Private Media Group (PRVT)

Results of Operations

2008 compared to 2007

Net sales. Our net sales in 2008 were EUR 19.7 million compared to EUR 25.0 million in 2007, a decrease of EUR 5.3 million, or 21%. Net sales in general were affected by the weakening dollar by EUR 0.3 million

DVD & Magazine sales decreased EUR 3.2 million, or 29%, to EUR 7.7 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales (see discussion under Outlook below). Due to the weakening dollar⁹ and the restructuring of our web sites, Internet sales decreased EUR 0.2 million to EUR 4.4 million compared to the same period last year. Broadcasting sales decreased EUR 1.3 million, to EUR 5.8 million as a result of the absence of sales of EUR 2.25 million from a non-recurring title licensing deal for German speaking Europe in 2007 offset primarily by an increase in video on demand sales via IPTV. Wireless sales decreased EUR 0.6 million to EUR 2.0 million in the period as a result of a re-organization of content delivery structure. The re-organization was completed in the fall of 2008.

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Going forward, we expect Internet, Broadcasting and Wireless sales to increase (see discussion under Outlook below).

Net sales in general were affected by changes in exchange rates. The annual average dollar exchange rate for the fiscal year 2008 compared to 2007 decreased 7% which reduced all our sales in dollar by the same percentage. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The balance sheet is translated at the year-end exchange rate.

Cost of Sales. Our cost of sales was EUR 13.5 million for 2008 compared to EUR 12.3 million for 2007, an increase of EUR 1.2 million, or 10%. Cost of sales as a percentage of sales was 69% for 2008 compared to 49% for 2007. We incur no cost of sales in dollars and subsequently we did not benefit from the weakening dollar in 2008 compared to 2007.

Included in cost of sales is printing, processing and duplication, amortization of library and Internet, broadcasting and wireless costs. Printing, processing and duplication cost was EUR 5.4 million for 2008 compared to EUR 4.1 million for 2007, an increase of EUR 1.3 million, or 32%. The increase was primarily the result of a program to reduce inventory of DVDs and magazines. Printing, processing and duplication cost as a percentage of DVD & Magazine sales was 70% for 2008 compared to 37% for 2007. The increase was the result of an increase in sales volume sold at a lower average price as part of the program to reduce inventory of DVDs and magazines. Amortization of library was EUR 6.3 million for 2008 compared to EUR 6.8 million for 2007, a decrease of EUR 0.5 million. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The decrease was the result of lower amounts invested in content released during the period subject to amortization in 2008 compared to 2007. Internet, broadcasting and wireless costs was EUR 1.8 million for 2008 compared to EUR 1.4 million for 2008, an increase of EUR 0.4 million. Internet, Broadcasting and Wireless cost as a percentage of related sales was 15% for 2008 compared to 10% for the same period last year. The increase was primarily the result of increased Internet cost.

Gross Profit. Our gross profit for 2008 was EUR 6.2 million, or 31% of net sales, compared to EUR 12.7 million, or 51% of net sales for 2007. This represented a decrease of EUR 6.5 million, or 51%, compared to 2007. The decrease in gross profit of EUR 6.5 million was primarily the result of a EUR 4.5 million decrease in contribution to gross profit from DVD & Magazine sales, a EUR 2.5 million decrease in contribution to gross profit from Internet, Broadcasting and Wireless sales offset by the decrease in amortization of library of EUR 0.5 million. As the we are transitioning from traditional media to new media, our gross profit in 2008 has been impacted severally. However, during 2009, we expect gross profit to improve as new media sales is expected to increase and with low cost attached to it, positive impact on gross profit will be immediate.

Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 13.1 million for 2008 compared to EUR 13.6 million for 2007, a decrease of EUR 0.5 million. We attribute the decrease in selling, general and administrative expenses to a reduction in general expenses and bad debt provision of EUR 1.1 million and EUR 0.1 million, respectively, offset by an increase in depreciation and payroll of EUR 0.6 million and EUR 0.1 million, respectively.

Operating loss. We reported an operating loss of EUR 6.9 million for 2008 compared to EUR 0.9 million for 2007, an increase of EUR 6.0 million. The decrease in operating profit was primarily the result of the decrease in gross profit offset by reduced selling, general and administrative expenses.

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Interest expense. Our interest expense was EUR 0.3 million for 2008, compared to EUR 0.3 million for 2007.

Income tax benefit. Our income tax benefit was EUR 1.8 million for 2008, compared to 0.5 million for 2007. The increase in income tax benefit is a result of higher losses being recorded in jurisdictions with higher corporate tax rates.

Net loss. Our net loss was EUR 5.2 million for 2008, compared to EUR 0.4 million for 2007. We attribute the decrease in net income in 2008 of EUR 4.8 million to increased operating loss offset by increased income tax benefit.

2007 compared to 2006

Net sales. Our net sales in 2007 were EUR 25.0 million compared to EUR 29.2 million in 2006, a decrease of EUR 4.2 million, or 14%. The decrease was the result of reduced DVD & Magazine and Broadcasting sales offset by increased Internet and Wireless sales. Net sales in general were affected by the weakening dollar by EUR 0.4 million

DVD & Magazine sales decreased EUR 4.0 million, or 27%, to EUR 10.9 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales (see discussion under Outlook below). Despite the weakening dollar, Internet sales increased EUR 0.1 million to EUR 4.4 million, which represents an increase of 3% compared to the same period last year. Broadcasting sales decreased EUR 1.0 million, or 12%, to EUR 7.1 million. The decrease was primarily the result of the discontinuing of low margin pay-per-view sales in the US and last year non-recurring Pay-TV license sales in Europe totaling EUR 2.3 million offset by EUR 1.3 million from new broadcasting business primarily in Europe. Wireless sales increased EUR 0.6 million, or 32%, to EUR 2.6 million as a result our content being available with more operators.

Net sales in general were affected by changes in exchange rates. The annual average dollar exchange rate for the fiscal year 2007 compared to 2006 decreased 9% which reduced all our sales in dollar by the same percentage. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The balance sheet is translated at the year-end exchange rate.

Cost of Sales. Our cost of sales was EUR 12.3 million for 2007 compared to EUR 14.1 million for 2006, a decrease of EUR 1.8 million, or 13%. Cost of sales as a percentage of sales was 49% for 2007, an increase of one percentage unit compared to 2006. We incur no cost of sales in dollars and subsequently we did not benefit from the weakening dollar in 2007 compared to 2006.

Included in cost of sales is printing, processing and duplication, amortization of library and Internet, broadcasting and wireless costs. Printing, processing and duplication cost was EUR 4.1 million for 2007 compared to EUR 5.6 million for 2006, a decrease of EUR 1.5 million, or 27%. The decrease was primarily the result of a decrease in sales of magazines and DVDs. Printing, processing and duplication cost as a percentage of DVD & Magazine sales was 37% for the 2007 compared to 38% for the same period last year. Amortization of library was EUR 6.8 million for 2007 compared to EUR 6.7 million for 2006, an increase of EUR 0.1 million, or 2%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The increase was the result of higher amounts invested in content released during the period subject to amortization in 2007 compared to 2006. Internet, broadcasting and wireless costs was EUR 1.4 million for 2007 compared to EUR 1.9 million for 2006, a decrease of EUR 0.5 million. Internet, Broadcasting and Wireless cost as a percentage of related sales was 10% for 2007 compared to 13% for the same period last year. The decrease was primarily related to reduced broadcasting transmission costs related to pay-per-view sales in the US.

Gross Profit. Our gross profit for 2007 was EUR 12.7 million, or 51% of net sales, compared to EUR 15.1 million, or 52% of

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net sales for 2006. This represented a decrease of EUR 2.4 million, or 16%, compared to 2006. Gross profit as a percentage of sales was down one percentage unit for 2007 compared to 2006. The decrease in gross profit of EUR 2.4 million was primarily the result of a EUR 2.5 million decrease in contribution to gross profit from DVD & Magazine sales offset by a EUR 0.2 million increase in contribution to gross profit from Internet, Broadcasting and Wireless sales. Our gross profit was affected by the weakening dollar in 2007 by EUR 0.4 million compared to 2006.

Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 13.6 million for 2007 compared to EUR 14.0 million for 2006, a decrease of EUR 0.4 million, or 3%. We attribute the decrease in selling, general and administrative expenses to a reduction in payroll, general expenses and depreciation of EUR 0.6 million offset by an increase in bad debt provision of EUR 0.2 million.

Operating profit/loss. We reported operating loss of EUR 0.9 million for 2007 compared to an operating profit of EUR 1.0 million for 2006, a decrease of EUR 1.9 million. The decrease in operating profit was primarily the result of the decrease in gross profit offset by reduced selling, general and administrative expenses.

Interest expense. Our interest expense was EUR 0.3 million for 2007, compared to EUR 0.6 million for 2006. The decrease is the result of less average borrowings outstanding in 2007 compared to 2006.

Income tax benefit from continuing operations. Our income tax benefit was EUR 0.5 million for 2007, compared to 0.5 million for 2006.

Income/loss from continuing operations. Loss from continuing operations was EUR 0.4 million for 2007, compared to an income of EUR 1.1 million for 2006. We attribute the decrease in 2007 of EUR 1.5 million to decreased operating profit offset by reduced interest expense.

Loss from discontinued operations. Our loss from discontinued operations was EUR 0.9 million for 2006.

Income tax benefit from discontinued operations. Our income tax benefit from discontinued operations was EUR 0.3 million in 2006.

Net Income/loss. Our net loss was EUR 0.4 million for 2007, compared to a net income of EUR 0.5 million for 2006. We attribute the decrease in net income in 2007 of EUR 0.9 million primarily to decreased income from continuing operations offset by decreased loss from discontinued operations.

Results of Operations

2007 compared to 2006

Net sales. Our net sales in 2007 were EUR 25.0 million compared to EUR 29.2 million in 2006, a decrease of EUR 4.2 million, or 14%. The decrease was the result of reduced DVD & Magazine and Broadcasting sales offset by increased Internet and Wireless sales. Net sales in general were affected by the weakening dollar.

DVD & Magazine sales decreased EUR 4.0 million, or 27%, to EUR 10.9 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales (see discussion under Outlook below). Despite the weakening dollar, Internet sales increased EUR 0.1 million to EUR 4.4 million, which represents an increase of 3% compared to the same period last year. Broadcasting sales decreased EUR 1.0 million, or 12%, to EUR 7.1 million. The decrease was primarily the result of the discontinuing of low margin pay-per-view sales in the US and last year non-recurring Pay-TV license sales in Europe totaling EUR 2.3 million offset by EUR 1.3 million from new broadcasting business primarily in Europe. Wireless sales increased EUR 0.6 million, or 32%, to EUR 2.6 million as a result our content being available with more operators.

Going forward, we expect Internet, Broadcasting and Wireless sales to increase (see discussion under Outlook below).

Net sales in general were affected by changes in exchange rates. The annual average dollar exchange rate for the fiscal year 2007 compared to 2006 decreased 9% which reduced all our sales in dollar by the same percentage. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The balance sheet is translated at the year-end exchange rate.

Cost of Sales. Our cost of sales was EUR 12.3 million for 2007 compared to EUR 14.1 million for 2006, a decrease of EUR 1.8 million, or 13%. Cost of sales as a percentage of sales was 49% for 2007, an increase of one percentage unit compared to 2006. We incur no cost of sales in dollars and subsequently we did not benefit from the weakening dollar in 2007 compared to 2006.

Included in cost of sales is printing, processing and duplication, amortization of library and Internet, broadcasting and wireless costs. Printing, processing and duplication cost was EUR 4.1 million for 2007 compared to EUR 5.6 million for 2006, a decrease of EUR 1.5 million, or 27%. The decrease was primarily the result of a decrease in sales of magazines and DVDs. Printing, processing and duplication cost as a percentage of DVD & Magazine sales was 37% for the 2007 compared to 38% for the same period last year. Amortization of library was EUR 6.8 million for 2007 compared to EUR 6.7 million for 2006, an increase of EUR 0.1 million, or 2%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The increase was the result of higher amounts invested in content released during the period subject to amortization in 2007 compared to 2006. Internet, broadcasting and wireless costs was EUR 1.4 million for 2007 compared to EUR 1.9 million for 2006, a decrease of EUR 0.5 million. Internet, Broadcasting and Wireless cost as a percentage of related sales was 10% for 2007 compared to 13% for the same period last year. The decrease was primarily related to reduced broadcasting transmission costs related to pay-per-view sales in the US.

Gross Profit. Our gross profit for 2007 was EUR 12.7 million, or 51% of net sales, compared to EUR 15.1 million, or 52% of net sales for 2006. This represented a decrease of EUR 2.4 million, or 16%, compared to 2006. Gross profit as a percentage of sales was down one percentage unit for 2007 compared to 2006. The decrease in gross profit of EUR 2.4 million was primarily the result of a EUR 2.5 million decrease in contribution to gross profit from DVD & Magazine sales offset by a EUR 0.2 million increase in

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contribution to gross profit from Internet, Broadcasting and Wireless sales. Our gross profit was affected by the weakening dollar in 2007 by EUR 4.0 million compared to 2006.

Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 13.6 million for 2007 compared to EUR 14.0 million for 2006, a decrease of EUR 0.4 million, or 3%. We attribute the decrease in selling, general and administrative expenses to a reduction in payroll, general expenses and depreciation of EUR 0.6 million offset by an increase in bad debt provision of EUR 0.2 million.

Operating profit/loss. We reported operating loss of EUR 0.9 million for 2007 compared to an operating profit of EUR 1.0 million for 2006, a decrease of EUR 1.9 million. The decrease in operating profit was primarily the result of the decrease in gross profit offset by reduced selling, general and administrative expenses.

Interest expense. Our interest expense was EUR 0.3 million for 2007, compared to EUR 0.6 million for 2006. The decrease is the result of less average borrowings outstanding in 2007 compared to 2006.

Income tax benefit from continuing operations. Our income tax benefit was EUR 0.5 million for 2007, compared to 0.5 million for 2006.

Income/loss from continuing operations. Loss from continuing operations was EUR 0.4 million for 2007, compared to an income of EUR 1.1 million for 2006. We attribute the decrease in 2007 of EUR 1.5 million to decreased operating profit offset by reduced interest expense.

Loss from discontinued operations. Our loss from discontinued operations was EUR 0.9 million for 2006.

Income tax benefit from discontinued operations. Our income tax benefit from discontinued operations was EUR 0.3 million in 2006.

Net Income/loss. Our net loss was EUR 0.4 million for 2007, compared to a net income of EUR 0.5 million for 2006. We attribute the decrease in net income in 2007 of EUR 0.9 million primarily to decreased income from continuing operations offset by decreased loss from discontinued operations.

2006 compared to 2005

Net sales. Our net sales in 2006 were EUR 29.2 million compared to EUR 27.8 million in 2005, an increase of EUR 1.4 million, or 5%. The increase was attributed to an increase in Internet, broadcasting and wireless sales of EUR 5.7 million, or 65%, which was offset by a reduction in sales of magazines, DVDs and videocassettes of EUR 4.3 million, or 22%.

Broadcasting sales increased EUR 4.5 million, or 125%, to EUR 8.1 million as a result of a new Pay-TV licensing agreement for German speaking Europe and an increase in video on demand sales offset by a temporary decrease in channel licensing sales due to the switchover to new channel licensing partners. Wireless sales increased 96% to EUR 2.0 million as a result our content being available with more operators. Internet sales increased EUR 0.2 million, or 6%, to EUR 4.3 million as a result of improved conversion rates. DVD sales decreased EUR 2.5 million, or 17%, to EUR 12.6 million. The decrease in DVD sales was attributable to a reduction in points of sales carrying our DVD products and an industry wide decrease in DVD consumer prices. The reduction of points of sales occurred during the second half of 2005 as a result of the Company’s decrease in releases of new movie productions. The industry wide drop in DVD consumer prices is partly the result of offline sales/rental competing with online sales/rental. Magazine sales decreased EUR 1.5 million, or 39% to EUR 2.3 million as a result of lower quantities sold through certain retail channels during the twelve month period. Videocassette sales decreased EUR 0.3 million to nothing.

Net sales in general were unaffected by changes in exchange rates. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The was no change in average exchange rate for the fiscal year 2006 compared to 2005. The balance

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sheet is translated at the year-end exchange rate. Due to the significance of the results reported in dollars the impact of the euro/dollar exchange rate on our major categories of revenue and expense can be material.

Cost of Sales. Our cost of sales was EUR 14.1 million for 2006 compared to EUR 14.6 million for 2005, a decrease of EUR 0.5 million, or 3%. Cost of sales as a percentage of sales was 48% for 2006, a decrease of 5% compared to 2005.

Included in cost of sales is printing, processing and duplication, amortization of library and broadcasting costs. Printing, processing and duplication cost was EUR 6.6 million for 2006 compared to EUR 7.6 million for 2005, a decrease of EUR 1.0 million, or 13%. The decrease was primarily the result of a decrease in sales of magazines and DVDs. Printing, processing and duplication cost as a percentage of sales was 22% for 2006, compared to 27% in 2005. Amortization of library was EUR 6.7 million for 2006 compared to EUR 6.4 million for 2005, an increase of EUR 0.3 million, or 5%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The increase was the result of higher amounts invested in content released during the period subject to amortization in 2006 compared to 2005. Broadcasting cost was EUR 0.9 million for 2006 compared to EUR 0.6 million for 2005, an increase of EUR 0.3 million. Broadcasting cost represents programming, transmission cost and sales commissions. The increase relates to higher sales commission recorded in the period.

Gross Profit. Our gross profit for 2006 was EUR 15.1 million, or 52% of net sales, compared to EUR 13.2 million, or 47% of net sales for 2005. This represented an increase of EUR 1.9 million, or 14%, compared to 2005. Gross profit as a percentage of sales was up 5% for 2006 compared to 2005. The increase in gross profit in both money and as a percentage of sales was primarily the result of the increase in sales of non-physical products carrying no printing, processing and duplication cost and the decrease in sales of physical products carrying printing, processing and duplication cost.

Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 14.0 million for 2006 compared to EUR 14.4 million for 2005, a decrease of EUR 0.4 million, or 3%. We attribute the decrease in selling, general and administrative expenses to a reduction in general expenses, depreciation and bad debt provision of EUR 0.5 million offset by an increase in payroll of EUR 0.1 million.

Gain on sale of building. We reported gain on sale of building of EUR 1.3 million for 2005.

Operating profit/loss. We reported operating profit of EUR 1.0 million for 2006 compared to an operating profit of EUR 0.0 million for 2005, an improvement of EUR 1.0 million. The increase in operating profit was primarily the result of an increase in gross profit offset by the absence of gain on sale of building we had in 2005. Discounting the non-recurring effect of gain on sale of building of EUR 1.3 million in 2005, operating profit improved by EUR 2.3 million in the period.

Interest expense. Our interest expense was EUR 0.6 million for 2006, compared to EUR 0.7 million for 2005. The decrease is the result of less average borrowings outstanding in 2006 compared to 2005 and we expect interest expense to continue to decrease in 2006 as our average borrowings outstanding are expected to be less in 2006.

Income tax benefit from continuing operations. Our income tax benefit was EUR 0.5 million for 2006, compared to 0.5 million for 2005.

Income from continuing operations. Our income from continuing operations was EUR 1.1 million for 2006, compared to EUR 0.1 million for 2005. We attribute this increase in 2006 of EUR 1.0 million primarily to increased operating profit.

Loss from discontinued operations. Our loss from discontinued operations was EUR 0.9 million for 2006, compared to EUR 0.0 million for 2005.

Income tax benefit from discontinued operations. Our income tax benefit from discontinued operations was EUR 0.3 million for 2006, compared to 0.0 million for 2005.

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Net Income/loss. Our net income was EUR 0.5 million for 2006, compared to EUR 0.0 million for 2005. We attribute this increase in net income in 2006 of EUR 0.5 million primarily to increased income from continuing operations offset by loss from discontinued operations.

Results of Operations

2006 compared to 2005

Net sales. Our net sales in 2006 were EUR 29.2 million compared to EUR 27.8 million in 2005, an increase of EUR 1.4 million, or 5%. The increase was attributed to an increase in Internet, broadcasting and wireless sales of EUR 5.7 million, or 65%, which was offset by a reduction in sales of magazines, DVDs and videocassettes of EUR 4.3 million, or 22%.

Broadcasting sales increased EUR 4.5 million, or 125%, to EUR 8.1 million as a result of a new Pay-TV licensing agreement for German speaking Europe and an increase in video on demand sales offset by a temporary decrease in channel licensing sales due to the switchover to new channel licensing partners (see discussion under Outlook below). Wireless sales increased 96% to EUR 2.0 million as a result our content being available with more operators. Internet sales increased EUR 0.2 million, or 6%, to EUR 4.3 million as a result of improved conversion rates. DVD sales decreased EUR 2.5 million, or 17%, to EUR 12.6 million. The decrease in DVD sales was attributable to a reduction in points of sales carrying our DVD products and an industry wide decrease in DVD consumer prices. The reduction of points of sales occurred during the second half of 2005 as a result of the Company’s decrease in releases of new movie productions. Currently, and going forward, the Company is releasing the optimal level of new movie productions and subsequently, during 2007, we expect to regain points of sales and improve our margins as a result of having more higher priced new movie productions on sale. The industry wide drop in DVD consumer prices is partly the result of offline sales/rental competing with online sales/rental. Magazine sales decreased EUR 1.5 million, or 39% to EUR 2.3 million as a result of lower quantities sold through certain retail channels during the twelve month period. Videocassette sales decreased EUR 0.3 million to nothing.

Going forward, we expect Internet, Broadcasting and Wireless sales to continue to increase (see discussion under Outlook below).

Net sales in general were unaffected by changes in exchange rates. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The was no change in average exchange rate for the fiscal year 2006 compared to 2005. The balance sheet is translated at the year-end exchange rate. Due to the significance of the results reported in dollars the impact of the euro/dollar exchange rate on our major categories of revenue and expense can be material.

Cost of Sales. Our cost of sales was EUR 14.1 million for 2006 compared to EUR 14.6 million for 2005, a decrease of EUR 0.5 million, or 3%. Cost of sales as a percentage of sales was 48% for 2006, a decrease of 5% compared to 2005.

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Included in cost of sales is printing, processing and duplication, amortization of library and broadcasting costs. Printing, processing and duplication cost was EUR 6.6 million for 2006 compared to EUR 7.6 million for 2005, a decrease of EUR 1.0 million, or 13%. The decrease was primarily the result of a decrease in sales of magazines and DVDs. Printing, processing and duplication cost as a percentage of sales was 22% for 2006, compared to 27% in 2005. Amortization of library was EUR 6.7 million for 2006 compared to EUR 6.4 million for 2005, an increase of EUR 0.3 million, or 5%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The increase was the result of higher amounts invested in content released during the period subject to amortization in 2006 compared to 2005. Broadcasting cost was EUR 0.9 million for 2006 compared to EUR 0.6 million for 2005, an increase of EUR 0.3 million. Broadcasting cost represents programming, transmission cost and sales commissions. The increase relates to higher sales commission recorded in the period.

Gross Profit. Our gross profit for 2006 was EUR 15.1 million, or 52% of net sales, compared to EUR 13.2 million, or 47% of net sales for 2005. This represented an increase of EUR 1.9 million, or 14%, compared to 2005. Gross profit as a percentage of sales was up 5% for 2006 compared to 2005. The increase in gross profit in both money and as a percentage of sales was primarily the result of the increase in sales of non-physical products carrying no printing, processing and duplication cost and the decrease in sales of physical products carrying printing, processing and duplication cost.

Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 14.0 million for 2006 compared to EUR 14.4 million for 2005, a decrease of EUR 0.4 million, or 3%. We attribute the decrease in selling, general and administrative expenses to a reduction in general expenses, depreciation and bad debt provision of EUR 0.5 million offset by an increase in payroll of EUR 0.1 million.

Gain on sale of building. We reported gain on sale of building of EUR 1.3 million for 2005.

Operating profit/loss. We reported operating profit of EUR 1.0 million for 2006 compared to an operating profit of EUR 0.0 million for 2005, an improvement of EUR 1.0 million. The increase in operating profit was primarily the result of an increase in gross profit offset by the absence of gain on sale of building we had in 2005. Discounting the non-recurring effect of gain on sale of building of EUR 1.3 million in 2005, operating profit improved by EUR 2.3 million in the period.

Interest expense. Our interest expense was EUR 0.6 million for 2006, compared to EUR 0.7 million for 2005. The decrease is the result of less average borrowings outstanding in 2006 compared to 2005 and we expect interest expense to continue to decrease in 2006 as our average borrowings outstanding are expected to be less in 2006.

Income tax benefit from continuing operations. Our income tax benefit was EUR 0.5 million for 2006, compared to 0.5 million for 2005.

Income from continuing operations. Our income from continuing operations was EUR 1.1 million for 2006, compared to EUR 0.1 million for 2005. We attribute this increase in 2006 of EUR 1.0 million primarily to increased operating profit.

Loss from discontinued operations. Our loss from discontinued operations was EUR 0.9 million for 2006, compared to EUR 0.0 million for 2005.

Income tax benefit from discontinued operations. Our income tax benefit from discontinued operations was EUR 0.3 million for 2006, compared to 0.0 million for 2005.

Net Income/loss. Our net income was EUR 0.5 million for 2006, compared to EUR 0.0 million for 2005. We attribute this increase in net income in 2006 of EUR 0.5 million primarily to increased income from continuing operations offset by loss from discontinued operations.

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2005 compared to 2004

Net sales. Our net sales in 2005 were EUR 27.8 million compared to EUR 35.6 million in 2004, a decrease of EUR 7.8 million, or 22%.

DVD sales decreased EUR 4.4 million, or 23%, to EUR 15.1 million. The decrease in DVD sales compared to 2004 was primarily attributable to a non-recurring sale of inventory of EUR 1.3 million in 2004 to our new US distributor and to one month’s loss of sales of new releases equal to approximately EUR 1.0 million. The loss of sales was the result of our DVD duplicator suffering a logistics and delivery breakdown in February 2005. In addition DVD sales were affected by the outsourcing in the US where we now report sales net of agent’s commission (see discussion under Overview above). The negative impact of reporting US sales net of agent’s commission was EUR 1.8 million. Video sales decreased 87%, to EUR 0.3 million. The decrease in video sales was the result of a general industry decrease in video sales due to the migration from video to DVD. Magazine sales decreased EUR 1.4 million, or 27% to EUR 3.7 million as a result of lower quantities sold through certain retail channels during the twelve month period. Internet sales decreased EUR 0.8 million, or 16%, to EUR 4.1 million as a result the closing down of our third party payment processor for US transactions. Subsequently, we temporarily transferred our US transactions to our payment processor for European transactions, however, this did not fully replace the number of transactions. As of July 2005 we have a new payment processor for US transactions online. In addition to the reorganization of our US payments, we have also been experiencing lower conversion rates as result of new securer but less user friendly payment processes for credit cards, e.g. Verified by VISA. We believe conversion rates will revert to prior levels as consumers get used to the new payment processes. Broadcasting sales increased EUR 0.1 million, or 3%, to EUR 3.6 million. Wireless sales increased 83% to EUR 1.0 million as a result our content being available with more operators.

Going forward, we expect DVD, Internet and Broadcasting sales to increase.

Net sales in general were unaffected by changes in exchange rates. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The was no change in average exchange rate for the fiscal year 2005 compared to 2004. The balance sheet is translated at the year-end exchange rate. Due to the significance of the results reported in dollars the impact of the euro/dollar exchange rate on our major categories of revenue and expense can be material.

Cost of Sales. Our cost of sales was EUR 14.6 million for 2005 compared to EUR 19.2 million for 2004, a decrease of EUR 4.6 million, or 24%. Cost of sales as a percentage of sales was 53% for 2005, a decrease of 1% compared to 2004. The decrease in cost of sales as a percentage of sales was primarily the result of the absence of impairment of the value of video cassettes in inventory made in 2004.

Included in cost of sales is printing, processing and duplication, amortization of library and broadcasting costs. Printing, processing and duplication cost was EUR 7.7 million for 2005 compared to EUR 12.1 million for 2004, a decrease of EUR 4.4 million, or 36%. Printing, processing and duplication cost as a percentage of sales was 28% for 2005, compared to 34% in 2004. Amortization of library was EUR 6.4 million for 2005 compared to EUR 6.6 million for 2004, a decrease of EUR 0.2 million, or 3%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The decrease was the result of lower amounts invested in content released during the period subject to amortization in 2005 compared to 2004. Broadcasting cost was EUR 0.5 million for 2005 compared to EUR 0.6 million for 2004, a decrease of EUR 0.1 million. Broadcasting cost represents programming and transmission cost and the increase relates to the start-up of the Private Fantasy Channel in the United States.

Gross Profit. Our gross profit for 2005 was EUR 13.2 million, or 47% of net sales, compared to EUR 16.4 million, or 46% of net sales for 2004. This represented a decrease of EUR 3.2 million, or 20%, compared to 2004. The decrease was the result of lower sales. Gross profit as a percentage of sales was up 1% for 2005 compared to 2004. The increase in gross profit as a percentage of sales was the result of the absence of impairment of the value of video cassettes in inventory made in 2004.

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Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 14.5 million for 2005 compared to EUR 18.0 million for 2004, a decrease of EUR 3.5 million, or 20%. We attribute the decrease in selling, general and administrative expenses to reduced bad debt provision and depreciation of EUR 2.4 million and the impact of our overall program started in 2003 where the objective is to review and reduce all controllable selling, general and administrative expenses in low or non-profitable areas.

Gain on sale of building. We reported gain on sale of building of EUR 1.3 million for 2005.

Operating profit/loss. We reported operating profit of EUR 0 million for 2005 compared to an operating loss of EUR 1.6 million for 2004, an improvement of EUR 1.6 million. The increase in operating profit was primarily the result of gain on sale of building and reduced selling, general and administrative expenses offset by lower gross profit.

Interest expense. Our interest expense was EUR 0.7 million for 2005, compared to EUR 0.8 million for 2004. The decrease is the result of less average borrowings outstanding in 2005 compared to 2004 and we expect interest expense to continue to decrease in 2006 as our average borrowings outstanding are expected to be less in 2006.

Income tax expense/benefit. Our income tax benefit was EUR 0.6 million for 2005, compared to 1.3 million for 2004.

Net income/loss. Our net loss was EUR 0.0 million for 2005, compared to a net loss of EUR 0.8 million for 2004. We attribute this increase in net income in 2005 of EUR 0.8 million primarily to a increased operating profit offset by decreased income tax benefit.

Results of Operations

2005 compared to 2004

Net sales. Our net sales in 2005 were EUR 27.8 million compared to EUR 35.6 million in 2004, a decrease of EUR 7.8 million, or 22%.

DVD sales decreased EUR 4.4 million, or 23%, to EUR 15.1 million. The decrease in DVD sales compared to 2004 was primarily attributable to a non-recurring sale of inventory of EUR 1.3 million in 2004 to our new US distributor and to one month’s loss of sales of new releases equal to approximately EUR 1.0 million. The loss of sales was the result of our DVD duplicator suffering a logistics and delivery breakdown in February 2005. In addition DVD sales were affected by the outsourcing in the US where we now report sales net of agent’s commission (see discussion under Overview above). The negative impact of reporting US sales net of agent’s commission was EUR 1.8 million. Video sales decreased 87%, to EUR 0.3 million. The decrease in video sales was the result of a general industry decrease in video sales due to the migration from video to DVD. Magazine sales decreased EUR 1.4 million, or 27% to EUR 3.7 million as a result of lower quantities sold through certain retail channels during the twelve month period. Internet sales decreased EUR 0.8 million, or 16%, to EUR 4.1 million as a result the closing down of our third party payment processor for US transactions. Subsequently, we temporarily transferred our US transactions to our payment processor for European transactions, however, this did not fully replace the number of transactions. As of July 2005 we have a new payment processor for US transactions online. In addition to the reorganization of our US payments, we have also been experiencing lower conversion rates as result of new securer but less user friendly payment processes for credit cards, e.g. Verified by VISA. We believe conversion rates will revert to prior levels as consumers get used to the new payment processes. Broadcasting sales increased EUR 0.1 million, or 3%, to EUR 3.6 million. Wireless sales increased 83% to EUR 1.0 million as a result our content being available with more operators.

Going forward, we expect DVD, Internet and Broadcasting sales to increase (see discussion under Outlook below).

Net sales in general were unaffected by changes in exchange rates. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The was no change in average exchange rate for the fiscal year 2005 compared to 2004. The balance sheet is translated at the year-end exchange rate. Due to the significance of the results reported in dollars the impact of the euro/dollar exchange rate on our major categories of revenue and expense can be material.

Cost of Sales. Our cost of sales was EUR 14.6 million for 2005 compared to EUR 19.2 million for 2004, a decrease of EUR 4.6 million, or 24%. Cost of sales as a percentage of sales was 53% for 2005, a decrease of 1% compared to 2004. The decrease in cost of sales as a percentage of sales was primarily the result of the absence of impairment of the value of video cassettes in inventory made in 2004.

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Included in cost of sales is printing, processing and duplication, amortization of library and broadcasting costs. Printing, processing and duplication cost was EUR 7.7 million for 2005 compared to EUR 12.1 million for 2004, a decrease of EUR 4.4 million, or 36%. Printing, processing and duplication cost as a percentage of sales was 28% for 2005, compared to 34% in 2004. Amortization of library was EUR 6.4 million for 2005 compared to EUR 6.6 million for 2004, a decrease of EUR 0.2 million, or 3%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The decrease was the result of lower amounts invested in content released during the period subject to amortization in 2005 compared to 2004. Broadcasting cost was EUR 0.5 million for 2005 compared to EUR 0.6 million for 2004, a decrease of EUR 0.1 million. Broadcasting cost represents programming and transmission cost and the increase relates to the start-up of the Private Fantasy Channel in the United States.

Gross Profit. Our gross profit for 2005 was EUR 13.2 million, or 47% of net sales, compared to EUR 16.4 million, or 46% of net sales for 2004. This represented a decrease of EUR 3.2 million, or 20%, compared to 2004. The decrease was the result of lower sales. Gross profit as a percentage of sales was up 1% for 2005 compared to 2004. The increase in gross profit as a percentage of sales was the result of the absence of impairment of the value of video cassettes in inventory made in 2004.

Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 14.5 million for 2005 compared to EUR 18.0 million for 2004, a decrease of EUR 3.5 million, or 20%. We attribute the decrease in selling, general and administrative expenses to reduced bad debt provision and depreciation of EUR 2.4 million and the impact of our overall program started in 2003 where the objective is to review and reduce all controllable selling, general and administrative expenses in low or non-profitable areas.

Gain on sale of building. We reported gain on sale of building of EUR 1.3 million for 2005.

Operating profit/loss. We reported operating profit of EUR 0 million for 2005 compared to an operating loss of EUR 1.6 million for 2004, an improvement of EUR 1.6 million. The increase in operating profit was primarily the result of gain on sale of building and reduced selling, general and administrative expenses offset by lower gross profit.

Interest expense. Our interest expense was EUR 0.7 million for 2005, compared to EUR 0.8 million for 2004. The decrease is the result of less average borrowings outstanding in 2005 compared to 2004 and we expect interest expense to continue to decrease in 2006 as our average borrowings outstanding are expected to be less in 2006.

Income tax expense/benefit. Our income tax benefit was EUR 0.6 million for 2005, compared to 1.3 million for 2004.

Net income/loss. Our net loss was EUR 0.0 million for 2005, compared to a net loss of EUR 0.8 million for 2004. We attribute this increase in net income in 2005 of EUR 0.8 million primarily to a increased operating profit offset by decreased income tax benefit.

2004 compared to 2003

Net sales. Our net sales in 2004 were EUR 35.6 million compared to EUR 38.5 million in 2003, a decrease of EUR 2.9 million, or 7%. The drop in net sales is primarily the result of the Company’s reorganization of its US distribution, see previous discussion under Overview in this Item 7, and a decrease in Video sales. The decrease in Video sales of 70% to EUR 2,1 million, was primarily the result of a combination of a general industry decrease in Video sales and 40% less titles being released by the Company as a result of fewer new movie productions available for sale on Video in 2004 compared to 2003. DVD sales, which increased 6%, to EUR 19.5 million, was also affected by the US reorganization and the reduction in new movie productions available for sale. However, the Company managed to offset part of the negative effect from fewer new titles on DVD sales by opening additional distribution channels, thereby increasing sales on a per release basis. Magazine sales decreased 4% to EUR 5.1 million, while Internet sales increased 1% to EUR 4.9 million. Broadcasting sales increased 41% to EUR 4.0 million primarily as a result of the broadcasting launch of our own TV channel in the United States in February 2004.

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Net sales in general were affected by unfavorable changes in exchange rates. During the period the dollar weakened against the euro and since our sales in the United States are translated into euro this had a negative effect. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The change in average exchange rate for the fiscal year 2004 compared to 2003 was a decrease of 9%. The balance sheet is translated at the year-end exchange rate. Due to the significance of the results reported in dollars the impact of the euro/dollar exchange rate on our major categories of revenue and expense can be material.

Cost of Sales. Our cost of sales was EUR 19.2 million for 2004 compared to EUR 19.1 million for 2003, an increase of EUR 0.1 million, or 1%. Cost of sales as a percentage of sales was 54% for 2004, an increase of 3% compared to 2003. The increase in cost of sales as a percentage of sales was primarily the result of the impairment of the value of video cassettes in inventory as of December 31, 2004 made to reflect the change in market conditions for video cassettes.

Included in cost of sales is printing, processing and duplication, amortization of library and broadcasting costs. Printing, processing and duplication cost was EUR 12.1 million for 2004 compared to EUR 11.8 million for 2003, an increase of EUR 0.3 million, or 2%. Printing, processing and duplication cost as a percentage of sales was 34% for 2004, compared to 31% in 2003. As a result of changing market conditions, we wrote off video cassette inventory to a value of EUR 1.5 million during the fourth quarter, which increased printing, processing and duplication cost with the same amount. Amortization of library was EUR 6.6 million for 2004 compared to EUR 7.1 million for 2003, a decrease of EUR 0.5 million, or 7%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The decrease was the result of lower amounts invested in content released during the period subject to amortization in 2004 compared to 2003. Broadcasting cost was EUR 0.6 million for 2004 compared to EUR 0.2 million for 2003, an increase of EUR 0.4 million. Broadcasting cost represents programming and transmission cost and the increase relates to the start-up of the Private Fantasy Channel in the United States.

Gross Profit. Our gross profit for 2004 was EUR 16.4 million, or 46% of net sales, compared to EUR 19.4 million, or 50% of net sales for 2003. This represented a decrease of EUR 3.0 million, or 15%, compared to 2003. The decrease was the result of lower sales. Gross profit as a percentage of sales was down 4% for 2004 compared to 2003. The decrease in gross profit as a percentage of sales was the result of the impairment of the value of video cassettes in inventory as of December 31, 2004 made to reflect the change in market conditions for video cassettes.

Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 18.0 million for 2004 compared to EUR 19.9 million for 2003. Despite increases in bad debt provision and depreciation of EUR 0.9 million and EUR 0.9 million, respectively, selling, general and administrative expenses decreased by EUR 1.9 million, or 10%. The increased bad debt provision in 2004 related primarily to one specific receivable which was written off completely as collection attempts failed. We attribute the decrease in selling, general and administrative expenses to an overall program started in 2003 where the objective is to review and reduce all controllable selling, general and administrative expenses in low or non-profitable areas. We expect lower bad debt provisions and reduced depreciation in 2005. We also expect selling, general and administrative expenses in low or non-profitable areas to continue to decrease in 2005.

Operating profit/loss. We reported an operating loss of EUR 1.6 million for 2004 compared to an operating loss of EUR 0.5 million for 2003, an increase of EUR 1.1 million. The increase in loss was primarily the result of lower gross profit offset by reduced selling, general and administrative expenses.

Interest expense. Our interest expense was EUR 0.8 million for 2004, compared to EUR 0.8 million for 2003.

Income tax expense/benefit. Our income tax benefit was EUR 1.3 million for 2004, compared to 0.5 million for 2003.

Net income/loss. Our net loss was EUR 0.8 million for 2004, compared to a net loss of EUR 0.6 million for 2003. We attribute this increase in net loss in 2004 of EUR 0.2 million primarily to a reduced operating profit offset by increased income tax benefit.

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Results of Operations

2004 compared to 2003

Net sales. Our net sales in 2004 were EUR 35.6 million compared to EUR 38.5 million in 2003, a decrease of EUR 2.9 million, or 7%. The drop in net sales is primarily the result of the Company’s reorganization of its US distribution, see previous discussion under Overview in this Item 7, and a decrease in Video sales. The decrease in Video sales of 70% to EUR 2,1 million, was primarily the result of a combination of a general industry decrease in Video sales and 40% less titles being released by the Company as a result of fewer new movie productions available for sale on Video in 2004 compared to 2003. DVD sales, which increased 6%, to EUR 19.5 million, was also affected by the US reorganization and the reduction in new movie productions available for sale. However, the Company managed to offset part of the negative effect from fewer new titles on DVD sales by opening additional distribution channels, thereby increasing sales on a per release basis. Magazine sales decreased 4% to EUR 5.1 million, while Internet sales increased 1% to EUR 4.9 million. Broadcasting sales increased 41% to EUR 4.0 million primarily as a result of the broadcasting launch of our own TV channel in the United States in February 2004.

In 2003 and the first half of 2004, investment in new movie productions was cut back due to reduced cash-flow as a result of overspending in 2002 and 2003. Improvements in cash-flow during 2004 has allowed the Company to increase its investment activity in new movie productions and the impact on sales is expected to show in the first half of 2005, see also “Liquidity and Capital Resources” - Investing Activities.

Net sales in general were affected by unfavorable changes in exchange rates. During the period the dollar weakened against the euro and since our sales in the United States are translated into euro this had a negative effect. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The change in average exchange rate for the fiscal year 2004 compared to 2003 was a decrease of 9%. The balance sheet is translated at the year-end exchange rate. Due to the significance of the results reported in dollars the impact of the euro/dollar exchange rate on our major categories of revenue and expense can be material.

Cost of Sales. Our cost of sales was EUR 18.1 million for 2004 compared to EUR 19.1 million for 2003, a decrease of EUR 1.0 million, or 5%. The decrease was the result of reduced sales. Cost of sales as a percentage of sales was 51% for 2004, an increase of 1% compared to 2003. The increase in cost of sales as a percentage of sales was primarily the result of the impairment of the value of video cassettes in inventory as of December 31, 2004 made to reflect the change in market conditions for video cassettes.

Included in cost of sales is printing, processing and duplication, amortization of library and broadcasting costs. Printing, processing and duplication cost was EUR 10.9 million for 2004 compared to EUR 11.8 million for 2003, a decrease of EUR 0.9 million, or 7%. The decrease was the result of reduced sales. Printing, processing and duplication cost as a percentage of sales was 31% for 2004, which represents no change compared to 2003. As a result of changing market conditions, we wrote off video cassette inventory to a value of EUR 1.5 million during the fourth quarter, which increased printing, processing and duplication cost with the same amount. Amortization of library was EUR 6.6 million for 2004 compared to EUR 7.1 million for 2003, a decrease of EUR 0.5 million, or 7%. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years. The decrease was the result of lower amounts invested in content released during the period subject to amortization in 2004 compared to 2003. Broadcasting cost was EUR 0.6 million for 2004 compared to EUR 0.2 million for 2003, an increase of EUR 0.4 million. Broadcasting cost represents programming and transmission cost and the increase relates to the start-up of the Private Fantasy Channel in the United States.

Gross Profit. Our gross profit for 2004 was EUR 17.5 million, or 49% of net sales, compared to EUR 19.4 million, or 50% of net sales for 2003. This represented a decrease of EUR 1.9 million, or 10%, compared to 2003. The decrease was the result of lower sales. Gross profit as a percentage of sales was down 1% for 2004 compared to 2003. The decrease in gross profit as a percentage of sales was the result of the impairment of the value of video cassettes in inventory as of December 31, 2004 made to reflect the change in market conditions for video cassettes.

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Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 18.0 million for 2004 compared to EUR 19.9 million for 2003. Despite increases in bad debt provision and depreciation of EUR 0.9 million and EUR 0.9 million, respectively, selling, general and administrative expenses decreased by EUR 1.9 million, or 10%. The increased bad debt provision in 2004 related primarily to one specific receivable which was written off completely as collection attempts failed. We attribute the decrease in selling, general and administrative expenses to an overall program started in 2003 where the objective is to review and reduce all controllable selling, general and administrative expenses in low or non-profitable areas. We expect lower bad debt provisions and reduced depreciation in 2005. We also expect selling, general and administrative expenses in low or non-profitable areas to continue to decrease in 2005.

Operating profit/loss. We reported an operating loss of EUR 0.4 million for 2004 compared to an operating loss of EUR 0.5 million for 2003, a decrease of EUR 1.0 million. The decrease in loss was primarily the result of reduced selling, general and administrative expenses.

Interest expense. Our interest expense was EUR 0.8 million for 2004, compared to EUR 0.8 million for 2003.

Income tax expense/benefit. Our income tax benefit was EUR 1.3 million for 2004, compared to 0.5 million for 2003.

Net income/loss. Our net income was EUR 0.2 million for 2004, compared to a net loss of EUR 0.6 million for 2003. We attribute this increase in net income in 2004 of EUR 0.8 million primarily to increased income tax benefit.

2003 compared to 2002

Net sales. Our net sales in 2003 were EUR 38.5 million compared to EUR 39.4 million in 2002, a decrease of EUR 0.9 million, or 2%. We attribute this change to a decrease in Video and Magazine, Internet and Broadcasting sales. Video and Magazine sales decreased 9% to EUR 12.5 million, primarily as a result of DVD taking over from video in the marketplace. Internet sales decreased 20% to EUR 4.8 million as a result of a weaker US dollar and lower license sales. Broadcasting sales decreased 31% to EUR 2.8 million as a result of a decrease in license sales. The reduction in Broadcasting license sales is a result of the Company’s strategy to start operating its own TV channels in the United States. The launch of the channels requires the Company to refrain from selling its broadcast rights to third parties for the period leading up to the launch. The decrease in Video and Magazine, Internet and Broadcasting sales was offset by a increase in DVD sales of 18% to EUR 18.3 million. We attribute the growth in sales of DVDs to the increasing number of DVD players being sold in all of our markets. We believe that the growth in DVD sales will continue through the remainder of 2004.

Net sales in general were affected by unfavorable changes in exchange rates. During the period the dollar weakened against the euro and since our sales in the United States are translated into euro this had a negative effect. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from year to year. We translate our consolidated subsidiaries whose functional currency is not the euro into the euro for reporting purposes. Income statement amounts are translated into euros using the average exchange rate for the fiscal year. The change in average exchange rate for the fiscal year 2003 compared to 2002 was a decrease of 17%. The balance sheet is translated at the year-end exchange rate. Due to the significance of the results reported in dollars the impact of the euro/dollar exchange rate on our major categories of revenue and expense can be material.

Cost of Sales. Our cost of sales was EUR 19.1 million for 2003 compared to EUR 17.0 million for 2002, an increase of EUR 2.0 million, or 12%. The increase was the result of a combination of an increase in sales volume in areas generating cost of sales and unfavorable exchange rate changes. Cost of sales as a percentage of sales was 50% for 2003, an increase of 7% compared to 2002. The increase in cost of sales as a percentage of sales was primarily the result of sales mix, see Gross Profit.

Gross Profit. Our gross profit for 2003 was EUR 19.4 million, or 50% of net sales, compared to EUR 22.4 million, or 57% of net sales for 2002. This represented a decrease of EUR 3.0 million, or 13%, compared to 2002. Gross profit as a percentage of sales was down 7% for 2003 compared to 2002. The decrease in gross profit was primarily the result of sales mix, with higher sales volume in products generating cost of sales, such as Videos, Magazines and DVDs combined, and lower sales in products not generating cost of sales, such as Internet and Broadcasting sales.

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Selling, general and administrative expenses. Our selling, general and administrative expenses were EUR 19.7 million for 2003 compared to EUR 20.6 million for 2002, a decrease of EUR 0.9 million, or 4%. We attribute the decrease to an overall program started in 2003 where the objective is to review and reduce all controllable selling, general and administrative expenses in low or non-profitable areas, offset by our expansion in Canada through our new subsidiary Private Media Group Canada which became fully operational during the second half of the year. We expect selling, general and administrative expenses in low or non-profitable areas to continue to decrease in 2004.

Operating profit/loss. We reported an operating loss of EUR 0.5 million for 2003 compared to an operating profit of EUR 0.2 million for 2002, a decrease of EUR 0.7 million. Discounting non-recurring charges of EUR 1.6 million in offering expenses made in 2002, the decrease was EUR 2.4 million. The decrease was primarily the result of lower gross profit.

Interest expense. Our interest expense was EUR 0.8 million for 2003, compared to EUR 0.4 million for 2002.

Income tax expense/benefit. Our income tax benefit was EUR 0.5 million for 2003, compared to 0.1 million for 2002. The increase of EUR 0.4 million is primarily attributable to more of the Company’s losses being recorded in tax jurisdictions where there is a higher corporate tax than compared to other tax jurisdictions.

Net income/loss. Our net loss was EUR 0.6 million for 2003, compared to a net income of EUR 0.3 million for 2002. We attribute this change in net income in 2003 of EUR 0.9 million to decreased operating profit.