,821 4,515 492
Inventories - net (Note 6)....................... 30,888 40,209 56,677 6,174
Prepaid expenses and other current assets
(Note 7).......................................... 9,096 15,973 29,340 3,196
------------------------- ---------- ----------
TOTAL CURRENT ASSETS.............................. 104,978 138,365 221,468 24,125

Library of photographs and videos - net (Note 9).. 79,564 83,885 104,183 11,349
Property, plant and equipment - net (Note 10)..... 9,546 11,973 18,150 1,977
Goodwill (Note 4)................................ - - 15,843 1,726
Asset held for sale (Note 8)...................... 21,709 20,069 20,976 2,285
Other assets...................................... - 2,362 7,443 811
------------------------- ---------- ----------
TOTAL ASSETS...................................... 215,797 256,654 388,063 42,273
========================= ========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings (Note 11)................... 1,802 475 674 73
Accounts payable trade............................ 20,389 21,177 49,022 5,340
Income taxes payable (Note 13).................... 7,834 10,724 21,403 2,331
Deferred income taxes (Note 13)................... 630 755 130 14
Accrued other liabilities (Note 12)............... 8,741 6,439 9,729 1,060
------------------------- ---------- ----------
TOTAL CURRENT LIABILITIES......................... 39,396 39,571 80,958 8,819

Long-term borrowing (Note 14)..................... 7,699 6,080 4,682 510

SHAREHOLDERS' EQUITY (Note 16)
$4.00 Series A Convertible Preferred Stock
10,000,000 shares authorized, 7,000,000
shares issued and outstanding..................... - - - -
Common Stock, $.001 par value, 50,000,000
shares authorized 26,601,866 and 27,750,920
issued and outstanding at December 31, 1999
and 2000, respectively............................ 8,281 8,299 8,310 905
Additional paid-in capital........................ 2,060 33,432 88,127 9,600
Stock dividends to be distributed................. 5,642 9,368 6,728 733
Retained earnings................................. 152,384 159,677 199,838 21,769
Accumulated other comprehensive income............ 336 238 (580) (63)
------------------------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY........................ 168,702 211,014 302,423 32,944
------------------------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ 215,797 256,654 388,063 42,273
========================= ========== ==========

See accompanying notes to consolidated financial sttements.

F-10

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

Years ended December 31,
-----------------------------------------------------
1998 1999 2000 2000
Restated Restated
------------ ------------- ------------ ------------
SEK SEK SEK EUR
(in thousands)

Net sales................................................. 166,317 175,426 258,084 28,114
Cost of sales............................................. 72,851 84,624 98,770 10,759
------------ ------------- ------------ ------------
Gross profit.............................................. 93,465 90,802 159,314 17,354
Selling, general and administrative expenses.............. 53,738 65,661 96,878 10,553
------------ ------------- ------------ ------------
Operating income.......................................... 39,729 25,141 62,436 6,801
Interest expense.......................................... 745 2,674 1,799 196
Interest income........................................... 483 975 3,077 335
------------ ------------- ------------ ------------
Income before income taxes................................ 39,468 23,442 63,714 6,941
Income taxes.............................................. 4,404 3,875 10,705 1,166
------------ ------------- ------------ ------------
Net income................................................ 35,064 19,567 53,009 5,774
------------ ------------- ------------ ------------
Other comprehensive income:
Foreign currency translation adjustments.............. 368 (98) (818) (89)
------------ ------------- ------------ ------------
Comprehensive income.................................. 35,432 19,469 52,191 5,685
============ ============= ============ ============

Income applicable to common shares.................... 29,422 7,292 40,162 4,375
============ ============= ============ ============

Net income per share:
Basic................................................. 1.26 0.29 1.49 0.16
============ ============= ============ ============
Diluted............................................... 0.76 0.29 1.09 0.12
============ ============= ============ ============

See accompanying notes to consolidated financial statements.

F-11

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Accumu-
Addi- Stock lated other Total
Common stock Preferred stock tional dividends compre- share-
------------------------ ----------------------- paid-in to be Retained hensive holders'
Shares Amounts Shares Amounts capital distributed earnimgs income equity
------------ ------------------------ ---------- --------- ----------- ---------- ----------- ----------
SEK SEK SEK SEK SEK SEK SEK

Balance at
January 1, 1998
Restated 22,500,000 8,276 7,000,000 - (284) - 122,962 - 130,954
Shares issued in
reverse
acquisition 1,745,007 5 - - 731 - - - 736
Translation
Adjustment - - - - - - - 336 336
Conversion of
warrants 150,000 - - - 1,613 - - - 1,613
Stock dividends
to be distributed - - - - - 5,642 (5,642) - -
Net income - - - - - - 35,064 - 35,064
------------ ---------- ------------ ---------- --------- ----------- ---------- ---------- ----------
Balance at
December 31, 1998
Restated 24,395,007 8,281 7,000,000 - 2,060 5,642 152,384 336 168,703
Translation
Adjustment - - - - - - - (98) (98)
Conversion of
warrants 1,950,000 16 - - 21,826 - - - 21,842
Stock-based
compensation - - - - 1,000 - - - 1,000
Stock dividends 256,859 2 - - 8,546 (5,642) - - 2,906
Stock dividends
to be distributed - - - - - 9,368 (12,275) - (2,906)
Net income - - - - - - 19,567 - 19,567
------------ ---------- ------------ ---------- --------- ----------- ---------- ---------- ----------
Balance at
December 31, 1999
Restated 26,601,866 8,299 7,000,000 - 33,432 9,368 159,675 238 211,013
Shares and
warrants issued
in acquisition 208,464 2 - - 27,275 - - - 27,277
Translation
Adjustment - - - - - - - (818) (818)
Conversion of
warrants and
options 677,722 6 - - 11,735 - - - 11,741
Stock-based
compensation - - - - 200 - - - 200
Stock dividends 262,868 2 - - 15,485 (9,368) - - 6,119
Stock dividends
to be distributed - - - - - 6,728 (12,847) - (6,119)
Net income - - - - - - 53,009 - 53,009
------------ ---------- ------------ ---------- --------- ----------- ---------- ---------- ----------
Balance at
December 31, 2000 27,750,920 8,310 7,000,000 - 88,127 6,728 199,838 (580) 302,423
============ ========== ============ ========== ========= =========== ========== ========== ==========

See accompanying notes to consolidated financial statements.

F-12

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended
December 31,
-----------------------------------------------------
1998 1999 2000 2000
Restated Restated
------------- ------------ ------------ ----------
SEK SEK SEK EUR
(in thousands)

Cash flows from operating activities:
Net income.................................................. 35,064 19,567 53,009 5,774
Adjustment to reconcile net income to net cash flows
provided by operating activities:
Deferred income taxes....................................... 378 125 (625) (68)
Stock-based compensation ................................... - 1,000 200 22
Depreciation................................................ 2,336 2,879 7,876 858
Amortization of goodwill.................................... - - 1,599 174
Amortization of photographs and videos...................... 17,899 29,362 31,627 3,445
Changes in operating assets and liabilities:
Trade accounts receivable................................... (8,018) (12,342) (46,139) (5,026)
Related party receivable.................................... (5,178) (1,643) 2,306 251
Inventories................................................. (10,391) (9,320) (12,862) (1,401)
Prepaid expenses and other current assets................... (4,922) (6,877) (12,336) (1,344)
Accounts payable trade...................................... 380 776 28,353 3,089
Income taxes payable........................................ 3,128 2,890 11,507 1,254
Accrued other liabilities................................... 4,301 (2,302) 3,876 422
------------- ------------ ------------ ----------
Net cash provided by operating activities................... 34,976 24,116 68,391 7,450

Cash flows used in investing activities:
Investment in library of photographs and videos............. 29,886 33,683 51,925 5,656
Capital expenditures........................................ 4,885 5,305 10,918 1,189
Investments in asset held for sale.......................... 943 (1,640) 907 99
Investment in other assets.................................. (922) 362 6,682 728
Cash acquired in acquisition................................ (736) - 673 73
------------- ------------ ------------ ----------
Net cash used in investing activities....................... 34,056 39,710 71,105 7,746

Cash flow provided by financing activities:
Conversion of warrants...................................... 1,613 21,842 11,741 1,279
Repayments on long-term loan................................ (2,600) (1,619) (1,398) (152)
Short-term borrowings, net.................................. 198 (1,327) 199 22
------------- ------------ ------------ ----------
Net cash provided by financing activities................... (789) 18,896 10,542 1,148
Foreign currency translation adjustment..................... 336 (98) (818) (89)
------------- ------------ ------------ ----------
Net increase in cash and cash equivalent.................... 467 3,204 7,011 764
Cash and cash equivalents at beginning of the year.......... 3,698 4,165 7,370 803
------------- ------------ ------------ ----------
Cash and cash equivalents at end of the year................ 4,165 7,370 14,381 1,567
============= ============ ============ ==========

Cash paid for interest...................................... 544 1,017 413 45
============= ============ ============ ==========

Cash paid for taxes......................................... 332 646 1,638 178
============= ============ ============ ==========

See accompanying notes to consolidated financial statements.

F-13

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The company and basis of presentation

Private Media Group, Inc. ("the Company") was originally incorporated
on September 23, 1980 as Glacier Investment Company, Inc. under the laws of the
State of Utah and, effective November 24, 1997, after a series of interim name
changes, changed its name to Private Media Group Inc. Effective June 12, 1998
the Company acquired Cine Craft Limited ("Cine Craft"), a Gibraltar corporation
and Milcap Media Limited ("Milcap"), a Republic of Cyprus corporation. Prior to
the acquisitions the Company was a holding company with no operations. Milcap
and its subsidiaries and Cine Craft operate under common control and are engaged
in the acquisition, refinement and distribution of video and photo rights for
adult feature magazines and movies (videocassettes and DVD's) through
distributors and via the Internet. The acquisition was accounted for as a
reverse acquisition whereby the Company was considered to be the acquiree even
though legally it is the acquiror. Accordingly, the accompanying financial
statements present the historical combined financial statements of Cine Craft
and Milcap from January 1, 1998 through the acquisition date of June 12, 1998
and the consolidated financial statements of the Company, Cine Craft and Milcap
since that date. Since the fair value of the net assets of the Company were
equal to their net book values on June 12, 1998, the assets and liabilities of
the Company remained at their historical cost following the acquisition. During
the year ended December 31, 2000, the Company established two new wholly owned
subsidiaries, one in Sweden (Peach Entertainment Distribution AB, "Peach") and
one in the Republic of Cyprus (Fraserside Holdings Ltd., "Fraserside"). These
subsidiaries were formed to carry on the business of Milcap Publishing Group AB
(Sweden) and Milcap (Cyprus), respectively.

The accompanying financial statements have been presented in Swedish
Kronor ("SEK") which is the principal currency in which Cine Craft and
Fraserside generate their cash flows.

Solely for the convenience of the reader, the accompanying consolidated
financial statements as of December 31, 2000 and for the twelve months then
ended have been translated into euros ("EUR") at the rate of SEK 9.18 per EUR
1.00 the exchange rate of the Swedish Riksbank on June 30, 2001. The
translations should not be construed as a representation that the amounts shown
could have been, our could be, converted into euros at that or any other rate.

2. Summary of significant accounting policies

Principles of Consolidation

The consolidated financial statements include the accounts of the
Company and all wholly owned subsidiaries and of companies which the Company is
deemed to control. All significant intercompany transactions and balances have
been eliminated in consolidation. Investments in associated companies, defined
as entities where the Company has an equity ownership representing between 20%
and 50%, are accounted for under the equity method.

Foreign Currency

The financial statements of the Company's operations based outside of
Sweden have been translated into Swedish Kronor in accordance with FASB
Statement No. 52, "Foreign Currency Translation." Management has determined that
the functional currency for each of the Company's foreign operations is its
applicable local currency. When translating functional currency financial
statements into Swedish Kronor, year-end exchange rates are applied to the
balance sheet accounts, while average annual rates are applied to income
statement accounts. Translation gains and losses are recorded in other
comprehensive income as a component of shareholders' equity.

Transactions involving foreign currencies are translated into Swedish
Kronor or functional currencies using exchange rates in effect at the time of
the transactions. Monetary assets and liabilities denominated in foreign
currencies are translated at period end exchange rates and the resulting gain or
loss is charged to income in the period.

F-14

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recognition of Revenue

The Company's revenue recognition policies are in accordance with Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." Revenues from the sale of magazines, videocassettes, DVD's and
other related products where distributors are not granted rights-of-return are
recognized upon transfer of title, which generally occurs upon delivery.
Revenues from the sale of magazines under agreements that grant distributors
rights-of-return are recognized upon transfer of title, which generally occurs
on delivery, net of an allowance for returned magazines. Revenues from the sale
of videocassette and DVD products under consignment agreements with distributors
are recognized based upon reported sales by the Company's distributors. Revenues
from the sale of subscriptions to the Company's internet website are deferred
and recognized ratably over the subscription period.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Inventories

Inventories are valued at the lower of cost or market, with cost
principally determined on an average basis. Inventories principally consist of
DVD's, videocassettes and magazines held for sale or resale.

Library of Photographs & Videos

The library of photographs and videos, including rights for photographs
and videos as well as translation and dubbing of video material, is reflected at
the lower of amortized cost or net realizable value. The cost is amortized on a
straight-line basis over 3-5 years representing the estimated useful life of the
asset. Estimated future revenues are periodically reviewed and, revisions may be
made to amortization rates or write-downs made to the asset's net realizable
value as a result of significant changes in future revenue estimates. Net
realizable value is the estimated selling price in the ordinary course of
business, less estimated costs to complete and exploit in a manner consistent
with realization of that income.

Property, Plant and Equipment

Property, plant and equipment are carried at cost and are generally
depreciated using the straight-line method over the estimated useful lives of
the assets. The useful lives range from 3-5 years.

In March 2000 the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on Issue 00-2, "Accounting for
Web Site Development Costs" ("EITF 00-2"). In accordance with the transition
provisions of EITF 00-2, the Company has elected to apply this standard to
website development costs incurred from January 1, 2000 forward. Capitalized
website development costs including graphics and related software are being
amortized on a straight-line basis over 5 years and are included in property,
plant and equipment in the accompanying balance sheet (see Note 10).

Goodwill

Goodwill represents the excess of the purchase price paid over the fair
value of the net assets of the businesses acquired (see Note 4). Amortization
expense is calculated on a straight-line basis over 10 years. Accumulated
amortization totaled SEK 1,599 thousand at December 31, 2000.

Impairment of Long-Lived Assets including Goodwill

The Company periodically evaluates the carrying value of long-lived
assets including goodwill for potential impairment. Upon indication of
impairment, the Company will record a loss on its long-lived assets if the
undiscounted cash flows that are estimated to be generated by those assets are
less than the related carrying value of

F-15

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the assets. An impairment loss is then measured as the amount by which the
carrying value of the asset exceeds theestimated discounted future cash flows.

Advertising Costs

Advertising costs are charged to income as incurred. The total
advertising costs were SEK 3,391 thousand, SEK 2,559 thousand and SEK 4,059
thousand for the years ended December 31, 1998, 1999 and 2000, respectively.

Income Taxes

The Company accounts for certain income and expense items differently
for financial reporting purposes than for tax purposes. Provision for deferred
taxes are made in recognition of such temporary differences, following the
requirements of Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes."

Cash Equivalents

All highly liquid investments purchased with an original maturity of
three months or less at the time of acquisition are considered to be cash
equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company does not require collateral on these
financial instruments.

Cash and cash equivalents are maintained principally with major
financial institutions in Spain and Sweden that have high credit standings and
the Company's policy is to limit exposure to any one institution. Credit risk on
trade receivables is minimized as a result of the use of bank guarantees and
credit controls.

A significant portion of the Company's business is transacted with four
customers. These customers accounted for 31%, 32% and 26% of consolidated
revenues for the years ended December 31, 1998, 1999 and 2000, respectively. One
customer accounted for 11%, 10% and 11% of consolidated revenues for the years
ended December 31, 1998, 1999 and 2000, respectively.

Basic and Diluted Earnings Per Share

Basic and diluted earnings per share is calculated in accordance with
Financial Accounting Standards Board Statement No. 128, "Earnings per Share"
(Note 17).

Fair Value of Financial Instruments.

Statement of Financial Accounting Standard No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107") requires disclosure of fair
value information about financial instruments whether or not recognized in the
balance sheet.

The Company in estimating the fair value disclosures for financial
instruments used the following methods:

The carrying amounts reported in the balance sheet for cash and cash
equivalents, trade receivables, trade payables, short-term debt and accrued
expenses approximate their fair value because of the short-term maturity of
these instruments.

Stock-Based Compensation

As permitted by Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation," the Company has
elected to continue following Accounting Principles Board No. 25 ("APB 25"),
Accounting for Stock Issued to Employees, and related Interpretations for
measurement and recognition of stock-based transactions with employees and
adopted the disclosure-only provisions of SFAS No. 123. Under

F-16

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APB 25, generally no compensation expense is recognized because the exercise
price of the options equals the fair value of the stock at the vesting date.

Reclassification

Certain reclassifications of prior year balances have been made in the
accompanying consolidated financial statements to conform to the 2000
presentation.

3. Restatements

The Company has revised its previously reported basic and diluted
earnings per share presentation for the twelve month periods ended December 31,
1998, 1999 and 2000, respectively to properly reflect the issuance of common
shares as dividends earned on its outstanding convertible preferred stock. This
had the effect of reducing previously reported basic earnings per share by SEK
0.24 per share, SEK 0.48 per share and SEK 0.47 per share, for the twelve month
periods ended December 31, 1998, 1999 and 2000, respectively. This change had no
effect on previously reported diluted earnings per share in any of these periods
except for the twelve month period ended December 31, 1999 for which there was a
reduction of SEK 0.12.

In connection with the preparation of the Company's 2000 annual
financial statements, management of the Company has determined that the
previously issued 1996, 1998 and 1999 financial statements required restatement.
The previously issued financial statements have been restated for the following
items:

(i) to give effect to certain intercompany contractual
arrangements which affect the character and amount of taxable
income reported in certain countries. The previously reported
provision for income taxes and income taxes payable have been
increased to provide for the estimated amount of taxes due,
along with related penalties and interest which may become due
as a result of correcting this accounting. The Company intends
to amend certain of its previously filed tax returns as soon
as it is practicable.

(ii) To consolidate the accounts and results of operations of the
companies, Private Circle, Inc and Viladalt S.L., the
activities of which the Company may be deemed to control. In
April 2001, Private Circle, Inc., and a subsidiary of the
Company entered into an agreement to sell the subsidiary's
interest in Private Circle, Inc. (Note 22).

(iii) To recognize additional compensation expense in the 1999 year
for stock options granted to a part-time officer who is also a
consultant.

(iv) To give effect to additional income tax expense in 1996
related to certain errors in the calculation of deductible
allowances recorded by the Company's Spanish subsidiary in its
1996 income tax return which were disallowed upon completion
of an examination by Spanish taxing authorities during 2000.

The impact of adjustments (i), (ii) and (iii) noted above on previously
reported net income and per share amounts (restated as discussed above) for 1998
and 1999 are as follows:

F-17

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Per share Per share
Net -------------------- Net ---------------------
All amounts in SEK, Income Basic Diluted Income Basic Diluted
------------- -------------------- --------- --------- -----------
net income in thousands: 1998 1998 1998 1999 1999 1999
-------------------------------------------------------------------

Amount previously reported..... 40,010 1.47 0.87 31,757 0.77 0.54
Adjustments:
(i) Accrual of income taxes.. (2,959) (0.13) (0.06) (2,943) (0.12) (0.06)
(ii) Consolidation of
controlled companies........... (1,987) (0.09) (0.04) (8,247) (0.32) (0.17)
(iii) Stock-based compensation. - - - (1,000) (0.04) (0.02)
----------- ----------- -------- --------- ----------- ---------
Total adjustments.............. (4,946) (0.21) (0.11) (12,190) (0.48) (0.25)
----------- ----------- -------- --------- ----------- ---------
Restated amount................ 35,064 1.26 0.76 19,567 0.29 0.29
=========== =========== ======== ========= =========== =========

The accompanying financial statements also reflect adjustments to the
January 1, 1998 and 1999 balance of retained earnings for effects, as of that
date, of changes in the previously reported 1996 and 1998 financial statements
as follows:

Retained earnings
-----------------------
1998 1999
------------ ----------
SEK SEK
(in thousands)
Amount previously reported.................. 126,808 161,177
Adjustments:
(i) Accrual of income taxes.............. - (2,959)
(ii) Consolidation of controlled companies - (1,987)
(iii) Accrual of Spanish income taxes...... (3 847) (3,847)
------------- ----------
Total adjustments........................... (3 847) (8,793)
------------- ----------
Restated amount............................. 122,961 152,384
============= ==========

The effect on the 1996 operating results was to decrease previously
reported net income and basic and diluted per share amounts by SEK 3,847
thousand, 0.17 and 0.09, respectively.

4. Business acquisition

On January 28, 2000, the Company acquired all of the outstanding shares
of Extasy Video B.V. ("Extasy") for total consideration of SEK 27,275,192. The
consideration consisted of 208,464 shares of the Company's common stock and
warrants to purchase 208,464 of the Company's common stock. The warrants are
exercisable during the period January 28, 2001 to January 28, 2004 at an
exercise price of USD 9.63. The excess of the purchase price over the fair
market value of the net assets acquired has resulted in goodwill of SEK
17,441,970.

The allocation of the purchase price to the net assets acquired is as
follows:

F-18

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEK
-------------------
Current assets 8,614,530
Fixed assets 3,141,461
Current liabilities (1,922,768)
Goodwill 17,441,970
-------------------
27,275,193
===================

The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Extasy has been included
in the Company's consolidated financial statements since the date of
acquisition.

The following unaudited pro forma information for the years ended
December 31, 1999 and 2000 assumes the acquisition occurred on January 1, 1999.

The amounts are expressed in thousands except net income per share.

Years ended
December 31,
(unaudited)
--------------------------
1999 2000
------------ ------------
SEK SEK
Revenues.................................. 186,882 259,639
Net income................................ 19,650 52,823
Net income applicable to common shares.... 7,375 39,976

Net income per share:
Basic..................................... 0.29 1.48
============ ============
Diluted................................... 0.29 1.08
============ ============
5. Trade accounts receivable

Trade accounts receivable consist of the following:

December 31,
--------------------------------
1998 1999 2000
--------------------------------
SEK SEK SEK
(in thousands)
Trade accounts receivable........... 57,314 69,999 119,176
Allowance for doubtful accounts..... (1,664) (2,007) (2,621)
--------------------------------
Total trade accounts receivable, net 55,650 67,992 116,555
================================
6. Inventories

Inventories consist of the following:

F-19

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31,
-------------------------------
1998 1999 2000
-------------------------------
SEK SEK
(in thousands)
Magazines for sale and resale.......... 17,826 19,798 23,585
Video cassettes........................ 10,558 15,214 20,516
DVDs................................... - 3,106 8,210
Other.................................. 2,505 2,090 4,366
-------------------------------
30,888 40,209 56,677
===============================

7. Prepaid expenses and other current assets

Included in prepaid expenses and other current assets at December 31,
1998, 1999 and 2000, is an amount of SEK 4,018 thousand, SEK 9,000 thousand and
SEK 16,683 thousand respectively representing VAT receivable from the Spanish
Tax Authority.

8. Asset held for sale

The Company has invested in certain residential property located in
Barcelona, Spain that the Company currently has listed for sale. As of December
31, 1998, 1999 and 2000 the amount invested was SEK 21,709 thousand, SEK 20,069
thousand and SEK 20,976 thousand respectively. Management of the Company
believes that the carrying value will be recovered from the proceeds from the
ultimate sale of this property.

F-20

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Library of photographs & videos

Library of photographs & videos consist of the following:

December 31,
--------------------------------
1998 1999 2000
---------- ----------- ---------
SEK SEK SEK
(in thousands)
Gross:
Photographs............................ 27,569 30,667 34,994
Videos................................. 112,175 135,399 165,422
Digital Manipulation for DVD Masters... - - 9,203
Translations, Sound Dubbing, &
Sub-Titles for Video Library........... 24,359 31,720 40,092
--------- ---------- --------
164,103 197,786 249,711
========= ========== ========
Less accumulated depreciation:
Photographs............................ 18,494 22,780 26,950
Videos................................. 55,356 74,450 93,786
Digital Manipulation for DVD Masters... - - 1,170
Translations, Sound Dubbing, &
Sub-Titles for Video Library........... 10,689 16,671 23,622
---------- ----------- ---------
84,539 113,901 145,528
========== =========== =========
Net:
Photographs............................ 9,075 7,887 8,044
Videos................................. 56,819 60,949 71,636
Digital Manipulation for DVD Masters... - - 8,033
Translations, Sound Dubbing, &
Sub-Titles for Video Library........... 13,670 15,049 16,470
---------- ----------- ---------
79,564 83,885 104,183
========== =========== =========

10. Property, Plant and Equipment

Property, plant and equipment consist of the following:

December 31,
--------------------------------
1998 1999 2000
--------- ------------ ---------
SEK SEK SEK
(in thousands)
Equipment & Furniture................ 15,288 20,594 28,932
Website Development.................. - - 5,715
Accumulated Depreciation............. (5,742) (8,621) (16,497)
-------------------------------
Total Property, Plant and Equipment, net. 9,546 11,973 18,150
====================== ========

F-21

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The EITF also concluded that costs incurred in the website application
and infrastructure development stage (including the initial graphics) and costs
relating to software used to operate a website are to be accounted for in
accordance with Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") unless a
plan exists or is being developed to market the website software externally.

The EITF further concluded that costs incurred to operate an existing
website including training, administration, maintenance, and other costs should
be expensed as incurred. However, costs incurred in the operation stage that
involve providing additional functions or features to the website should be
accounted for as, in effect, new software and the costs of upgrades and
enhancements that add functionality being expensed or capitalized based on the
guidance in SOP 98-1.

In accordance with the transition provisions of EITF 00-2, the Company
has elected to apply this standard to website development costs incurred from
January 1, 2000 forward and accordingly in the year ended December 31, 2000 the
Company has capitalized SEK 5,715 thousand of costs related to the development
of its website including graphics and related software.

11. Short-term borrowings

The Company's Swedish subsidiary has a line of credit amounting to SEK
1,000 thousand. The renewal date of the facility is every calendar quarter. The
line of credit is guaranteed by the Company's principal shareholder. The Company
pays an annual facility fee of 2.00% on the line of credit amount. At December
31, 1998 borrowings under the line of credit was SEK 330 thousand. At December
31, 1999 there were no borrowings under the line of credit. Use of the credit
facility in 2000 was charged at 10.00%, which was equal to the Swedish banks'
official interest rate, and which was the rate of interest on outstanding
borrowings at December 31, 2000. At December 31, 2000, borrowings under the line
of credit was SEK 354 thousand.

The Company's Spanish subsidiary has a line of credit amounting to ESP
10 million. At December 31, 1999 the borrowings under the line of credit of SEK
was 370 thousand. Use of the credit facility in 2000 was charged at 6.00%, which
was equal to the Spanish banks' official interest rate at December 31, 2000. At
December 31, 2000 there were no borrowings outstanding under this agreement.

At December 31, 1999, the Company's Spanish subsidiary also had a SEK
105 thousand short term loan outstanding (December 31, 1998: SEK 472 thousand).
In 2000 the short-term loan was increased to SEK 320 thousand and interest on
the loan was 9.00% and payable monthly.

At December 31, 1998, the Company's Swedish subsidiary also had a short
term loan amounting to SEK 1,000 thousand, which was repaid in 1999.

F-22

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Accrued other liabilities

Accrued other liabilities are comprised of the following:

December 31,
---------------------------------------
1998 1999 2000
----------- ------------- ---------
SEK SEK SEK
(in thousands)
Accrued expenses................ 6,161 4,812 2,563
Deferred income................. - - 3,153
Taxes and social security....... 1,347 467 1,956
Deposits........................ 161 542 263
Salary expense.................. 174 197 151
Other........................... 898 421 1,643
----------- --------- ---------
8,741 6,439 9,729
=========== ========= =========

13. Income taxes

Pretax income (loss) for the years ended December 31, 1998, 1999 and
2000 was the following amounts in the following jurisdictions:

Years ended December 31,
--------------------------------------------
1998 1999 2000
Restated Restated
------------ --------------- -------------
(SEK in thousands)
USA..................... (2,528) (13,484) (13,615)
Gibraltar............... 6,568 7,201 13,001
Cyprus.................. 31,263 27,531 52,284
Sweden.................. 2,260 2,011 2,235
Spain................... 1,565 207 9,064
France.................. 388 68 266
Benelux................. - - 579
Other................... (48) (92) (100)
------------ --------------- -------------
39,468 23,442 63,714
============ =============== =============

F-23

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of the provision for income tax are as follows:

Years ended December 31,
---------------------------------------------
1998 1999 2000
Restated Restated
------------ ------------- -----------
(SEK in thousands)
Current
USA................. 1,725 1,802 3,268
Cyprus.............. 1,299 1,227 2,992
Sweden.............. 242 481 554
Spain............... 746 221 3,150
France.............. 14 19 116
Benelux............. - - 495

Deferred
Sweden.............. 378 125 130
------------ ------------- -----------
4,404 3,875 10,705
============ ============= ===========

The Company's deferred tax liabilities relate principally to income
appropriated to a tax allocation reserve, which will be subject to taxation
after five years.

A reconciliation of income taxes determined using the Swedish statutory
rate of 28% to actual income taxes provided is as follows:

Years ended December 31,
---------------------------------
1998 1999 2000
Restated Restated
----------- ----------- ----------
(SEK in thousands)

Income tax expense at statutory rate............ 11,051 6,564 17,840
Income in Gibraltar not subject to tax.......... (1,839) (2,016) (3,640)
Foreign tax rate differential .................. (4,911) (3,465) (5,574)
Losses of subsidiaries for which no
tax benefit is record........................... 708 2,590 2,704
Other, net...................................... (605) 202 (625)
----------- ---------- ----------
Income tax expenses at effective rate........... 4,404 3,875 10,705
=========== ========== ==========

14. Long-term borrowings

The Company has a long-term loan payable of SEK 7,699 thousand, SEK
6,080 thousand and SEK 4,682 thousand at December 31, 1998, 1999 and 2000
respectively. Interest on the loan is 9.00% and principal and interest is
payable monthly through 2003. The loan is related to an investment in certain
land and building and the loan is secured by the property.

F-24

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Related party transactions

The Company has short-term loans receivable from entities controlled by
the Company's principal shareholder of SEK 4,946 thousand, SEK 5,955 thousand
and SEK 3,933 thousand at December 31, 1998, 1999 and 2000 respectively. The
loans bear interest at a rate of 10% payable annually. The current balance
including accrued interest amounts to SEK 4,515 thousand at December 31, 2000.

Peach Entertainment Distribution AB ("PED"), a wholly owned subsidiary
of the Company, is a party to an exclusive Distribution Agreement with Sundance
Associates, Inc. ("Sundance"). A member of the Company's board of directors is
the sole shareholder of Sundance. Under the terms of the Distribution Agreement,
PED granted to Sundance the exclusive rights to distribute specified products of
the Company in the United States. Royalties are paid by Sundance to PED in
accordance with an agreed royalty schedule. The Distribution Agreement
automatically renews for successive one year terms and is cancelable by either
party prior to the end of each one year term. During the 12 month periods ended
December 31, 1998, 1999 and 2000 Sundance paid royalties to PED of $2,247,392,
$2,123,564 and $ 2,833,382, respectively.

16. Shareholders' equity

Retained Earnings

The Company is a holding company with no significant operations of its
own. Accordingly, the retained earnings of the Company represent the accumulated
earnings of its foreign subsidiaries, principally Cine Craft Ltd, Milcap Media
Ltd. and Fraserside Holdings Ltd. The ability of the Company to pay dividends is
dependent on the transfer of accumulated earnings from these subsidiaries. The
Company is not currently aware of any significant restrictions that would
inhibit its ability to pay dividends should it choose to do so, although the
Company's current intention is to re-invest the unremitted earnings of its
foreign subsidiaries.

Common Stock

The Company is authorized to issue 50,000,000 shares of common stock.
Holders of common stock are entitled to one vote per share. The common stock is
not redeemable and has no conversion or pre-emptive rights.

During 2000 the Company's Board of Directors authorized the repurchase
of up to 10% of the Company's outstanding common shares. Such purchases may be
made from time to time in the open market for an indefinite period of time.

Stock Dividend

The Company implemented a 3:1 stock dividend whereby each holder of
record of Common Stock on May 30, 2000, received two additional shares of Common
Stock for each share owned. Corresponding adjustments have been made to the
Warrants and Options outstanding on the record date as well as the Series A
Preferred Stock to reflect the dividend. Accordingly, all share and per share
values reflected in the accompanying consolidated financial statements have been
adjusted to give effect to the stock dividend.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock
with relative rights, preferences and limitations determined at the time of
issuance. The Company has issued 7,000,000 shares of $4.00 Series A convertible
preferred stock. The Series A convertible preferred stock is non-voting and
provides for a 5% annual stock dividend beginning in 1998 to be paid quarterly
in common stock at the average closing price of the

F-25

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company's common stock for the twenty consecutive days prior to the quarterly
record date. Each preferred share is convertible at any time into common shares
on a one-for-three basis (post-split). Additionally, at any time the common
stock of the Company has a closing price of less than $1.33 per share for twenty
consecutive days the preferred stock may be converted at the option of the
holder thereof into common stock at a 20% discount to the five day average
closing price prior to the date of conversion. In accordance with the terms of
the Series A Preferred Stock Agreement, 102,858 shares of common stock will be
distributed in 2001 with respect to dividends on preferred shares. This amount
is shown in the accompanying Statement of Shareholders' Equity under stock
dividend to be distributed.

Common Stock Warrants

The Company has issued 2,625,000 common stock warrants which are
exercisable at any time by the holder thereof until December 31, 2000 at an
exercise price of $1.33 per share. The total number of warrants exercised as of
December 31, 1999 was 2,100,000 and during the year 2000 a total of 517,500 were
exercised and warrants for 7,500 shares expired.

F-26

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Earnings per share

The following table sets forth the computation of basic and diluted
earnings per share:

Years ended December 31,
------------------------------------------------------
1998 1999 2000
Restated Restated
----------------- ---------------- -----------------

Numerator: (SEK in thousands)

Net income (numerator diluted EPS)........ 35,064 19,567 53,009
================= ================ =================

Less: Dividends on preferred stock........ 5,642 12,275 12,847
----------------- ---------------- -----------------

Income applicable to common shares
(numerator basic EPS)..................... 29,422 7,292 40,162
================= ================ =================

Denominator:

Denominator for basic earnings per share
- Weighted average shares outstanding..... 23,372,505 25,269,792 27,002,220

Effect of dilutive securities:
Preferred stock..................... 21,000,000 21,000,000 21,000,000
Common stock warrants and options... 1,571,634 625,812 640,818
Stock dividends to be distributed... 177,147 194,619 102,858
----------------- ---------------- -----------------

Denominator for diluted earnings per
share - weighted average shares and
assumed conversions....................... 46,121,286 47,909,223 48,745,896
================= ================ =================

Earnings per share (SEK)

Basic..................................... 1.26 0.29 1.49
================= ================ =================
Diluted................................... 0.76 0.29 1.09
================= ================ =================

18. Commitments and contingent liabilities

The Company leases certain property and equipment under operating
leases. The rental payments under these leases are charged to operations as
incurred. Rental expense for the years ended December 31, 1998, 1999 and 2000
amounted to SEK 2,251 thousand, SEK 3,321 thousand and SEK 4,341 thousand,
respectively.

F-27

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum payments under non-cancelable leases as of December 31,
2000 are as follows:

Year SEK
(in thousands)
------------------- ----------------------
2001 2,909
2002 2,507
2003 2,201
2004 1,795
2005 1,406
2006 434
----------------------
11,252
======================

The Company's Spanish subsidiary, Milcap Media Group S.L. ("Milcap")
has issued a guarantee of indebtedness to Viosland Trade S.L. ("Viosland") a
company controlled by the Company's principal shareholder. The guarantee relates
to the financing of the construction of a new office and manufacturing facility
located in Barcelona, Spain. This guarantee would require Milcap to pay the
general contractor for costs of construction if not paid by Viosland. Management
of the Company does not believe that Milcap will be required to pay any
significant amounts related to this guarantee.

A reorganization in Sweden in 2000 has resulted in a transfer of the
business formerly conducted by Milcap Publishing Group AB to Peach Entertainment
AB. The transfer was made in accordance with Swedish reorganization rules and
should qualify as a tax-exempt reorganization in Sweden.

19. Operations by geographical area

The Company operates in one business segment, which is the acquisition,
refinement and distribution of video and photo rights for adult feature
magazines, movies and the Internet.

F-28

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information concerning the Company's geographic locations is summarized
as follows:

Years ended December 31,
-----------------------------------------
1998 1999 2000
Restated Restated
------------ ------------- ------------
Net Sales (SEK in thousands)
USA....................... 2,038 4,332 9,292
Gibraltar................. 6,362 6,639 11,922
Cyprus.................... 63,317 66,391 119,220
Sweden.................... 117,635 113,325 163,252
Spain..................... 116,060 137,918 176,913
France.................... 12,027 9,035 9,144
Benelux................... - - 19,541
Eliminations.............. (151,122) (162,214) (251,200)
------------ -------------- -----------
Total.............................. 166,317 175,426 258,084
============ ============== ===========

Eliminations principally relates to intergroup revenue arising from
trademark, license and distribution agreements between the Company's
subsidiaries in Gibraltar, Cyprus, France, Sweden, Spain and the Netherlands.

Years ended December 31,
---------------------------------------
1998 1999 2000
Restated Restated
------------ ------------ -----------
(SEK in thousands)
Operating profit
USA........................... (2,280) (12,953) (13,596)
Gibraltar..................... 6,336 6,579 11,830
Cyprus........................ 31,262 28,732 51,985
Sweden........................ 2,066 456 (1,544)
Spain......................... 1,884 2,267 12,976
France........................ 509 152 313
Benelux....................... - - 572
Other......................... (48) (92) (100)
------------ ----------- -----------
Total............................ 39,729 25,141 62,436
Interest income (expense), net... (261) (1,699) 1,278
------------ ----------- -----------
Income before income taxes....... 39,468 23,442 63,714
============ =========== ===========

F-29

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31,
---------------------------------------
1998 1999 2000
Restated Restated
------------- ------------ -----------
(SEK in thousands)
Long-lived assets
USA........................... - - 15,843
Cyprus........................ 84,114 89,004 104,098
Sweden........................ 13,236 17,309 31,289
Spain......................... 11,531 11,044 12,426
France........................ 1,801 - -
Benelux....................... - - 2,728
Other......................... 137 932 211
------------- ------------ ----------
Total............................ 110,819 118,289 166,595
============= ============ ==========

Export sales from Sweden to unaffiliated customers amounted to SEK 96.7
million, SEK 109.6 million and SEK 149.0 million for the years ended December
31, 1998, 1999 and 2000, respectively. Export sales from Spain to unaffiliated
customers amounted to SEK 46.5 million, SEK 17.6 million and SEK 17.8 million
for the years ended December 31, 1998, 1999 and 2000, respectively. Export sales
from Cyprus to unaffiliated customers amounted to SEK 3.4 million, SEK 14.9
million and SEK 56.5 million for the years ended December 31, 1998, 1999 and
2000, respectively. Export sales from other geographic areas are not
significant.

20. Stock-based compensation

On March 1, 1999 the Company adopted the 1999 Employee Stock Option
Plan ("the Plan"). The Plan provides for the issuance of up to 3,600,000 shares
of the Company's common stock to employees, consultants and advisors of the
company. From the inception of the Plan through December 31, 2000, stock options
to purchase an aggregate of 3,136,500 shares of the Company's common stock were
granted under the Plan. At December 31, 2000, a total of 2,590,985 options were
outstanding. Stock options for 930,200 shares vested on March 1, 1999 and are
exercisable at $4.17 per share, the market price of the Company's common stock
at that date. The remaining 1,660,785 stock options vest in 19 equal quarterly
installments commencing June 30, 1999. The exercise price of each installment of
options which vests after March 1, 1999 is equal to the fair market value of the
Company's common stock on the date each installment vests. The options are
exercisable on the date they vest. Stock options granted under the plan expire
10 years after the date of grant.

F-30

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock option activity for the years ended December 31,
1999 and 2000 is a follows:

Weighted
average
Number of exercise price
shares in US dollars
---------------- ---------------
Granted............................ 2,971,500 4.46 (1)
Exercised.......................... - -
Forfeited.......................... - -
----------------
Outstanding December 31, 1999...... 2,971,500 4.46 (1)

Granted............................ 156,750 7.30 (1)
Exercised.......................... 160,222 4.30
Forfeited.......................... 377,043 6.18 (1)
----------------
Outstanding December 31, 2000...... 2,590,985 5.38 (1)
================

(1) Weighted average information relates only to options vested and
priced through December 31, 2000. The remaining options will be priced based
upon the market price of the Company's stock when such options vest in the
future.

At December 31, 2000 options for 1,501,985 shares were exercisable with
exercise prices ranging from $4.17 to $11.71 per share.

The Company applies APB 25, and related interpretations in accounting
for its stock based compensation to employees. Accordingly, no compensation
expense has been recognized for stock based compensation issued to employees.
Had compensation cost for the Company's stock based compensation issued to
employees been determined based upon the fair value at the grant date consistent
with the methodology prescribed under SFAS 123, the Company's proforma net
income for 1999 and 2000 would have been a proforma loss of SEK 14,808 thousand
and proforma income of SEK 30,586 thousand, respectively. The Company's proforma
income applicable to common shares for 1999 and 2000 would have been a proforma
loss of SEK 27,083 thousand and proforma income of SEK 17,739 thousand,
respectively. Proforma basic and diluted loss per share would have been SEK 1.07
for 1999. Proforma basic income per share would have been SEK 0.66 for 2000 and
proforma diluted income per share would have been SEK 0.63.

The weighted average fair value of options granted during 2000 was
estimated at $7.10 per share, based upon the Black-Scholes option-price model
with the following weighted average assumptions: 0% dividend yield, expected
volatility of 67-111%, risk-free interest rate of 5.1-6.0% and expected life of
9.5-10 years.

The weighted average fair value of options granted during 1999 was
estimated at $8.91 per share, based upon the Black-Scholes option-price model
with the following weighted average assumptions: 0% dividend yield, expected
volatility of 46-70%, risk-free interest rate of 5.24-6.44% and expected life of
9.5-10 years.

21. Recent accounting pronouncements

In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). This statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liabilities measured at its fair value. SFAS 133 is effective
for fiscal years beginning after June 15, 2000. As the Company does not enter
into foreign currency

F-31

PRIVATE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

forwards, swaps or other derivative financial instruments management believes
that the impact of this new standard on the Company's consolidated balance
sheets or results of operations will not be significant.

22. Subsequent event

On April 8, 2001, the Company's Swedish subsidiary Peach Entertainment
Distribution AB entered into an agreement to sell its interest in Private
Circle, Inc. a company, the activities of which, the Company may be deemed to
control for cash of SEK 21.4 million. Under the terms of this agreement, the
transaction is scheduled to close on or before April 16, 2001.

F-32

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the expenses payable by the Registrant
in connection with the sale and distribution of the securities being registered
hereby. All amounts are estimated except the Securities and Exchange Commission
registration fee.

SEC registration fee........................................... $14,652
NASD, Inc. fee................................................. $ 6,642
Frankfurt Stock Exchange Listing fee .......................... *
Accounting fees and expenses .................................. *
Legal fees and expenses ....................................... *
Printing and engraving expenses ............................... *
Registrar and Transfer Agent's fees ........................... *
Miscellaneous fees and expenses ............................... *
Total .................................................... $4,600,000+

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

* To be completed by amendment.

+ Estimated

Item 14. Indemnification of Directors and Officers

Private Media Group, Inc. has the power to indemnify its directors and
officers against liability for certain acts pursuant to the laws of the state of
Nevada, being Private Media Group, Inc.'s state of incorporation. In addition,
under the Articles of Incorporation of Private Media Group, Inc., no director,
officer or agent is personally liable to the corporation or its shareholders for
monetary damages arising out of a breach of such person's fiduciary duty to
Private Media Group, Inc., unless such breach involves intentional misconduct,
fraud or a knowing violation of law, or the payment of an unlawful dividend.
Private Media Group, Inc. also maintains a standard form of officers' and
directors' liability insurance policy that provides coverage to Private Media
Group, Inc. and its officers and directors for certain liabilities.

Item 15. Recent Sales of Unregistered Securities

During the past three years the registrant has issued the securities
set forth below which were not registered under the Securities Act.

1. Between September 30, 1998 and June 30, 2001, the registrant
issued shares of its Common Stock as a quarterly dividend
which accrued on its Series A Convertible Preferred Stock, for
the quarters ending, and in the amounts, as follows: September
30, 1998, 90,517; December 31, 1998, 86,632; March 31, 1999,
79,713; June 30, 1999, 48,639; September 30, 1999, 69,912;
December 31, 1999, 58,855; March 31, 2000, 34,494; June 30,
2000, 33,751; September 30, 2000, 56,395; December 31, 2000,
46,463; March 31, 2001, 54,250; and June 30, 2001, 47,668.
These securities were issued by the registrant in reliance on
the exemption under Section 4(2) of the Securities Act, as the
beneficial owner of the Series A Preferred Stock is an
accredited investor who is also an executive officer of the
registrant.

2. In June 2000 the registrant issued 17,847,618 shares of Common
Stock to its shareholders of record on May 30, 2000, in
connection with a three-for-one stock dividend on its Common
Stock. The shares were issued by the registrant in reliance on
the exemption under Section 3(a)(9) of the Securities Act.

3. In January 2000, the registrant issued 208,464 shares of its
Common Stock and 208,464 Common Stock Purchase Warrants with
an exercise price of $9.63, exercisable until January 28,
2004, to a single investor as consideration for the
acquisition by the registrant of all of the outstanding shares
of Extasy Video B.V. The shares were issued by the registrant
in reliance on the exemption under Section 4(2) of the
Securities Act as the shares were issued to a single
purchaser believed by the registrant to be an accredited
investor without public solicitation or advertising.

4. In June 2001, the registrant issued 248,889 shares of its
Common Stock to a single investor as consideration for the
acquisition by the registrant of all of the outstanding shares
of Coldfair Holding Ltd. The shares were issued by the
registrant in reliance on the exemption under Section 4(2) of
the Securities Act as the shares were issued to a single
purchaser believed by the registrant to be an accredited
investor without public solicitation or advertising.

5. Between July 2000 and July 2001, the registrant issued an
aggregate of 167,500 shares of its Common Stock to 14 persons
upon exercise of Common Stock Purchase Warrants originally
issued by the registrant in June 1998, at an exercise price of
$1.33 per share. The shares were issued by the registrant in
reliance on the exemption under Section 4(2) of the Securities
Act as these transactions were effected in a private placement
to individuals who had a substantial pre-existing relationship
with the registrant without public solicitation or
advertising.

6. In January 2000, the registrant issued an aggregate of 20,000
shares to two persons in connection with services performed by
these persons for the registrant. The shares were issued by
the registrant in reliance on the exemption under Section 4(2)
of the Securities Act as the shares were issued to a small
number of purchasers who the registrant believed were
sophisticated with regard to the business and affairs of the
registrant without public solicitation or advertising.

Item 16. Exhibits

(a) Exhibits:

+ 1.1 Form of Underwriting Agreement

3.1 Articles of Incorporation, as amended to date

* 3.2 Amended and Restated Bylaws

* 4.3 Specimen Common Stock Certificate

* 4.4 Certificate of Designation Preferred Stock

+ 5.1 Opinion of Guzik & Associates.

21.1 Subsidiaries of the Registrant

23.1 Consent of Ernst & Young AB, Independent
Auditors

+ 23.2 Consent of Guzik & Associates.

+ 23.3 Consent of Special Tax Counsel

+ 23.4 Consent of Spanish Counsel

+ 23.5 Consent of Nevada Counsel

24.1 Power of Attorney (Included in Signature
Page in Part II)

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

* Incorporated by reference from the registrant's Registration
Statement on Form SB-2 (SEC File No. 333-62075).

+ To be filed by amendment.

(b) Financial Statements Schedules.

None

Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.

(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sant Cugat
del Valles, Spain, on the 19th day of September, 2001.

PRIVATE MEDIA GROUP, INC.

By /s/ Berth H. Milton
-----------------------
Berth H. Milton,
Chief Executive Officer

KNOW BY ALL MEN THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Berth H. Milton and Johan Gillborg or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

/s/ Berth H. Milton Chief Executive Officer, Director September 19, 2001
-----------------------
Berth H. Milton (Chief Executive Officer)

/s/ Johan Gillborg Chief Financial Officer September 19, 2001
-----------------------
Johan Gillborg (Principal Financial Officer and
Principal Accounting Officer)

/s/ Bo Rodebrant Director September 19, 2001
-----------------------
Bo Rodebrant

/s/ Robert Tremont Director September 19, 2001
-----------------------
Robert Tremont

EXHIBIT INDEX

(a) Exhibits:

+ 1.1 Form of Underwriting Agreement

3.1 Articles of Incorporation, as amended to date

* 3.2 Amended and Restated Bylaws

* 4.3 Specimen Common Stock Certificate

* 4.4 Certificate of Designation Preferred Stock

+ 5.1 Opinion of Guzik & Associates.

21.1 Subsidiaries of the Registrant

23.1 Consent of Ernst & Young AB, Independent Auditors

+ 23.2 Consent of Guzik & Associates.

+ 23.3 Consent of Special Tax Counsel

+ 23.4 Consent of Spanish Counsel

+ 23.5 Consent of Nevada Counsel

24.1 Power of Attorney (Included in Signature Page in Part
II)

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

* Incorporated by reference from the registrant's Registration Statement on Form
SB-2 (SEC File No. 333-62075).

+ To be filed by amendment.

(b) Financial Statement Schedules

None.