SEC Info - Private Media Group Inc - ‘424B3’ on 12/22/98

SEC Info℠

Home

Help

Please Sign In

Private Media Group Inc – ‘424B3’ on 12/22/98

As of: Tuesday, 12/22/98 · Accession #: 944209-98-2094 · File #: 333-62075

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

12/22/98  Private Media Group Inc           424B3                  1:244K                                   RR Donelley Financial/FA

Prospectus — Rule 424(b)(3)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B3       424(B)(3) Prospectus Filing                           90    398K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Alfredo M. Villa Available Information Business Certain Relationships and Related Transactions Common Stock Company, The Competition Description of Securities Dividend Policy Experts Index to Financial Statements Internet Services Legal Matters Management Management's Discussion and Analysis of Financial Condition and Results of Operations Net Net Sales Offering, The Principal Stockholders Private Collection, The Prospectus Summary Risk Factors Selling Stockholders and Plan of Distribution Shares Eligible for Future Sale The Company The Offering The Private Collection Warrants
1	1st Page - Filing Submission
2	Prospectus Summary
"	The Company
3	The Offering
5	Risk Factors
6	Competition
13	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Net Sales
16	Business
36	The Private Collection
38	Internet Services
56	Management
60	Certain Relationships and Related Transactions
61	Principal Stockholders
"	Alfredo M. Villa
63	Description of Securities
"	Common Stock
64	Warrants
65	Dividend Policy
67	Shares Eligible for Future Sale
69	Selling Stockholders and Plan of Distribution
71	Legal Matters
"	Experts
"	Available Information
72	Index to Financial Statements
82	Net

424B3 1st Page of 90 TOC ↑Top Previous Next ↓Bottom Just 1st
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NUMBER 333-62075

PROSPECTUS

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

PRIVATE MEDIA GROUP, INC.
4,700,000 Shares of Common Stock

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

This Prospectus relates to the resale by the Selling Stockholders
identified herein of (i) an aggregate of 4,000,000 shares of Common Stock, $.001
par value ("Common Stock") of Private Media Group, Inc. (the "Company") acquired
by certain Selling Stockholders, and (ii) an aggregate of 700,000 shares of
Common Stock of the Company which may be acquired by the Selling Stockholders
upon the exercise of outstanding warrants at an exercise price of $4.00 per
share (the "Warrants"), which are being offered for the account of the Selling
Stockholders named herein. See "Selling Stockholders and Plan of Distribution."
Although the Company will receive proceeds from the exercise of outstanding
Warrants from time to time if and when they are exercised, the Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders
offered hereby.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE FIVE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Common Stock of the Company is traded on the NASD, Inc. OTC Bulletin
Board under the symbol "PRVT" and the Company has applied for listing of the
Common Stock on the Nasdaq National Market. On November 12, 1998, the last
reported sales price for the Company's Common Stock on the OTC Bulletin Board
was 10.93. See "Price Range of Common Stock."

The Date of this Prospectus is November 13, 1998

424B3 2nd Page of 90 TOC 1st Previous Next ↓Bottom Just 2nd
PROSPECTUS SUMMARY

This Prospectus contains forward looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Except as otherwise noted, all information in this
Prospectus assumes the Warrants are not exercised and gives effect to the one-
for-five reverse stock split effected by the Company in November 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of Securities" and Notes to Consolidated Financial
Statements.

The Company

PRIVATE MEDIA GROUP, INC. (the "Company" or "Private/Milcap Group") is
engaged in the acquisition, refinement and delivery of adult feature products,
including magazines, books, home videos and other products, all oriented to the
adult entertainment market. The Company's primary business activities include:
(i) creation, publishing and distribution of unrated and adult feature magazines
and books, (ii) acquisition and distribution of unrated and adult feature movies
in all video and disc formats, including 12" laserdisc and 5 1/4" digital
versatile disc, and (iii) Internet services and other products, including CD-
Rom's and licensed products.

Since 1992, the Private/Milcap Group has acquired and distributed adult
motion picture entertainment. These productions generally feature men and women
in a variety of erotic and adult sexual situations. The Company's activity
includes the production and financing of feature videos (full length motion
pictures produced on videotape) and to some extent feature films (full length
motion pictures produced on film, such as Operation Sex Siege). Their
distribution is organized primarily on videocassettes (licensing or sale) and
alternatively through pay television and cable programming.

In the last few years, Private films, Private magazines and Private CD-
Roms, have won a number of awards, including Best European Film (Hot d'Or 1998),
Best Sceenplay (Hot d'Or 1998), Best European Director, Best Foreign Release,
Special Achievement Awards (AVN 1997), Best Production Company (Golden X 95),
and recently Best Foreign Release and Best Director (AVN 1998).

The Company was organized in 1980 as a Utah corporation for the purpose of
acquiring or merging with an established business, and has had no material
business activity prior to its acquisition of Milcap Media Limited ("MML"),
Cinecraft Limited and their subsidiaries in June 1998. See "Business-History."

424B3 3rd Page of 90 TOC 1st Previous Next ↓Bottom Just 3rd
The Company's principal executive offices are located at Carrettera de Rubi
22-26, 08190 San Cugat del Valles, Barcelona, Spain, telephone 34-93-590-7070.

The Offering

Securities Offered by the
Company.............................. None

Securities Offered by the
Selling Stockholders................. 4,700,000 shares of Common Stock

Common Stock Outstanding prior
to the Offering (1).................. 8,081,668 shares

Common Stock Outstanding after
the Offering (1)(2).................. 8,781,668 shares

Use of proceeds....................... Although the Company will receive up
to $2.8 million of proceeds from the
exercise of Warrants, the Company
will not receive any proceeds from
the sale of Common Stock by the
Selling Stockholders.

Risk Factors.......................... The Common Stock offered by the
Selling Stockholders involves a high
degree of risk. See "Risk Factors."

Market Symbol (3)..................... PRVT

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

(1) Based upon the number of shares outstanding as of September 30, 1998.
Excludes (i) approximately 175,000 shares not covered by this Prospectus
which are reserved for issuance upon conversion of outstanding warrants,
and (ii) approximately 7,000,000 shares issuable upon conversion of the
Company's $4.00 Series A Convertible Preferred Shares.

(2) Assumes the exercise of 700,000 Warrants and the issuance of the 700,000
Warrant Shares being offered hereby.

(3) The Common Stock of the Company is traded on the NASD, Inc. OTC Bulletin
Board under the symbol "PRVT" and the Company has applied for listing of
the Common Stock on the Nasdaq National Market. Listing on Nasdaq will
occur only after all exchange requirements have been fulfilled. The
Company anticipates meeting the listing requirements upon the commencement
of the Offering.

424B3 4th Page of 90 TOC 1st Previous Next ↓Bottom Just 4th
Summary Financial Information

Private Media Group, Inc. and Subsidiaries

[Enlarge/Download Table]

(Unaudited)
Years ended Six months ended
December 31, June 30,
----------------------- ------------------------------------
1996 1997 1997 1998 1998
SEK SEK SEK SEK USD
(in thousands except for share data)

Operating Data:

Net Sales........................... 128,927 144,543 70,435 99,186 12,461

Net income (loss)................... 32,698 36,987 22,818 28,183 3,541

Net income (loss) per share
Basic............................ 4.36 4.93 3.04 3.49 0.44
Diluted.......................... 2.26 2.43 1.49 1.80 0.23

Weighted average
shares outstanding................ 7,500,000 7,500,000 7,500,000 8,081,668 8,081,668

Weighted average
shares outstanding and
assumed conversions.............. 14,500,000 15,212,882 15,264,485 15,643,330 15,643,330

[Download Table]

(Unaudited)
Year ended Six months ended
December 31, June 30,
------------ ------------------
1997 1998 1998
SEK SEK USD
(in thousands except for share data)

Balance Sheet Data:
Working Capital..................... 48,837 68,735 8,635
Total Assets........................ 162,688 201,133 25,268
Total Liabilities................... 27,887 37,304 4,686
Net Stockholders' Equity............ 134,801 163,830 20,582

Solely for the convenience of the reader, the foregoing consolidated
financial data as of June 30, 1998 and for the six months then ended have
been translated into United States dollars ("USD") at the rate of SEK 7.96 per
USD 1.00 the exchange rate of the Swedish Riksbank on June 30, 1998. The
translations should not be construed as a representation that the amounts shown
could have been, or could be, converted into U.S. dollars at that or any other
rate.

424B3 5th Page of 90 TOC 1st Previous Next ↓Bottom Just 5th
RISK FACTORS

This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. An investment in the Common
Stock offered hereby involves a high degree of risk and is not an appropriate
investment for persons who cannot afford the loss of their entire investment.
Prospective investors should be aware of the following risk factors and should
review carefully the financial and other information provided by the Company.

Future Capital Requirements; Uncertainty of Additional Financing

The Company believes that current and future available capital resources,
including cash flow from operations, will be adequate to fund its working
capital requirements in the ordinary course of business for the 12 month period
following the date of this Prospectus. However, there can be no assurance that
future events will not cause the Company to seek additional capital sooner. In
addition, the Company intends to expand its business activities in the next 12
months, which will require additional sources of funding. To the extent capital
resources are required by the Company, there can be no assurance that such funds
will be available on favorable terms, or at all. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the
issuance of such securities could result in dilution to the Company's
shareholders. The unavailability of funds could have a material adverse effect
on the Company's financial condition, results of operations and the ability to
expand its operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Management of Growth

Management anticipates that the Company will be entering a period of
significant growth. This growth, if effected, will expose the Company to
increased competition, greater overhead, marketing and support costs and other
risks associated with entry into new markets and development of new products. To
manage growth effectively, the Company will need to continue to improve and
expand its operational, financial and management information systems and
telecommunications systems and to hire and manage additional personnel. There
can be no assurance that the Company's management team and other new personnel
will be able to successfully manage the Company's rapidly evolving business, and
the failure to do so would have a material adverse effect upon the Company's
operating results.

Reliance upon Key Employees

The Company's future success will depend, to a significant degree, on the
continued services of its executive officers and its other key personnel,
including Berth Milton, Alfredo M. Villa, Marten Kull, Javier Sanchez and Johan
Gillborg, and upon its ability to continue to attract motivate and retain highly
qualified and talented personnel, including software development technical
personnel. In particular, the Company is dependent upon the management services
of Mr. Berth Milton and Mr. Marten Kull. Although the Company intends to acquire
key-man life insurance on the lives of Messrs. Milton and Kull naming the
Company as beneficiary, the Company has not yet procured such insurance and
there is no assurance that it will be able to obtain such insurance in the
future.

Mr. Milton is the founder of the Milcap Media Group and has managed its
business and marketing operations since the acquisition of the trademark Private
from his father in 1990. Mr. Milton is also a Director of

424B3 6th Page of 90 TOC 1st Previous Next ↓Bottom Just 6th
Private Media Group, Inc. and the chief executive officer of Milcap Media Group
S.L. ("MMG") in Barcelona, Spain. The loss of the services of Mr. Milton could
have a material adverse effect on the Company's business and operating results,
and there can be no assurance that the Company will be successful in retaining
his services in the future.

Mr. Kull has managed the production and marketing operations of the Company
since the inception. Mr. Kull has a long term employment agreements with the
Company. Competition for such employee is intense and the process of locating
key marketing and technical personnel with the combination of skills and
attributes required to execute the Company's strategy is often lengthy. The loss
of the services of Mr. Kull could have a material adverse effect on the
Company's business and operating results, and there can be no assurance that the
Company will be successful in retaining him in the long run. Mr. Kull is subject
to a non-competition agreement.

The loss of the services of any of the other Company's executive officers
or other key personnel, including Messrs. Alfredo M. Villa, Javier Sanchez and
Johan Gillborg, could also have a material adverse effect on the Company's
business and operating results. As the Company does not presently have
employment agreements with these individuals, there can be no assurance that the
Company will be successful in retaining such personnel.

As soon as practicable, the Company intends to acquire key-man life
insurance on the lives of Mr. Milton and Mr. Kull, in the amount of $4,000,000
each and naming the Company as beneficiary.

Competition

The business of the Company is highly competitive. All aspects of its
business, including price, promptness of service, and product quality are
significant competitive factors and the ability of the Company to successfully
compete with respect to each factor is material to its profitability. The
Company competes with a number of other businesses that may have greater
technical and human resources. Such companies may develop products or services
that may be more effective than the Company's products or services and may be
more successful in marketing their products or services than the Company. Some
of the Company's current and potential competitors have significantly greater
market presence, name recognition and financial and technical resources than the
Company, and many have longstanding market positions and established brand names
in their respective markets. To the extent that current and potential
competitors compete on the basis of price, this could result in lower margins
for the Company's products. Although the Company places a high value upon its
demonstrated ability to provide quality service to its customers in order to be
competitive in the market place, no assurance can be given that the Company will
be able to compete successfully in its markets, or to compete successfully
against current and new competitors as the Company's markets continue to evolve.

Rapidly Changing Technology

The Company is engaged in businesses that have experienced tremendous
technological change over the past few years. The Company faces all risks
inherent in businesses that are subject to rapid technological advancement, such
as the possibility that a technology that the Company has invested heavily in,
may become obsolete. In that event, the Company may be required to invest in new
technology. The inability of the Company to identify, fund the investment in,
and commercially exploit such new technology could have an adverse impact on the
financial condition of the Company. The Company's ability to implement its
business plan and to achieve the results projected by Management will be
dependent, to some extent, upon Management's ability to predict technological
advances and implement strategies to take advantage of such changes. The
Company's future

424B3 7th Page of 90 TOC 1st Previous Next ↓Bottom Just 7th
profitability will depend upon its ability to adjust to such new developments.
There can be no assurance that new discoveries will not render the Company's
equipment uneconomical or obsolete. In order to minimize such risks, the Company
subcontracts and intends to continue to subcontract capital intensive or
technically complex business such as editing, video and CD-Rom duplication, DVD
replication and other similar business. However, there can be no assurance that
the Company will have access to these subcontractors or that such subcontractors
will be available at times required by the Company or otherwise on favorable
terms.

Risk of Changing Markets

The Company's video and film operations compete with pay-per-view cable
television systems, in which cable television subscribers pay a fee to see a
movie or other program selected by the subscriber. Existing pay-per-view
services offer a limited number of channels and programs and are generally
available only to households with a converter to unscramble incoming signals.
Recently developed technologies, however, permit certain cable companies, direct
broadcast satellite companies, telephone companies and other telecommunications
companies to transmit a much greater number of movies to homes in more markets
as frequently as every five minutes. Ultimately, further improvements in these
technologies or the development of other technologies could lead to the
availability of a broad selection of movies to consumers on demand at low
prices, which could substantially decrease the demand for video purchases or
rentals, which could have a material adverse effect on the Company's financial
condition and results of operations.

Intellectual Property Claims and Litigations

The Company relies on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect its proprietary products. Despite the Company's
precautions, it may be possible for unauthorized third parties to copy aspects
of, or otherwise obtain and use, the Company's products without authorization,
or to substantially use the Company's concepts and market them, trading on the
Company's established customer base. In addition, the Company cannot be certain
that others will not develop substantially equivalent or superseding products,
thereby substantially reducing the value of the Company's proprietary rights.
Furthermore, there can be no assurance that any confidentiality agreements
between the Company and its employees or any license agreements with its
customers will provide meaningful protection for the Company's proprietary
information in the event of any unauthorized use or disclosure of such
proprietary information.

The Company is not aware that any of its products infringes the proprietary
rights of third parties, and is not currently engaged in any material
intellectual property litigation or proceedings. Nonetheless, there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claims could be time-
consuming, result in costly litigation, cause product shipment delays or lead
the Company to enter into royalty or licensing agreements rather than disputing
the merits of such claims. Moreover, an adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require expenditure of significant resources to develop non-
infringing technology, require disputed rights to be licensed from others or
require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business and
operating results. To the extent the Company wishes or is required to obtain
licenses to patents or proprietary rights

424B3 8th Page of 90 TOC 1st Previous Next ↓Bottom Just 8th
of others, there can be no assurance that any such licenses will be made
available on terms acceptable to the Company, if at all.

Enforcement of Civil Liabilities

Private Media Group, Inc. is a corporation organized under the laws of the
State of Nevada. Its 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 the Directors and officers of the
Company and its subsidiaries 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 such persons or to enforce, in courts outside the United States,
judgments against such persons obtained in United States courts and predicated
upon the civil liability provisions of the federal securities laws of the United
States. Furthermore, since substantially all of the assets of the Company and
its subsidiaries are located outside the United States, any judgment obtained in
the United States against the Company or its subsidiaries may not be collectible
within the United States.

Risks Associated With Foreign Operations

Substantially all of the Company's operations are presently conducted in
numerous countries outside the United States. In addition, the Company's growth
strategy provides for increased services to foreign customers and to domestic
customers distributing programming to international markets. As a consequence
of the global nature of the Company's business it will be exposed to market
risks from changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial condition. By
virtue of its significant operations outside the United States, the Company will
be subject to the risks normally associated with cross-border business
transactions and activities, including those relating to delayed payments from
customers in certain countries or difficulties in the collection of receivables
generally. In addition, the Company will be exposed to the risk of changes in
social, political and economic conditions in the countries where it engages in
business. Political and economic instability could adversely affect the
Company's business activities and operations in these regions. Unexpected
changes in 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 the legal environment could limit the
Company's ability to enforce effectively its rights in certain markets.
Although the Company does not believe that any of such risks have had a material
impact on its business operations or financial condition, there can be no
assurance that such risks will not have a material adverse impact in the future.
See Note 16 to the Company's Consolidated Financial Statements contained
elsewhere herein.

Provision of Sexually Explicit Content

The Company is engaged in the business of providing sexually explicit
products worldwide. Many people may regard the Company's primary business as
unwholesome. Certain investors, investment banking entities, market makers,
lenders, and others in the investment community may refuse to participate in the
market for the Company's Common Stock, financings, or other activities due to
the nature of the Company's primary business. Such refusal may negatively impact
the value of the Company's Common Stock and its opportunities to attract market
support. Federal and State governments, along with various religious and
children's advocacy groups, consistently propose and pass legislation aimed at
restricting provision of, access to, and content of adult entertainment. These
groups also may file lawsuits against providers of adult entertainment,
encourage boycotts against such providers, and mount negative publicity. In
this regard, the Company's magazines, and its certain distribution outlets and
advertisers, have from time to time been the target of certain groups who seek
to limit its availability because of its content. Although in its 35-year
history, the Company has never sold a product that has been judged to be obscene
or illegal worldwide, including the U.S., there can be no assurance that such
sales will not be subject to successful legal attacks in the future. See
"Business-Government Regulation."

Risk of Liability Relating to Performers

The Company's film, video and photo productions are subject to various U.S.
and foreign regulations which govern the terms and conditions under which
sexually explicit media productions may occur. Accordingly, the Company has
adopted practices and procedures intended to ensure compliance with these
regulations. In this regard, when the Company engages in the production of
videos, films and photo sets, the Company contracts directly with the video or
film directors or the photographer, and has no direct contractual relationship
with performers or models. Generally, these productions do not take place at
Company facilities. However, each of the agreements between the Company and the
director or photographer, require the director or photographer to obtain written
representations and documents from the models and performers to ensure that the
production will comply with applicable laws governing sexually media
productions, including information relating to age and health, and to furnish
such information to the Company. Although these measures are intended to
protect the Company from liability under applicable U.S. and foreign laws
governing sexually explicit media productions, and in its 35-year history, the
Company has never sold a product that has been judged to be illegal worldwide,
including the U.S., there can be no assurance that such sales will not be
subject to successful legal attacks in the future.

424B3 9th Page of 90 TOC 1st Previous Next ↓Bottom Just 9th
Fluctuations in Operating Results

The Company's quarterly operating results will depend upon the timing of
new product introductions by the Company. The Company's quarterly operating
results may also fluctuate significantly depending on other factors, including
the introduction of new products by the Company's competitors, regulatory
actions, market acceptance of the Company's products, adoption of new
technologies, and manufacturing costs and capabilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

No Dividends Anticipated

Private Media Group, Inc. has never paid dividends on its Common Stock and
does not anticipate payment of dividends in the foreseeable future. In this
regard, the Company intends to retain earnings for the foreseeable future for
use in the operation and expansion of its business. See "Dividend Policy".

Price Volatility

The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the common stock of many
publicly traded development stage companies have in the past been, and can in
the future be expected to be, especially volatile. Announcements of new products
or technical innovations by the Company or its competitors, developments or
disputes concerning proprietary rights, publicity regarding actual or potential
results relating to products under development by the Company or its
competitors, regulatory developments in both the United States and foreign
countries, and other external factors, as well as period to-period fluctuations
in the Company's financial results, may have a significant impact on the market
price of the Common Stock.

Potential Adverse Effect of Warrants

As of November 13, 1998, the Company had outstanding 875,000 Common Stock
Warrants exercisable at $4.00 per share. The holders thereof have, at nominal
cost, the opportunity to profit from a rise in the market price of the Common
Stock without assuming the risk of ownership, with a resulting dilution in the
interest of other security holders. As long as these warrants remain
unexercised, the Company's ability to obtain additional capital may be adversely
affected. Moreover, the warrant holders may be expected to exercise the warrants
at a time when the Company would, in all likelihood, be able to obtain any
needed capital through a new offering of its securities on terms more favorable
to the Company than those provided by the existing warrants. See "Description of
Securities."

Issuance of Additional Shares of Common Stock

The Articles of Incorporation of the Company currently authorize the Board
of Directors to issue up to 50,000,000 shares of Common Stock. The power of the
Board of Directors to issue shares of Common Stock or warrants to purchase
shares of Common Stock is subject to shareholder approval in only limited
instances. Accordingly, any additional issuance of the Company's Common Stock
may have the effect of further diluting the equity interest of shareholders.
See "Description of Securities."

424B3 10th Page of 90 TOC 1st Previous Next ↓Bottom Just 10th
Issuance of Additional Shares of Preferred Stock

The Company's 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 the price, and the other rights, preferences,
privileges and restrictions, without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. If such Preferred Stock is issued, it may rank
senior to the Company's Common Stock in respect of the right to receive
dividends and to participate in distributions or payments in the event of any
liquidation, dissolution or winding up of the Company. The provisions in the
Articles of Incorporation authorizing preferred stock could have the effect of
delaying, deferring or preventing a change of control of the Company, and could
adversely affect the voting and other rights of the holders of the Common Stock,
including the loss of voting control to others. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire control of the Company. The Company presently has
outstanding 7,000,000 shares of $4.00 Series A Preferred Stock, which has
certain rights, preferences and privileges which could adversely affect the
holders of the Common Stock. The Company has no current plans to issue
additional shares of Preferred Stock. "Description of Securities."

Potential Acquisitions of Business Enterprises

The Company's business plan as presently formulated contemplates growth
through additional acquisitions of existing business enterprises in near the
future, principally through the issuance of securities. The Company does not
plan to limit such potential acquisitions to any particular industry. There can
be no assurance that the Company will be able to integrate such businesses into
its operations or that it will be able to operate such businesses on a
profitable basis in the future. In addition, there can be no assurance that
future acquisition opportunities will become available, that such future
acquisitions can be accomplished on favorable terms, or that such acquisitions
will result in profitable operations in the future. As the Company may issue its
securities as full or partial payment for an acquisition, fluctuations in the
Common Stock may have an adverse effect on the Company's ability to make
additional acquisitions. Moreover, future issuances of the Company's securities
could have a dilutive effect on existing shareholders. Generally, the Company's
shareholders will not be required to vote on or approve acquisitions. The
Company presently has no plans for specific acquisitions other than the proposed
acquisition of Max's Film AB pursuant to a Letter of Intent entered into in May
1998. See "Business - Competition."

Control by Existing Management and Stockholders

As of November 13, 1998, Company's officers and directors beneficially own
or control more than 50% of the Company's issued and outstanding stock. Even
though all holders of Common Stock are entitled to cumulate their shares when
voting for directors, the present shareholders may control sufficient shares to
elect most or all members of the Board of Directors and thereby control the
management of the Company. See "Management," "Principal Stockholders" and
"Description of Securities."

Directors' and Officers' Liability Limited

Under Nevada law, the Company is required to indemnify its officers and
directors against liability to the Company or its stockholders in any proceeding
in which the officer or director wholly prevails on the merits. Generally, the
Company may indemnify its officers and directors against such liability if the
officer or director acted in good faith believing his or her actions to be in
the best interests of the Company, unless the director or

424B3 11th Page of 90 TOC 1st Previous Next ↓Bottom Just 11th
officer is adjudged liable to the Company. Furthermore, under the Company's
Articles of Incorporation, a director or officer has no liability for monetary
damages for breach of fiduciary duty unless such person committed fraud or
engaged in intentional misconduct. See "Management--Limitation on the Liability
of Directors".

Possible Illiquidity of Trading; Penny Stock Rule

The Common Stock of the Company is currently traded on the NASD, Inc. OTC
Bulletin Board. The Company is applying to have its Common Stock listed on the
Nasdaq Stock Market and anticipates that the Common Stock will be listed for
trading on the Nasdaq Stock Market on the effective date of this Prospectus.
However, there can be no assurance that this application will be approved and
that the Common Stock will be listed on the Nasdaq Stock Market. If the Company
is unable to obtain a listing on the Nasdaq Stock Market or maintain listing
standards once listed, then trading, if any, in the Common Stock would be
conducted in the over-the-counter market on the OTC Bulletin Board, established
for securities that do not meet the Nasdaq Stock Market or other exchange
listing requirements. As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Common
Stock. In addition, depending on several factors including the future market
price of the Common Stock, Common Stock could become subject to the "penny
stock" rules that impose additional sales practice and market making
requirements on broker-dealers who sell and/or make a market in such securities,
which could adversely affect the ability or willingness of the purchasers of
Common Stock to sell their shares in the secondary market.

If the Common Stock is not accepted for listing on the Nasdaq Stock Market
or, if listed, is delisted from the Nasdaq Stock Market, and in either case the
trading price of the Common Stock is less than $5.00 per share, such securities
would likely be subject to the low priced security or so-called "penny stock"
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors. For any transaction involving a penny stock, unless exempt, the rule
requires: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must: (i) obtain
financial information and investment experience and objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlighted form: (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, and about commissions payable to both the broker-dealer
and the investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the Company's
securities in the event such securities are approved for listing on the Nasdaq
Stock Market.

Potential Rule 144 Sales

Of the 8,081,668 shares of Common Stock of the Company currently
outstanding 3,500,000 are "restricted securities," as that term is defined in
Rule 144 as promulgated by the Securities and Exchange Commission under

424B3 12th Page of 90 TOC 1st Previous Next ↓Bottom Just 12th
the Securities Act of 1933, as amended. As restricted shares, these 3,500,000
Shares may be resold only pursuant to an effective registration or under the
requirements of Rule 144 or other applicable exemption from registration under
the Act as required under applicable State securities laws.

Rule 144 provides in essence that a person not affiliated with the issuer
who has held restricted securities for a period of one year, under certain
conditions, may sell every three months, in brokerage transactions, a number of
Shares which does not exceed the greater of one percent of a corporation's
outstanding Common Stock or the average weekly trading volume during the four
calendar weeks prior to the sale. There is no limit on the amount of restricted
securities that may be sold by a non-affiliate after the restricted securities
have been held by the owner for a period of two years. A sale under Rule 144 or
any other exemptions from the Act, if available, or subsequent registrations of
Common Stock of the current shareholders, may have a depressive effect upon the
price of the Common Stock in any market that may develop. See "Shares Eligible
for Future Sale."

424B3 13th Page of 90 TOC 1st Previous Next ↓Bottom Just 13th
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
consolidated financial statements and related notes and "Summary Financial Data"
included elsewhere in this Prospectus.

June 30, 1998 Compared to June 30, 1997

Net sales. The Company reported net sales of SEK 99.2 million for the six
months ended June 30, 1998 which, compared to net sales of SEK 70.4 million for
the six months ended June 30, 1997, represents an increase of SEK 28.8 million,
or 40.8%. The increase was primarily attributable to increased video sales due
to two factors; a higher output of new video releases, 32 titles in 1998
compared to 19 titles in 1997 and an increase in the number of video titles
available for back-catalogue sales. Sales of magazines and CD-ROM remained
approximately the same in 1998 as in 1997.

Cost of Sales. The Company reported cost of sales of SEK 46.7 million for
the six months ended June 30, 1998, which compared to cost of sales of SEK 31.2
million for the six months ended June 30, 1997, represents an increase of SEK
15.5 million, or 49.8%. The gross profit for the six months ended June 30, 1998
was SEK 52.5 million, or 52.9% of net sales, which compared to gross profit for
the six months ended June 30, 1997 of SEK 39.3 million, or 55.7% of net sales,
represents a decrease of 2.8% in gross profit in relation to net sales. This
decrease is the result of product mix. The gross profit percentages for the six
month periods ended June 30, 1998 and 1997 are higher than the gross profit
percentages for the years ended December 31, 1997 and 1996 principally as a
result of the one time sales at reduced margins of certain of the Company's
products that took place in the Fall of 1996 and 1997. The Company has not
decided whether or not to pursue this business strategy in 1998.

Selling, general and administrative expenses. The Company reported selling,
general and administrative expenses of SEK 24.0 million for the six months ended
June 30, 1998, which compared to selling, general and administrative expenses of
SEK 15.9 million for the six months ended June 30, 1997 represents an increase
of SEK 8.1 million, or 50.5%. The increase was attributable to non-recurring
moving and organization expenses related to the relocation of several
departments of the Swedish subsidiary to the subsidiary in Spain, non-recurring
expenses associated with the planned registration of the Company on NASDAQ and
the Company's investment in Internet related activities. The relocation is
expected to be completed during 1998. The investment expenses associated with
Internet activities are expected to continue in 1998.

Interest expense. The Company reported interest expense of SEK 0.13 million
for the six months ended June 30, 1998 which, compared to interest expense of
SEK 0.07 million for the six months ended June 30, 1997, represents an increase
of SEK 0.06 million. The small increase is the result of higher average short-
term borrowings outstanding in 1998 compared to 1997.

Income taxes. The Company reported income tax expense of SEK 0.2 million as
compared to an income tax expense of SEK 0.4 million for the six months ended
June 30, 1997.

Net income. The Company reported net income of SEK 28.2 million as
compared to SEK 22.8 million for the six months ended June 30, 1997. The
increase in net income in 1998 of SEK 5.4 million, or 23.5%, was primarily
attributable to increased sales.

424B3 14th Page of 90 TOC 1st Previous Next ↓Bottom Just 14th
1997 Compared to 1996

Net sales. The Company reported net sales of SEK 144.5 million for the
year ended December 31, 1997, which, compared to net sales of SEK 128.9 million
for the year ended December 31, 1996, represents an increase of SEK 15.6
million, or 12.1%. The increase was primarily attributable to increased video
sales due to two factors; a higher output of new video releases, 43 titles in
1997 compared to 36 titles in 1996, and an increase in the number of video
titles available for back-catalogue sales. Sales of magazines and CD-ROM
remained approximately the same in 1997 as in 1996.

Cost of Sales. The Company reported cost of sales of SEK 75.7 million for
the year ended December 31, 1997, which, compared to cost of sales of SEK 67.0
million for the year ended December 31, 1996, represents an increase of SEK 8.7
million, or 13.0%. The increase in cost of sales approximates the increase in
net sales of 12.1%. The gross profit for the year ended December 31, 1997 was
SEK 68.9 million, or 47.6% of net sales, which, compared to gross profit for the
year ended December 31, 1996 of SEK 62.0 million, or 48.1% of net sales,
represents a decrease of 0.5% in the gross profit margin. This small decrease
is the result of product mix.

Selling, general and administrative expenses. The Company reported
selling, general and administrative expenses of SEK 33.7 million for the year
ended December 31, 1997, which, compared to selling, general and administrative
expenses of SEK 27.0 million for the year ended December 31, 1996, represents an
increase of SEK 6.6 million, 24.6%. The increase was attributable to non-
recurring moving and organization expenses related to the relocation of several
departments of the Swedish subsidiary to the subsidiary in Spain, and the
Company's investment in Internet related activities. The re-location is
expected to be completed during 1998. The investment expenses associated with
Internet activities are expected to continue in 1998.

Interest expense. The Company reported interest expense of SEK 0.32
million for the year ended December 31, 1997, which, compared to interest
expense of SEK 0.26 million for the year ended December 31, 1996, represents an
increase of SEK 0.06 million. The small increase is the result of higher
average short-term borrowings outstanding in 1997 compared to 1996, partially
offset by reduced long-term borrowings.

Income taxes. The Company reported income tax benefit of SEK 2.1 million
for the year ended December 31, 1997 as compared to an income tax expense of SEK
2.0 million for the year ended December 31, 1996. The decrease of SEK 4.1
million is primarily attributable to more of the Company's profits being
recorded in tax jurisdictions where there is no corporate tax.

Net income. The Company reported net income of SEK 37.0 million as
compared to SEK 32.7 million for the year ended December 31, 1996. The increase
in 1997 net income was primarily attributable to increased sales and SEK 2.1
million in tax benefits, partially offset by higher net interest expense of SEK
0.3 million.

LIQUIDITY AND CAPITAL RESOURCES

The Company reported a working capital surplus of SEK 48.8 million for the
year ended December 31, 1997, an increase of SEK 13.3 million compared to the
year ended December 31, 1996.

424B3 15th Page of 90 TOC 1st Previous Next ↓Bottom Just 15th
The increase is principally attributable to increased accounts receivable
related to increased sales and increased inventories. This trend continued at
June 30, 1998 when working capital surplus increased to SEK 68.7 million as a
result of further inventory increases and reduced short-term borrowings.

Net cash provided by operating activities was SEK 44.7 million for the year
ended December 31, 1997 and was primarily the result of net income and
adjustments to reconcile net income to net cash flows from operating activities.
The net income of SEK 37.0 million and the adjustments to reconcile net income
to net cash flows from operating activities, representing amortization of
photographs and videos of SEK 20.2 million and depreciation of SEK 1.4 million
offset by deferred taxes of SEK 2.8 million, provided a total of SEK 55.8
million. The total of SEK 55.8 million was then primarily reduced by the
increases in trade accounts receivable and inventories totaling SEK 21.9 and
offset by SEK 10.7 million from prepaid expenses and other current assets,
accounts payable trade, income taxes payable and accrued other liabilities. Net
cash provided by operating activities was SEK 51.3 million for the year ended
December 31, 1996. The decrease in cash provided by operating activities in 1997
compared to 1996 is principally the result of changes in operating assets and
liabilities in 1997. For the six months ended June 30, 1998 net cash provided by
operating activities was SEK 25.0 million. The increase over the comparable six
month period was principally due to the increase in net income.

Net cash used in investing activities for the year ended December 31, 1997
was SEK 38.5 million. The investing activities was principally the investment in
library of photographs and videos of SEK 25.9 million which was carried out in
order to maintain the 1997/1998 release schedules. In addition to investment in
library of photographs and videos, SEK 11.1 million was invested in other assets
where a deposit on certain land and building represents the main activity (see
note 6). For the six months ended June 30, 1998 net cash used in investing
activities was SEK 24.1 million. The increase over the comparable six month
period in 1997 was principally due to increased investments in library of
photographs and videos to support the Company's increased sales.

Net cash used in financing activities for the year ended December 31, 1997
was SEK 6.3 million represented by SEK 6.6 million in dividends and long-term
repayments on loans SEK 0.4 million offset by an increase in short term
borrowings of SEK 0.8 million on the line of credit. For the six months ended
June 30, 1998 net cash used in financing activities was SEK 1.9 million. The
increase over the comparable six month period in 1997 was due to increased
repayments of short-term borrowings from excess cash balances.

The Company has historically relied on positive cash flows from operations
to finance working capital needs and investing activities. The Company expects
to have adequate working capital for the 12 months following the date of this
Prospectus. During this period the Company intends to rely on positive cash
flows from operations to finance working capital needs and necessary investing
activities. The Company's long-term expansion plans will require additional
sources of funding. The Company plans to meet these funding requirements through
a combination of increases in short-term credit lines, additional long-term
borrowings and/or equity financing.

424B3 16th Page of 90 TOC 1st Previous Next ↓Bottom Just 16th
BUSINESS

History

The parent company, Private Media Group, Inc., was originally incorporated
in 1980 as a Utah corporation under the name Glacier Investment Company, Inc.
for the purpose of acquiring or merging with an established company. In 1990,
the Company changed its domicile to the State of Nevada. In February 1997 the
Company entered into a Letter of Intent with Electric Entertainment Corp.
("EEC") to acquire EEC in exchange for stock of the Company and the Company
subsequently changed its name to Electric Entertainment International, Inc.
The transaction was consummated in June 1997 and was rescinded in November 1997
based upon the Company's belief that financial information furnished by EEC was
false and misleading. In order to finance costs associated with the EEC
transaction the Company undertook an offering of Common Stock and Warrants in
March 1997 pursuant to Rule 504 of Regulation D of the Securities Act of 1933.
The Company received proceeds of $772,000 from the initial sale of the
securities and the subsequent exercise of the Warrants, of which $500,000 was
loaned to Electric Entertainment Corp., and the remainder was utilized for
acquisition expenses and general working capital. This transaction was abandoned
in November 1997. The $500,000 loan to Electric Entertainment Corp. was advanced
to it by the Company in two equal installments in April and June of 1997,
accrued interest at the rate of 5%, and was due and payable in April 1999. The
$500,000 loan was never repaid by Electric Entertainment Corp. and was written
off as uncollectable as of December 1997. In December 1997 the Company changed
its corporate name to Private Media Group, Inc. and declared a one for five
reverse split of its Common Stock.

On December 19, 1997 the Company entered into acquisition agreements with
Milcap Media Limited (the "Milcap Acquisition Agreement") and Cinecraft Limited
(the "Cinecraft Acquisition Agreement") to acquire all of their outstanding
capital stock in exchange for 7,500,000 shares of Common Stock, 7,000,000 shares
of the $4.00 Series A Preferred Stock, and 875,000 Common Stock purchase
warrants. These acquisitions were completed on June 12, 1998. For the terms of
the securities issued in this transaction see "Description of Securities."

The "Company" is sometimes referred to herein as Private Media Group, Inc.,
Milcap, Private, the Milcap Media Group, or the Private/Milcap Group, and
includes Private Media Group, Inc. and its recently acquired subsidiaries:
Milcap Media Limited (Cyprus) ("MML"), Cinecraft Limited (Gibraltar), Milcap
Publishing Group AB (Sweden) ("MPG"), Milcap Media Group S.A. (Spain) ("MMG"),
Milcap Publishing Group Italy Srl (Italy), Normcard AB (Sweden), and Private
France S.A. Each of the Company's subsidiaries are wholly-owned other than
Private France S.A., which is 98% owned by the Company.

General Information

The Private/Milcap Group is engaged in the production, publishing and
delivery of adult feature products, including magazines, books, home videos and
other products, all oriented to the adult entertainment market. The Company's
primary business activities include: (i) creation, publishing and distribution
of unrated and adult feature magazines and books, (ii) acquisition and
distribution of unrated and adult feature movies in all video and disc formats,
including 12" laserdisc and 5 1/4" digital versatile disc, and (iii) Internet
services, and other products, including CD-Rom's and licensed products.

In the last few years, Private films, Private magazines and Private CD-
Roms, have won a number of awards such as Best European Film (Hot d'Or 1998),
Best Sceenplay (Hot d'Or 1998), Best European Director (Hot d'Or 1998), Best
Foreign Release, Special Achievement Awards (AVN 1997), Best Production Company
(Golden X 95), and recently Best Foreign Release and Best Director (AVN 1998).

The Private/Milcap Group currently distributes its products in the
following countries: Sweden, Denmark, Estonia, Latvia, Poland, Russia, the
United Kingdom, Germany, the Netherlands, Belgium, the Czech Republic, Slovenia,
Austria, Switzerland, Italy, Greece, France, Spain, Portugal, Canada, the
U.S.A., Mexico, Chile, Brazil, Paraguay, Uruguay, Argentina, South Africa,
Zimbabwe, Malawi, Botswana, Namibia, the Seychelles, Japan, Australia and New
Zealand. The distribution in these countries is conducted primarily by the
leading national independent distributors.

424B3 17th Page of 90 TOC 1st Previous Next ↓Bottom Just 17th
Magazine Publications

The Private/Milcap Group is the publisher of Private, an internationally
popular X-rated magazine. Private was founded 33 years ago, and was the first
full color, hard-core sex publication in the world. Today the Company produces
four X-rated magazines: Private, Pirate, Triple X and Private Sex. In addition,
a book, The Best Of Private, is released annually. The X-rated magazines are
distributed on a network that covers approximately 180,000 points of sale in
over 30 countries throughout the world. Furthermore, an in-house magazine,
X-rated News, is produced from time to time; this magazine is mainly aimed to
present informative news about the Company's activity to its clients and their
customers. The Company's two newest magazines are Private Style and Private
Life, which are produced with the same first-class quality as its older sisters,
but are significantly different when compared with the other four highly
successful magazines, as they are the first "soft-core" magazines in the
Private/Milcap Group.

Video and Film Productions

Since 1992, the Private/Milcap Group has acquired and distributed adult
motion picture entertainment. These productions generally feature men and women
in a variety of erotic and adult sexual situations. The Company's activity
includes the acquisition of feature videos (full length motion pictures produced
on videotape) and to some extent feature films (full length motion pictures
produced on film, such as Operation Sex Siege). Their distribution is organized
primarily on videocassettes (licensing or sale) and alternatively through pay
television and cable programming. The Company always maintains the ownership,
copyrights and administration of every film it finances and produces.

Currently, the Company produces 60 X-rated and 8-12 R-rated movies per
year and the distribution is through a world-wide network that covers
approximately 50,000 sales points. The first two monthly video labels released
were Private Film and Private Video Magazine. Both labels quickly received
critical acclaim in leading international magazines as well as numerous
prestigious awards from industry associations and major adult entertainment film
festivals, including AVN, Impulse d'Oro and Golden X. The next three monthly
video labels successfully introduced were Triple X, Private Stories and Private
Gold. In May 1997, the Company introduced Gaia, a new label released bi-monthly.
Earlier this year, the Company introduced the labels Pirate, Casting X, Private
Special Edition and Triple X Files, which are released monthly, and Private
Black Label, which is released bi-monthly.

The Company currently owns a total of more than 180 movie titles, and by
the end of 1998 the total is expected to increase to over 210 titles. Titles are
available mainly on videocassette and are sold by distributors, primarily to
retail stores and wholesalers worldwide. Some of the original motion picture
programs have also been re-edited and licensed to cable television operators.
The Company owns perpetual distribution rights, and thus far has not acquired
any third party distribution rights. The Company continues to expand the
marketing of its production into new international markets, including the United
States, generally by entering into national license agreements with local
distributors.

During fiscal 1998, Management hopes to continue to expand its video and
film operations by (i) distributing new videos and films with an aggressive
release schedule, (ii) increasing its efforts to distribute its library and new
titles into cable and satellite television markets as well as new international
markets, and (iii) actively seeking to acquire distribution rights to additional
titles produced by third parties.

424B3 18th Page of 90 TOC 1st Previous Next ↓Bottom Just 18th
Other Markets

CD-ROM/DVD. Although the adult CD-Rom market has been leveling out for
the last few years, Private PC Games, Interactive Adventures and CD-Rom
Magazines have increased sales due to high gaming and media qualities. During
1998, the Company expects to increase its CD-Rom releases to 2-3 per month.
Earlier this year, the Company also started to release its movie titles on DVD.
Sales of DVD titles are expected to add to the already established sales per
title.

Licensed Products. In April 1996, the Company launched a line of adult
pleasure products called Private Collection. In the near future, the Company
plans to extend the product range with various additional lines such as clothes,
nutritional supplements, energy soft drinks and personal skin care. For all
these new markets, the Company is generally planning to earn royalties through
the licensing of its major trademarks.

Internet. The Company's Internet team has combined Private quality with the
newest technology to create what it believes one of the best adult Web sites:
www.private.com. Since March 1998, the WWW Club members are able to view every
Private magazine published by the Company since 1965 and over 180 clips from
over 60 films. In addition, this site contains new games, chat rooms with
models, previews of new releases and more. The Company believes that as of today
it has the capacity and the best technology available to distribute movies via
satellite link in this fast growing market and plans to commence this
distribution via the Internet during the fourth quarter of 1998.

424B3 19th Page of 90 TOC 1st Previous Next ↓Bottom Just 19th
THE ADULT ENTERTAINMENT INDUSTRY

Despite nearly two decades of intense political campaigning against the
adult industry, consumer purchases of adult entertainment products have
increased dramatically. The industry that has come to be known broadly as adult
entertainment began its transformation two decades ago, with the advent of home
videos and the VCR. That revolution marked the beginning of the end of red-light
districts in cities, where adult book-stores, X-rated theatres, peep shows,
dingy strip joints and street prostitution once flourished.

During the 1980s, the availability of adult movies on videocassette and on
cable television helped to legitimize the consumption of explicit material by
putting it in the home setting. The result has been the legitimization of
industry products by other businesses not traditionally associated with the
adult entertainment industry. Video stores, long distance telephone carriers,
satellite providers, cable companies, and even mutual funds, earn significant
returns by supplying or investing in adult entertainment either directly or
indirectly.

The distribution of sexually explicit material is intensely competitive.
Hundreds of companies now produce and distribute films to wholesalers and
retailers, as well as directly to the consumer. The low cost of videotape and
the introduction of low cost video tape recorders, along with the minimal
production budgets of many adult films, has resulted in much lower barriers for
entry in the adult entertainment industry, while the availability of adult films
on videocassette has virtually destroyed the adult theatre business.

According to industry sources, in 1978 some 100 hard-core feature films
were produced at a typical cost in today's dollars of approximately $350,000,
while in 1997 nearly 8,000 new hard-core videos were released, some costing as
little as a few thousand dollars to produce. The bulk of this production is
represented by amateurish tapes and compilations. The Company is competing with
a small segment of the market, which involves the production of professionally
produced films with high production value, which probably represents
approximately ten percent of the market.

424B3 20th Page of 90 TOC 1st Previous Next ↓Bottom Just 20th
As of today, the U.S. and worldwide revenues of the adult entertainment
market have been estimated and broken down by the Company, as follows:

[Enlarge/Download Table]

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

Market Segment World Est. Sales 1998 U.S. Est. 1998 Comments

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

Adult Videos $ 18.8 billion $ 4.6 billion Retail Sales
Strip Clubs $ 4.5 billion $ 3.2 billion (1)
Magazines $ 7.5 billion $ 1.2 billion (2)
Phone Sex $ 4.5 billion $ 1.1 billion
Escort Services $ 10.0 billion $ 1.3 billion
Cable/Satellite/Pay-Per-View $ 1.5 billion $ 0.4 billion (3)
CD-Rom $ 1.0 billion $ 0.4 billion
Internet (sales and memberships) $ 0.5 billion $ 0.3 billion
Novelties $ 0.9 billion $ 0.3 billion
Others $ 0.8 billion $ 0.2 billion

TOTAL $ 50.0 billion $13.0 billion (4)

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

Notes (1) It is mainly a U.S. market (approximately 2,500 clubs in the U.S. only)
(2) Including softcore magazines such as Playboy, Penthouse or Hustler (U.S.)
(3) i.e. The Playboy Channel, Spice and Adam & Eve in the U.S. (including hotel's pay-per-view)
(4) Illicit markets not included

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

According to a recent industry report which appeared in US News and World
Report (released on February 10, 1997), Americans spent over $8 billion in 1996
on hard-core videos, peep-shows, live sex acts, adult cable programming, sexual
devices, computer porn and sex magazines. This amount is much larger than
Hollywood's domestic box office receipts and larger than all the revenues
generated by rock and country music recordings. The mainstream Hollywood film
industry collects some $6 billion per year, the recorded music industry $8
billion; theater, opera and ballet $1.7 billion. Only the magazine industry with
its $11 billion in U.S. sales is still competing with the adult industry for the
same fraction of the entertainment budget.

Video Sales & Rental

The Los Angeles Times (November 22, 1997) confirmed that sales and rental of
adult videos have increased 100% in the last five years. It added that "seventy
percent of VCR buyers in the first three years during which the devices were on
the market said that being able to view adult movies at home was a primary
reason they bought a VCR."

The Video Software Dealers Association ( VSDA ), the trade association for
the entire home video industry, estimated that more than 60,000 retail outlets
in the United States carry home videos; adult videocassettes are carried in more
than 25,000 of these retail outlets, including such major chains as The
Wherehouse, Tower Video, Palmer Video, Movies Unlimited, West Coast Video and
others. In addition, hundreds of small boutiques and large mail order companies
sell adult tapes directly to consumers. On the other hand, the 5,000-store
Blockbuster Video,

424B3 21st Page of 90 TOC 1st Previous Next ↓Bottom Just 21st
which accounts for 30% of the rental marketplace, like many other large retail
chains, has opted not to carry adult videos.

Both Adams Media Reasarch and the Video Software Dealers Association,
estimated that the overall US home video industry rental exceeded $7.3 billion
in revenues in 1997, while the U.S. home video rental and sales for the same
year, exceeded $16.2 billion.

AVN (Adult Video News), the world's largest adult entertainment industry
trade publication which releases an annual poll of approximately 19,000 US
retailers who subscribe to the AVN magazine, estimates that in 1997 hard-core
tapes generated over $828 million in adult video sales, while rental and sales
volume in video stores and adult stores, excluding mail orders, represented a
volume of $4.2 billion.

[Enlarge/Download Table]

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

Year Rental & Sales (1) % Increase Number of Titles (2) No. Rentals (3) $ Sales (4)

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

1985 1,600
1986 1,500
1987 1,300
1988 1,250
1989 1,300
1990 1,275
1991 1,575 410
1992 1,600 2,200 445
1993 2,100 31% 2,475 490
1994 2,500 19% 3,224 528 664
1995 3,100 24% 5,575 609 707
1996 3,900 26% 7,852 665 787
1997 4,200 8% 7,970 est. 697 828

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

Notes (1) In millions of dollars (in video stores and adult stores; does not include mail orders)
(2) Includes features, 30 & 60 minutes tapes, amateurish tapes, re-releases & compilations (hardcore only)
(3) All Stores (statistics through 1995 included only general video store) in millions of videotapes rented
(4) Wholesale sales of adult videotapes (Sales in million of dollars in U.S.A., approx.)

Source: AVN's 1998 Adult Entertainment Guide
------------------------------------------------------------------------------------------------------------------------------------

Overall, AVN reports that adult products represent 13.49% of the U.S. video
market (all stores, whether stocking adult or not). More than 15% of the
nations's rental and sales transactions involving adult tapes took place in the
State of California; approximately 2,800 retail stores carry adult video for
sale and/or rental in the State of California; the average store in the State of
California stocks over 700 different adult tapes for rental. According to AVN's
poll, 71% of adult videos are rented by men, 19% are rented by male/female
couples, 7% are rented by male couples, 2% are rented by women and 1% by women
couples.

Approximately 20 major producers, such as Private, Vivid, VCA and Metro
release the lion's share of adult high budget videos; around eighty smaller
firms fill in the gaps. See "Business-Competition."

424B3 22nd Page of 90 TOC 1st Previous Next ↓Bottom Just 22nd
--------------------------------------------------------------------------------

Year % Rentals (1) % Rental & Sales (2)

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

1991 11.5 20.7
1992 11.75 22.6
1993 11.1 21.6
1994 12.9 27.5
1995 13.3 28.1
1996 13.1 27.8
1997 13.49 25.4

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

Notes (1) Adult percentage of video market, all stores (whether stocking adult
or not)
(2) Adult percentage of rentals and sales (exclusively in stores that
carry adult products)

Source: AVN's 1998 Adult Entertainment Guide

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

Cable and Satellite TV Broadcasting

The adult entertainment industry has continued to grow as technological
advances allow easier and more private access to products. Most major hotel
chains, including Sheraton, Marriott, Hyatt, Holiday Inn and Hilton, offer in-
room non-explicit adult programming through video services such as Spectravision
and On Command, which in 1997, according to US News and World Report,
represented over $175 million in sales in the U.S. alone.

On Command is the largest of the hotel pay-per-view companies and is in
more than 3,150 hotels comprising 916,000 individual rooms. On Command reported
revenues of over $60.9 million in the second quarter of 1998. Over 800,000 rooms
served by On Command can get on-demand pay-per-view. This means that patrons can
choose from a selection of as many as 50 general and adult features, with the
requested feature starting upon the guest's request, rather than waiting for a
scheduled start time. Softcore adult is a mainstay of hotel pay-per-view
systems, primarily because companies can buy unlimited rights to titles for a
specified period of time, like three years for $5,000. Outside the U.S., except
for more restrictive countries such as Japan and the United Kingdom, guests can
often gain access to hard-core pay-per-view as well.

Cable companies such as Time Warner, TeleCommunications, Inc., and
Cablevision Systems offer softcore services like the Playboy Channel. Other
cable companies such as, American Cable Entertainment, Comcast Corporation and
Greater Media offer explicit adult programming, such as that available from
Spice and Exxxtasy Networks. According to public documents, the Playboy and
Spice channels have generated as much as $200 million in revenue from cable and
DTH satellite services during their latest fiscal year.

The Big Four US cable providers are: TCI (Tele-Communications, Inc.), Time
Warner Cable, MediaOne and Comcast. TCI is the largest U.S. cable provider, with
over 16 million subscribers in 49 States. Nationwide, TCI systems offers Playboy
TV, AdulTVision, Adam & Eve and Spice. Time Warner Cable has 12.3 million
subscribers in 37 States, including over one million homes in New York City
alone, and offers Playboy TV, Adam & Eve and Spice. MediaOne is the third
largest cable provider with 4.8 million subscribers. In order of popularity
nationwide

424B3 23rd Page of 90 TOC 1st Previous Next ↓Bottom Just 23rd
it offers Spice, Playboy TV and Adam & Eve. Comcast is the number four cable TV
provider in the U.S. with 4.3 million subscribers in 21 States; its local
Philadelphia area provider offers Playboy TV and local stand-alone pay-per-view
channels.

Besides the softcore adult-oriented 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 the C-Band dishes (large 7
1/2' to 10' satellite antennas), which are: Eurotica, Exotica, Exxxtasy, True
Blue, X!, Xxxcite and XXXplore. Exotica, Exxxtasy and True Blue (New Frontier
Media, Inc.) offer uncensored hardcore material. Exxxtasy is the only U.S.
hardcore adult channel being beamed to Australia and the Pacific Rim.

Earlier this year Playboy Enterprises, Inc. and Spice Entertainment
Companies, Inc. entered into an agreement resulting in the combination of the
two companies. Also, Colorado Satellite Broadcasting, a subsidiary of New
Frontier Media, Inc., launched TEN: The Erotic Network on a 24 hour basis on
September 1, 1998, with an estimated 2-3 million households in North and South
America initially having access to this channel.

Less-explicit material routinely available on a variety of cable
television networks acts to reinforce consumer demand. Subsequently, the Company
believes that the adult entertainment industry in general will continue to
experience significant growth in the coming years, particularly as advances in
technology will allow more private and secure adult access to adult themed
material.

CD-Roms

CD-Roms burst onto the scene about five years ago and is now estimated to
represent $300 million-a-year. This includes films and sexually oriented
interactive games (Source: Boston Sunday Globe). Some industry observers believe
that the market for adult CD-Roms has peaked. According to others, toning down
the packaging will make it possible to expand sales while tapping music store
chains, as well.

Internet

According to CommerceNet/Nielsen Media Research - Internet Demographic
Study- Fall 1997 Release, among persons 16 and over in the U.S. and Canada, 52
million are Internet users in the U.S. and 6 million are Internet users in
Canada. Of these users, 43% are women, 80% own or lease a home computer, 77%
have a credit card in their name, 49% have at least a college associate degree
and 46% live in households with total annual income over $50,000, of which 10
million are considered to be regular online buyers.

On a worldwide basis, it is estimated that over 125 million people
currently have access to the Internet; by the year 2000 there are expected to be
over 450 million users of the Internet. An estimated 160 million HTML pages can
now be viewed on the Internet, with 500 million projected by the year 2000; the
worlwide median user income for Web surfers is over $65,000 per year.

According to Interactive Advertising, Inc. (iab.com), advertising revenues
on the Internet accounted for $906.5 million in 1997, up 240% from 1996; 67%
were collected by the top ten generic sites and search engines such as Yahoo; as
far as the bulk of the advertising was concerned, adult oriented banners
probably represented the lion's share.

424B3 24th Page of 90 TOC 1st Previous Next ↓Bottom Just 24th
Most of this data can be consulted online and on a weekly basis, through
interactive media audience measurement services such as Media Metrix, Inc.
(www.mediametrix.com), WebSideStory, Inc. and Web21 (100 hot Web Sites), which
all deliver comprehensive usage statistics, clickstream patterns and demographic
data to help clients evaluate and demonstrate the value of all new interactive
media.

Inter@ctive Week now evaluates the adult entertainment business at $1 billion
for banner advertising, subscriptions, videoconferencing and products. A more
conservative figure from Forrester Research Inc. is $185 million in adult online
entertainment in 1998, up from $101 million in 1996 and $137 million last year.
That is a pittance compared with the $4.8 billion Forrester forecasts for total
online retail this year, but it is a big number to those involved.

Estimates of the number of sex sites are as diverse as estimates for
traffic and revenue. Yahoo lists about 4,000 sites under "sex." but current
estimates indicate that there may be as many as 28,000 sex sites, half
commercial, the other half hobby sites. Adult Chamber of Commerce's Kraft
guesses there are 20,000 distinct owners, with many more sites. According to
WebSideStory's Adult 10000, there were 13,673 sites listed, averaging 16,041,825
visitors per day on August 5, 1998.

Pay sites have most of the adult content on the Internet, but free sites
abound for obvious reasons: advertising from pay sites supports most of them.
Free sites get a few cents for each viewer who "clicks" on an advertising
banner; the banner transports these viewers to a site that tries to entice them
into surrendering their credit card numbers. Some sites offer commissions rather
than flat fees for customer referrals. Though this sounds like small change,
some free sites do well.

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

Adult Entertainment Revenues on the Internet

Year Tot. Online Retail Tot. Online Entertainment Adult Entertainment

1997 $2.4 billion $298 million $137 million
1998 $4.8 billion $591 million $185 million
1999 $7.9 billion $1.14 billion $235 million
2000 $12.1 billion $1.92 billion $296 million

Source: Forrester Research Inc., People & Technology Strategies Report,
October 1997

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

There are many other specialized directories and search engines for the
adult world, though many of the Internet's general search sites include sex as
well. Webpower Inc., a large supplier that pays for referrals to its services,
says it is the largest paying advertiser on Yahoo's and Excite Inc.'s search
sites. Webpower's sites include Amateur Hardcore, The Hardcore Channel and
FastPorn. Amateur Hardcore may be the largest adult pay site for the time being;
it claims 250,000 pictures and 500,000 members. Webpower also says it has 6,000
actively linked Webmasters to which it pays a total of $25,000 to $40,000 per
week for referrals or click-throughs.

One of the largest hosts of adult sites is Bell Technologies Group of New
York, a public entity started in 1989, which claims to be the largest provider
of adult hosting on the Internet. Unlike Bell, many information service
providers ("ISP's") do not want adult operators for a variety of reasons. Some
say they reject the traffic

424B3 25th Page of 90 TOC 1st Previous Next ↓Bottom Just 25th
because adult sites use enormous bandwidth just a few hours a day. That means
providers would need to invest heavily for largely unused capacity. Others don't
want to be associated with unsavory content.

The tremendous growth of the Internet, including chat rooms and Web sites
dedicated to adult entertainment, has resulted in millions of potential
customers accessing these sites from the relative privacy of their personal
computers, worldwide.

Web porn has become an explosive issue that unsettles everyone, from the
religious right to anti-censorship liberals. It sparks debates about free speech
vs. child protection; free enterprise vs. social good; and free markets vs. fair
business practices. Parents, politicians, preachers and providers are all
struggling with how to best protect children while allowing grown-ups to set
their own standards of behavior and taste. The access to most of the Web sites
is far from being regulated. At the user's discretion, the following Web
locations provide information about blocking adult material, mainly for child
protection: cyberpatrol, solidoak, netnanny, shepherd, safesurf and/or netpart.

Phone Sex

Phone sex represents, by conservative estimates, a $1 billion dollar
industry in the U.S. only. AT&T is one of the biggest carriers of phone sex.
Many in the industry believe phone sex will be outpaced by computer video-
conferencing, video streaming or live streaming, but for the time being,
according to the above mentioned U.S. News report, every night, between the peak
hours of 9 p.m. and 1 a.m. a quarter of a million Americans pick up the phone
and dial a number for commercial phone sex. The average call lasts six to eight
minutes and the charge ranges from 89 cents to $4 a minute. In 1991, the FCC
restricted the type of adult calls that could be made to numbers with a 900
prefix, banning obscene communications for commercial purposes, but no such
restriction applys to overseas calls, which can easily be made from most
telephones.

424B3 26th Page of 90 TOC 1st Previous Next ↓Bottom Just 26th
The Company's Numbers

The following table indicates the Company's production for 1997 and the
estimates for 1998.

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

THE PRIVATE LIBRARY

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

MAGAZINES As of December 31, 1997 As of December 31, 1998 (Est.)
--------- ----------------------- ------------------------------

Titles No of Issues No of Issues Yearly

Private 144 150 + 6
Pirate 46 52 + 6
Triple-X 20 26 + 6
Sex 11 17 + 6

Total 221 245 24 New Releases

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

VIDEOS As of December 31, 1997 As of December 31, 1998 (Est.)
------ ----------------------- ------------------------------

Labels No of Titles

Private Video
Magazine 26 26 No more in production
Private Film 28 28 No more in production.
Triple-X Video 32 32 No more in production.
Private Video
Stories 27 27 No more in prod.
Private Gold 25 33 + 8
Gaia 4 7 Ended during 1998
Casting-X 3 12 + 9
Best of Private 6 8 + 2
Private Black
Label 6 New from 1998
Pirate 12 New from 1998
Triple-X Files 12 New from 1998
Special Compitalations 10 New from 1998
Amanda's Diary 1 New from 1998
Private Kamasutra 1 New from 1998

Total 151 212 61 New Releases in 1998

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

424B3 27th Page of 90 TOC 1st Previous Next ↓Bottom Just 27th
MAGAZINE PUBLICATIONS

The Business

The Company's publishing operations include the publication of the above
mentioned adult magazines, and occasionally the publication of newsstand
specials, calendars and paperback books. All these magazines, together with all
local editions are printed under various tradenames and are distributed in
approximately 30 countries worldwide. The Company publishes several editions of
the main magazines; all editions contain the same editorial material but provide
local targeted content, in full cognizance of local governmental regulation
regarding explicit adult publications. Most of the Company's magazines feature
pictures of men and women engaged in erotic and sexually explicit situations;
the Company's most popular publications include Private, Pirate, Sex and Triple
X.

Private Style, published in South Africa since 1997, and Private Life,
published in Greece in 1998, are currently the only softcore magazines. Private
Style is edited, printed and distributed by the South African distributor and is
currently in its fourth issue.

Private Kontakt began publication in Germany in May 1998, through a joint
venture between the Company and its German distributor. Private Kontakt
represents the Company's first attempt to penetrate a very large market for this
kind of publication in Germany. There are currently two other long established
German contact magazines: Autofahrer Week End and Happy Week End, which are
produced by two of the Company's German competitors.

--------------------------------------------------------------------------------
Quantities of Magazines Produced (1997)

Private 702,450
Pirate 521,450
Triple X 504,350
Sex 327,500
Best of Private 44,830
--------------------------------------------------------------------------------

The Company's publications offer a balanced variety of features and have
all gained a loyal customer base and a reputation for excellence by providing a
quality standard to the adult market industry, while maintaining circulation
leadership as the best-selling hardcore magazine. All publications have long
been known for their graphic excellence and features, and publish the work of
top artists and photographers. They are also renowned for their pictorials of
beautiful people. Because of the Company's high quality standards, its magazines
are among the highest priced magazines in the industry.

All of the Company's publications are printed by independent third parties.
The Company has had a longstanding relationship with a printer in Spain, and two
other printers in the U.S. and in the U.K. respectively; these last two are also
printers of other adult magazines that compete with the Company's products;
nonetheless, Management believes that generally there is an adequate supply of
printing services available to the Company at competitive prices, should the
need arise. All of the Company's production and printing activities are
coordinated through its operating facility, Milcap Media Group S.L., located in
Barcelona, Spain.

424B3 28th Page of 90 TOC 1st Previous Next ↓Bottom Just 28th
Circulation

The Company's magazines have historically generated most of their
revenues from firm sales distribution to national distributors. Distributors
with rights to return and retail circulation represent less than 25% of the
current production. The Company has contracted national licensing agreements in
over 30 countries and normally deals with a magazine distributor for every local
distribution of its publications. Single copy retail sales normally occur in
adult book stores and similar establishments. Newsstand retail sales are legally
allowed only in countries such as Sweden, Denmark, Holland, Belgium, France and
Italy.

Distribution of the magazine to newsstands and other public retail
outlets is accomplished through a network of national distributors, who maintain
a local network of several wholesale distributors and licensors. Copies of the
magazine are shipped in bulk to the wholesalers, who are responsible for local
retail distribution.

Wholesalers of Back Catalogue are normally allowed to handle returns from
National Newsstand Networks on firm sales; this practice is only allowed for
magazines, while almost no return practice is allowed for videos and CD-Roms.

The distribution of the Company's magazines is handled exclusively by
distributor pursuant to individual distribution agreements. Such agreements are
normally subject to yearly automatic extensions, unless either party delivers a
termination notice. Normally, distributors also provide the Company with other
services, including management information and promotional and specialty
marketing services, and their marketing representatives usually solicit
national, regional and local retailers in an effort to expand the number of
retail outlets for the Company titles.

The Company recognizes revenue from distributors sales based on estimated
copy sales at the time each issue is delivered. Provisions for expected returns
are taken into consideration.

The historical patterns of distribution have changed as a result of the on-
going consolidation and the relationship with each distributor, which due to the
success of the publications and better terms and conditions, tend to prefer a
firm sale agreement as well.

For a few years, the Company has been seeking to expand the use of its
magazines' editorial content and other assets across different media formats, in
order to capitalize on their existing brand names at a lower cost. The process
started in 1995 with the production of CD-Roms, but the main development will be
the re-editing of every Private magazine since 1965, which became available on
the Company's Web site in May 1998.

Production Distribution and Fulfillment

Most of the Company's magazines and video covers are currently printed by
an independent printer in Spain pursuant to a long dated gentlemen's agreement.
On April 1, 1998, the Spanish printer confirmed its latest pricing policy offer
for printing and binding FOB Barcelona. Prices are subject to the alteration of
the price of raw materials (paper, ink, etc.) on the date of printing. Terms of
payment are 60 days from the date of invoice.

The Company believes that its relationship with the Spanish printer is
good. However, it believes that other printers of similar quality could be
engaged on similar terms and that its high volume of printing, could enable it
to

424B3 29th Page of 90 TOC 1st Previous Next ↓Bottom Just 29th
receive more favorable printing rates. The Spanish printer belongs to a large
Spanish printing group and has preparations and the capability to minimize
recovery time, in the event of a disaster at the existing printing facility.

With respect to color separation, pre-press and related services, the
Company is currently using the services of two independent providers located in
Barcelona, Spain; the Company believes that there is generally an adequate
supply of alternative color separation services available at competitive prices,
should the need arise. All proprietary magazines are printed in and shipped
from Barcelona, Spain with the exception of the two following national
distributors.

Private USA, Inc. receives the color separations from the Barcelona office
and then runs the printing of its own copies through a U.S. printer. The U.S.
printer is printing Private, Pirate, Triple-X and Sex for the U.S., Mexican and
Canadian markets. The U.K. distributor receives all the magazines in digital
format, prepares its own layout and color separations before printing locally
adapted editions of the Private and Pirate magazines.

To some extent, the actual print run varies each month and different
amounts are printed for each publication. The amount of printed publications is
determined bimonthly with the input from each of the Company's national
distributors.

The principal raw material necessary for the publication of the Company's
magazines are coated and uncoated paper. The Company's printers have a number of
paper supply arrangements and believe that those supply contracts provide an
adequate supply of paper for its needs and that, in any event, alternative
sources are available at competitive prices. Paper prices are affected by a
variety of factors, including demand, capacity, pulp supply, and by general
economic conditions. In any case, pulp and paper only represents approximately
ten percent of the magazine's total cost and its price does not generally have a
major impact on the production cost.

Most of the Company's products are packaged and delivered directly by
the printer or supplier, but fulfillment, warehousing, customer service and
payment processing are conducted principally by Milcap Media Group S.L.

Milcap Media Group S.L. employs a staff of professionals to manage the
production and to oversee the printing, distribution and fulfillment of its
magazines. The Company is able to effectively produce and distribute all of its
publications, through the use of state-of-the-art design and production
technology, economies of scale and, in printing contracts, efficiencies in
subscription solicitation and fulfillment. Production systems for both graphics
and editing utilizes an integrated publishing environment that is networked with
satellite offices. Approximately 15 employees of the Company are engaged in the
production and distribution of the Company's publications.

Licensed Publishing

The Private Style publication is owned by JT Publishing Pty, the South
African distributor, who will start paying a royalty as soon as the final
distribution of the magazine will be up an running. There have been two issues
of Private Style on the market so far. A final royalty agreement is expected to
be finalized before the end of 1998.

The Private Life publication is owned by D&L First Publishing Group Ltd.,
the Greek distributor, who will start paying a royalty as soon as final
distribution of the magazine will be up and running. There have been two issues
on the market so far. A final royalty agreement is expected to be finalized
before the end of 1998.

424B3 30th Page of 90 TOC 1st Previous Next ↓Bottom Just 30th
Local publishing licensees will tailor their editions by mixing the work of
the Company's editors with their own editorial and pictorial material. The
Company will monitor the content of the licensed editions so that they retain
the distinctive style, look and quality of the other editions, while meeting the
needs of their respective markets.

424B3 31st Page of 90 TOC 1st Previous Next ↓Bottom Just 31st
VIDEO AND FILM PRODUCTIONS

In fiscal 1992, the Company began releasing feature videos and films under
the Private label. Due to the recent success of titles such as The Pyramid 1-2-
3, The Fugitive 1-2 and Tatiana 1-2-3, there has been a great consumer
expectation for new releases. The retail success of the Company's production can
easily be checked by consulting ratings and sales on some of the industry's
monthly publications such as AVN (for the US market), Hot Video (for the French
market) and Video Impulse (for the Italian market).

The Company's adult video or film products are in genres similar to its
general magazines and books. Because of the strong demand for this genre of
productions, the Company is able to fairly evaluate the international
distribution of every production and earn a quick return on its investment.
Normally, the Company's acquisition costs range between $25,000 and $125,000 per
movie, prior to the computation of the post-production, duplication and
distribution costs. Generally, MMG creates and designs all artwork for
promotional items and packaging and contracts for printing services. Since 1997,
all videocassettes have been duplicated by independent laboratories.

The Company and several of the Company's original programs, have recently
won awards of excellence, including a Special Achievement Award (AVN 1997). The
Company continues to expand its video operations in international markets and is
presently marketing video products in over 30 countries worldwide.

The Company finances all of its adult films and videos, and arrangements
with video and film producers are done on a flat fee basis; all producers
generally take care of all production costs and obligations, including among
other things, the delivery of models' releases. The principal source of
financing for all the motion pictures derives from the cash flow generated by
previous productions. To date, the Company has not solicited any external
financing for any of its acquisitions. Distribution rights may be limited to
specified territories, specified media and/or particular periods of time.

Most of the Company's original programs have been licensed to cable
television networks and adult pay-per-view channels. In these circumstances, the
Company generally grants the TV channel owner a specific right of transmission
and always retains the intellectual property rights of every production.
Additionally, new technology, primarily digital set-top converters, will
dramatically increase channel capacity, and is expected to contribute to the
sales of adult video. The Company is currently developing a video streaming
software to allow pay-per-view of its productions through it Web site. See
"Business-Internet."

Motion pictures shot on film generally offer better production quality,
utilize more elaborate production techniques and incur higher acquisition costs
than motion pictures shot on videotape. Many of the Company's new feature video
and film releases are edited into several versions depending on the media
through which they are distributed. In general, versions of the videos or films
edited for cable or pay-per-view television are less sexually explicit than the
versions edited for home video distribution.

The Company has experienced significant competition from lower cost
competitors with respect to film and video. While there can be no assurance that
the Company will be able to maintain its current market share, it believes that
the strong brand recognition and the quality of its titles will result in the
ability to appeal more

424B3 32nd Page of 90 TOC 1st Previous Next ↓Bottom Just 32nd
effectively to a broader range of adult audiences. The format of Private videos
is consistent with the style, quality and focus of the Private brand. The
Company believes that the quality of content and production will continue to
differentiate the Company from its competitors.

Distribution

The Company distributes its productions worldwide via Beta masters,
videocassettes, laserdiscs and DVD's that are sold or rented in video stores,
sex shops, newsstands and other retail outlets, and occasionally, where allowed,
through direct mail. The Company's Web site recently contributed in boosting
video sales and Management expects this new media to become one of the main
distribution channels in the future.

During the last six years, the Company entered into several distributorship
agreements in approximately 30 countries worldwide. Pursuant to these
distributorship agreements, either MPG or occasionally MMG, provides monthly a
minimum number of new titles 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 distributorship agreements, licensees are
normally required to purchase a minimum number of units for each monthly period
during the term of the agreement.

Typically the licensees then customize, dub or subtitle the movie, as
appropriate, to meet the needs of individual markets. In countries such as the
U.S. and Germany, the Company has expanded its relationships with its national
distributor by entering into exclusive multi-year multi-product output
agreements. Private USA, Inc. for instance, coordinated the incorporation of PCI
Private Collection International, Inc. which in 1995 became the worldwide
distributor of the Company's novelties collection. In another case, VPS Film
Entertainment GmbH, Munich recently entered into a joint venture agreement for
the launching of the Company's contact magazine.

In countries such as France and Italy, the Company established local
subsidiaries for the purpose of owning or controlling the local distribution. In
the near future, the Company intends to renegotiate some of its national
distributorship agreements in order to vertically integrate the Company into its
chain of distribution.

In general, national distribution agreements enable the Company to have an
ongoing branded presence in international markets and generate higher and more
consistent revenues, rather than selling on a direct basis.

Video Duplication/Production Techniques

Betacam masters are produced by Milcap Media Group S.L. and Milcap
Publishing Group, and from there they are sent to the different distributors and
duplication centers. Certain distributors receive a master directly and do their
own duplication.

All artwork to print the video covers is created at Milcap Media Group S.L.
Most of countries receive their own ready printed covers from Spain and some
countries print their own covers. Body labels for the videocassettes are printed
in Spain, and then mailed to the different distributors. All of the body labels
have a golden stamping for the control of pirate copies.

424B3 33rd Page of 90 TOC 1st Previous Next ↓Bottom Just 33rd
CD-ROMS AND INTERACTIVE GAMES

The Software Publisher's Association estimated that the number of CD-Rom
households by the end of calendar 1997 was 45 million worldwide (30 million in
the U.S. market alone), growing approximately 50% from the previous year. This
growth has been primarily fueled by the availability of multimedia computer
systems. In addition, 60% of all new computers purchased are being shipped with
built-in CD-Rom drives. CD-Rom products enable viewers to enjoy full-screen,
full-motion CD-Rom visual display.

In the last few years, the Company entered into partnerships with companies
to create multimedia products, such as Video CD-Rom titles and several kinds of
Video Photo Discs and Interactive Games. Management has determined that it is
more efficient and cost effective to engage independent contractors to digitize
and convert the Company's motion pictures into the CD-Rom format and to acquire
proprietary distribution rights to CD-Rom interactive games authorized by
independent software developers. Accordingly, during 1997, the Company reduced
its Swedish in-house technical workforce and contracted the product development
process to outside specialists.

The product development process includes design, prototyping, programming,
computer graphic design, animation, sound and video recordings and quality
assurance. The Company has and expects to continue to utilize third-party
designers, artists and programmers to introduce creative and technically
superior products. Due to the technological complexity, inherent uncertainty in
anticipating technological developments, the need for coordinated efforts of
numerous technical personnel in such development, and the difficulties in
identifying and eliminating errors prior to product release, the success of
software product development is unpredictable.

The Company has and intends to continue to digitize and convert selected
titles from the Company's existing film library to the CD-Rom format under the
trade name Private. It has financed and it will continue to finance the
development of technically sophisticated products on the most popular personal
computer platforms, currently Microsoft Windows 98 and the hybrid
Windows/Macintosh platform, primarily for use in home personal computers.

Production Distribution and Fulfillment

Preparation of master CD-Rom discs, user manuals and promotional materials,
as well as duplication of the CD-Rom discs and printing of the user manuals and
packaging, has been and will continue to be performed by outside developers.
Management does not anticipate experiencing any material difficulties or delays
in the manufacture and packaging of its products. Distribution of CD-Rom disc
products is accomplished through the same distribution network of wholesalers
and retailers through which the Company distributes its magazines and adult
video products.

Sales of consumer software are highly dependent on the availability of
relatively inexpensive personal computers. Major computer manufacturers have
continued to enhance their lower-end product offer to consumers by increasing
the power and speed of these machines without significantly increasing the
price. As indicated above, the inclusion of CD-Rom technology in home personal
computers and the decline in prices for CD-Rom hardware is expected to
contribute to the demand for CD-Rom software products that can utilize the
graphics, sound and data capabilities of the latest hardware technology.

424B3 34th Page of 90 TOC 1st Previous Next ↓Bottom Just 34th
The Company has no way of accurately assessing the amount of capital
resources that will be required to develop these future projects, or the amount
and extent of financing that will be available to meet these requirements.
The development of these kinds of products incurred minimal operating costs
during fiscal 1997 and have been financed through the cash flow generated by the
various operations.

CD-Rom Duplication Techniques

During fiscal 1997, the Company reduced its Swedish in-house technical
workforce and contracted the product development and duplication process to
outside specialists.

CD-Rom Library

Although the Company intends to focus on digitizing selected titles from
its existing film library for the foreseeable future, it will continue to be
engaged in the development and distribution of other adult-theme digital
multimedia projects such as interactive games.

Presently, the Company's CD-Rom library can be described as follows:

Private Photo CD-Rom Discs

This includes Private Collection (Vol. 1-4) and other similar CD-Roms. The
program's floating control panel makes it easy to browse through more than 2,000
color-pictures included on each CD-Rom. This type of CD-Rom is easy to use and
has graphical interfaces including interactive menus and slide shows with
background music.

CD-Rom Interactive Adventures and PC Games

This includes CD Sampler, Hard Core Gallery and Private CD-Rom Magazine.
These types of CD-Rom's are digitally encoded in MPEG/Quick Time Format to
ensure the highest available quality, integrated with sound, and at the touch of
a fingertip, users can find a vast selection of the Company's films and
magazines. Private CD-Rom Magazines are hybrids that play both on PC/Windows and
on Macintosh computers.

The user of these interactive CD-Roms interacts and decides what will or
will not happen on the screen and has total control over the actual events.
Private Pleasure Park 1 & 2 (both best foreign titles at the AMEE 1995 and
1996), Private Investigator (awarded 1996 Best Interactive Game at the AMEE
Award Show in Las Vegas), Private Prison and Private Castle are examples of this
type of production.

The Company's PC games incorporate state-of-the-art technology in advanced
arcade PC games. The games combine exciting and challenging top level computer
games with hard-core or R-rated movies and pictures. The PC games run in a
PC/Windows environment and are compatible with Windows 98. Pornmania and
Porntris, which has been the best selling adult PC-Game in Europe since 1994,
are just two examples of this kind of production.

The Company is competing with other CD-Rom producers such as VCA
Interactive, Disk Magic, Arcus Media Group, Digital Playground, PIXIS
Interactive, Venus Interactive and New Machine Publishing. Future product
releases by the Company will be dependent on the continued market acceptance of
its initial product releases, which, for the time being, is very positive.

424B3 35th Page of 90 TOC 1st Previous Next ↓Bottom Just 35th
OTHER ANCILLARY PRODUCTS AND SERVICES

The Laserdisc Market

According to the LaserDisc Association, as of January, 1997, approximately
2.2 million U.S. households owned a laserdisc player. The worldwide laserdisc
household figure is estimated to be 12.0 million with the heaviest
concentrations in Japan, Taiwan, Hong Kong, Singapore, Malaysia and Indonesia.
The LaserDisc Association estimates that the installed base of laserdisc
households in the U.S. will grow at a rate of 25% per year for the next three
years and then see little or no growth as the next Video Disc technology takes
hold (see "DVD Markets"). Laserdisc is primarily a sell-through business (not
much rental activity ) and caters to upper-income households with home-theater
installations. Laserdisc employs an analog video technology along with a digital
sound technology to deliver twice the resolution of ordinary home video
cassettes. Laserdisc's popularity has grown over the past ten years among movie
enthusiasts for its "instant access" capabilities (similar to audio CD) and its
durability as a movie playback medium. Laserdisc's disadvantages include its
size (12 inches in diameter), high retail price, and the limited amount of
information that can be placed on a single side of a disc (60 minutes maximum).
For the calendar year ending 1996, the LaserDisc Association reported that the
average U.S. laserdisc household purchased twelve laserdiscs. The LaserDisc
Association further estimated that between five and ten percent of all laserdisc
purchases had strong sexual content and themes.

Presently, the Company has only released approximately six of its titles on
laserdisc format. Due to the structure of its current network of distributors,
the Company is not emphasizing the production of laserdiscs, which represents
some sales on the U.S. and a quite small market in Japan.

Private Video Magazine 2, 3, and 4 and Private Film 6 (Lady in Spain) are
still available on laserdisc format. Since December 1997, most of the new
releases are now edited on DVD as a complement to the classic video format.

The Digital Versatile Disc Market ("DVD")

The market for Digital Versatile Disc ("DVD") is expected to grow
dramatically beginning in the fourth quarter of 1998. Up until September 1995,
two competing technologies existed for DVD video playback: TimeWarner/Toshiba's
technology and SONY/Philips' technology. In September 1995 these companies
agreed upon a unified format for DVD. In October 1996 a unified, single standard
was finalized for the mastering (with copy protection) and replication of DVDs.
It is widely believed that this unified DVD format will make serious inroads
into the market shares currently held by laserdisc and, to a much greater
extent, the video cassette recorder. DVD has several major advantages over
competing home video delivery technologies: 1) A single 5 1/4" DVD can hold up
to 135 minutes per side of high resolution digital full-motion video and audio
(DVD discs contain information on both sides); 2) Instant access is available to
a favorite scene; 3) DVD contains significantly higher image and audio quality
than laserdisc and video tape; 4) Multiple language tracks can be incorporated
on one disc; 5) Since DVD is 100% digital (video and sound), the cost of
replication is comparable to CD-Rom or audio CD at under $1.00 per unit in small
press runs; and 6) A relatively low replication cost will translate to a retail
price for a motion picture of under $20.00, giving this medium tremendous mass-
market potential. Experts at Toshiba estimate that the market for DVD software
could exceed $20 billion by the year 2005. Estimates made by Panasonic indicate
that hardware sales range from 800,000 to one million DVD households by the
calendar year ending 1997, and 5 million to 10 million domestic DVD households
by the calendar year ending 1999. The earliest hardware segment to adapt to DVD
will most likely be the computer hardware industry. The next evolution of the
CD-Rom drive,

424B3 36th Page of 90 TOC 1st Previous Next ↓Bottom Just 36th
now standard equipment for all multimedia computer systems, will be the DVD-Rom.
Similar to a CD-Rom in most respects, the DVD-Rom will be capable of holding
more than ten times more information than a CD-Rom. Management believes that the
market for feature-film and video on DVD will initially consist of computer
users with DVD-Rom drives. Dataquest estimates that nearly five million
multimedia computer households will be equipped with a DVD-Rom drive by the year
2000.

The Company's DVDs are produced, encoded and programmed in the U.S.
Replications for the US market are made in the US, while worldwide replication
and distribution is arranged by the Spanish operation.

There are currently only a few of the Company's DVD titles available on the
market. The best selling of them is the Pyramid Trilogy. It is still premature
to evaluate the real potential of this market, since it's still mainly a U.S.
market, and currently there are less than 500,000 owners of DVD players in the
U.S., according to recent estimates.

THE PRIVATE COLLECTION

The Market

The Company, together with some of its licensees, is currently working on
the development, marketing and distribution of high-quality branded merchandise.
The Company's already licensed product lines include clothing, novelties,
accessories, fragrances, small leather goods, eyewear, nutritional supplements,
aphrodisiacs and condoms. These products are marketed principally through mail-
order and retail outlets, including department and specialty stores. In addition
the Company is testing a merchandising initiative to place targeted products in
mass market outlets with high traffic in order to attract new customers not
familiar with the Company's brand name.

The Private Collection

On November 30, 1995, Milcap Media Limited entered into a license
agreement with Private Collection International, Inc. ("PCI") in Los Angeles,
California, and granted the licensee the 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 productions, condoms, dolls,
jelly products, massagers, playing cards and all other items that fall into
these product groups, except the rights to greeting and trading cards, leather
and other apparels and lingerie which have been licensed on a non-exclusive
basis. The term of the agreement is seven years. In consideration for the rights
granted, the licensee agreed to pay a royalty equal to ten percent of the gross
product receipts. The licensee agreed, among other things, to pay a guaranteed
minimum royalty of $100,000 for the first year of term, $200,000 for the second
year of term and $400,000 for the third year of term. In March 1998 the Company
agreed to amend the original license agreement accepting, among other things, a
flat $175,000 fee for the 1997 calendar year and a modification in the royalty
calculation. Payment of this amount has been personally guaranteed by the owners
of PCI and is payable on or before July 30, 1999.

These amendments were justified by the difficult financial conditions of
PCI that originated from a higher than expected inventory of goods. Sales of PCI
in 1996 were $769,266 and sales of PCI for 1997 were $1,492,044. Independently
from this sharp increase in sales, PCI continues to seek to identify the best
possible selling goods in a very sensitive market, which is currently
represented by some 5,000 to 6,000 different items available to consumers and no
official statistics as far as what the consumers really purchase in retail
stores. Another obstacle is

424B3 37th Page of 90 TOC 1st Previous Next ↓Bottom Just 37th
represented by the fact that PCI's main supplier, Doc Johnson, Inc. Van Nuys,
California, is positioned as a quasi-monopoly in this industry worldwide, and
requires cash payment for most deliveries.

Nutritional Supplements, Drinks and Other Similar Products

In October 1997 the Company entered into a licensing agreement with RH-
Patent & Original AB of Hagersten Sweden, an international agency of St.
Raphael, Inc., a U.S. production entity, with the intent 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.

The licensee has labeled existing government approved products such as
guarana-based energy drinks and aphrodisiacs, with Private, Private Passion and
Private Kick, to be distributed within the current distribution network as well
as in new markets. These products are also promoted for mail order and on the
Internet. In consideration for the rights granted, the Company is entitled to
receive a percentage of the products gross receipts, i.e. 15% up to 10,000 total
items, 20% on direct sales (mail order via licensor) and 15% on every gross sale
by distributors. Minimum sales for automatic renewal of the contract are
$100,000 for 1998, $200,000 for 1999, and $400,000 for 2000. The Company agreed
to provide the licensee with a minimum advertising space on its Web site.

The Company is currently negotiating with an Austrian producer of energy
drinks and a final agreement is expected to be signed. So far, DYNAMITE
Getrankevertriebbesellschaft m.b.H. of Graz, Austria, has delivered a first
order of 100,000 prototype cans of a new energy drink named Private Dynamite.
The Company created the design which includes the Private logo and pictures of
models labeled on the can. This drink is similar to the original Dynamite
currently on the market, but the recipe has been changed by adding ginseng and
other ingredients. This first order was delivered for approximately $.31 per
can. Larger orders on better conditions, together with distribution agreements,
may be finalized if the drink is well received by the markets under review. The
priority markets are Spain and Germany. The rest of Europe and the U.S. are
expected to follow during the fourth quarter of 1998.

Private Circle, Inc.

During the last few years, the Company invested in the production and
distribution of promotional casual clothing such as: T-shirts, sweat shirts,
rugby shirts, polo shirts, pique shirts, shorts, wind breakers, beach towels,
swim suits, training suits, sunglasses, belts, shirts, bath robes, sweaters,
trousers and baseball caps. Some of the production was sold by the Company's
distributors, but most of it was given away as marketing tools.

In May 1998 the Company entered into a Letter of Intent with Mr. Danny Cook
and Ms. Quamilla Carlsson, two fashion designers d/b/a Zabata Clothing, Los
Angeles, California. Subject to the terms and conditions of a definitive
agreement, which has not yet been entered into, the Company would grant to
designers, the non-transferable and exclusive license to use the trademarks in
connection with the manufacturing, distribution and marketing of their
collection. At the same time, the Company would acquire all of the assets of
Zabata Clothing for $35,000 and enter into a joint venture to form a new entity
to pursue a new clothing business. The initial paid-in capital is $115,000, 80%
of which would belong to the Company and the remaining 20% would belong to the
designers. In addition, the designers will enter into a two year employment
agreement and receive a salary of

424B3 38th Page of 90 TOC 1st Previous Next ↓Bottom Just 38th
$4,000 each in exchange for a full time employment. Lastly, designers will each
receive 7,500 two year Warrants at an exercise price of $10.

Private Circle, Inc. was incorporated in June 1998; the Company will
represent the majority of the Board of Director of this corporation. A final
agreement is expected to be executed no later than December 31, 1998. A
catalogue and a video introducing the first Private Circle Collection was
distributed at the Cannes Festival in May 1998.

INTERNET SERVICES

The Present

In fiscal 1997, the Company launched its own site on the Internet (
www.private.com ), which is now one of the Internet's most visited destination
sites. Taking full advantage of the technological capabilities of the medium,
the private.com site contains several editorial features from the Company's
magazines and select photos from various pictorials. The Company's site also
promotes and sells the product range: magazines, videos, CD-Roms and
collections. The Company recently implemented its Internet division by adding
new hardware and a satellite connection to the backbone of the Internet in the
U.S., in order to administer increased traffic to the private.com site. The new
hardware and software are of the latest technology, which may also help attract
additional advertisers to the site by providing an opportunity to target a
focused market from underdeveloped related sites.

Private.com, which represents over 6,000 Web pages, is currently generating
a traffic of approximately 40,000 unique visitors and more than 400,000
impressions per day. The members' area is yielding up to 30 new members every
day paying a yearly fee of $100 and as of November 13, 1998 there were over
3,000 active members of private.com. The mailing list of the WWW Club exceeds
45,000 addresses of inactive members and there are approximately 100 new
addresses per day added to the list.

Private WWW Club members are allowed to view thousands of pictures on the
site. Major attractions include x-files, pictures designed in new formats, such
as photosets with pictures never shown before, slide shows and search engines
providing the member to pick their "dream pictures". The site is constantly
updated with new material and the full archive of every Private magazine that
has been published and clips from all Private videos ever edited.

Licensees

The Company licenses the right to use its trademarks and photo and
video library to third parties, such as the owners of the following Web sites:
privategold.com, sex.se, privateusa.com, private.com.ar, private.com.au, maxs.se
and clubx.com.au, which are either licensees or independent distributors.

In December 1997, Milcap Media Limited entered into an Internet license
agreement with Cyber Entertainment Network, Fort Lauderdale, Florida (CEN),
whereby CEN, being in the business of developing and operating various Web adult
sites, was granted use of the Web site privategold.com. The Company is providing
the site with adult images and videos and is entitled to receive 25 percent of
the gross revenues from fees collected with the sale of memberships to the site.
The current revenue stream to Private exceeds $20,000 per month.

424B3 39th Page of 90 TOC 1st Previous Next ↓Bottom Just 39th
The Company is using its best efforts to increase the number of virtual
shops, while developing a template to better present and sell its products. The
Company has registered several Web domain names, such as www.privatelive.com and
www.privatecinema.com; it anticipates starting business activities on such
unused Web sites during the fourth quarter of 1998.

The Future

In the future TV will be used to deliver Internet content and PCs will be
used to deliver TV programming; there will be a need for special devices for
specific Internet applications. The Internet is moving from a static world to a
live, multi-media world rich in animation, audio and video. The goal of the
Company is to take advantage of its enormous proprietary content and to develop
as many interactive devices as the public demands. Management believes that no
other competitor is positioned in such a way to be able to provide fast and high
quality vehicles and high quality content at the same time.

In March 1998, Milcap Media Group S.L. hired Mr. Wouter Swiers and Mr. Hans
Waasdorp, two of the developers of software such as StreamCam, Video on Demand,
Sream Mirror and SecureWebPay. Nowadays the Internet gets faster and faster,
people get used to the new medium and lose their patience with complicated Web
sites. As of today, many video applications on the Internet need some kind of
plug-in in order to function properly. This means that people first have to go
somewhere else, download a program, install it and then restart their machines.
This normally means that a lot of people just leave the targeted Web site and go
to other places. After 1.5 years of work, Mr. Swiers and Mr. Waasdorp and their
team finally managed to produce a streaming video application that is fully
browser compatible. The application doesn't need a plug-in software and is
actually faster than most of the other programs that are currently on the
market. Their software also works on local network systems and Intranet systems.
The application, which was named Stream Mirror Software, was subsequently
upgraded to allow streaming video and sound files without plug-ins in any
browser, Normally, you need a huge Internet connection in order to broadcast
streaming video and allow a lot of people to watch at the same time. The Stream
Mirror Software can be hooked up to multiple mirrors and distribute the signal
to all clients without slowing down the connection sending the signal. In
addition, it uses a pay per second system. This system is fully database driven
and very secure. The SecureWebPay application allows the Company to process
credit card transactions and the card is checked on the fly, while sharing fraud
databases with banks (all this information is highly encrypted).

Privatelive.com (Project)

All software has no limitation concerning maximum users connecting at the
same time; it only depends on the hardware that will provide it to the customers
and the capacity of the lines. As of today, the Company's servers are connected
to a full optic redundant DS 3 connection (100 Mbits/sec transmitting), which
means that with 50% capacity it will be possible to serve more than 1,000
customers at the same time. The site is expected to be up and running during the
fourth quarter of 1998.

PrivateCinema.com (Project)

The system transmission for Private Cinema is practically the same as for
the Private Live project. Private Cinema will provide customers with all
published video titles available. The videos will be edited and cut into 10 to
12 minutes stories; the customer can first watch a free 15 to 30 second preview
also containing a commercial part as well. Clients will get the option to buy
the stories either separately or as a package deal. Both services are being
tested and are expected to be available in the fourth quarter of 1998.

424B3 40th Page of 90 TOC 1st Previous Next ↓Bottom Just 40th
STRATEGIES

General

To capitalize on its international name recognition, the Company continues
to increase its international product marketing activities, specifically
targeting growth for its licensing business and several other activities. The
Company's marketing strategy is to license and/or distribute its high-quality
publications and adult home videos worldwide. Additionally, the Company licenses
its trademarks for use on various consumer products, such as apparel, trendy
streetwear and accessories, cosmetics and beverages. The Company's business and
operating strategy is designed to provide strong revenue growth and increase
profitability by improving the performance of existing titles, launching and/or
acquiring additional publications and developing other ancillary revenue
streams, either proprietary or under license agreements, in order to better
capitalize on its internationally-recognized brands and efficient operations.

In addition to this, the Company is planning to achieve growth through
acquisitions of existing business enterprises. The structure of the adult
entertainment industry is such that there are just a few large corporations, and
the Company believes that none of them have an international presence as the
Company does. In addition, just a few of these corporations are publicly traded,
and the Company believes that none of these publicly traded companies have the
financial capability and the market liquidity necessary to attract other
businesses under merger or acquisition agreements.

Management believes that because its Common Stock is publicly traded and
the Company's international presence, it will be in a position to acquire many
of the hundreds of privately owned adult entertainment businesses, which
typically have limited financing and personnel, and who often, as a result of
limited capital resources, have no other alternative but to continue their
business as it is. Management believes that, as a public company, it will be
able to attract privately held acquisition candidates at a much lower
price/earning multiple than that of the Company.

For the time being, the Company is starting a process of vertical
integration and plans to take control of some of the territories in which it has
granted licensing agreements. At the moment, only the French and Italian
speaking territories operate as the Company's subsidiaries. Initial target
markets are Scandinavia, the United States and South America.

On May 5, 1998, in furtherance of the Company's vertical integration
strategy, the Company entered into a Letter of Intent with Max's Film AB,
Stockholm, Sweden, which among other things, is also acting as the Company's
distributor for Scandinavia. The Letter of Intent provides for a stock
acquisition of all of the assets, library, trademarks and other rights to the
intellectual property used by Max's Film AB in its activities. The closing of
this transaction, which is expected to occur in December 1998, is subject to the
consummation of a definitive agreement.

In the near future, the Company expects to enter into similar agreements
with other distributors or direct competitors.

424B3 41st Page of 90 TOC 1st Previous Next ↓Bottom Just 41st
Marketing

By using its core publications as platforms for launching new "spin-off"
publications, the Company has efficiently developed and produced a diverse and
profitable portfolio of highly-specialized adult publications. The Company
believes that it has a competitive advantage as a result of its editorial
staff's ability to identify potential markets for new publications and the
Company's ability to gain access to newsstand distribution channels has enabled
its new publications to become better established in several new markets. In
relation to the video distribution the strategy is to increase sales of sell-
through cassettes on a worldwide basis and to launch additional labels in order
to increase profits. All of the titles in the Video Library will also become
available on DVD and this will most likely add to the already established sales
per title. Furthermore, the Company is currently negotiating to start up
broadcasting of material that will be adapted to what is legally accepted in
each territory.

Internet

For the past three years, the Company has put most of its efforts into
expanding on the Internet. For this purpose the Company hired highly qualified
people and set up a separate entity. The prime objective for the new entity is
to offer the most unique services available on the "net" such as: video-on-
demand (privatecinema.com) and live-sex (privatelive.com). The Internet entity
will offer services both for the Company and its products and for other
companies in the Internet marketplace. The Company believes that the new entity
will be a strong revenue provider and that the Internet will compete with home
video viewing in the future. See "Internet Services."

Operations

Management has identified and implemented operating improvements that have
resulted in significant cost savings through personnel reductions, lower lease
costs, tighter purchasing procedures and controls and restructuring the
Company's relationships with its principal vendors. In addition, the Company
adopted a new operating policy that provides for one or more of the following
actions if any of its publications generate continued losses: (i) discontinue or
sell such magazine; (ii) merge such magazine with the Company's existing
magazines; or (iii) enter into strategic partnerships with third parties. The
Company will remain focused on identifying additional operating improvements to
further increase its operating efficiencies and profit margins.

Miscellaneous

The Company believes that there are numerous opportunities to increase
ancillary revenues by leveraging the editorial content and the internationally-
recognized brands of the Company's existing publications through worldwide
licensing arrangements, strategic joint ventures, retail alliances, affinity
group marketing, electronic software and games.

424B3 42nd Page of 90 TOC 1st Previous Next ↓Bottom Just 42nd
DISTRIBUTION METHODS, PRICE POLICIES AND PIRACY PROBLEMS

Distribution Methods and Price Policies

a. National Newsstand Networks

The distribution of magazines, videos and CD-Roms is based on an agreed
allocation, VAT excluded, based upon the cover price between the Company and the
National Newsstand Network.

Advantages

These distributors are very easy to deal with as they manage themselves
most of the time; they have solid companies and are most reliable; they
also generally pay on time. This distribution method is also a very good
instrument when the Company wants to run statistics on sales, as it can get
a good input on the situation regarding every local market. As far as
magazines are concerned, this type of agreement can allow the distribution
of the highest volume of copies on a specific market. As a result of
reaching many local retailers and sales points throughout the territories,
it also brings the best margin per copy.

Disadvantages

Magazine distributors with a right to return the products can create some
problems for the Company, but on the other end, returns do not really go
wasted, as these are purchased by distributors who only handle old issues
of the product (See: Wholesalers of Back Catalogue). As far as video
distributors are concerned, a right to return the products is not
beneficial for the Company, as it is not always easy to sell the returns
(custom made, per language and layout). The end-user price obtainable for
CD-Rom products through this distribution channel is 30-50% lower than for
traditional CD-Rom channels (the maximum end-user price obtainable is 150-
200% of a magazine cover price distributed through the same channels). This
market is most suited for some older products (12-36 month), where the
consumer cut price will not affect the market price in the other
distribution channels. There is still not the same market for CD-Rom return
products as there is for traditional magazines, i.e. distributors who only
deal with old issues of the magazines (See: Wholesalers of Back
Catalogue/Magazines). The duplication price of a CD-Rom combined with the
extra packaging costs for adding the CD-Rom to the cover of a magazine or
similar product carrier (needed in most countries for
distributive/regulative purposes), adds to the total cost of each product;
CD-Roms are in this case more sensitive for damages from transportation and
need to be handled with care throughout the return process.

For all products, a common disadvantage of this distribution method is that
the conditions of payment are in general quite long, i.e. between 90 and
180 days.

b. Wholesalers

Advantages

For magazines, videos and CD-Roms, this is the traditional way of
distribution and in some territories also the only possible way of
distribution; it is a satisfactory form of sale from a cash flow point of
view, because the conditions of payment are 0-30 days. Another advantage,
as far as magazines are concerned is, in comparison

424B3 43rd Page of 90 TOC 1st Previous Next ↓Bottom Just 43rd
with the National Newsstand Networks, the Company does not get any returns
with this kind of distribution. As for CD-Roms, this is the best system to
ensure the highest possible end-user price.

Disadvantages

As far as magazines and videos are concerned, this method gives the Company
less control on the distribution within the territories, resulting in
overflow into other territories; it also gives it a low margin per copy, in
comparison with the National Newsstand Networks. In the case of CD-Roms,
since it is very expensive for the wholesalers to finance his stock, it is
important for the Company to keep a good inventory for timely deliveries on
short notice.

c. Licensees

The sale of magazines to Licensees, is based on an agreed allocation of the
cover price, after the distributors' variable costs, such as printing and
color separations. Videos are sold to Licensees on an agreed allocation
after the distributors industrial costs.

Advantages

For magazines, this is a very cost effective way of distributing, as the
distributors take all the costs for printing, etc. and the Company only
collects the royalties, generally producing good cash flow. Logistics are
very simple and uncomplicated. As far as videos are concerned, Licensees
know their market very well as they have their own sales force that
efficiently work up all the shops in the territory and in this way maximise
the sales. This is also in many cases the only way to reach the video
rental stores. As for CD-Roms, having a licensor (i.e. territorial
distributor) who acts as a wholesaler for CD-Rom products with a stock on
consignment is financially smart. The financial burden of the stock is
moved from the wholesaler to the Company, where the actual invested money
into the products are substantially less than to the wholesaler. In some
cases the wholesaler is charged half or full duplication costs to minimize
the Company's cash exposure. This enables the wholesaler to always keep
plenty of products in stock to service his customers who order very
frequently and need delivery within one or two days.

Disadvantages

As far as magazines are concerned, a negative effect of this method is that
the Company has less control over the printing when it comes to volumes and
quality, as this is controlled by the distributors themselves; it gives the
Company the lowest margin of all the different distribution methods. In
regards to videos, this method is more labor intensive, and it takes longer
for the distributors to pay. In regards to CD-Roms, allowing the licensor
to keep products on consignment means that the Company has to have a good
financial trust in each Licensor to guarantee at least the duplication and
transportation costs, against any licensees default.

d. Wholesalers of Back Catalogue

Advantages

With this distribution method, the Company has the possibility to sell all
the returned products received from the distributors in the National
Newsstand Networks. As the Company can use a different price policy on the
Back

424B3 44th Page of 90 TOC 1st Previous Next ↓Bottom Just 44th
Catalogue, it is able to sell the magazines at a lower price, enabling
the marketing division to operate in territories with a lesser economy, i.e
opening new markets.

Disadvantages

As many of these distributors can often be found in developing and
unstructured countries, they can be labor intensive to work with; these
distributors seldom pay on time.

e. Internet

Advantages

This way of distributing increases the total sales points in every area as
a result of the customer accessing the products easier. It creates an in-
house customer base, and gives the Company a high margin per copy. This is
the ultimate way of distributing videos. Apart from sales of the products
via mail order, there is an opportunity to sell parts of the videos for the
customers demand, i.e. pay-per-view. The customer gets an option to preview
samples of the videos, and then purchase the actual video. As far as CD-
Roms are concerned, this a fast growing market, as well as for other
traditional Private products (videos, magazines, novelties), because
consumers with Internet are very likely to have CD-Rom capabilities.

Disadvantages

The Internet distribution provides a great tool of marketing cross borders.
However, it is important to take advantage of the current infrastructure in
terms of culture, language, package and handling issues.

f. Mail Order

Advantages

For magazines and videos, this distribution channel gives the Company the
possibility to get extra sales in forms of Back Catalogue products on a
Firm Sale basis (See: Wholesalers of magazines). Buyers often order high
volumes and are well established companies; logistics are simple as the
products have already been produced and prepared before. As far as videos
are concerned, the requests for compilation tapes put together from old
material, such as The Best of Private, are one way of creating extra sales
at very low cost.

Disadvantages

The Company doesn't get a very high average price per copy for magazines
and videos.

424B3 45th Page of 90 TOC 1st Previous Next ↓Bottom Just 45th
Piracy Problems

According to figures from the Motion Picture Association of America,
annual losses from video piracy are an estimated $250 million in the U.S. alone,
and close to $2.5 billion worldwide; adult video represents approximately 14% of
the video business.

The biggest piracy problem concerns the business done on markets where
pornography is illegal or in countries with a poor economic situation. This is
the situation mainly in the eastern states of Europe, such as Russia, Poland,
Rumania, etc. Many of these eastern markets are so destroyed with piracy that it
is more or less impossible to distribute the Company's products there. The
piracy causes such a disturbed price structure that it does not leave any
margins for the Company to sell its products in these territories. It is also
very difficult to claim rights with reference to the copyright laws. This is a
problem for everyone doing business with these markets.

Another upcoming piracy problem that the Company will have to face
regularly concerns the Internet. The question is how to confirm that all the
different mail order sites selling Private products actually sell the original
products, and not pirated copies. The problem lies in the distribution
procedures, which in the case of Internet, is straight from the Internet
provider's order page to the end consumer. Another problem connected with the
Internet is fast advancing video streaming where the possibilities to control
the origin of what is shown are almost none.

Very unfortunately, when it comes to the piracy problems in the Eastern
States of Europe there is not much that can be done, except for acceptance of
the situation. Also in regards to mail order, it is very difficult to control
what is actually happening. Most of these piracy situations are handled by the
Company's legal counsel who attempt to resolve them or litigate, on a case-by-
case basis. When it comes to the Internet, one solution could be the appointment
of so called "Web Police", one for each territory. Web Police standard practices
are to order cassettes for free, with the intent to return them later to the
different abusive sites and, in that way controlling what is actually being sold
on a specific market.

In July 1998 the Company launched a new program which it hopes will
reduce piracy. The program allows any person to sell the Company's products
online on the Internet through a "Private Online Shop." By agreeing to link the
independent representative's website to the Company's homepage, the independent
representative will be allowed to offer Private products for sale directly to
its customers. In turn, the independent representative is in turn required to
purchase merchandise directly from the national distributor. This marketing
arrangement is expected to allow the Company to increase its points of sale
throughout the world for a very low cost.

PROPRIETARY RIGHTS

The Company believes that it has developed strong brand awareness within
each of its magazines' and videos' targeted markets. As a result, the Company
regards its branded magazine titles and logos to be valuable assets and
believes that its trademarks are vital to the success and future growth of all
of the Company's businesses.

The Company has filed trademark registration applications with respect to
most of its trade names and logos. The Company believes that the name
recognition and image that it has developed in each of its markets significantly
enhance customer response to its sales promotions. Accordingly, trademarks and
copyrights are important to the Company's business and the Company intends to
aggressively defend them throughout the world

424B3 46th Page of 90 TOC 1st Previous Next ↓Bottom Just 46th
as it constantly monitors the marketplace for counterfeit products.
Consequently, it initiates legal proceedings from time to time to prevent
unauthorized use of the trademarks.

The following table describes the registration of the Private brand
wordwide. Other brands such as Pirate, Triple X, etc. have been registered in
the same countries, and registrations are constantly updated by the Company.

TRADEMARK APPLICAT. NO. APPLICAT. DATE COUNTRY

PRIV. Fig. 2.020.599 2/8/96 ARGENTINA
PRIV. Fig. 671'997 9/11/95 AUSTRALIA
PRIV. + Fig. AM/1428/74 6/12/74 AUSTRIA
PRIV. Fig. 855'162 9/6/95 BENELUX
PRIV. Fig - 2/26/96 BOLIVIA
Priv.Int.logo 816'717'699 5/6/92 BRAZIL
PRIV. Fig. 794.759 10/13/95 CANADA
PRIV. Fig. 96.009.460 2/28/96 COLOMBIA
PRIV. + Fig. 381-04/93-01/1179 3/18/93 CROATIA
PRIV. Fig. VA 00.631 1196 1/30/96 DENMARK
PRIV. Fig. 93-1879 3/11/93 ESTONIA
PRIV. + Fig. 2485/74 5/27/74 FINLAND
PRIV. Fig. 95/588840 9/20/95 FRANCE
PRIV. Coll.logo P41976/25 Wz 10/23/91 GERMANY
PRIV. 69'753 9/2/81 GREECE
PRIV. Fig 632/90 2/12/90 HUNGARY
PRIV. MI97C 003738 4/23/97 ITALY
PRIV. Fig. M-93-2257 3/10/93 LATVIA
PRIV. Fig. RL 5597 3/16/93 LITHUANIA
PRIV. Fig. 251928 1/12/96 MEXICO
PRIV. + Fig. 118'918 5/24/74 NORWAY
PRIV. + Fig. Z-90189 3/27/90 POLAND
PRIV. Fig. 313116 10/19/95 PORTUGAL
PRIV. Fig. 119927 3/16/90 RUSSIA
PRIV. + Fig. Z 90 8 0327 3/24/93 SLOVENIA
PRIV. Fig. 94/9946 9/14/94 SOUTH AFRICA
PRIV. 1'064'998 3/27/84 SPAIN
PRIV. Fig. 90-1884 2/26/90 SWEDEN
PRIV. Fig. 4816/1994.3 7/15/94 SWITZERLAND
PRIV. Coll.logo 1'479'749 10/17/91 UK
PRIV. 462'280 6/18/73 USA
PRIV. Fig. 327/90 3/7/90 YUGOSLAVIA

LEASES

During 1997, the Company relocated its principal administrative and
operating offices from Stockholm, Sweden to Barcelona, Spain. The Barcelona
facility houses the Company's administrative, editorial and operational offices,
the data center, customer service, and some of the warehouse and fulfillment
facilities. With the acquisition

424B3 47th Page of 90 TOC 1st Previous Next ↓Bottom Just 47th
of the French distributor at the end of 1997, the Company also inherited some
office space in Paris, France. Currently, the Company leases office space in
Stockholm, Barcelona and Paris.

Since May 27, 1997, Milcap Media Group S.L. is lessee under an initial 5-
year lease representing its operating corporate office. The lease is effective
from the May 27, 1997 (2d floor), November 1st, 1997 (1st floor) and October
3rd, 1997 (roof-surface for Internet satellite antennas) and represents
approximately 1,300 square meters of corporate headquarters space located at
Carrettera de Rubi 22-26, 08190 San Cugat del Valles, Barcelona, Spain. Average
monthly base rental expense is approximately $9,400. The rent expense is being
charged to operations on a straight-line basis over the extended term of the
lease. Additionally, the lease requires the Company to pay its proportionate
share of the building's real estate taxes and operating expenses. The majority
of this space is used by all of the Company's operating groups, primarily for
post production.

Since February 5, 1993, the Milcap Media Group S.L. leases space for its
warehousing facilities and mail order operations at the following location:
Calle Vallespir, 13, Sant Joan Despi, Barcelona, Spain. The average monthly base
rental expense is approximately $2,460.

Private France S.A. is 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 $1,067. The rent expense is being charged to operations, on a
monthly basis.

Private France S.A. also leases space for its warehousing facilities at RD
S.L., B.P 2 - 28410 Saint-Lubin-de-la-Haye, at a price of $41 per pallet per
month (the quantity of pallets varies from month to month).

Milcap Publishing Group A.B. maintains its headquarters in Ryssviksvagen 2A
7tr, 131 36 Nacka, Sweden and consists of approximately 3,226 square feet of
office space and approximately 1,755 square feet of warehouse space. The lease
expires on December 31, 2000 and has an average annual base rental expense of
approximately $34,937; it is subject to periodic increases to reflect rising
real estate taxes and operating expenses. This space is utilized by the
Swedish executive and administrative personnel.

Private Media Group, Inc.'s principal offices are located at 3230 Flamingo
Road, Suite 156, Las Vegas, Nevada 89121. For the time being, no office space is
rented and the above address is simply a mailing address. Additionally, a
limited amount of space is utilized occasionally by the executive personnel at
the Chairman's business address located at Corso Elvezia 4, CH-6900 Lugano,
Switzerland.

LEGAL PROCEEDINGS

The Company is 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 are vigorously defended by the Company.

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

424B3 48th Page of 90 TOC 1st Previous Next ↓Bottom Just 48th
COMPETITION

General Considerations

Nearly all of the Company's products compete with other products and
services that utilize leisure time or disposable income. The businesses in which
the Company competes are in general, highly competitive and service-oriented.
The Company has few long-term or exclusive service agreements with its
customers. Business generation is based primarily on customer satisfaction with
reliability, timeliness, quality and price. The Company believes that the
extensive and longstanding international operations, its name, its image and
reputation, as well as the quality of its distributors, provide a significant
competitive advantage over many other competitors seeking to establish a similar
business.

Although its magazines and videos are well established and high quality
products in the adult industry, the Company is in competition with entities
selling similar products at retail as well as by direct marketing, regardless of
whether the products being offered are similar to the Company's products.

Magazines

The Company meets with minimal direct competition from other publishers of
adult magazines and paperback books as well as all other forms of print media
adult entertainment. The Company's publications are in general unique in their
style and format and it is almost impossible to name any major competitor in
this field. As far as magazines are concerned, the only similar business is
represented by Rodox N.V. a Dutch/Danish corporation printing approximately
20,000 copies of monthly hardcore magazines.

Magazines such as Playboy, Penthouse, Hustler or similar adult publications
do not compete with the Company's publication, since they are considered to be
softcore publications. There are several hardcore publications in each country
where the Company's magazines are sold, but in general, they are printed in
limited edition and lower quality than the Company's publications and therefore
the Company is not fearing at present any major competition on this end of its
business.

As far as the U.S. market is concerned, none of the competitors publishes
or distributes more than 5,000 copies per month, while Private USA, Inc.
currently exceeds 15,000 sold copies of each magazine per month. In addition,
none of these competitors normally own any pictorials.

Video

The production and distribution of video and cable television products
are highly competitive, as each competes with the other as well as with other
forms of entertainment. Furthermore, there is increased competition in the
television industry evidenced by the increasing number and variety of basic
cable, satellite and pay television services now available. Revenues for motion
picture entertainment product 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. There is strong competition throughout the
adult video industry, both from adult video producers and from independent
companies distributing amateurish material.

424B3 49th Page of 90 TOC 1st Previous Next ↓Bottom Just 49th
The Company's primary competitors in the video industry area are adult
motion picture studios, with in-house production and post production
capabilities. Other competitors are smaller, but locally or domestically, they
are capable of quickly identifying niche markets that could compete for the
Company's customers. In addition, the Company also competes with other forms of
media, including broadcast and cable television, direct marketing, electronic
media and adult Web sites.

Management believes that none of its competitors have larger worldwide
distribution or have greater financial resources than the Company. The closest
competitors are U.S. producers such as VCA Pictures or Vivid Film; smaller
competitors are Wicked Pictures, Evil Angel Productions or Metro Global Media
Inc., but all these competitors have a distribution in the U.S. market, while
they are relatively less represented worldwide.

424B3 50th Page of 90 TOC 1st Previous Next ↓Bottom Just 50th
[Enlarge/Download Table]

Adult Video Producers / Competitors

USA d/b/a

VCA Pictures Platinum Plus, HIS Video
Vivid Film
Wicked Pictures
Evil Angel Productions Elegant Angel Productions Arch Angel Video
Metro Home Video Cal Vista Video, Amazing Pictures, Intropics Video

Other Minor Competitors Nitro Productions LLC, In X-Cess Productions, 4-Play Video
Odyssey Group Video, Coast To Coast Video
Klimaxxx Productions, Leisure Time Entertainment
Fat Dog Productions, Caballero Video
EUROPE

VMD Video Marc Dorcel
Power Vision Mario Salieri, Nicky Ranieri Productions,
Mille Video Productions

Showtime Communications Silvio Bandinelli

Other Minor Competitors: Colmax , Preziosa, Euro-Sex, Max Bellocchio Production
Helen Duval, Century, Rocco Siffredi Productions

CD-Rom and Interactive Games

There are several competitors that have already released adult CD-Rom
titles and interactive games, many of whom have significantly greater technical
and marketing resources than those of the Company's licensees. Management
believes that new competitors are increasing their focus on the consumer
software market, which will result in greater competition for this kind of
product. Management is not concerned by this situation because it believes that
this area of the Company's activity will never represent a significant
percentage of its overall business.

Internet

As indicated above, the Internet market for adult oriented content is
booming and the number of adult sites competing with the Company's is in excess
of 20,000 http addresses, most of which are free sites and currently some of
them can claim a higher daily traffic than the Company's site.

Management believes that traffic on its web site will change dramatically
as soon as the new private.live and private.cinema sections will be available to
the public.

Among other things, the Company is planning to achieve growth through
acquisitions of existing business enterprises. The structure of the adult
entertainment industry is such that there are just a few large corporations and
none of them have an international presence as the Company does. In addition,
only a few of these corporations are

424B3 51st Page of 90 TOC 1st Previous Next ↓Bottom Just 51st
publicly traded and among these few, the Company believes that none currently
have the financial capability and the market liquidity necessary to attract
other businesses under merger or acquisition agreements.

The Company does not plan to limit potential acquisitions to any particular
industry. Accordingly, there can be no assurance that the Company can integrate
such businesses into its operations or that it can operate such businesses on a
profitable basis in the future. In addition, there can be no assurance that
future acquisition opportunities will become available, that such future
acquisitions can be accomplished on favorable terms, or that such acquisitions
will result in profitable operations in the future. In addition, many of the
Company's acquisitions are structured as stock exchanges. Fluctuations in the
Common Stock may have an adverse effect on the Company's ability to make
additional acquisitions.

Currently, the Company is starting a process of vertical integration and
plans to take control of some of the territories in which it has granted
licensing agreements. Presently, only the French speaking territories operate as
a Company's subsidiary. Initial target markets are Scandinavia, the United
States and South America.

On May 5, 1998, in furtherance of the vertical integration strategy, the
Company entered into a Letter of Intent with Max's Film AB, Stockholm, Sweden,
which among other things, is also acting as the Company's distributor for
Scandinavia. The Letter of Intent provides for a stock acquisition of all of the
assets, library, trademarks and other rights to the intellectual property used
by Max's Film AB in its activities. Subject to compliance with the terms of the
Letter of Intent, the acquisition is scheduled to close in December 1998.

The proposed definitive agreement to be executed between the Company and
Max's is expected to contain a purchase price of up to $2.6 million, payable as
follows: $1,300,000 in value of Common Stock of the Company at closing in
exchange for 100 percent of the outstanding shares of Max's, up to an additional
$650,000 in value of Common Stock of the Company to be paid within one year of
the acquisition based upon earnings, and up to an additional $650,000 in value
of Common Stock to be paid based upon earnings during the second year after the
acquisition. Max's shareholders will also receive 50,000 three years Common
Stock Warrants. The Common Stock price and the exercise price of the Warrants
will be the average closing price for the 20 business days prior to the Closing.

In the near future, the Company expects to enter into similar agreements
with other distributors or direct competitors.

EMPLOYEES

As of August 10, 1998, the Company (including its subsidiaries) employed 56
persons on a full-time basis. The Company also had eight independent contractors
under contract at such time.

The Company's 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

424B3 52nd Page of 90 TOC 1st Previous Next ↓Bottom Just 52nd
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
over a two month period the activities of a writer, a pencil artist, an inker, a
colorist and a printer. The majority of this work is performed inside of the
Company's premises.

As of February 28, 1998, Milcap Publishing Group AB employed five persons
on a full-time basis, one of whom were Officers or other Executives. The Company
also had two independent contractors under contract.

The photographers and producers consist of freelancers who generally are
paid on a per-assignment basis. The Company has entered into agreements with
certain photographers or movie directors and writers under which such persons
have agreed to provide their services to the Company on an exclusive basis,
generally for a period of one to three years. Pierre Woodman is the main movie
producer currently under such exclusivity agreement.

The Company believes that it has good relationships with its employees.
Currently, none of the Company's employees are represented by any labor union.

GOVERNMENT REGULATION

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 the Company does not submit its 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 films and videos distributed by the
Company, if so rated, would most likely fall into the "NC-17 - No Children Under
17 Admitted" rating category because of depiction of nudity and their sexually
explicit content.

The right to distribute adult videocassettes, magazines and CD-Rom products
is protected by the First and Fourteenth Amendments to the United States
Constitution, which prohibit Congress or the various 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
the Company's products are distributed, have enacted laws regulating the
distribution of obscene material with some offenses designed as misdemeanors and
others as felonies, depending on numerous factors. The consequences for
violating the State statutes are as varied as the number of States enacting
them. Similarly, 18 U.S.C. Sections 1460-1469 contain the Federal prohibitions
with respect to the dissemination of obscene material, and 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 require 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

424B3 53rd Page of 90 TOC 1st Previous Next ↓Bottom Just 53rd
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 the Company, 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 United States 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.

The Company is not directly engaged in the wholesale distribution of its
products to U.S. wholesalers and/or retailers. The Company believes that owners
of Private USA, Inc., its U.S. distributor, has taken steps to ensure compliance
with all Federal, State and local regulations regulating the content of its
motion pictures and print products, by staying abreast of all legal developments
in the areas in which its motion pictures and print products are distributed and
by specifically avoiding distribution of its motion pictures and print products
in areas where the local standards clearly or potentially prohibit these
products. In addition, Private USA, Inc. often requires that all video material
be reviewed by an independent advisory panel comprised of two psychologists, a
certified sex therapist, licensed marriage and family therapist, a certified sex
educator and a licensed independent clinical social worker. Their review is
directed to aspects of serious scientific value as set forth in the Miller test,
because that aspect of the test is not limited by community standards but is
concerned with whether a reasonable person would find such value in the
material, taken as a whole. In light of Private USA's efforts to review,
regulate and restrict the distribution of its materials, Management believes
that the distribution of the Company's products does not violate any statutes or
regulations.

Many of the communities in the areas in which Private USA, Inc. offers or
intends to offer products or franchises, have enacted zoning ordinances
restricting the retail sale of adult entertainment products. Management believes
that Private USA, Inc. intends to supply products only in locations where the
retail sale of adult entertainment products is permitted.

In February 1996, U.S. Congress passed the Telecommunications Act (the
"Act"), and President Clinton signed it into law. Certain provisions of the 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
nonsubscribing cable customers. This is called "bleeding." The

424B3 54th Page of 90 TOC 1st Previous Next ↓Bottom Just 54th
practical effect of Section 505 of the Act ("Section 505") 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 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. Management believes that the Company's revenues will be
marginally materially adversely affected as a result of enforcement of Section
505. In addition, as digital technology (which is unaffected by Section 505)
becomes more available, the Company believes 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 (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 the Company's products and enforceable, would
prohibit the sale of the Company's magazines and videos at commissaries, PX's
and ship stores, and would adversely affect a portion of the Company's sales
attributable to such products. Based on preliminary estimates and current sales
levels at such locations, the Company believes that any such impact would be
immaterial.

As discussed above, U.S. Federal and State government officials have
targeted "sin industries," such as tobacco, alcohol, and adult entertainment for
special tax treatment and legislation. In 1996, US Congress passed the
Communications Decency Act of 1996 (the "CDA"). Recently, the US 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 the Company must defend
itself and/or join with other companies in the adult programming business to
protect its rights, the Company may incur significant expenses that could have a
material adverse effect on the Company's business and operating results.

Child Pornography

The content of every single adult tape on the shelves of every video and
adult store in the U.S. involves consenting adults. Roughly 90 percent of the
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. 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 Speach Coalition has worked with the Federal
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 the Company's
Custodian of Records, and available for inspection by law enforcement. Mrs.
Gloria Leonard, an Officer of Private USA, Inc. is currently the President of
the Free Speach Coalition.

424B3 55th Page of 90 TOC 1st Previous Next ↓Bottom Just 55th
Child Pornography Prevention Act of 1996 goes beyond what was defined in
existing law. The new law is directed for the most part at depictions where no
minors are involved at all, with a few exceptions such as situations where a
photo of a minor and a photo of an adult are merged by computer to create a
photo of a minor engaging in sexual activities where the minor never actually
did so ("appear to be" or "convey the impression" approach). This law is
currently still not approved by the government and seems to be extremely
questionable when it comes to enforcement and control.

As indicated above, all the Company's products are all in compliance with
18 USC Section 2257 and all models performing in Company's productions are 18 of
age or older.

Seasonality

The Company's businesses are generally not seasonal in nature. However,
June, July and August are typically impacted by smaller orders from some
European and the 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.

424B3 56th Page of 90 TOC 1st Previous Next ↓Bottom Just 56th
MANAGEMENT

The names of the directors, executive officers and key employees of the
Company and their respective ages and positions are as follows:

[Download Table]
Position With the
-----------------
Name Age Company or Subsidiary
---- --- ---------------------

Alfredo M. Villa.......... 37 Chief Executive Officer, President and
Director

Berth H. Milton........... 43 Director, Secretary, Private Media
Group,
Inc.; Administrator of MMG

Bo Rodebrant.............. 45 Director

Claes Henrik Marten Kull.. 33 Chief Marketing Officer, Private Media
Group, Inc.; Marketing Manager, MMG

Javier Sanchez............ 36 Chief Operating Officer, Private Media Group,
Inc.; General Manager, MMG

Johan Gillborg............ 36 Chief Financial Officer, Private Media
Group, Inc.; Chairman and Managing
Director of Milcap Publishing Group AB

Jean-Pierre Michel........ 45 Managing Director of Private France S.A.

Robert Tremont............ 54 Director

Directors and Executive Officers

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

Alfredo M. Villa has been the President, Director and CEO of the Company
since December 1996, prior to the acquisition of the Milcap Group. Mr. Villa,
holds a masters degree in economics from the University of Geneva, Switzerland
and attended Bocconi University in Milan, Italy. He has over 13 years of
experience with the Swiss banking industry. Mr. Villa is currently Chairman and
CEO of SCF Societa di Consulenza Finanziaria S.A., a Swiss corporation
specializing in asset management, mergers, acquisitions, and investment banking,
where he has served since 1994. Prior to that Mr. Villa was an asset manager
with several other European financial institutions. In addition, Mr. Villa was
Chairman of the Board of Alma Grafiche Srl, of Milan, Italy, a leader in the
high quality printing of books and magazines from 1995 until February 1998.

Berth H. Milton was appointed to the Board of Directors in February 1998
in conjunction with the beginning of the final phase of due diligence process
related to the acquisition of the Milcap Group by the Company in June 1998, and
was appointed Corporate Secretary in June 1998. Mr. Milton is one of the most
well known and reputable figures in the industry, has been Administrator of MMG
since its inception and has been acting as an advisor to the Milcap Group since
1991. Mr. Milton is also active in several international industry and real
estate projects and developments.

424B3 57th Page of 90 TOC 1st Previous Next ↓Bottom Just 57th
Bo Rodebrant was appointed as a Director of the Company in August 1998.
Mr. Rodebrant has operated his own accountancy and management consulting
services, R&S Ekonomiservice, since 1986. Prior thereto 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.

Claes Henrik Marten Kull joined the Milcap Group in 1992 as a sales
manager and has been Milcap Group's Marketing Manager since 1993, and was
appointed Chief Marketing Officer of Private Media Group, Inc. in August 1998,
with his main responsibilities being to identify and open up new markets and
negotiate with distributors. Since he begun working for the Milcap Group in
1992, approximately 25 new countries have been opened up. 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, which is one of
Sweden's largest companies. 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 MMG,
member of the Board of MMG and Private France S.A., and minority shareholder of
Milcap Media Group S.L. 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, Inc. in August 1998 and has been the Chairman and Managing Director of
Milcap Publishing Group AB since 1994. 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 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.

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 MMG
in 1997. Prior to joining the Milcap 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.

Robert Tremont was appointed to the 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 International, Inc., which companies are exclusive
distributors for most of the Company's products in the United States and Mexico.
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.

No director or executive officer serves pursuant to any arrangement or
understanding between him or her and any other person.

424B3 58th Page of 90 TOC 1st Previous Next ↓Bottom Just 58th
Committees of the Board of Directors

The Board of Directors currently has three committees: (i) an Audit
Committee and (ii) a Compensation Committee and (iii) an Executive Committee.

The Audit Committee is currently comprised of Messrs. Villa, Gillborg and
Sanchez. The Audit Committee reviews and recommends to the Board, as it deems
necessary, the internal accounting and financial controls for the Company and
the accounting principles and auditing practices and procedures to be employed
in preparation and review of financial statements of the Company. The Audit
Committee makes recommendations to the Board concerning the engagement of
independent public accountants and the scope of the audit to be undertaken by
such accountants.

The Compensation Committee is currently comprised of Messrs. Villa,
Milton and Sanchez. The Compensation Committee reviews and, as it deems
appropriate, recommends to the Board 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 of the Company as the Committee
therein specified, unless the Board resolution appoints any other committee to
exercise such authority, and advises and consults with the officers of the
Company 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 the Board.

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 the Board of Directors during periods between
Board meetings.

Compensation of Directors

None of the Company's 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, during fiscal 1998
the Board of Directors intends to adopt an employee Stock Option Plan which
includes a provision for stock options to be issued to Directors.

The Company's Board of Directors may in the future, at its discretion,
compensate Directors for attending Board and Committee meetings and reimburse
the Directors for out-of-pocket expenses incurred in connection with attending
such meetings.

424B3 59th Page of 90 TOC 1st Previous Next ↓Bottom Just 59th
Executive Compensation

The following table summarizes all compensation paid to the Company's
Chief Executive Officer and to the Company's other most highly compensated
executive officer 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 the Company during the fiscal years ended
December 31, 1997, 1996 and 1995. No other executive officer of the Company
earned compensation in excess of $100,000 in each of these periods.

Summary Compensation Table

[Enlarge/Download Table]

Long Term
Compensation
------------
Awards
----------

Annual Compensation Securities
Name and Fiscal ------------------- Underlying All Other
Principal Position Year Salary($) Options (#) Compensation($)
---- ------------------- ----------- ---------------

Alfredo M. Villa............ 1997 29,073(1) --- ---
Chief Executive Officer 1996 ___
and President 1995 ___
Berth H. Milton............. 1997 145,000 --- ---
MMG Administrator, 1996 105,500
Corporate Secretary 1995 65,500

-----------------------
(1) Represents $20,000 of fees and $9,073 of expenses paid under a Consulting
Agreement between the Company and a company affiliated with Mr. Villa.

No options to acquire shares of Common Stock of the Company were granted
or exercised during the Company's fiscal year ended December 31, 1997.

424B3 60th Page of 90 TOC 1st Previous Next ↓Bottom Just 60th
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships

No Director or executive officer of the Company is related to any other
Director or executive officer. None of the Company's officers or Directors hold
any directorships in any other public entity. There are currently two outside
directors on the Company's Board of Directors.

Related Transactions

The Company has long term borrowings of SEK 1,132,000 and SEK 723,000 at
December 31, 1996 and 1997, respectively, of which SEK 394,000 was outstanding
as of October 28, 1998. The borrowings bear interest at a rate of 10% payable
annually and are due to entities controlled by Berth Milton. The borrowings have
no maturity date.

On March 31, 1998, two of the Company's 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 S.L., Spain
("Viladalt") from its shareholders, none of whom are related to the Company or
Mr. Milton, for the sum of approximately $2,685,000. It was agreed that the
Company's 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 has agreed to sell its interest in Viladalt to the Company at
Zebra's cost when and if the Viladalt interest is sold by the Company. 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 the
Company as a real estate investment and is presently being utilized as a filming
location for certain of the Company's upcoming releases.

Milcap Publishing Group, a wholly owned subsidiary of the Company, is a
party to an exclusive Distribution Agreement with Sundance Associates, Inc.
("Sundance") which has been in effect since 1995. Robert Tremont, a Director of
the Company, is the sole shareholder of Sundance. Under the terms of the
Distribution Agreement Milcap granted to Sundance the exclusive rights to
distribute in the United States and Mexico specified products, including
magazines, videos and digital media such as CD-ROM's and laser discs. Royalties
are paid by Sundance to Milcap in accordance with an agreed royalty schedule.
The Distribution Agreement automatically renews for successive one year terms
and is cancellable by either party prior to the end of each one year term.
During the 12 month periods ended September 30, 1997 and September 30, 1998
Sundance paid royalties to Milcap of $2,273,835 and $2,310,663, respectively.

Milcap Media Limited, a wholly owned subsidiary of the Company, is a party
to an exclusive License Agreement with Private Collection International, Inc.
("PCI"), which has been in effect since 1995. The principal terms of this
Agreement are set forth elsewhere in this Prospectus under "Business - Private
Collection." Robert Tremont, a Director of the Company, is an officer and
principal shareholder of PCI.

The foregoing transactions were not submitted for the approval of a
majority of the Company's independent Directors who did not have an interest in
the transactions and who had access, at the Company's expense, to the Company's
or independent legal counsel. Rather, such transactions were approved by a
majority of disinterested, but not independent, officers or Directors. Any
ongoing or future transactions between the Company and its officers, Directors,
principal stockholders, or other affiliates including the transactions described
in this section are and will be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties on an arms-length basis and
will be approved by a majority of the Company's independent and disinterested
Directors.

Limitations on Liability and Indemnification of Officers and Directors

The Restated Certificate of Incorporation limits the liability of
Directors to the fullest extent permitted by the Nevada General Corporation Law.
In addition, the Restated Certificate of Incorporation provides that the Company
shall indemnify Directors and Officers of the Company to the fullest extent
permitted by such law. The Company also anticipates entering into
indemnification agreements with its current Directors and executive officers.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to Directors, Officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

424B3 61st Page of 90 TOC 1st Previous Next ↓Bottom Just 61st
PRINCIPAL STOCKHOLDERS

The following table presents certain information as of September 30, 1998,
regarding the beneficial ownership of Common Stock by (i) each of the directors
and executive officers of the Company individually, (ii) all persons known by
the Company to be beneficial owners of five percent or more of the Common Stock,
and (iii) all directors and executive officers of the Company as a group.
Unless otherwise noted, the persons listed below have sole voting and investment
power and beneficial ownership with respect to such shares.

[Enlarge/Download Table]

Number of Shares
Name and Address (1) Beneficially Owned (1) Percent Beneficially Owned
-------------------- ---------------------- --------------------------

Berth H. Milton (2)
La Vella, Andorra 7,800,000 51.1%

Senate Limited (3)
3 Bell Lane, Gibraltar 1,675,000 20.73%

Chiss Limited (4)
3 Bell Lane, Gibraltar 1,400,000 17.32%

Bajari Properties Limited (5)
7 Myrtle Street, Douglas, Isle of Man 625,000 7.73%

Pressmore Licensing Limited
P.O. Box N-341, Nassau, Bahamas 625,000 7.73%

Perrystone Trading Limited
P.O. Box 171, Providenciales, Turks & Caicos 625,000 7.73%

Solidmark (Gibraltar) Ltd.
3 Bell Lane, Gibraltar 625,000 7.73%

Churchbury Limited
3 Bell Lane, Gibraltar 625,000 7.73%

Kingston Finance Ltd.
Wickhams Cay, Road Town, Tortola, BVI 625,000 7.73%

Alfredo M. Villa
Lugano, Switzerland 15,000 *

All Executive Officers and Directors as a group 7,815,000 51.2%

424B3 62nd Page of 90 TOC 1st Previous Next ↓Bottom Just 62nd
----------------------
* Denotes less than 1%

(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, 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 or Preferred
Stock which are currently exercisable or exercisable within 60 days of
September 30, 1998 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 the
Company, 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) Mr. Milton is indirectly the beneficial owner of the 7,000,000 $4 Series A
Convertible Preferred Stock owned of record by Slingsby Enterprises
Limited, which is convertible into 7,000,000 Common Stock and accrued
interest. Also includes (i) 625,000 shares of Common Stock owned by Bajari
Properties Limited, of which Mr. Milton is the sole shareholder, and (ii)
175,000 shares of Common Stock issuable upon exercise of Warrants owned by
Mr. Milton.

(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.

424B3 63rd Page of 90 TOC 1st Previous Next ↓Bottom Just 63rd
DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.001, of which 8,081,668 shares were outstanding as
of November 13, 1998, and (ii) 10,000,000 shares of preferred stock, $.001 par
value, of which 7,000,000 shares were issued and outstanding as of November 13,
1998.

Common Stock

Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of shareholders. The Articles of Incorporation
do not limit cumulative voting rights. Accordingly all holders of common stock
are entitled to cumulate their shares when voting for directors of the Company.

Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after payment of all debts and other liabilities and payment
in full to holders of Preferred Stock then outstanding, if any, of any amount
required to be paid under the terms of such Preferred Stock. The outstanding
shares of Common Stock are, and the shares offered by the Company in this
offering will be, when issued and paid for, validly issued, fully paid and non-
assessable.

Preferred Stock

The Company's Articles of Incorporation, as amended, authorize the
issuance of up to 10,000,000 Shares of Preferred Stock. The 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
thereof, 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 the Company's 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 the
Company. The issuance of Preferred Stock may have the effect of delaying,
deferring, discouraging or preventing a third party from acquiring a majority of
the outstanding voting Stock of the Company or other change in control of the
Company without further action by the stockholders, and may adversely affect the
voting and other rights of the holders of the Common Stock, including the loss
of voting control to others. The 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 newly designated Preferred Shares to be issued
pursuant to the Milcap Acquisition Agreement 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 Bulletiin Board. Each Preferred Share is
convertible at any time into Common Stock, on a one-for-one basis. However, if
at any time the Common Stock of the Company has a closing price of less than
$4.00 per share for 20 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.

Slingsby Enterprises Limited, Dublin, Ireland currently owns 100% of the
Company's 7,000,000 $4.00 Series A Convertible Preferred Stock. Slingsby
Enterprises Limited is directly or indirectly controlled by Mr. Berth H. Milton,
one of the Company's Directors.

424B3 64th Page of 90 TOC 1st Previous Next ↓Bottom Just 64th
Warrants

The following is a brief summary of certain provisions of the Warrants,
but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the Warrant Agreement between the
Company and the warrant holder, a copy of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.

The Company issued 175,000 new $4.00 Series Warrants pursuant to the terms
of the Milcap Acquisition Agreement. These warrants are exercisable at any time
until December 31, 2000, at an exercise price of $4.00 per share.

The Company issued an additional 700,000 $4.00 Series Warrants pursuant to
the Cinecraft Acquisition Agreement. These Warrants are exercisable at any time
until December 31, 2000, at an exercise price of $4.00 per share.

Each of the Company's outstanding warrants contain anti-dilutiion
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 stockholder of the
Company. 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.
The Company may amend the terms of the Warrants, but only by extending the
termination date or lowering the exercise price thereof. The Company has no
present intention of amending such terms. However, there can be no assurances
that the Company will not alter its position in the future with respect to this
matter.

With regard to the 700,000 Warrants issued pursuant to the Cinecraft
Acquisition Agreement, the Company has undertaken to use its best efforts to
register the resale of the Common Stock issuable upon exercise of these
Warrants. This Prospectus has been prepared in order to allow the holders of
the 700,000 Warrants to resell the shares of Common Stock issued upon exercise
of the Warrants without restriction.

424B3 65th Page of 90 TOC 1st Previous Next ↓Bottom Just 65th
Market For the Company's Common Stock

The Common Stock of the Company is has traded on the OTC Bulletin Board
since March 29, 1996, and is currently traded under the symbol "PRVT." The
following table sets forth the range of representative high and low closing
prices for the Common Stock for the periods indicated. Quotations represent
inter-dealer prices, do not include retail markups, markdowns or commissions and
may not represent actual transactions.

[Download Table]

High Low
-------- -------

Fiscal 1998:

First Quarter $ 11 1/2 $ 6 3/8
Second Quarter $ 12 3/4 $ 7 13/16

Fiscal 1997:

First Quarter $ 31 7/8 $ 6 1/4
Second Quarter $ 41 9/16 $ 12 1/2
Third Quarter $ 23 3/4 $ 8 3/4
Fourth Quarter $ 11 7/8 $ 3 1/8

Fiscal 1996:

First Quarter $ 1 1/4 $ 1 1/4
Second Quarter $ 1 7/8 $ 0 5/8
Third Quarter $ 1 7/8 $ 1 7/8
Fourth Quarter $ 8 3/4 $ 4.90

On November 12, 1998, the closing price of the Common Stock was $10.93
per share. On October 30, 1998 the Company had 570 holders of record of its
Common Stock.

All quotations prior to June 12, 1998, the date of the acquisition of
Milcap Media Ltd. and CineCraft Ltd., reflect the price of the Common Stock of
the inactive shell company. The Company believes that the sharp increase in the
price of the Common Stock during the first three quarters of 1997 reflected the
acquisition by the Company of Electric Entertainment Corp., which transaction
was subsequently rescinded in November 1997. See "Business -History."

Dividend Policy

The Company did not pay any cash dividends during its last fiscal year
and the Board of Directors does not contemplate doing so in the near future. The
Company currently intends to retain all earnings, to finance the development and
expansion of its operations, and does not anticipate paying cash dividends on
its shares of Common Stock in the foreseeable future. The Company's future
dividend policy will be determined by its Board of Directors on the basis of
various factors, including results of operations, financial condition, business
opportunities and capital requirements. The payment of dividends will also be
subject to the requirements of Nevada Law, as well as restrictive financial
covenants which may be required in future credit agreements.

Transfer Agent

The transfer agent and registrar for the Common Stock and Warrants is
InterWest Transfer Co., Inc., 1981 East 4800 South, Suite 100, Salt Lake City,
Utah 84117.

424B3 66th Page of 90 TOC 1st Previous Next ↓Bottom Just 66th
Listing of Common Stock on Nasdaq Stock Market

The Common Stock of the Company is traded on the NASD, Inc. OTC Bulletin
Board under the symbol "PRVT" and the Company has applied for listing of the
Common Stock on the Nasdaq National Market. Listing on Nasdaq will occur only
after all exchange requirements have been fulfilled. The Company anticipates
meeting the listing requirements upon the commencement of the Offering. Even if
the Company's Common Stock is accepted for quotation on the Nasdaq National
Market, there can be no assurance that a public trading market will be
maintained.

424B3 67th Page of 90 TOC 1st Previous Next ↓Bottom Just 67th
SHARES ELIGIBLE FOR FUTURE SALE

As of September 30, 1998, the Company had 8,081,668 Common Shares, and
7,000,000 Preferred Shares, outstanding. The Company will also have warrants
issued and outstanding which, if exercised in full, would require the Company to
issue an additional 875,000 Shares of its Common Stock, and subsequent
conversion of all Warrants issued and outstanding would result in the Company
having 8,956,668 Shares of its Common Stock issued and outstanding.

The shares issued upon the Acquisition Agreements, i.e. the Common Stock
issuable upon conversion of the 7,000,000 Preferred Shares, the 175,000 Shares
underlying the Common Stock Warrants issued upon the Milcap Acquisition
Agreement and 3,500,000 Common Stock issued upon the Cinecraft Acquisition
Agreement which have not been registered and are not covered by this Prospectus,
will initially be "restricted" from sale and public transfer.

The shares of Common Stock which are "restricted securities" (as that
term is defined in Rule 144 promulgated under the Securities Act) may be
publicly sold only if registered under the Securities Act or if sold in
accordance with an applicable exemption from registration, such as Rule 144. In
general, In general, under Rule 144 as in effect commencing April 29, 1997,
beginning 90 days after the date of this Prospectus, subject to the satisfaction
of certain other conditions, a person, including an affiliate of the Company,
who has beneficially owned restricted securities for at least one year, is
entitled to sell (together with any person with whom such individual is required
to aggregate sales) within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or, if the Common Stock is quoted on the Nasdaq Stock Market or
another national securities exchange, the average weekly trading volume during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements, and the
availability of current public information regarding the Company. A person who
has not been an affiliate of the Company for at least three months, and who has
beneficially owned restricted securities for at least two years, is entitled to
sell such restricted shares under Rule 144(k) ("Rule 144(k) Shares") without
regard to any of the limitations described above.

In addition, Rule 144A as currently in effect, in general, permits
unlimited resale's of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a discretionary basis
at least $100 million in securities or is a registered broker-dealer that owns
and invests $10 million in securities. Rule 144A allows the existing
stockholders of the Company to sell their shares of Common Stock to such
institutions and

424B3 68th Page of 90 TOC 1st Previous Next ↓Bottom Just 68th
registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.

No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will have
on the market price of the Common Stock prevailing from time to time.

424B3 69th Page of 90 TOC 1st Previous Next ↓Bottom Just 69th
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION

All of the shares of Common Stock of the Company covered by this
Prospectus are being sold for the account of the selling stockholders named in
the table below under "Shares of Common Stock Offered by Selling Stockholders
(the "Selling Stockholders"). The shares being offered by the Selling
Stockholders consist of (i) an aggregate of 4,000,000 shares of Common Stock
acquired by certain Selling Stockholders pursuant to the Cinecraft Acquisition
Agreement, and (ii) an aggregate of 700,000 shares of Common Stock of the
Company which may be acquired by certain Selling Stockholders upon the exercise
of outstanding Warrants issued pursuant to the Cinecraft Acquisition Agreement.
Although the Company will receive proceeds from the exercise of outstanding
Warrants from time to time when and if they are exercised, the Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders
offered hereby. For further information regarding the terms of the Warrants, see
"Description of Securities."

The shares of Common Stock offered by the Selling Stockholders may be
offered for sale from time to time at market prices prevailing at the time of
sale or at negotiated prices, and without payment of any underwriting discounts
or commissions except for usual and customary selling commissions paid to
brokers or dealers. This Prospectus has been prepared so that future sales of
the shares of Common Stock by the Selling Stockholders will not be restricted
other than as set forth herein. In connection with any sales, the Selling
Stockholders and any brokers participating in such sales may be deemed to be
"underwriters" within the meaning of the Securities Act.

Pursuant to rules promulgated under the Exchange Act, a Selling
Stockholder who is neither affiliated nor directly or indirectly acting in
concert with the issuer or with any other Selling Stockholder will be required
to observe the appropriate "cooling off" period and other restrictions only
prior to the individual stockholder's distribution and until such distribution
ends or the shares are withdrawn from registration. Conversely, a Selling
Stockholder who is affiliated or acting in concert with the issuer or another
Selling Stockholder will be required to observe the appropriate "cooling off"
period and other restrictions under Regulation M under the Exchange Act with
respect to all offers and sales by affiliated persons.

Except as described above or in the footnotes to the Selling Stockholder
Table below, no Selling Stockholder has had any material relationship with the
Company or an affiliate of the Company, including its predecessors, within the
past three years.

The shares of Common Stock sold for the account of the Selling
Stockholders may be sold in one or more of the following transactions: (a) block
trades in which the broker or dealer so engaged will attempt to sell such shares
as agent but may position and resell a portion of the block as principal to
facilitate any transaction, (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus, and
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers. In effecting sales, brokers and dealers engaged by Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from Selling Stockholders in
amounts to be negotiated (and, if such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser). Broker-dealers may agree with
the Selling Stockholders to sell a specified number of such shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
such Selling Stockholder. Broker-dealers who acquire such shares as principals
may thereafter resell such shares from time to time in transactions (which may
involve crosses and book transactions and which may involve sales to and through
other broker-dealers, including transaction, of the nature described above) in
the over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated transactions or
otherwise, at market prices prevailing at

424B3 70th Page of 90 TOC 1st Previous Next ↓Bottom Just 70th
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such shares commissions as
described above.

Listed below are the names of each selling stockholder (the "Selling
Stockholders"), the total number of shares owned and the number of shares to be
sold in this offering by each Selling Stockholder, and the percentage of Common
Stock owned by each Selling Stockholder after this Offering:

[Enlarge/Download Table]

Number of
Shares of
Common Shares of
Shares of Stock to Common Stock
Common Stock be Offered for Beneficially Owned
Beneficially Owned Selling After
Prior to Stockholder's Completion of
Name Offering(1) Account(1) Offering
---- ----------- --------------- -----------

Number Percent
------ -------

Bajari Properties Limited (1) 7,800,000 625,000 7,175,000 47%

Pressmore Licensing Limited (2) 625,000 625,000 - -

Perrystone Trading Limited (3) 625,000 625,000 - -

Solidmark (Gibraltar) Ltd. (4) 625,000 625,000 - -

Churchbury Limited (5) 625,000 625,000 - -

Kingston Finance Ltd. (6) 625,000 625,000 - -

Givigest Fiduciaria SA (8) 25,000 25,000 - -

Strategic Investors Ltd. 125,000 125,000 - -

Prestige Underwriters N.V. (7) 350,000 350,000 - -

OTC Opportunities Corp. (7) 350,000 350,000 - -

Stockbond Ltd. 100,000 100,000 - -
----------------

(1) Berth Milton, a Director and Corporate Secretary of the Company, is the
sole shareholder of Bajari Properties Limited. Therefore, the 625,000
shares of Common Stock owned of record by Bajari Properties Limited may be
deemed to be beneficially owned by Mr. Milton. Also included are other
shares which may be deemed to be beneficially owned by Mr. Milton: (i) Mr.
Milton is indirectly the beneficial owner of the 7,000,000 $4 Series A
Convertible Preferred Stock owned of record by Slingsby Enterprises
Limited, which is convertible into 7,000,000 Common Stock and accrued
interest, (ii) 175,000 shares of Common Stock issuable upon exercise of
175,000 warrants owned by Mr. Milton.

(2) Leif Stellen Simby is the sole shareholder of Pressmore Licensing Limited
and, therefore, may be deemed to be the beneficial owner of these shares.

(3) Helen Sheehan-Caroll is the sole shareholder of Perrystone Trading Limited
and, therefore, may be deemed to be the beneficial owner of these shares.

(4) Antonio Joaquim Figueira is the sole shareholder of Solidmark (Gibralter)
Limited and, therefore, may be deemed to be the beneficial owner of these
shares.

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

(6) Valerie Lord is the sole shareholder of Kingston Finance Limited and,
therefore, may be deemed to be the beneficial owner of these shares.

(7) Assumes the exercise of all 700,000 Warrants acquired by two Selling
Stockholders, Prestige Underwriters N.V. and OTC Opportunities Corp.,
pursuant to the Cinecraft acquisition in June 1998.

(8) Alfredo M. Villa, President and Director of the Company, was a stockholder
and officer of Givigest Fiduciaria SA until December 1996.

424B3 71st Page of 90 TOC 1st Previous Next ↓Bottom Just 71st
LEGAL MATTERS

The validity of the Shares of Common Stock offered hereby will be passed
upon for the Company by Guzik & Associates, 1800 Century Park East, 5th Floor,
Los Angeles, California 90067. Certain other legal matters are being passed upon
for the Company by W. Sterling Mason Jr., Attorney at Law, 1487 Thistle Downs
Drive, Sandy, Utah 84092.

EXPERTS

The consolidated financial statements of Private Media Group, Inc. at
December 31, 1997, and for each of the two years in the period ended December
31, 1997 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young AB, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 under the Securities Act
(the "Registration Statement") with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock, reference
is made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contracts or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, upon payment of
certain fees prescribed by the Commission. The Commission maintains an Internet
World Wide Web site that contains reports, proxy and information reports and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. The site can be accessed at
http://www.sec.gov. Copies may also be obtained from the Company's principal
offices at 3230 Flamingo Road, Suite 156, Las Vegas, Nevada 89121, or upon
written request addressed to Private Media Group, Inc.'s Corporate Legal
Counsel, W. Sterling Mason, Jr., 1487 Thistle Downs Drive, Sandy, Utah 84092.

As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, and in accordance
therewith will file reports, proxy statements and other information with the
Securities and Exchange Commission. The Company intends to deliver annual
reports to the holders of its securities, which will contain financial
information that has been examined and reported upon by an independent certified
public accountant and such other periodic reports as the Company deems
appropriate or as may be required by law. The Company's fiscal year ends
December 31.

424B3 72nd Page of 90 TOC 1st Previous Next ↓Bottom Just 72nd
INDEX TO FINANCIAL STATEMENTS

[Enlarge/Download Table]

PAGE NO.
--------

Report of Ernst & Young AB, Independent Auditors....................................... F-2

Consolidated Balance Sheets as of December 31, 1997, and June 30, 1998................. F-3

Consolidated Statements of Income and Comprehensive Income for the two years
ended December 31, 1996 and 1997, and the six months ended June 30,
1998 and June 30, 1997................................................................ F-4

Consolidated Statements of Shareholders' Equity........................................ F-5

Statements of Cash Flows for the two years ended December 31, 1997 and 1996,
and the six months ended June 30, 1998 and June 30, 1997.............................. F-6

Notes to Financial Statements.......................................................... F-7

F-1

424B3 73rd Page of 90 TOC 1st Previous Next ↓Bottom Just 73rd
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and
Shareholders of Private Media Group Inc.

We have audited the accompanying consolidated balance sheet of Private Media
Group, Inc. and its subsidiaries as of December 31, 1997 and the related
consolidated statements of income and comprehensive income, shareholders' equity
and cash flows for each of the two years in the period ended December 31, 1997.
These financial statements are the responsibility of the Group'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. 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. and its subsidiaries as of December 31, 1997 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles in the United States of America.

Stockholm, Sweden

August 19, 1998

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

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

F-2

424B3 74th Page of 90 TOC 1st Previous Next ↓Bottom Just 74th
PRIVATE MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEETS

[Enlarge/Download Table]

DECEMBER 31, JUNE 30,
(UNAUDITED)
-------------- -------------------------
1997 1998 1998
-------------- ------ ------
SEK SEK USD
(in thousands)

ASSETS
Cash and cash equivalents........................... 3,698 2,790 350
Trade accounts receivable - (Note 4)................ 47,632 66,471 8,351
Inventories - net (Note 5).......................... 20,497 25,522 3,206
Prepaid expenses and other current assets (Note 6).. 4,174 10,862 1,365
------- ------- ------
TOTAL CURRENT ASSETS................................ 76,001 105,644 13,272

Library of photographs and videos - net (Note 7).... 67,577 73,241 9,201
Property, plant and equipment - net (Note 8)........ 6,998 8,172 1,027
Other assets........................................ 12,112 14,076 1,768
------- ------- ------
TOTAL ASSETS........................................ 162,688 201,133 25,268
======= ======= ======

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings (Note 9)...................... 1,604 - -
Accounts payable trade.............................. 20,009 24,253 3,047
Income taxes payable................................ 859 829 104
Deferred tax liability (Note 11).................... 252 252 32
Accrued other liabilities (Note 10)................. 4,440 11,575 1,454
------- ------- ------
TOTAL CURRENT LIABILITIES........................... 27,164 36,910 4,637

Long-term borrowings (Note 12)...................... 723 394 49

SHAREHOLDERS' EQUITY (Note 13)

$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........... 7,992 7,997 1,005
shares authorized 7,500,000 and
8,081,668 issued and outstanding, respectively
Additional paid-in capital.......................... - 731 92
Retained earnings................................... 126,809 154,991 19,471
Accumulated other comprehensive income.............. - 111 14
------- ------- ------
TOTAL SHAREHOLDERS' EQUITY.......................... 134,801 163,830 20,582
------- ------- ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................................. 162,688 201,133 25,268
======= ======= ======

See notes to consolidated financial statements.

F-3

424B3 75th Page of 90 TOC 1st Previous Next ↓Bottom Just 75th
PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

[Enlarge/Download Table]

YEARS ENDED SIX-MONTHS ENDED
DECEMBER 31, JUNE 30,
(UNAUDITED)
----------------- -------------------------
1996 1997 1997 1998 1998
------- ------- ------ ------ -------
SEK SEK SEK SEK USD
(in thousands)

Net Sales..................................... 128,927 144,543 70,435 99,186 12,461
Cost of Sales................................. 66,963 75,674 31,170 46,680 5,864
------- ------- ------ ------ ------
Gross Profit.................................. 61,964 68,869 39,265 52,506 6,596
Selling, general and administrative expenses.. 27,033 33,682 15,936 23,977 3,012
------- ------- ------ ------ ------
Operating profit.............................. 34,931 35,187 23,329 28,529 3,584
Interest expense.............................. 259 321 90 259 33
Interest income............................... 72 69 21 124 16
------- ------- ------ ------ ------
Income before income tax...................... 34,744 34,935 23,261 28,394 3,567
Income taxes.................................. 2,046 (2,052) 443 210 26
------- ------- ------ ------ ------
Net income.................................... 32,698 36,987 22,818 28,183 3,541
------- ------- ------ ------ ------
Other comprehensive income:
Foreign currency adjustments.................. (365) 365 209 111 14
Comprehensive income.......................... 32,333 37,352 23,027 28,294 3,555
======= ======= ====== ====== ======
Net income per share:
Basic 4.36 4.93 3.04 3.49 0.44
======= ======= ====== ====== ======
Diluted 2.26 2.43 1.49 1.80 0.23
======= ======= ====== ====== ======

See notes to consolidated financial statements.

F-4

424B3 76th Page of 90 TOC 1st Previous Next ↓Bottom Just 76th
PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

[Enlarge/Download Table]

ADDI- ACCUMULATED
TIONAL OTHER TOTAL
Common Stock PREFERRED STOCK PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
-------------------- ---------------
Shares Amounts Shares Amounts capital earnings income equity
--------- -------- -------- --------- ------- --------- ------ --------
SEK SEK SEK SEK SEK SEK

Balance at January 1, 1996 7,500,000 7,992 7,000,000 63,783 (187) 71,588
Exchange Rate Changes (178) (178)
Net Income 32,698 32,698
--------- -------- ---------- --------- ------- --------- ------ --------
Balance at December 31, 7,500,000 7,992 7,000,000 - - 96,481 (365) 104,108
1996
Exchange rate changes - 365 365
Dividends paid (6,660) - (6,660)
Net income 36,987 - 36,987
--------- -------- ---------- --------- ------- ---------- ------ --------
Balance at December 31, 7,500,000 7,992 7,000,000 - - 126,808 - 134,800
1997
Shares issued in reverse
acquisition 581,668 5 - - 731 - - 736
Exchange rate changes 111 111
Net income 28,183 - 28,183
--------- -------- ---------- --------- ------- ---------- ------ --------
Balance at June 30, 1998
(unaudited) 8,081,668 7,997 7,000,000 - 731 154,991 111 163,830
========= ======== ========== ========= ======= ========== ====== ========

See notes to consolidated financial statements.

F-5

424B3 77th Page of 90 TOC 1st Previous Next ↓Bottom Just 77th
PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

[Enlarge/Download Table]

YEARS ENDED SIX-MONTHS ENDED
DECEMBER 31, JUNE 30,
(UNAUDITED)
---------------------- --------------------------
1996 1997 1997 1998 1998
---- ---- ---- ---- ----
SEK SEK SEK SEK USD
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................... 32,698 36,987 22,818 28,183 3,541
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH
flows from operating activities:
Deferred taxes.......................................... 1,655 (2,800) - - -
Depreciation............................................ 1,939 1,366 632 1,830 230
Amortization of photographs and videos.................. 13,024 20,209 8,582 14,245 1,790
EFFECTS OF CHANGES IN OPERATING ASSETS AND LIABILITIES:
Trade accounts receivable............................... 4,091 (15,936) (8,553) (18,839) (2,367)
Inventories............................................. (7,132) (5,985) (1,080) (5,025) (631)
Prepaid expenses and other current assets............... (102) 4,037 (5,895) (6,608) (830)
Accounts payable trade.................................. 9,120 4,047 (2,168) 4,137 520
Income taxes payable.................................... 301 130 (37) (30) (4)
Accrued other liabilities............................... (4,321) 2,640 2,051 7,135 896
------ ------- ------ ------- ------
Net cash provided by operating activities................ 51,273 44,695 16,350 25,028 3,144
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in library of photographs and videos.......... 47,096 25,864 10,551 19,909 2,501
Capital expenditures..................................... 5,929 1,541 1,201 3,004 377
Investments in other assets.............................. 964 11,121 4,130 1,796 226
Cash acquired in reverse acquisition..................... - - - (595) (75)
------ ------- ------ ------- ------
Net cash used in investing activities.................... 53,989 38,526 15,882 24,114 3,029
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid........................................... - (6,660) - - -
Long-term repayments..................................... (100) (409) - (329) (41)
Short-term borrowings (repayments)....................... 816 788 (816) (1,604) (202)
------ ------- ------ ------- ------
Net cash (used in) provided by financing activities...... 716 (6,281) (816) (1,933) (243)
Foreign currency translation adjustment.................. (178) 365 209 111 14
------ ------- ------ ------- ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (2,178) 253 (139) (908) (114)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD..... 5,623 3,445 3,445 3,698 465
------ ------- ------ ------- ------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD........... 3,445 3,698 3,306 2,790 351
====== ======= ====== ======= ======

Cash paid for interest................................... 259 310 90 259 33
====== ======= ====== ======= ======

Cash paid for taxes...................................... 127 367 104 166 21
====== ======= ====== ======= ======

See notes to consolidated financial statements.

F-6

424B3 78th Page of 90 TOC 1st Previous Next ↓Bottom Just 78th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. 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 December 3, 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. The acquisition has been accounted for as a
reverse acquisition whereby the Company is 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, 1996 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 value on June 12, 1998, the assets and liabilities of
the Company remained at their historical cost following the acquisition.

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

Solely for the convenience of the reader, the accompanying consolidated
financial statements of June 30, 1998 and for the six months then ended have
been translated into United States dollars ("USD") at the rate of SEK 7.96 per
USD 1.00 the exchange rate of the Swedish Riksbank on June 30, 1998. The
translations should not be construed as a representation that the amounts shown
could have been, or could be, converted into US dollars at that or any other
rate.

2. SUMMARY OF SIGNIFICANT AND ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries.

All significant intercompany transactions and balances have been
eliminated.

The financial statements of the Company and its subsidiaries are measured
in the currency in which that company primarily conducts its business (the
functional currency). The functional currency of all the Company's foreign
operations is the applicable local currency. When translating functional
currency financial statements into Swedish Kronor, year-end exchange rates are
applied to asset and liability accounts, while average annual rates are applied
to income statement accounts. Adjustments resulting from this process are
recorded in a separate component of shareholders' equity.

F-7

424B3 79th Page of 90 TOC 1st Previous Next ↓Bottom Just 79th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Foreign currency transaction gains and losses resulting from the settlement
of amounts receivable or payable denominated in a currency other than the
functional currency are credited or charged to income.

Inventories

Inventories are valued at the lower of cost or market, with cost
principally determined on an average basis. Inventories consists principally of
video cassettes and magazines held for resale.

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.

The Company evaluates the carrying value of property, plant and equipment
for potential impairment on an ongoing basis.

Recognition of Revenue

Revenue from the sale of magazines and other related products is recognized
upon delivery. Revenue from the sale of video products is recognized based upon
reported sales to retail customers by the Company's distributors. Provisions for
expected returns of product are recorded.

Advertising Costs

Advertising costs are charged to income as incurred.

Income Taxes

The Company accounts for certain income and expense items differently for
financial reporting purposes than for tax purposes. Provision of 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."

It is the Company's current intention to re-invest the unremitted earnings
of its non-U.S. subsidiaries indefinitely and accordingly no provision for U.S.
income taxes or foreign withholding taxes has been provided.

Cash Equivalents

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

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

F-8

424B3 80th Page of 90 TOC 1st Previous Next ↓Bottom Just 80th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

Cash Equivalents

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of cash and trade receivables. Credit risk on
trade receivables is minimized as a result of the use of bank guarantees and
credit control. The Company maintains cash and equivalents with various
financial institutions. The Company policy is designed to limit exposure to any
one institution.

Basic and Diluted Earnings Per Share

In 1997, the Financial Accounting Standards Board issue Statement No. 128
"Earnings per Share" (SFAS 128). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
The earnings per share amounts have been restated to conform to SFAS 128
requirements (see note 14).

Fair Value of Financial Instruments

The carrying value of financial instruments such as cash, accounts
receivable, accounts payable and short-term borrowings approximate their fair
value based on the short-term maturities of these instruments.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Interim Financial Statements

The financial information at June 30, 1998, and for the six months ended
June 30, 1997 and 1998, is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position at such date and of the operating
results and cash flows for these periods. Results of the 1998 period are not
necessarily indicative of results that may be expected for the entire year.

F-9

424B3 81st Page of 90 TOC 1st Previous Next ↓Bottom Just 81st
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. BUSINESS ACQUISITION

On June 12, 1998, the Company acquired (a) all of the outstanding common
stock of Cine Craft in exchange for the issuance of 7,500,000 shares of common
stock and 700,000 common stock purchase warrants of the Company, and (b) all of
the outstanding common stock of Milcap in exchange for the issuance of 7,000,000
shares of $4.00 series A convertible preferred stock and 175,000 common stock
purchase warrants of the Company. Generally accepted accounting principles
require that the Company be considered the acquired company for financial
statement purposes (a reverse acquisition) even though the entity will continue
to be called Private Media Group, Inc. Therefore, the acquisition has been
recorded as a recapitalization of Cine Craft and Milcap. The effects of the
reverse acquisition have been reflected for all share amounts in the
accompanying financial statements. The Company had no operations at the time of
the reverse acquisition. The shares issued in the reverse acquisition represent
the outstanding shares of the Company at the date of the reverse acquisition.

4. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable consist of the following:

[Download Table]

DECEMBER 31,
1997
--------------
SEK
(in thousands)

Trade accounts receivable.................. 49,013
Allowance for doubtful accounts............ (1,381)
--------------
Total trade accounts receivable............ 47,632
==============

5. INVENTORIES

Inventories consist of the following:

[Download Table]

DECEMBER 31,
1997
--------------
SEK
(in thousands)

Magazines.................................. 12,355
Video cassettes............................ 6,342
Other...................................... 1,800
--------------
20,497
==============

F-10

424B3 82nd Page of 90 TOC 1st Previous Next ↓Bottom Just 82nd
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. OTHER ASSETS

Included in other assets at December 31, 1997, is an amount of SEK
11,190 thousand representing the deposit on the purchase of certain land and
building.

7. LIBRARY OF PHOTOGRAPHY & VIDEOS

Library of photographs & videos consist of the following:

[Download Table]

DECEMBER 31,
1997
--------------
SEK
(in thousands)

Gross:
Photographs.................................................. 25,147
Videos....................................................... 88,236
Translations, Sound Dubbing, & Sub-Titles for Video Library.. 18,845
------------
132,228
============

Less accumulated depreciation:
Photographs.................................................. 13,647
Videos....................................................... 42,304
Translations, Sound Dubbing, & Sub-Titles for Video Library.. 8,696
------------
64,647
============

Net:
Photographs.................................................. 11,500
Videos....................................................... 45,928
Translations, Sound Dubbing, & Sub-Titles for Video Library.. 10,149
------------
67,577
============

F-11

424B3 83rd Page of 90 TOC 1st Previous Next ↓Bottom Just 83rd
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

[Download Table]

DECEMBER 31,
1997
--------------
SEK
(IN THOUSANDS)

Equipment and Furniture................... 7,967
Leasehold Improvements.................... 2,437
Accumulated Depreciation.................. (3,406)
--------
Total Property, Plant and Equipment, net.. 6,998
========

F-12

424B3 84th Page of 90 TOC 1st Previous Next ↓Bottom Just 84th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

9. SHORT-TERM BORROWINGS

The Company's Swedish subsidiary has a line of credit amounting to SEK
1,000 thousand. Use of the credit facility is charged at 9.50%, which is equal
to the Swedish banks' current official interest rate and which was the rate of
interest on outstanding borrowings at December 31, 1997. The renewal date of the
facility is every calendar quarter. The line of credit is guaranteed by the
principal shareholder. The Company pays an annual facility fee of 2.00% on the
line of credit amount. At December 31, 1997 the borrowings under the line of
credit of SEK 1,604 thousand exceeded the credit line.

10. ACCRUED OTHER LIABILITIES

Accrued other liabilities is comprised of the following:

[Download Table]

DECEMBER 31,
1997
-------------
SEK
(IN THOUSANDS)

Accrued Taxes............................... 65
Deposits.................................... 158
Accrued Salaries............................ 719
Royalty..................................... 470
Accrued Expenses............................ 1,687
Expected returns............................ 634
Vacation pay................................ 132
Social Security............................. 417
Other....................................... 158
-----
4,440
=====

11. INCOME TAX

Pretax income (loss) for the years ended December 31, 1996 and 1997 was
taxed in the following jurisdictions:

[Download Table]

DECEMBER 31,
-------------------
1996 1997
--------- --------
(SEK IN THOUSANDS)

Gibraltar............................ 28,500 41,100
Cyprus............................... 1,412 1,184
Sweden............................... 4,659 (4,606)
Spain................................ 191 (2,784)
Other................................ (18) 41
------ ------
34,744 34,935
====== ======

F-13

424B3 85th Page of 90 TOC 1st Previous Next ↓Bottom Just 85th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The components of the provision for income tax (benefit) are as follows:

[Download Table]

DECEMBER 31,
-------------------
1996 1997
--------- --------
(SEK IN THOUSANDS)

Current:
Cyprus........................... 70 62
Sweden........................... 264 230
Spain............................ 57 456

Deferred:
Sweden........................... 1,655 (1,509)
Spain............................ - (1,291)
------ ------
2,046 (2,052)
====== ======

A reconciliation of income taxes determined using the Swedish statutory
rate of 28% to actual income taxes provided is as follows:

[Download Table]

DECEMBER 31,
-----------------------
1996 1997
--------- ---------
(SEK IN THOUSANDS)

Income tax expenses at statutory rates..... 9,728 9,781
Income in Gibralter not subject to tax..... (7,980) (11,508)
Foreign tax rate differential.............. (326) (479)
Other, net................................. 624 154
------ -------
Income tax (benefit) provided.............. 2,046 (2,052)
====== =======

F-14

424B3 86th Page of 90 TOC 1st Previous Next ↓Bottom Just 86th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. RELATED PARTY TRANSACTIONS

The Company has long term borrowings of SEK 723 thousands at December 31,
1997. The borrowings bear interest at a rate of 10% payable annually and are due
to entities controlled by the Company's principal shareholder. The borrowings
have no maturity date.

13. SHAREHOLDERS' EQUITY

Retained Earnings

The Company is a holding company with no operations of its own.
Accordingly, the retained earnings of the Company represent the accumulated
earnings of its foreign subsidiaries, principally CineCraft. 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.

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 preemptive rights.

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 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 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 one basis. Additionally, at any time
the common stock of the Company has a closing price of less than $4.00 per share
for twenty consecutive days the preferred stock may be converted at the option
of the holder thereof into common stock at 20% discount to the five day average
closing price prior to the date of conversion.

Common stock warrants

The Company has issued 875,000 common stock warrants which are exercisable
at any time by the holder thereof until December 31, 2000 at an exercise price
of $4.00 per share.

F-15

424B3 87th Page of 90 TOC 1st Previous Next ↓Bottom Just 87th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. EARNINGS PER SHARE

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

[Download Table]

YEAR ENDED SIX-MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------

NUMERATOR:

Net income (SEK in thousands) 32,698 36,987 22,818 28,183
========== ========== ========== ==========

DENOMINATOR:

Denominator for basic earnings per
share - Weighted average shares 7,500,000 7,500,000 7,500,000 8,081,668

Effect of dilutive securities:
Preferred stock 7,000,000 7,000,000 7,000,000 7,000,000
Common stock warrants - 712,888 764,485 561,661
---------- ---------- ---------- ----------

Denominator for diluted earnings
per share - weighted average shares
and assumed conversions 14,500,000 15,212,882 15,264,485 15,643,330
========== ========== ========== ==========

EARNINGS PER SHARE (SEK)
Basic 4.36 4.93 3.04 3.49
========== ========== ========== ==========
Diluted 2.26 2.43 1.49 1.80
========== ========== ========== ==========

Common stock warrants were not included in the calculation of diluted
earnings per share in 1996 because the exercise price was greater than the
average market price.

15. 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, 1996 and 1997 amounted to SEK
976 thousand and SEK 1,485 thousand, respectively. Future minimum payments under
non-cancelable leases as of December 31, 1997 are as follows:

[Download Table]

Year (SEK in thousands)
---- ------------------

1998 1,661
1999 1,426
2000 1,426
2001 898
2002 374
Thereafter -

Management is not aware of any matters that could give rise to any material
liability to the Company that would have a material adverse effect on the
Company's financial condition or results of operations.

F-16

424B3 88th Page of 90 TOC 1st Previous Next ↓Bottom Just 88th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. 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 and movies.

Information concerning the Company's geographic locations is summarized as
follows:

[Download Table]

DECEMBER 31,
-------------------
1996 1997
-------- ---------
(SEK IN THOUSANDS)

Net Sales
Gibraltar.................. 28,500 41,100
Cyprus..................... 41,547 62,410
Sweden..................... 103,359 120,281
Spain...................... 32,438 42,800
Eliminations............... (76,917) (122,048)
------- --------
Total........................... 128,927 144,543
======= ========

Eliminations principally relates to revenues arising from trademark, license and
distribution agreements between the Gibralter, Cyprus and Sweden companies.

[Download Table]

DECEMBER 31,
-------------------
1996 1997
--------- --------
(SEK in thousands)

Operating profit
Gibraltar.................................. 28,500 41,100
Cyprus..................................... 1,423 1,227
Sweden..................................... 4,907 (4,427)
Spain...................................... 204 (2,653)
Other...................................... (103) (60)
------- -------
Total...................................... 34,931 35,187
Interest expense, net...................... 187 252
------- -------
Income before income taxes................. 34,744 34,935
======= =======

Identifiable assets
Gibraltar.................................. 5,718 12
Cyprus..................................... 53,636 67,661
Sweden..................................... 56,698 68,457
Spain...................................... 11,546 26,558
------- -------
Total...................................... 127,598 162,688
======= =======

F-17

424B3 89th Page of 90 TOC 1st Previous Next ↓Bottom Just 89th
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Export sales from Sweden to unaffiliated customers amounted to SEK 92.0
million and SEK 102.8 million for the years ended December 31, 1996 and 1997,
respectively. Export sales from Spain to unaffiliated customers amounted to SEK
4.3 million and SEK 6.4 million for the years ended December 31, 1996 and 1997,
respectively. Export sales from other geographic areas are insignificant.

17. ADVERTISING COSTS

The total advertising costs were SEK 1,068 thousand and SEK 1,156 thousand
for the years ended December 31, 1996 and 1997, respectively.

18. RECENT PRONOUNCEMENTS

In June 1998 the FASB issued Statement No. 133, Accounting for Derivative
Instruments and for Hedging Activities. In June 1997, the FASB issued Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information.
Statement No. 133 is effective for fiscal years beginning after June 15, 1999,
and Statement No. 131 is effective for fiscal years beginning after December 15,
1997. Statement No. 131 will modify certain existing geographical area
disclosures of the Company. Statement No. 133 will not affect the Company as it
does not enter into derivative or hedging activities.

F-18

424B3 Last Page of 90 TOC 1st Previous Next ↓Bottom Just 90th
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus,
and if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the shares of Common Stock offered by this
Prospectus, or an offer to sell or a solicitation of any offer to buy any
security by any person in any jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, imply that the information in this
Prospectus is correct as of any time subsequent to the date of this Prospectus.

TABLE OF CONTENTS

[Download Table]

Page
----

Prospectus Summary.................................................. 2
Risk Factors........................................................ 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 14
Business............................................................ 17
Management.......................................................... 57
Certain Relationships and Related Transactions...................... 61
Principal Stockholders.............................................. 62
Description of Securities........................................... 64
Shares Eligible for Future Sale..................................... 68
Selling Stockholders and Plan of Distribution....................... 70
Legal Matters....................................................... 72
Experts............................................................. 72
Available Information............................................... 72
Index to Financial Statements....................................... F-1

Until December 8, 1998 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters.

424B3	1st Page of 90	TOC	↑Top	Previous	Next	↓Bottom	Just 1st

424B3	2nd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 2nd

424B3	3rd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 3rd

424B3	4th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 4th

424B3	5th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 5th

424B3	6th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 6th

424B3	7th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 7th

424B3	8th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 8th

424B3	9th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 9th

424B3	10th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 10th

424B3	11th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 11th

424B3	12th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 12th

424B3	13th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 13th

424B3	14th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 14th

424B3	15th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 15th

424B3	16th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 16th

424B3	17th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 17th

424B3	18th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 18th

424B3	19th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 19th

424B3	20th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 20th

424B3	21st Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 21st

424B3	22nd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 22nd

424B3	23rd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 23rd

424B3	24th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 24th

424B3	25th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 25th

424B3	26th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 26th

424B3	27th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 27th

424B3	28th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 28th

424B3	29th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 29th

424B3	30th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 30th

424B3	31st Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 31st

424B3	32nd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 32nd

424B3	33rd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 33rd

424B3	34th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 34th

424B3	35th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 35th

424B3	36th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 36th

424B3	37th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 37th

424B3	38th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 38th

424B3	39th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 39th

424B3	40th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 40th

424B3	41st Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 41st

424B3	42nd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 42nd

424B3	43rd Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 43rd

424B3	44th Page of 90	TOC	1st	Previous	Next	↓Bottom	Just 44th

Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B3’ Filing	Date	First	Last	Other Filings

	12/31/00	47	86	10KSB, NT 10-K
	7/30/99	36
	6/15/99	89
	12/31/98	26	38	10KSB, NT 10-K
Filed on:	12/22/98
	12/8/98	90
	11/13/98	1	63	SB-2/A
	11/12/98	1	65
	10/30/98	65		SB-2/A
	10/28/98	60
	9/30/98	3	67	10QSB
	9/1/98	23
	8/19/98	73
	8/10/98	51
	8/5/98	24
	6/30/98	4	80
	6/12/98	16	81
	5/5/98	40	51
	4/1/98	28
	3/31/98	60
	2/28/98	52
	12/31/97	13	89
	12/19/97	16
	12/15/97	89
	12/3/97	78
	11/22/97	20
	9/30/97	60
	6/30/97	13	80
	5/27/97	47
	4/29/97	67
	2/10/97	20
	12/31/96	13	89
	3/29/96	65
	1/1/96	78
	12/31/95	59
	11/30/95	36
	2/5/93	47
				List all Filings

↑Top

Filing Submission 0000944209-98-002094 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Private Media Group Inc – ‘424B3’ on 12/22/98

As of: Tuesday, 12/22/98 · Accession #: 944209-98-2094 · File #: 333-62075

Previous ‘424B3’: None · Next & Latest: ‘424B3’ on 7/2/07

Prospectus — Rule 424(b)(3)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Prospectus — Rule 424(b)(3)
Filing Table of Contents