PRIVATE MEDIA GROUP INC - 10-Q Quarterly Report

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 000-25067

PRIVATE MEDIA GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)

Nevada		87-0365673
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3230 Flamingo Road, Suite 156, Las Vegas, Nevada 89121
(Registered office)

Carretera de Rubí 22-26, 08190 Sant Cugat del Vallès, Barcelona, Spain
(European headquarters and address of principal executive offices)

34-93-590-7070

Registrant’s telephone number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x

No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):

Yes o

No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date

Class		Outstanding at May 12, 2003

Common Stock, par value $.001		44,904,934

PART I.

Item 1. Financial Statements

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEETS

	December 31, 2002			March 31, (Unaudited)

				2003			2003

	EUR			EUR			USD
	(in thousands)
ASSETS
Cash and cash equivalents		1,694			2,861			3,110
Short-term investment		2,850			2,850			3,098
Trade accounts receivable		12,472			12,870			13,990
Related party receivable		4,228			4,351			4,729
Inventories - net (Note 4)		8,808			9,459			10,282
Deferred income tax asset		396			396			430
Prepaid expenses and other current assets		3,630			3,495			3,799

TOTAL CURRENT ASSETS		34,078			36,283			39,438
Library of photographs and videos - net		16,929			17,893			19,449
Property, plant and equipment - net		14,890			15,157			16,475
Goodwill and other intangible assets		2,851			2,838			3,085
Other assets		240			234			255

TOTAL ASSETS		68,989			72,405			78,701

LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term borrowings		9,739			2,939			3,195
Accounts payable trade		6,929			8,994			9,776
Income taxes payable		753			614			668
Deferred income taxes		31			31			33
Accrued other liabilities		1,339			1,082			1,176

TOTAL CURRENT LIABILITIES		18,791			13,661			14,849
Long-term borrowings		178			8,312			9,035
Related party payable		6,569			6,627			7,203

TOTAL LIABILITIES		25,538			28,600			31,087
SHAREHOLDERS’ EQUITY
$4.00 Series A Convertible Preferred Stock 10,000,000 shares authorized, 7,000,000 and 1,650,000 issued and outstanding at December 31, 2002 and March 31, 2003, respectively		—			—			—
Common Stock, $.001 par value, 100,000,000 shares authorized, 28,608,609 and 44,904,934 issued and outstanding at December 31, 2002 and March 31, 2003, respectively		863			878			954
Additional paid-in capital		15,668			16,359			17,781
Stock dividends to be distributed		692			76			83
Retained earnings		28,695			28,875			31,386
Accumulated other comprehensive income		(2,467	)		(2,382	)		(2,589	)

TOTAL SHAREHOLDERS’ EQUITY		43,451			43,806			47,615

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		68,989			72,405			78,701

- 2 -

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

	Three-months ended March 31, (unaudited)

	2002			2003			2003

	EUR			EUR			USD
	(in thousands)
Net sales		9,262			9,591			10,425
Cost of sales		3,517			4,299			4,673

Gross profit		5,745			5,292			5,752
Selling, general and administrative expenses		5,770			5,059			5,499
Offering expenses		1,401			—			—

Operating profit (loss)		(1,426	)		233			253
Interest expense		279			202			220
Interest income		162			43			47

Income (loss) before income tax		(1,542	)		74			80
Income tax expense (benefit)		(324	)		(182	)		(198	)

Net income (loss)		(1,218	)		256			278

Other comprehensive income:
Unrealized loss on short-term investment		124			—			—
Foreign currency translation adjustments		1,724			85			93

Comprehensive income		382			341			371

Income applicable to common shares		(1,619	)		180			196

Net income (loss) per share:
Basic		(0.06	)		0.01			0.01

Diluted		(0.06	)		0.01			0.01

See accompanying notes to consolidated statements.

- 3 -

PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three-months ended March 31, (unaudited)

	2002			2003			2003

	EUR			EUR			USD
	(in thousands)
Cash flows from operating activities:
Net income		(1,218	)		256			278
Adjustment to reconcile net income to net cash flows from operating activities:
Depreciation		139			253			275
Bad debt provision		686			—			—
Provision for offering expenses		1,000			—			—
Amortization of other intangible assets		—			13			14
Amortization of photographs and videos		614			1,654			1 797
Effects of changes in operating assets and liabilities:
Trade accounts receivable		(757	)		(398	)		(433	)
Related party receivable		(3,821	)		(123	)		(134	)
Inventories		(557	)		(651	)		(707	)
Prepaid expenses and other current assets		(471	)		136			147
Accounts payable trade		807			2,065			2,245
Income taxes payable		(222	)		(138	)		(150	)
Accrued other liabilities		400			(257	)		(280	)