PRIVATE MEDIA GROUP INC

On June 26, 2013 the Company declared a dividend for the quarter ended June 30, 2013 on the Series B Preferred Stock in the aggregate amount of EUR 120,000. The holders of the Series B Preferred Stock elected to receive shares of Common Stock in place of the quarterly dividend based on the 10-day trading price of the Common Stock which was $0.09 per share. The Company has agreed to issue 1,643,418 Common Shares to the Holders of the Series B Preferred Stock in lieu of the cash dividend representing the amount of the dividend net of a 5% withholding tax. However, these shares have not yet been formally issued.

Selling, general and administrative expenses. Our selling, general and administrative expenses for the three months ended June 30, 2013 increased by EUR 912,000 compared to the fiscal 2012 quarter. The increase was principally as a result of large foreign currency translation adjustments made during the June 30, 2012 fiscal quarter which lead to significantly lower selling, general and administrative expenses for the second quarter of 2012. Fluctuations in exchange rates between the euro and the dollar can affect the comparability of our results from one period to another. Income statement amounts are translated into euros using the average exchange rate for the period, while our balance sheet is translated at the period-end exchange rate. For the three months ended June 30, 2012, the period end U.S. dollar to euro exchange rate fluctuated significantly and was 5% lower than for the three months ended June 30, 2013. This arises from large foreign currency denominated liabilities that are revalued on a period end basis. These foreign exchange fluctuations during the second quarter of 2012 were substantially resolved by year end. Net of these foreign exchange fluctuations, selling, general and administrative expenses were in line with the expenses for prior quarters. Excluding the effect of the foreign exchange gain in the fiscal 2012 quarter, as a percentage of net sales, selling general and administrative expenses remained unchanged at 84%.

We currently have no additional availability under our existing credit facilities. The existence of a going concern exception by our auditors may make it more difficult to obtain additional bank financing if and when required. If additional funds are raised through the issuance of equity securities, our shareholders’ percentage ownership will be reduced, they may experience additional dilution, or these newly issued equity securities may have rights, preferences, or privileges senior to those of the current holders of our common stock. Additional financing may not be available when needed on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of future opportunities, maintain the scope of our operations or respond to competitive pressures or unanticipated requirements, which could harm our business.

On June 26, 2013, Entertainment Without Limits, Inc. (the “Plaintiff”), a corporation incorporated under the laws of the Province of Ontario, Canada, filed a Statement of Claim in the Ontario Superior Court of Justice (Court File No. CU-13-483535) against Private Media Group Canada, Inc. and Private Media Group, Inc. (the “Defendants”). The Plaintiff alleged that the Defendants breached the implicit or explicit terms of a contract that was not reduced to writing or signed by any of the parties. The Plaintiff alleged that, based on the parties’ prior dealings, it had the exclusive right to distribute the Defendants’ products in Canada. Plaintiff further alleged that the Defendants breached this unwritten contract by granting a third party the right to distribute two of Defendants’ products per month in Canada. The Plaintiff seeks damages for breach of contract in the amount of CDN $2,500,000, punitive damages of CDN $500,000, interest, costs of the action and other remedies. The Defendants believe that the foregoing claims are wholly without merit and, accordingly, intend to vigorously defend these claims.