Private Media Group (PRVT)

Restatement of financial statements

In connection with the preparation of the Company’s 2005 annual financial statements, management of the Company identified a design problem in the Company’s warehouse management information system and advised the Audit Committee and the Company’s Board of Directors on March 21, 2006 that the previously issued 2004 financial statements require restatement to adjust the carrying value of inventory of DVDs by Euro 1,118 thousand. The Company’s Chief Financial Officer also discussed the matter with the Company’s independent accountants. Both the Audit Committee and the Company’s Board of Directors agreed on the same date to follow the advise of management to restate the 2004 financial statements. The overstatement of inventory of DVDs from 2004 had no impact on net income and earnings per share in 2005 since it was carried forward at the same value through September 2005.

See Note 3 to the Consolidated Financial Statements of this annual report for a summary of the effect of these changes on the Company’s Consolidated Balance Sheet as of December 31, as well as on the Company’s Consolidated Statements of Operations and Comprehensive Income and Cash Flows for fiscal year 2004. The accompanying Management’s Discussion and Analysis gives effect to these corrections.