UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

                For the quarterly period ended September 30, 2006

                                       OR

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

                        Commission file number 001-14790

                            Playboy Enterprises, Inc.
             (Exact name of registrant as specified in its charter)

               Delaware                                36-4249478
      (State of incorporation)           (I.R.S. Employer Identification Number)

     680 North Lake Shore Drive
             Chicago, IL                                  60611
(Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (312) 751-8000

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

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  preceding 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 |_|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

  Large accelerated filer |_|  Accelerated filer |X|  Non-accelerated filer |_|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes |_| No |X|

At October 31,  2006,  there were  4,864,102  shares of Class A common stock and
28,341,240 shares of Class B common stock outstanding.

<PAGE>

                                    FORWARD-LOOKING STATEMENTS

      This Quarterly Report on Form 10-Q contains "forward-looking  statements,"
including  statements  in  Management's  Discussion  and  Analysis of  Financial
Condition  and  Results  of  Operations,  as to  expectations,  beliefs,  plans,
objectives  and future  financial  performance,  and  assumptions  underlying or
concerning the foregoing.  We use words such as "may," "will," "would," "could,"
"should," "believes,"  "estimates," "projects," "potential," "expects," "plans,"
"anticipates,"  "intends,"  "continues"  and other  similar  terminology.  These
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors, which could cause our actual results,  performance or outcomes to
differ  materially  from  those  expressed  or  implied  in the  forward-looking
statements. The following are some of the important factors that could cause our
actual  results,  performance  or  outcomes  to  differ  materially  from  those
discussed in the forward-looking statements:

(1)   Foreign,  national,  state and local  government  regulations,  actions or
      initiatives, including:

      (a)   attempts to limit or otherwise  regulate the sale,  distribution  or
            transmission   of   adult-oriented   materials,   including   print,
            television, video and online materials,

      (b)   limitations  on the  advertisement  of  tobacco,  alcohol  and other
            products which are important sources of advertising  revenue for us,
            or

      (c)   substantive  changes in postal  regulations which could increase our
            postage and distribution costs;

(2)   Risks associated with our foreign operations,  including market acceptance
      and demand for our products and the products of our licensees;

(3)   Our  ability to manage the risk  associated  with our  exposure to foreign
      currency exchange rate fluctuations;

(4)   Changes in general economic conditions,  consumer spending habits, viewing
      patterns,  fashion trends or the retail sales  environment  which, in each
      case,  could reduce demand for our programming and products and impact our
      advertising revenues;

(5)   Our ability to protect our trademarks,  copyrights and other  intellectual
      property;

(6)   Risks as a distributor of media content, including our becoming subject to
      claims for defamation, invasion of privacy, negligence,  copyright, patent
      or  trademark  infringement,  and other  claims  based on the  nature  and
      content of the materials we distribute;

(7)   The risk  our  outstanding  litigation  could  result  in  settlements  or
      judgments which are material to us;

(8)   Dilution from any potential  issuance of common stock or convertible  debt
      in connection with financings or acquisition activities;

(9)   Competition  for  advertisers  from  other  publications,  media or online
      providers or any decrease in spending by advertisers,  either generally or
      with respect to the adult male market;

(10)  Competition  in the  television,  men's  magazine,  Internet  and  product
      licensing markets;

(11)  Attempts  by  consumers  or  private   advocacy   groups  to  exclude  our
      programming or other products from distribution;

(12)  Our  television,  Internet  and  wireless  businesses'  reliance  on third
      parties  for  technology  and  distribution,   and  any  changes  in  that
      technology  and/or  unforeseen  delays in its  implementation  which might
      affect our plans and assumptions;

(13)  Risks  associated with losing access to  transponders  and competition for
      transponders and channel space;

(14)  Failure to maintain our  agreements  with  multiple  system  operators and
      direct-to-home operators on favorable terms, as well as any decline in our
      access to, and acceptance by,  direct-to-home and/or cable systems and the
      possible  resulting  deterioration  in  the  terms,  cancellation  of  fee
      arrangements or pressure on splits with operators of these systems;

(15)  Risks that we may not realize the expected increased sales and profits and
      other benefits from acquisitions;

(16)  Any charges or costs we incur in connection with restructuring measures we
      may take in the future;

(17)  Risks  associated  with the  financial  condition  of Claxson  Interactive
      Group, Inc., our Playboy TV-Latin America, LLC, joint venture partner;

(18)  Increases in paper, printing or postage costs;

(19)  Risks  associated  with certain  minimum  revenue  amounts under our cable
      distribution agreements;

(20)  Effects  of  the  national   consolidation  of  the  single-copy  magazine
      distribution system; and

(21)  Risks  associated  with the viability of our primarily  subscription-  and
      e-commerce-based Internet model.

      For a detailed  discussion  of these and other factors that may affect our
performance,  see Item 1A in our  Annual  Report on Form 10-K for the year ended
December 31, 2005.


                                       2
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                       <C>
                                     PART I
                              FINANCIAL INFORMATION

Item 1. Financial Statements

           Condensed Consolidated Statements of Operations and Comprehensive
           Income for the Quarters Ended September 30, 2006 and 2005 (Unaudited)           4

           Condensed Consolidated Statements of Operations and Comprehensive
           Loss for the Nine Months Ended September 30, 2006 and 2005 (Unaudited)          5

           Condensed Consolidated Balance Sheets at September 30, 2006 (Unaudited)
           and December 31, 2005                                                           6

           Condensed Consolidated Statements of Cash Flows for the Nine Months
           Ended September 30, 2006 and 2005 (Unaudited)                                   7

           Notes to Condensed Consolidated Financial Statements (Unaudited)                8

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
         Operations                                                                       16

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                       21

Item 4.  Controls and Procedures                                                          21

                                     PART II
                                OTHER INFORMATION

Item 1.  Legal Proceedings                                                                22

Item 1A. Risk Factors                                                                     22

Item 6.  Exhibits                                                                         23
</TABLE>


                                       3
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                            PLAYBOY ENTERPRISES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                 for the Quarters Ended September 30 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                         2006             2005
----------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>
Net revenues                                                       $   82,297       $   80,884
----------------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                                      (63,097)         (62,180)
   Selling and administrative expenses                                (15,366)         (13,355)
   Restructuring expenses                                                (118)              --
----------------------------------------------------------------------------------------------
Total costs and expenses                                              (78,581)         (75,535)
----------------------------------------------------------------------------------------------
Operating income                                                        3,716            5,349
----------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                      527              661
   Interest expense                                                    (1,471)          (1,425)
   Amortization of deferred financing fees                               (134)            (135)
   Minority interest                                                       --             (384)
   Other, net                                                            (165)            (294)
----------------------------------------------------------------------------------------------
Total nonoperating expense                                             (1,243)          (1,577)
----------------------------------------------------------------------------------------------
Income before income taxes                                              2,473            3,772
Income tax expense                                                     (1,336)            (594)
----------------------------------------------------------------------------------------------
Net income                                                              1,137            3,178
----------------------------------------------------------------------------------------------

Other comprehensive income (loss)
   Unrealized gain on marketable securities                               107              107
   Unrealized gain (loss) on derivatives                                   74              (55)
   Foreign currency translation loss                                     (131)             (91)
----------------------------------------------------------------------------------------------
Total other comprehensive income (loss)                                    50              (39)
----------------------------------------------------------------------------------------------
Comprehensive income                                               $    1,187       $    3,139
==============================================================================================

Weighted average number of common shares outstanding
   Basic                                                               33,169           33,102
==============================================================================================
   Diluted                                                             33,173           33,366
==============================================================================================

Basic and diluted earnings per common share                        $     0.03       $     0.10
==============================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       4
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
               for the Nine Months Ended September 30 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                           2006            2005
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
Net revenues                                                          $ 244,894       $ 247,206
-----------------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                                       (191,916)       (183,511)
   Selling and administrative expenses                                  (44,960)        (40,143)
   Restructuring expenses                                                (2,024)             --
-----------------------------------------------------------------------------------------------
Total costs and expenses                                               (238,900)       (223,654)
-----------------------------------------------------------------------------------------------
Gains on disposal                                                            29              14
-----------------------------------------------------------------------------------------------
Operating income                                                          6,023          23,566
-----------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                      1,736           1,443
   Interest expense                                                      (4,180)         (5,485)
   Amortization of deferred financing fees                                 (402)           (501)
   Minority interest                                                         --          (1,124)
   Debt extinguishment expenses                                              --         (19,280)
   Other, net                                                              (311)         (1,094)
-----------------------------------------------------------------------------------------------
Total nonoperating expense                                               (3,157)        (26,041)
-----------------------------------------------------------------------------------------------
Income (loss) before income taxes                                         2,866          (2,475)
Income tax expense                                                       (4,247)         (2,826)
-----------------------------------------------------------------------------------------------
Net loss                                                                 (1,381)         (5,301)
-----------------------------------------------------------------------------------------------

Other comprehensive income
   Unrealized gain on marketable securities                                 116              36
   Unrealized gain on derivatives                                            13             202
   Foreign currency translation gain                                        286             101
-----------------------------------------------------------------------------------------------
Total other comprehensive income                                            415             339
-----------------------------------------------------------------------------------------------
Comprehensive loss                                                    $    (966)      $  (4,962)
===============================================================================================

Weighted average number of common shares outstanding
   Basic and diluted                                                     33,156          33,178
===============================================================================================

Basic and diluted loss per common share                               $   (0.04)      $   (0.16)
===============================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       5
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                   (Unaudited)
                                                                 September 30,     December 31,
                                                                          2006             2005
-----------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>
Assets
Cash and cash equivalents                                            $  21,704        $  26,089
Marketable securities and short-term investments                        15,637           25,963
Receivables, net of allowance for doubtful accounts of
   $4,021 and $3,883, respectively                                      45,005           46,296
Receivables from related parties                                         1,885            1,928
Inventories, net                                                        13,220           12,846
Deferred subscription acquisition costs                                 10,287           10,452
Other current assets                                                     9,245            8,761
-----------------------------------------------------------------------------------------------
   Total current assets                                                116,983          132,335
-----------------------------------------------------------------------------------------------
Property and equipment, net                                             15,637           13,771
Long-term receivables                                                    4,669            2,628
Programming costs, net                                                  55,413           52,683
Goodwill                                                               133,087          122,448
Trademarks                                                              62,959           61,139
Distribution agreements, net of accumulated amortization
   of $3,028 and $2,779, respectively                                   30,113           30,362
Other noncurrent assets                                                 15,417           13,603
-----------------------------------------------------------------------------------------------
Total assets                                                         $ 434,278        $ 428,969
===============================================================================================

Liabilities
Acquisition liabilities                                              $  10,509        $  11,782
Accounts payable                                                        25,897           25,429
Accrued salaries, wages and employee benefits                            6,135           10,068
Deferred revenues                                                       45,251           45,987
Accrued litigation settlement                                               --            1,000
Other liabilities and accrued expenses                                  16,054           16,396
-----------------------------------------------------------------------------------------------
   Total current liabilities                                           103,846          110,662
-----------------------------------------------------------------------------------------------
Financing obligations                                                  115,000          115,000
Acquisition liabilities                                                 13,167           11,792
Net deferred tax liabilities                                            20,440           17,555
Other noncurrent liabilities                                            20,624           16,713
-----------------------------------------------------------------------------------------------
   Total liabilities                                                   273,077          271,722
-----------------------------------------------------------------------------------------------

Shareholders' equity
Common stock, $0.01 par value
   Class A voting - 7,500,000 shares authorized; 4,864,102 issued           49               49
   Class B nonvoting - 75,000,000 shares authorized;
      28,719,483 and 28,643,443 issued, respectively                       287              286
Capital in excess of par value                                         228,456          223,537
Accumulated deficit                                                    (61,357)         (59,976)
Treasury stock, at cost, 381,971 shares                                 (5,000)          (5,000)
Accumulated other comprehensive loss                                    (1,234)          (1,649)
-----------------------------------------------------------------------------------------------
   Total shareholders' equity                                          161,201          157,247
-----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                           $ 434,278        $ 428,969
===============================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       6
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               for the Nine Months Ended September 30 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                         2006              2005
-----------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>
Cash flows from operating activities
Net loss                                                           $   (1,381)       $   (5,301)
Adjustments to reconcile net loss to net cash provided by
  operating activities:
   Depreciation of property and equipment                               2,816             2,340
   Amortization of intangible assets                                    1,294             1,260
   Amortization of investments in entertainment programming            26,768            28,131
   Amortization of deferred financing fees                                402               501
   Debt extinguishment expenses                                            --            19,280
   Deferred income taxes                                                2,885             1,203
   Net change in operating assets and liabilities                      (2,446)             (341)
   Investments in entertainment programming                           (28,264)          (24,276)
   Litigation settlement                                               (1,000)           (1,875)
   Stock-based compensation                                             3,235               112
   Other, net                                                             987               366
-----------------------------------------------------------------------------------------------
Net cash provided by operating activities                               5,296            21,400
-----------------------------------------------------------------------------------------------
Cash flows from investing activities
Payments for acquisitions                                              (7,761)           (8,283)
Purchases of investments                                                 (485)          (41,494)
Proceeds from sales of investments                                     11,000            28,700
Additions to property and equipment                                    (4,633)           (4,010)
Other, net                                                               (141)               --
-----------------------------------------------------------------------------------------------
Net cash used for investing activities                                 (2,020)          (25,087)
-----------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from financing obligations                                        --           115,000
Repayment of financing obligations                                         --           (80,000)
Payment of debt extinguishment expenses                                    --           (15,197)
Payment of acquisition liabilities                                     (8,296)           (5,871)
Purchase of treasury stock                                                 --            (5,000)
Payment of deferred financing fees                                         --            (5,057)
Proceeds from stock-based compensation                                    265               959
Other, net                                                                 --               (38)
-----------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities                   (8,031)            4,796
-----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents              370              (273)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                   (4,385)              836
Cash and cash equivalents at beginning of period                       26,089            26,668
-----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                         $   21,704        $   27,504
===============================================================================================
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       7
<PAGE>

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(A)   BASIS OF PREPARATION

      The  financial  information  included  in these  financial  statements  is
unaudited but, in the opinion of management,  reflects all normal  recurring and
other  adjustments  necessary  for a fair  presentation  of the  results for the
interim  periods.  The  interim  results  of  operations  and cash flows are not
necessarily  indicative  of those  results  and cash flows for the entire  year.
These  financial  statements  should be read in  conjunction  with the financial
statements and notes to the financial  statements contained in our Annual Report
on Form 10-K for the fiscal  year  ended  December  31,  2005.  Certain  amounts
reported for the prior periods have been  reclassified to conform to the current
year's presentation.

(B)   RECENTLY ISSUED ACCOUNTING STANDARDS

      In September 2006, the Financial  Accounting Standards Board, or the FASB,
issued  Statement  of  Financial   Accounting   Standards  No.  158,  Employers'
Accounting  for  Defined  Benefit  Pension and Other  Postretirement  Plans - an
amendment  of FASB  Statements  No. 87, 88, 106, and 132(R),  or Statement  158.
Statement  158 requires an entity to (a) recognize in its statement of financial
position an asset or an obligation for a defined benefit  postretirement  plan's
funded status,  (b) measure a defined benefit  postretirement  plan's assets and
obligations  that  determine its funded  status as of the end of the  employer's
fiscal year and (c) recognize  changes in the funded status of a defined benefit
postretirement  plan in  comprehensive  income in the year in which the  changes
occur.  We  are  required  to  adopt  the  recognition  and  related  disclosure
provisions of Statement 158 effective at the end of 2006. The  measurement  date
provision of Statement  158 is  effective at the end of 2008.  We are  currently
evaluating  the  impact of  adopting  Statement  158 on our  future  results  of
operations and financial condition.

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards  No. 157, Fair Value  Measurements,  or Statement  157.  Statement 157
provides   enhanced  guidance  for  using  fair  value  to  measure  assets  and
liabilities.  We are required to adopt  Statement 157 effective at the beginning
of 2008.  We do not expect the adoption of Statement  157 to have a  significant
impact on our future results of operations or financial condition.

      In June  2006,  the FASB  issued  Interpretation  No. 48,  Accounting  for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, or FIN
48. FIN 48 clarifies the accounting for  uncertainty in income taxes  recognized
in a company's financial  statements and prescribes a recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a tax  position  taken or  expected  to be taken  in a tax  return.  FIN 48 also
provides  guidance  on  description,  classification,  interest  and  penalties,
accounting in interim  periods,  disclosure and  transition.  We are required to
adopt FIN 48 effective at the beginning of 2007. We are currently evaluating the
impact of adopting  FIN 48 on our future  results of  operations  and  financial
condition.

(C)   RESTRUCTURING EXPENSES

      During the  nine-month  period  ended  September  30,  2006,  we made cash
payments of $1.4  million,  $0.2 million and $26  thousand  related to our 2006,
2002 and 2001 restructuring plans,  respectively.  Of the total costs related to
our restructuring  plans,  approximately $11.7 million was paid by September 30,
2006, with the remaining $1.0 million to be paid through 2007.

      In the second  quarter of 2006, we  implemented a cost reduction plan that
will result in lower annual  programming  and editorial  investments  as well as
other  discretionary  expenses.  As a result of the 2006 restructuring  plan, we
reported a charge of $2.1 million  related to costs  associated with a workforce
reduction of 15  employees.  During the  nine-month  period ended  September 30,
2006, we also reduced our 2002 and 2001 restructuring plans by $0.7 million as a
result of changes related to leased space.

      In the fourth  quarter of 2005, we recorded an  additional  charge of $0.1
million  related  to our 2002  restructuring  plan as a  result  of  changes  in
assumptions related to leased space.


                                       8
<PAGE>

      The  following   table  sets  forth  the  activity  and  balances  of  our
restructuring  reserves  for  the  year  ended  December  31,  2005  and for the
nine-month period ended September 30, 2006 (in thousands):

                                                       Consolidation
                                                       of Facilities
                                           Workforce             and
                                           Reduction      Operations      Total
-------------------------------------------------------------------------------
Balance at December 31, 2004                $   179          $ 1,827    $ 2,006
Adjustments to previous estimates                17              132        149
Cash payments                                  (196)            (749)      (945)
-------------------------------------------------------------------------------
Balance at December 31, 2005                     --            1,210      1,210
Reserve recorded                              2,129               --      2,129
Adjustments to previous estimates                --             (105)      (105)
Other                                            --             (574)      (574)
Cash payments                                (1,442)            (220)    (1,662)
-------------------------------------------------------------------------------
Balance at September 30, 2006               $   687          $   311    $   998
===============================================================================

(D)   EARNINGS PER COMMON SHARE

      The  following  table sets  forth the  computations  of basic and  diluted
earnings per share, or EPS (in thousands, except per share amounts):

                                                               Quarters Ended
                                                                September 30,
                                                            --------------------
                                                               2006         2005
--------------------------------------------------------------------------------
Numerator:
For basic and diluted EPS - net income                      $ 1,137      $ 3,178
================================================================================

Denominator:
For basic EPS - weighted average shares                      33,169       33,102
   Effect of dilutive potential common shares:
   Employee stock options and other                               4          264
--------------------------------------------------------------------------------
      Dilutive potential common shares                            4          264
--------------------------------------------------------------------------------
For diluted EPS - weighted average shares                    33,173       33,366
================================================================================

Basic and diluted EPS                                       $  0.03      $  0.10
================================================================================

      The computations of basic and diluted EPS for the nine-month periods ended
September  30, 2006 and 2005,  were  excluded as both periods  resulted in a net
loss, and, therefore, potential common shares would have been antidilutive.

      The following table sets forth the number of shares related to outstanding
options  to  purchase  our  Class B common  stock,  or  Class B  stock,  and the
potential  shares  of  Class B  stock  contingently  issuable  under  our  3.00%
convertible  senior  subordinated  notes due 2025, or convertible  notes.  These
shares were not included in the computations of diluted EPS for the quarters and
nine-month  periods ended  September 30, 2006 and 2005, as their inclusion would
have been antidilutive (in thousands):

                                        Quarters Ended        Nine Months Ended
                                         September 30,           September 30,
                                     -------------------    --------------------
                                       2006         2005      2006          2005
--------------------------------------------------------------------------------
Stock options                         3,892        1,866     3,425         2,576
Convertible notes                     6,758        6,758     6,758         6,758
--------------------------------------------------------------------------------
Total                                10,650        8,624    10,183         9,334
================================================================================


                                       9
<PAGE>

(E)   INVENTORIES, NET

      The following table sets forth  inventories,  net, which are stated at the
lower of cost (specific cost and average cost) or fair value (in thousands):

                                                    September 30,   December 31,
                                                             2006           2005
--------------------------------------------------------------------------------
Paper                                                     $ 3,523        $ 3,939
Editorial and other prepublication costs                    6,910          6,529
Merchandise finished goods                                  2,787          2,378
--------------------------------------------------------------------------------
Total inventories, net                                    $13,220        $12,846
================================================================================

(F)   INCOME TAXES

      Our income tax provision  consists of foreign income tax, which relates to
our international  networks and withholding tax on licensing income for which we
do not receive a current U.S.  income tax benefit due to our net operating  loss
position.  Our income tax  provision  also includes  deferred  federal and state
income taxes related to the amortization of goodwill and other  indefinite-lived
intangibles,  which  cannot be offset  against  deferred  tax  assets due to the
indefinite reversal period of the deferred tax liabilities.

(G)   CONTINGENCIES

      In the current  year, we acquired  Club Jenna,  Inc., a multi-media  adult
entertainment  business,  to complement our existing television,  online and DVD
businesses.  As the pro forma  results would not be  materially  different  from
actual  results,  they are not  presented.  We paid $7.7 million at closing with
additional payments of $1.6 million, $1.7 million, $2.3 million and $4.3 million
required in 2007, 2008, 2009 and 2010, respectively. Pursuant to the acquisition
agreement,  we are also  obligated to make future  contingent  earnout  payments
based  primarily on sales of existing  content of the acquired  business  over a
ten-year  period and on content  produced by the  acquired  business  during the
five-year  period  after  the  closing  of  the  acquisition.  If  the  required
performance  benchmarks are achieved,  any contingent  earnout  payments will be
recorded as  additional  purchase  price.  During the  nine-month  period  ended
September 30, 2006, no earnout payments were made.

      In 2005, we acquired an affiliate  network of websites to  complement  our
existing online business.  We paid $8.0 million at closing,  $2.0 million in the
current quarter,  and an additional payment of $2.0 million is required in 2007.
Pursuant to the asset purchase  agreement,  we are also obligated to make future
contingent  earnout  payments  over a five-year  period  based  primarily on the
financial  performance  of the acquired  business.  If the required  performance
benchmarks  are achieved,  any contingent  earnout  payments will be recorded as
additional  purchase price and/or  compensation  expense.  During the nine-month
period  ended  September  30, 2006,  an earnout  payment of  approximately  $0.1
million was made and recorded as additional purchase price.

      In  2003,  we  recorded  $8.5  million  for the  settlement  of the  Logix
litigation,  which related to events prior to our 1999  acquisition of Spice. We
made payments of $1.0 million,  $1.0 million and $6.5 million in 2006,  2005 and
2004, respectively, and have no further obligations under the settlement.

      In 2002,  a $4.4 million  verdict was entered  against us by a state trial
court in Texas in a lawsuit with a former publishing licensee. We terminated the
license in 1998 due to the licensee's failure to pay royalties and other amounts
due us under the license  agreement.  We  vigorously  pursued an appeal with the
State Appellate Court sitting in Corpus Christi challenging the verdict. We have
posted a bond in the amount of approximately $9.4 million,  which represents the
amount of the judgment,  costs and estimated pre- and post-judgment interest, in
connection with the appeal.  On May 25, 2006, the State Appellate Court reversed
the judgment by the trial court, rendered judgment for us on the majority of the
plaintiffs'  claims and remanded the remaining  claims for a new trial.  On July
14,  2006,   the   plaintiffs   filed  a  motion  for   rehearing  and  en  banc
reconsideration,  which we opposed.  On October 12,  2006,  the State  Appellate
Court denied plaintiff's motion. We, on advice of legal counsel, believe that it
is not  probable  that a  material  judgment  against  us will be  obtained.  In
accordance  with Statement of Financial  Accounting  Standards No. 5, Accounting
for Contingencies, no liability has been accrued.


                                       10
<PAGE>

(H)   STOCK-BASED COMPENSATION

      On January 1, 2006,  we adopted the  provisions  of Statement of Financial
Accounting  Standards No. 123 (revised 2004),  Share-Based Payment, or Statement
123(R),  which is a revision of Statement of Financial  Accounting Standards No.
123,  Accounting  for  Stock-Based  Compensation,  or Statement  123,  under the
modified prospective method.  Statement 123(R) supersedes  Accounting Principles
Board Opinion No. 25,  Accounting for Stock Issued to Employees,  or APB 25, and
amends  Statement of Financial  Accounting  Standards No. 95,  Statement of Cash
Flows. Statement 123(R) requires that all stock-based compensation to employees,
including  grants  of  employee  stock  options,  be  recognized  in the  income
statement  based on its fair  value.  Under  the  modified  prospective  method,
results for prior periods have not been restated.

      Stock-based  compensation  expense for the quarter and  nine-month  period
ended  September  30,  2006,  is based on awards  ultimately  expected  to vest,
reduced for estimated  forfeitures.  Statement 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary,  in subsequent periods
if actual  forfeitures  differ from those estimates.  Forfeitures were estimated
based on historical  experience.  In our pro forma  information  required  under
Statement 123 for the periods prior to fiscal 2006, we accounted for forfeitures
as they  occurred.  Under the fair value  recognition  provisions  of  Statement
123(R), we measure stock-based  compensation cost at the grant date based on the
value  of  the  award  and  recognize  the  expense  over  the  vesting  period.
Compensation  expense for all  stock-based  payment  awards granted prior to and
subsequent to January 1, 2006, is recognized using the straight-line attribution
method.   Stock-based   compensation  expense  is  reflected  in  our  Condensed
Consolidated Statements of Operations and Comprehensive Income (Loss) in selling
and  administrative  expenses and the proceeds  are  reflected in our  Condensed
Consolidated Statements of Cash Flows in proceeds from stock-based compensation.

      We have stock plans for key employees  and  nonemployee  directors,  which
provide for the grant of nonqualified  and incentive stock options and/or shares
of restricted stock units, deferred stock and other equity awards in our Class B
stock. The Compensation  Committee of the Board of Directors,  which is composed
entirely of independent nonemployee directors,  administers all the plans. These
plans are designed to further our growth,  development and financial  success by
providing key employees with strong additional  incentives to maximize long-term
stockholder  value. The Compensation  Committee believes that this objective can
be best achieved through  assisting key employees to become owners of our stock,
which aligns their interests with our interests. As stockholders,  key employees
will benefit directly from our growth,  development and financial success. These
plans also enable us to attract and retain the services of those executives whom
we consider  essential to our long-range  success by providing these  executives
with a competitive  compensation  package and an opportunity to become owners of
our stock.  At September  30, 2006,  we had 471,182  shares of our Class B stock
available for grant under these plans.

      Stock options, exercisable for shares of our Class B stock, generally vest
over a two- to  four-year  period  from the grant date and expire ten years from
the grant date.

      Restricted stock unit grants provide for the issuance of our Class B stock
if three-year  cumulative  operating  income target  thresholds  are met. If the
operating income minimum  threshold is not achieved,  the restricted stock units
for that grant are forfeited.

      One of our stock plans pertaining to nonemployee directors also allows for
the  issuance  or  deferral  of our Class B stock as  awards  and  payments  for
retainer, committee and meeting fees.

      Finally,  we also have an Employee  Stock  Purchase  Plan,  or ESPP,  that
provides  substantially all regular full- and part-time employees an opportunity
to purchase  shares of our Class B stock through payroll  deductions.  The funds
are  withheld  and then used to acquire  stock on the last  trading  day of each
quarter, based on that day's closing price less a 15% discount.  ESPP expense is
reflected  in  our  Condensed   Consolidated   Statements   of  Operations   and
Comprehensive  Income  (Loss) in selling  and  administrative  expenses  and the
proceeds are reflected in our Condensed Consolidated Statements of Cash Flows in
proceeds  from  stock-based  compensation.  At September  30, 2006, we had 4,454
shares of our Class B stock available for purchase under this plan.


                                       11
<PAGE>

Valuation Information

      Upon adoption of Statement  123(R), we began estimating the value of stock
options on the date of grant using the Lattice Binomial model, or Lattice model.
Prior to the  adoption of Statement  123(R),  the value of each  employee  stock
option was estimated on the date of grant using the Black-Scholes  model for the
purpose of pro forma financial information in accordance with Statement 123. The
Lattice model requires extensive analysis of actual exercise behavior data and a
number of complex assumptions including expected volatility,  risk-free interest
rate, expected dividends and option cancellations.

      The following table sets forth the assumptions  used for the Lattice model
in 2006 and the Black-Scholes model in 2005:

<TABLE>
<CAPTION>
                                        Quarters Ended                     Nine Months Ended
                                         September 30,                       September 30,
                                    ----------------------          ------------------------------
                                          2006        2005                  2006              2005
--------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>           <C>               <C>
Expected volatility                         37%         46%             37% - 38%               46%
Risk-free interest rate                   4.80%       3.90%         4.32% - 4.80%     3.80% - 4.18%
Expected dividends                          --          --                    --                --
--------------------------------------------------------------------------------------------------
</TABLE>

      The expected life of stock options  represents the weighted average period
the stock options are expected to remain  outstanding and is a derived output of
the Lattice model.  The expected life of stock options is impacted by all of the
underlying  assumptions and calibration of the Lattice model.  The Lattice model
assumes that exercise  behavior is a function of the option's  remaining  vested
life and the extent to which the option's fair value exceeds the exercise price.
The Lattice model  estimates the  probability of exercise as a function of these
two variables  based upon the entire history of exercises and  cancellations  on
all past option grants.

      The weighted  average expected life for options granted during the quarter
and nine-month  period ended September 30, 2006, using the Lattice model was 6.0
years and 5.9  years,  respectively.  The  weighted  average  expected  life for
options  granted during the prior year quarter and  nine-month  period using the
Black-Scholes model was 6.0 years. The weighted average fair value per share for
stock options  granted during the quarter and nine-month  period ended September
30, 2006, was $4.17 and $6.03,  respectively,  using the Lattice model,  and the
weighted average fair value per share for stock options granted during the prior
year quarter and nine-month period was $6.35 and $5.85, respectively,  using the
Black-Scholes model.

Stock Option Activity

      The following  table sets forth stock option  activity for the  nine-month
period ended September 30, 2006:

                                                   Number of    Weighted Average
                                                      Shares      Exercise Price
--------------------------------------------------------------------------------
Outstanding at December 31, 2005                   3,374,135         $     15.85
Granted                                              805,500               13.64
Exercised                                            (13,666)              10.84
Canceled                                            (366,053)              14.02
------------------------------------------------------------
Outstanding at September 30, 2006                  3,799,916         $     15.57
================================================================================

      At September 30, 2006, the weighted average remaining contractual lives of
options  outstanding  and  options  exercisable  were 5.8 years  and 4.6  years,
respectively.  At September 30, 2006, the number of options  exercisable and the
weighted  average  exercise  price of options  exercisable  were  2,711,750  and
$16.56, respectively.


                                       12
<PAGE>

      There were no options exercised in the current quarter. For the nine-month
period ended  September 30, 2006, we had proceeds of $0.1 million from exercises
of stock options. The aggregate intrinsic value for options exercised during the
nine-month  period ended  September 30, 2006,  was  approximately  $0.1 million.
There  were  135,000  options  granted  in the  current  quarter,  which  had an
aggregate  intrinsic  value of $10 thousand.  The aggregate  intrinsic  value of
options  outstanding  at September  30, 2006,  was $10 thousand and there was no
aggregate  intrinsic  value of options  exercisable  at September 30, 2006.  The
aggregate  intrinsic value for options granted during the quarter and nine-month
period  ended   September   30,  2005,   was  $17  thousand  and  $1.2  million,
respectively.  The aggregate  intrinsic value for options  exercised  during the
quarter and  nine-month  period ended  September 30, 2005,  was $0.1 million and
$0.4 million, respectively.

      As a result of adopting  Statement  123(R) on January 1, 2006,  our income
(loss) from  continuing  operations  before  income  taxes,  income  (loss) from
continuing  operations  and net income  (loss) for the  quarter  and  nine-month
period  ended  September  30, 2006,  were $0.8  million and $2.3 million  lower,
respectively,  than if we had continued to account for stock-based  compensation
under APB 25. Basic and diluted EPS for the quarter and nine-month  period ended
September  30, 2006,  were $0.02 and $0.07 lower,  respectively,  than if we had
continued to account for stock-based compensation under APB 25.

      The following table sets forth stock-based compensation expense related to
stock options and to our ESPP for the current quarter and nine-month  period and
pro  forma  amounts  for the  prior  year  quarter  and  nine-month  period  (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                      Quarters Ended                 Nine Months Ended
                                                       September 30,                   September 30,
                                               ---------------------------       ---------------------------
                                                     2006             2005             2006             2005
------------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>              <C>              <C>
Stock options                                  $      803       $      737       $    2,308       $    2,159
ESPP                                                    6                4               20               10
------------------------------------------------------------------------------------------------------------
   Total                                       $      809       $      741       $    2,328       $    2,169
============================================================================================================

Net income (loss)
   As reported                                 $    1,137       $    3,178       $   (1,381)      $   (5,301)
   Fair value of stock-based compensation
     excluded from net income, gross                                  (741)                           (2,169)
                                                                ----------                        ----------
   Pro forma                                                    $    2,437                        $   (7,470)
                                                                ==========                        ==========

Basic and diluted EPS
   As reported                                 $     0.03       $     0.10       $    (0.04)      $    (0.16)
   Pro forma                                                    $     0.07                        $    (0.22)
------------------------------------------------------------------------------------------------------------
</TABLE>

      As  of  September  30,  2006,  there  was  $4.9  million  of  unrecognized
stock-based compensation expense related to non-vested stock options, which will
be recognized over a weighted average period of 1.5 years.

Restricted Stock Unit Activity

      At September 30, 2006, we had 453,000  restricted stock units outstanding,
none of which  were  vested,  and all of  which  were  performance-based  awards
contingent upon meeting certain  performance goals. There were 45,000 restricted
stock units granted in the current quarter.


                                       13
<PAGE>

      The following table sets forth the restricted  stock units  outstanding at
September 30, 2006:

                                                                        Weighted
                                                                         Average
                                                      Number of       Grant-Date
                                                         Shares       Fair Value
--------------------------------------------------------------------------------
Outstanding at December 31, 2005                        319,000       $    13.07
Granted                                                 233,500            13.51
Canceled                                                (99,500)           13.42
---------------------------------------------------------------
Outstanding at September 30, 2006                       453,000       $    13.22
================================================================================

      Stock-based  compensation  expense  related to restricted  stock units was
$0.3  million and $0.5  million for the quarters  ended  September  30, 2006 and
2005, respectively, and $0.5 million and $1.2 million for the nine-month periods
ended September 30, 2006 and 2005, respectively. As of September 30, 2006, there
was $2.1 million of  unrecognized  stock-based  compensation  expense related to
non-vested  restricted  stock  units,  which may be  recognized  over a weighted
average period of 1.5 years.

Other Equity Awards

      We issued  33,981 shares and 49,716 shares of our Class B stock during the
quarter and nine-month period ended September 30, 2006, respectively, related to
other equity awards.  Stock-based  compensation  expense related to other equity
awards was $0.3 million and $37 thousand for the quarters  ended  September  30,
2006  and  2005,  respectively,  and  $0.5  million  and  $0.2  million  for the
nine-month periods ended September 30, 2006 and 2005, respectively.

Employee Stock Purchase Plan

      Stock-based  compensation  expense related to our ESPP was $6 thousand and
$20 thousand for the quarter and  nine-month  period ended  September  30, 2006,
respectively.

Income Taxes

      On  November  10,  2005,  the FASB issued  Staff  Position  No.  123(R)-3,
Transition Election Related to Accounting for Tax Effects of Share-Based Payment
Awards,  or Staff Position  123(R)-3.  We have elected to adopt the  alternative
transition  method  provided in Staff Position  123(R)-3 for calculating the tax
effects  of  stock-based   compensation   pursuant  to  Statement  123(R).   The
alternative  transition  method  simplifies  the  calculation  of the  beginning
balance of the additional paid-in-capital pool, or APIC pool, related to the tax
effect of employee  stock-based  compensation.  This method also has  subsequent
impact on the APIC pool and  Condensed  Consolidated  Statements  of Cash  Flows
relating to the tax effects of employee stock-based compensation awards that are
outstanding upon adoption of Statement 123(R).

      Under Statement 123(R), the income tax effects of share-based payments are
recognized for financial  reporting purposes only if such awards would result in
deductions on our income tax returns.  The settlement of share-based payments to
date that would have resulted in an excess tax benefit would have  increased our
existing net operating loss, or NOL, carry forward.  Under Statement  123(R), no
excess tax benefits  resulting from the settlement of a share-based  payment can
result in a tax  deduction  before  realization  of the tax benefit;  i.e.,  the
recognition  of excess tax benefits  cannot be recorded until the excess benefit
reduces current income taxes payable.  Additionally, as a result of our existing
NOL carry forward position,  no tax benefit relating to share-based payments has
been recorded for the quarter and nine-month period ended September 30, 2006.

(I)   BENEFIT PLANS

      We currently  maintain a practice of paying a separation  allowance  under
our  salary  continuation  policy  to  employees  with at  least  five  years of
continuous service who voluntarily  terminate  employment with us and are at age
60 or  thereafter.  For the quarter and  nine-month  period ended  September 30,
2006,  payments  made under this  policy  were $37  thousand  and $0.3  million,
respectively.


                                       14
<PAGE>

(J)   SEGMENT INFORMATION (1)

      The following table sets forth financial information by reportable segment
(in thousands):

<TABLE>
<CAPTION>
                                                                      Quarters Ended            Nine Months Ended
                                                                       September 30,              September 30,
                                                                  ----------------------    -----------------------
                                                                       2006         2005         2006          2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>          <C>          <C>
Net revenues
Entertainment                                                     $  50,198    $  47,790    $ 148,920    $  147,180
Publishing                                                           24,585       27,224       71,870        79,758
Licensing                                                             7,514        5,870       24,104        20,268
-------------------------------------------------------------------------------------------------------------------
Total                                                             $  82,297    $  80,884    $ 244,894    $  247,206
===================================================================================================================
Income (loss) before income taxes
Entertainment                                                     $   5,851    $   7,170    $  18,605    $   28,856
Publishing                                                             (891)        (704)      (4,940)       (3,444)
Licensing                                                             4,632        3,284       13,054        10,891
Corporate Administration and Promotion                               (5,758)      (4,401)     (18,701)      (12,751)
Restructuring expenses                                                 (118)          --       (2,024)           --
Gains on disposal                                                        --           --           29            14
Investment income                                                       527          661        1,736         1,443
Interest expense                                                     (1,471)      (1,425)      (4,180)       (5,485)
Amortization of deferred financing fees                                (134)        (135)        (402)         (501)
Minority interest                                                        --         (384)          --        (1,124)
Debt extinguishment expenses                                             --           --           --       (19,280)
Other, net                                                             (165)        (294)        (311)      (1,094)
------------------------------------------------------------------------------------------------------------------
Total                                                             $   2,473    $   3,772    $   2,866    $   (2,475)
===================================================================================================================

<CAPTION>
                                                                           September 30,               December 31,
                                                                                    2006                       2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                       <C>
Identifiable assets
Entertainment                                                                  $ 288,884                 $  274,473
Publishing                                                                        37,249                     38,833
Licensing                                                                          9,399                      7,539
Corporate Administration and Promotion                                            98,746                    108,124
-------------------------------------------------------------------------------------------------------------------
Total                                                                          $ 434,278                 $  428,969
===================================================================================================================
</TABLE>

(1)   Certain amounts  reported for the prior periods have been  reclassified to
      conform to the current year's presentation.

(K)   SUBSEQUENT EVENT

      On October 19, 2006, we entered into an agreement  with DirecTV,  Inc., or
DirecTV,  to  extend  our  existing  relationship  for the  distribution  of our
channels to DirecTV subscribers.

      The  agreement  grants  DirecTV the  non-exclusive  right to transmit  our
Playboy TV,  Spice Xcess and Club Jenna  networks  in the U.S. to  customers  of
DirecTV for a period ending on November 15, 2008.  Prior to this  extension,  we
provided  DirecTV  with  Playboy  TV and two  additional  channels  through  our
existing  agreement.  We anticipate  that  transmission of the new networks will
commence on November 16, 2006.

      Under  the  terms of the new  agreement,  our  revenue  will  reflect  the
contractual share of revenues received from DirecTV's  residential customers who
purchase  the  right to view  our  networks'  programming,  subject  to  DirecTV
receiving  certain  minimum revenue amounts from the networks other than Playboy
TV.


                                       15
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      This  discussion   should  be  read  in  conjunction  with  the  Condensed
Consolidated  Financial  Statements and  accompanying  notes and with our Annual
Report on Form 10-K for the year ended December 31, 2005. All period  references
are to our fiscal periods unless otherwise indicated.

RESULTS OF OPERATIONS (1)

      The  following  table sets forth our results of  operations  (in millions,
except per share amounts):

<TABLE>
<CAPTION>
                                                                       Quarters Ended            Nine Months Ended
                                                                        September 30,              September 30,
                                                                    ---------------------       ---------------------
                                                                       2006          2005          2006          2005
---------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>           <C>           <C>
Net revenues
Entertainment
   Domestic TV                                                      $  20.5       $  25.4       $  63.7       $  75.5
   International                                                       14.3          12.2          41.3          37.5
   Online subscriptions and e-commerce                                 12.6           9.0          37.2          30.8
   Other                                                                2.8           1.2           6.7           3.4
---------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                 50.2          47.8         148.9         147.2
---------------------------------------------------------------------------------------------------------------------
Publishing
   Playboy magazine                                                    19.7          22.5          59.1          67.5
   Special editions and other                                           3.2           3.2           7.8           7.4
   International publishing                                             1.7           1.6           5.0           4.9
---------------------------------------------------------------------------------------------------------------------
   Total Publishing                                                    24.6          27.3          71.9          79.8
---------------------------------------------------------------------------------------------------------------------
Licensing
   International licensing                                              5.5           4.3          16.6          13.5
   Domestic licensing                                                   1.3           1.2           3.9           3.7
   Marketing events                                                     0.3           0.1           2.8           2.7
   Other                                                                0.4           0.2           0.8           0.3
---------------------------------------------------------------------------------------------------------------------
   Total Licensing                                                      7.5           5.8          24.1          20.2
---------------------------------------------------------------------------------------------------------------------
Total net revenues                                                  $  82.3       $  80.9       $ 244.9       $ 247.2
=====================================================================================================================

Net income (loss)
Entertainment
   Before programming amortization and online content expenses      $  16.7       $  16.8       $  49.2       $  58.5
   Programming amortization and online content expenses               (10.9)         (9.7)        (30.6)        (29.7)
---------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                  5.8           7.1          18.6          28.8
---------------------------------------------------------------------------------------------------------------------
Publishing                                                             (0.8)         (0.7)         (4.9)         (3.4)
---------------------------------------------------------------------------------------------------------------------
Licensing                                                               4.6           3.3          13.0          10.9
---------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion                                 (5.8)         (4.3)        (18.7)        (12.7)
---------------------------------------------------------------------------------------------------------------------
Segment income                                                          3.8           5.4           8.0          23.6
Restructuring expenses                                                 (0.1)           --          (2.0)           --
---------------------------------------------------------------------------------------------------------------------
Operating income                                                        3.7           5.4           6.0          23.6
---------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                    0.6           0.6           1.8           1.4
   Interest expense                                                    (1.5)         (1.4)         (4.2)         (5.5)
   Amortization of deferred financing fees                             (0.1)         (0.1)         (0.4)         (0.5)
   Minority interest                                                     --          (0.4)           --          (1.1)
   Debt extinguishment expenses                                          --            --            --         (19.3)
   Other, net                                                          (0.2)         (0.4)         (0.3)         (1.1)
---------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                             (1.2)         (1.7)         (3.1)        (26.1)
---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                       2.5           3.7           2.9          (2.5)
Income tax expense                                                     (1.4)         (0.5)         (4.3)         (2.8)
---------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                   $   1.1       $   3.2       $  (1.4)      $  (5.3)
=====================================================================================================================
Basic and diluted earnings (loss) per common share                  $  0.03       $  0.10       $ (0.04)      $ (0.16)
=====================================================================================================================
</TABLE>

(1)   Certain amounts  reported for the prior periods have been  reclassified to
      conform to the current year's presentation.


                                       16
<PAGE>

      Revenues increased $1.4 million, or 2%, and decreased $2.3 million, or 1%,
for the quarter and nine-month period, respectively, as higher revenues from our
Entertainment  and Licensing  Groups were offset for the quarter and  nine-month
period by lower revenues from our Publishing Group.

      Segment income decreased $1.6 million,  or 28%, and $15.6 million, or 66%,
for the quarter and nine-month period,  respectively,  due to lower results from
our Entertainment and Publishing Groups and higher Corporate  Administration and
Promotion  expenses,  partially  offset by improved  results from our  Licensing
Group. Stock option expense of $0.8 million and $2.3 million for the quarter and
nine-month period,  respectively, a result of our implementation of Statement of
Financial Accounting  Standards No. 123 (revised 2004),  Share-Based Payment, at
the beginning of 2006, also impacted segment income.

      Operating  income of $3.7  million  and $6.0  million  for the quarter and
nine-month  period,  respectively,  included  $0.1  million and $2.0  million of
restructuring  expense  for the  quarter and  nine-month  period,  respectively,
primarily  related to a cost  reduction  plan we  implemented  during the second
quarter of this year.

      Net income of $1.1  million for the quarter was $2.1  million  unfavorable
compared  to the prior year  period as a result of the lower  operating  results
previously  discussed.  The net loss of $1.4 million for the  nine-month  period
improved $3.9 million over the prior year period as the lower operating  results
previously  discussed were more than offset by debt  extinguishment  expenses of
$19.3 million in the prior year period.

      Several  of  our  businesses   may  experience   variations  in  quarterly
performance.  As a result,  our  performance  in any quarter is not  necessarily
reflective  of full-year  or  longer-term  trends.  Playboy  magazine  newsstand
revenues vary from issue to issue,  with revenues  generally  higher for holiday
issues and any issues  including  editorial or pictorial  features that generate
additional  public  interest.  Advertising  revenues  also vary from  quarter to
quarter  depending  on  economic  conditions,  holiday  issues  and  changes  in
advertising buying patterns.  Online subscription revenues and operating results
are  impacted  by  decreased  Internet  traffic  during  the  summer  months and
e-commerce  revenues and operating results are typically strongest in the fourth
quarter due to the holiday buying season.

ENTERTAINMENT GROUP

      The following  discussion  focuses on the revenue and profit  contribution
before  programming  amortization  and online  content  expenses  of each of our
Entertainment Group businesses.

      Revenues from our domestic TV business decreased $4.9 million, or 19%, and
$11.8 million, or 16%, for the quarter and nine-month period, respectively.

      Playboy TV network  revenues  decreased  $1.6 million and $4.3 million for
the quarter and nine-month  period,  respectively,  as cable revenues  decreased
$1.5  million  and  $3.0  million  for  the  quarter  and   nine-month   period,
respectively.  The  decrease  was due to the  impact of a  consumer  shift  from
pay-per-view, or PPV, to video-on-demand,  or VOD, purchasing. Playboy TV may be
favorably  impacted  by the  continued  rollout of our  monthly  service  with a
subscription-VOD component.

      Movie  network  revenues  decreased  $3.9 million and $7.7 million for the
quarter and nine-month  period,  respectively.  These decreases were due to both
lower  PPV  buying  trends as  mentioned  above and a  decrease  in the  overall
carriage  of adult  linear  networks.  We  continue  to expect  these  trends to
negatively  impact our movie networks.  Revenues from VOD decreased $0.7 million
for the  nine-month  period  primarily due to a decrease in buys, as competitive
pressure  increased  within  several  distribution   platforms.  We  expect  VOD
performance  to  improve  as  we  implement  new  marketing  initiatives.   Also
contributing  to the lower movie  network  revenues was the loss of two channels
and the addition of a new  competitor on the largest  satellite TV provider.  We
expect the loss of carriage to  unfavorably  impact movie  network  revenues and
profitability at least through the first quarter of 2007. Movie network revenues
for the  current  quarter  were also  unfavorably  impacted  by  adjustments  to
previously estimated revenues.


                                       17
<PAGE>

      The  prior  year   nine-month   period  was  favorably   impacted  by  the
discontinuation  of  a  distributor's   high-definition   subscription   service
agreement,  which  resulted in the  accelerated  recognition  of $1.4 million of
deferred revenues associated with the agreement.

      Revenues  associated with our studio  facility  increased $0.5 million and
$0.9 million for the quarter and nine-month period, respectively,  primarily due
to the addition of new clients.

      Profit  contribution from our domestic TV business  decreased $4.3 million
for  the  quarter  as a  result  of the  lower  revenues  previously  discussed,
partially offset by an adjustment for revenue sharing in the prior year quarter.
Profit  contribution  for the  nine-month  period  decreased  $15.0 million as a
result  of the lower  revenues  previously  discussed  combined  with  increased
expenses primarily due to marketing and staffing.

      International  revenues increased $2.1 million,  or 17%, and $3.8 million,
or 10%,  for the  quarter and  nine-month  period,  respectively.  International
television  revenues increased $1.0 million and $2.9 million for the quarter and
nine-month period,  respectively,  primarily due to increased direct-to-home and
cable revenues from our U.K.  networks  combined with favorable foreign currency
exchange  rates.  Lower  revenues  from several  third-party  network  licensees
impacted the  nine-month  period.  International  online and  wireless  revenues
increased $1.1 million and $0.9 million for the quarter and  nine-month  period,
respectively,  primarily due to higher  royalties from licensees.  International
profit contribution  increased $1.8 million and $2.2 million for the quarter and
nine-month  period,  respectively,   principally  due  to  the  higher  revenues
previously discussed combined with lower marketing expenses, partially offset by
increased  television  network  distribution  expenses,  in part  related to our
additional networks.

      Online  subscriptions and e-commerce  revenues increased $3.6 million,  or
41%,  and  $6.4  million,  or  21%,  for  the  quarter  and  nine-month  period,
respectively,  primarily  due to our  acquisition  of an  affiliate  network  of
websites late in the prior year quarter  combined with our  acquisition  of Club
Jenna, Inc., or Club Jenna, a multi-media adult entertainment  business,  in the
current nine-month  period.  Offsetting the above were costs associated with the
acquired  businesses  and  increased  investments  in  technology  and marketing
initiatives.  The prior year nine-month period was favorably  impacted by a $1.2
million  payment we received as a result of the  discontinuation  of a marketing
alliance.

      Revenues from other businesses  increased $1.6 million,  or 146%, and $3.3
million, or 98%, for the quarter and nine-month period, respectively,  primarily
due to worldwide  DVD and  advertising  revenues  from the  acquired  businesses
combined with revenues  resulting from the current-year  launch of Playboy Radio
on SIRIUS Satellite Radio. Profit  contribution  increased $1.0 million and $1.6
million for the quarter and nine-month  period,  respectively,  primarily due to
the revenue increases previously discussed, partially offset by costs associated
with our acquired businesses.

      The group's administrative expenses increased $0.3 million for the quarter
and decreased $2.1 million for the nine-month period. Both periods were impacted
by the elimination of our intra-company agreements related to trademark, content
and administrative fees that had been paid by Playboy.com, Inc., or Playboy.com,
to us as a result of our  October  2005  repurchase  of the  remaining  minority
interest of Playboy.com.  The nine-month  period was partially  offset by higher
staffing-related expenses, in part associated with our acquired businesses.

      Programming  amortization  and  online  content  expenses  increased  $1.2
million and $0.9 million for the quarter and  nine-month  period,  respectively,
primarily due to new  programming  costs to support our acquired  businesses and
Playboy  Radio,   partially  offset  by  a  change  in  the  mix  of  television
programming.  We now expect our programming and online content cash  investments
for the current  year to be  approximately  $43.3  million  and our  programming
amortization and online content expenses to be approximately $41.0 million.

      Segment  income for the group  decreased  $1.3 million,  or 18%, and $10.2
million, or 36%, for the quarter and nine-month period, respectively, due to the
previously discussed operating results.


                                       18
<PAGE>

PUBLISHING GROUP

      Playboy  magazine  revenues  decreased  $2.8  million,  or 12%,  and  $8.4
million,   or  12%,  for  the  quarter  and  nine-month  period,   respectively.
Advertising  revenues decreased $1.4 million,  or 18%, for the quarter due to an
11% decrease in average net revenue per page  coupled with 7% fewer  advertising
pages.  Advertising  revenues decreased $4.8 million, or 22%, for the nine-month
period due to 19% fewer  advertising pages coupled with a 3% decrease in average
net revenue per page.  Advertising  sales for the 2006 fourth  quarter  magazine
issues are closed, and we expect to report  approximately 10% higher advertising
revenues and a 14%  increase in  advertising  pages  compared to the 2005 fourth
quarter.  Subscription  revenues decreased $1.1 million and $3.0 million for the
quarter and  nine-month  period,  respectively,  primarily  due to lower average
revenue per copy combined with fewer copies served.  For the nine-month  period,
subscription  revenues were favorably  impacted by a lower  provision for unpaid
copies as a result of improved payment experience.  Newsstand revenues decreased
$0.3 million for the quarter  primarily  due to 12% fewer  copies sold  combined
with  unfavorable  variances  related  to  prior  issue  adjustments.  Newsstand
revenues  decreased $0.6 million for the nine-month  period primarily due to 17%
fewer copies sold. The decreases in both periods were partially mitigated by the
impact of a $1.00 and C$1.00 cover price  increase  effective  with the February
2006 issue.

      Revenues  from  special  editions and other were flat and  increased  $0.4
million,  or 5%, for the quarter and nine-month  period,  respectively.  Special
editions  revenues for the quarter  were flat  primarily  due to an  unfavorable
variance  related to prior issue  adjustments  combined with 12% fewer newsstand
copies  sold,  offset by the impact of a $1.00 and C$1.00  cover price  increase
effective with the November 2005 issues.  Special  editions  revenues  increased
$0.4  million  for the  nine-month  period,  primarily  due to the  cover  price
increase  previously  discussed  combined with a favorable  variance  related to
prior issue adjustments, partially offset by 13% fewer newsstand copies sold.

      International publishing revenues were flat for the quarter and nine-month
period.

      The group's segment loss was flat and increased $1.5 million,  or 43%, for
the quarter and  nine-month  period,  respectively,  as the lower  revenues from
Playboy magazine previously discussed were offset for the quarter and nine-month
period  by  lower  subscription  acquisition  amortization,  editorial  content,
manufacturing, advertising sales and marketing expenses.

      Despite negative industry trends, our goal this year is to maintain a loss
that is consistent with that of the prior year.

LICENSING GROUP

      Licensing Group revenues increased $1.7 million, or 28%, and $3.9 million,
or 19%, for the quarter and nine-month  period,  respectively,  primarily due to
higher  international  royalties,  principally from Europe.  The group's segment
income increased $1.3 million, or 41%, and $2.1 million, or 20%, for the quarter
and nine-month  period,  respectively,  due to the revenue increases  previously
discussed, partially offset by higher growth-related costs.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses increased $1.5 million, or
31%,  and  $6.0  million,  or  47%,  for  the  quarter  and  nine-month  period,
respectively,  primarily due to the elimination of our intra-company  agreements
related  to  trademark,  content  and  administrative  fees as a  result  of the
previously discussed  Playboy.com  minority interest repurchase.  The nine-month
period also reflected higher promotional spending.

RESTRUCTURING EXPENSES

      In the second  quarter of 2006, we  implemented a cost reduction plan that
will result in lower annual  programming  and editorial  investments  as well as
other  discretionary  expenses.  As a result of the 2006 restructuring  plan, we
reported a charge of $2.1 million  related to costs  associated with a workforce
reduction of 15 employees.


                                       19
<PAGE>

INCOME TAX EXPENSE

      Our  effective  income tax rate differs  from U.S.  statutory  rates.  Our
income tax  provision  consists  of foreign  income  tax,  which  relates to our
international  networks and withholding tax on licensing  income for which we do
not receive a current  U.S.  income tax benefit  due to our net  operating  loss
position.  Our income tax  provision  also includes  deferred  federal and state
income taxes related to the amortization of goodwill and other  indefinite-lived
intangibles,  which  cannot be offset  against  deferred  tax  assets due to the
indefinite reversal period of the deferred tax liabilities.

LIQUIDITY AND CAPITAL RESOURCES

      At September 30, 2006,  we had $21.7 million in cash and cash  equivalents
compared to $26.1 million in cash and cash  equivalents at December 31, 2005. We
also had $10.0  million  of  auction  rate  securities  included  in  marketable
securities and short-term  investments at September 30, 2006,  compared to $21.0
million  at  December  31,  2005.  The  decrease  is  primarily  related  to our
acquisition  of Club Jenna in the current  nine-month  period.  Total  financing
obligations  were $115.0  million at both  September  30, 2006 and  December 31,
2005.

      At September  30, 2006,  cash  generated  from our  operating  activities,
existing cash and cash  equivalents  and  marketable  securities  and short-term
investments  were  fulfilling our liquidity  requirements.  We also have a $50.0
million credit  facility,  which can be used for revolving  borrowings,  issuing
letters of credit or a combination of both. At September 30, 2006, there were no
borrowings  and $10.6  million  in  letters  of credit  outstanding  under  this
facility,  resulting  in  $39.4  million  of  available  borrowings  under  this
facility.

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash provided by operating  activities was $5.3 million, a decrease of
$16.1 million  compared to the prior year period  primarily due to the operating
results previously discussed.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash used for investing activities decreased $23.1 million compared to
the prior year period due to available cash being used to fund  acquisitions and
operations.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash used for financing activities was $8.0 million for the nine-month
period compared to net cash provided by financing  activities of $4.8 million in
the prior year period.  The current and prior year periods  reflect  payments of
acquisition  liabilities  of $8.3 million and $5.9  million,  respectively.  The
prior  year  period  also  reflects  the  issuance  of $115.0  million  of 3.00%
convertible  senior  subordinated  notes due 2025, or convertible notes, and the
use of the  proceeds to pay $95.2  million in  connection  with the purchase and
retirement of all of the $80.0 million  outstanding  principal  amount of 11.00%
senior  secured  notes  issued by one of our  subsidiaries  and $5.1  million of
related  financing fees.  Proceeds from the convertible notes offering were also
used to purchase 381,971 shares of our Class B stock for $5.0 million.

EFFECT OF EXCHANGE RATE CHANGES ON CASH  AND CASH EQUIVALENTS

      The positive  effect of foreign  currency  exchange rates on cash and cash
equivalents  during the  nine-month  period was due to the weakening of the U.S.
dollar against foreign currencies, primarily the pound sterling. Conversely, the
negative effect of foreign currency  exchange rates on cash and cash equivalents
during the prior year  period was due to the  strengthening  of the U.S.  dollar
against foreign currencies, primarily the pound sterling.


                                       20
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

      In September 2006, the Financial  Accounting Standards Board, or the FASB,
issued  Statement  of  Financial   Accounting   Standards  No.  158,  Employers'
Accounting  for  Defined  Benefit  Pension and Other  Postretirement  Plans - an
amendment  of FASB  Statements  No. 87, 88, 106, and 132(R),  or Statement  158.
Statement  158 requires an entity to (a) recognize in its statement of financial
position an asset or an obligation for a defined benefit  postretirement  plan's
funded status,  (b) measure a defined benefit  postretirement  plan's assets and
obligations  that  determine its funded  status as of the end of the  employer's
fiscal year and (c) recognize  changes in the funded status of a defined benefit
postretirement  plan in  comprehensive  income in the year in which the  changes
occur.  We  are  required  to  adopt  the  recognition  and  related  disclosure
provisions of Statement 158 effective at the end of 2006. The  measurement  date
provision of Statement  158 is  effective at the end of 2008.  We are  currently
evaluating  the  impact of  adopting  Statement  158 on our  future  results  of
operations and financial condition.

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards  No. 157, Fair Value  Measurements,  or Statement  157.  Statement 157
provides   enhanced  guidance  for  using  fair  value  to  measure  assets  and
liabilities.  We are required to adopt  Statement 157 effective at the beginning
of 2008.  We do not expect the adoption of Statement  157 to have a  significant
impact on our future results of operations or financial condition.

      In June  2006,  the FASB  issued  Interpretation  No. 48,  Accounting  for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, or FIN
48. FIN 48 clarifies the accounting for  uncertainty in income taxes  recognized
in a company's financial  statements and prescribes a recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a tax  position  taken or  expected  to be taken  in a tax  return.  FIN 48 also
provides  guidance  on  description,  classification,  interest  and  penalties,
accounting in interim  periods,  disclosure and  transition.  We are required to
adopt FIN 48 effective at the beginning of 2007. We are currently evaluating the
impact of adopting  FIN 48 on our future  results of  operations  and  financial
condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      At  September  30,  2006,  we did not  have  any  floating  interest  rate
exposure.  All of our  outstanding  debt at that  date  consisted  of the  3.00%
convertible senior  subordinated notes due 2025, or convertible notes, which are
fixed-rate obligations. The fair value of the $115.0 million aggregate principal
amount of the convertible notes will be influenced by changes in market interest
rates, the share price of our Class B stock and our credit quality. At September
30, 2006, the convertible notes had an implied fair value of $102.3 million.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

      Our management,  with the participation of our Chief Executive Officer and
Chief  Financial  Officer,  has evaluated the  effectiveness  of our  disclosure
controls  and  procedures  (as  such  term is  defined  in Rules  13a-15(e)  and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act) as of the end of the period covered by this quarterly report. Based on such
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that,  as of the end of such  period,  our  disclosure  controls  and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis,  information  required to be disclosed by us in the reports that
we file or submit under the Exchange Act.

Internal Control over Financial Reporting

      There have not been any changes in our  internal  control  over  financial
reporting (as such term is defined in Rules  13a-15(f)  and 15d-15(f)  under the
Exchange Act) during the fiscal  quarter to which this report  relates that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.


                                       21
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      On February 17, 1998,  Eduardo  Gongora,  or Gongora,  filed suit in state
court in Hidalgo County,  Texas,  against  Editorial  Caballero SA de CV, or EC,
Grupo Siete International,  Inc., or GSI, collectively the Editorial Defendants,
and us. In the complaint, Gongora alleged that he was injured as a result of the
termination of a publishing license agreement, or the License Agreement, between
us and EC for the publication of a Mexican edition of Playboy  magazine,  or the
Mexican  Edition.  We terminated  the License  Agreement on or about January 29,
1998,  due to EC's failure to pay  royalties  and other amounts due us under the
License  Agreement.  On February  18, 1998,  the  Editorial  Defendants  filed a
cross-claim against us. Gongora alleged that in December 1996 he entered into an
oral  agreement  with the Editorial  Defendants to solicit  advertising  for the
Mexican  Edition  to be  distributed  in the United  States.  The basis of GSI's
cross-claim was that it was the assignee of EC's right to distribute the Mexican
Edition in the United States and other Spanish-speaking Latin American countries
outside of Mexico.  On May 31, 2002, a jury returned a verdict against us in the
amount of approximately $4.4 million. Under the verdict,  Gongora was awarded no
damages.  GSI and EC were  awarded $4.1  million in  out-of-pocket  expenses and
approximately $0.3 million for lost profits, respectively,  even though the jury
found that EC had failed to comply with the terms of the License  Agreement.  On
October 24, 2002, the trial court signed a judgment  against us for $4.4 million
plus pre- and  post-judgment  interest and costs. On November 22, 2002, we filed
post-judgment  motions  challenging  the judgment in the trial court.  The trial
court overruled those motions and we vigorously pursued an appeal with the State
Appellate  Court  sitting in Corpus  Christi  challenging  the verdict.  We have
posted a bond in the amount of approximately $9.4 million,  which represents the
amount of the judgment,  costs and estimated pre- and post-judgment interest, in
connection with the appeal.  On May 25, 2006, the State Appellate Court reversed
the judgment by the trial court, rendered judgment for us on the majority of the
plaintiffs'  claims and remanded the remaining  claims for a new trial.  On July
14,  2006,   the   plaintiffs   filed  a  motion  for   rehearing  and  en  banc
reconsideration,  which we opposed.  On October 12,  2006,  the State  Appellate
Court denied plaintiff's motion. We, on advice of legal counsel, believe that it
is not  probable  that a  material  judgment  against  us will be  obtained.  In
accordance  with Statement of Financial  Accounting  Standards No. 5, Accounting
for Contingencies, no liability has been accrued.

ITEM 1A. RISK FACTORS

      There have been no material  changes to our Risk  Factors as  contained in
our Annual Report on Form 10-K for the year ended December 31, 2005.


                                       22
<PAGE>

ITEM 6. EXHIBITS

Exhibit Number                          Description
--------------                          -----------

10.1          Fourth  Amendment  to the Amended and Restated  Credit  Agreement,
              effective  April 1,  2005,  or the  Credit  Agreement,  among  PEI
              Holdings,  Inc., as borrower, and Bank of America, N.A., as Agent,
              and the other lenders from time to time party thereto

       10.1.1     Fourth  Amendment,  dated as of July 21,  2006,  to the Credit
                  Agreement, or the Fourth Amendment

       10.1.2     Reaffirmation of Guaranty,  dated as of July 21, 2006, by each
                  of the Guarantors, pursuant to the Fourth Amendment

10.2          Fifth Amendment to the Credit Agreement, or the Fifth Amendment

       10.2.1     Fifth Amendment, dated as of September 28, 2006, to the Credit
                  Agreement

       10.2.2     Reaffirmation of Guaranty,  dated as of September 28, 2006, by
                  each of the Guarantors, pursuant to the Fifth Amendment

       10.2.3     Joinder  and  Amendment  No. 1 to Master  Corporate  Guaranty,
                  dated as of September 28, 2006, by Playboy Enterprises,  Inc.,
                  Playboy   Enterprises    International,    Inc.,   Spice   Hot
                  Entertainment,  Inc. and Spice Platinum  Entertainment,  Inc.,
                  and  accepted  by Bank of  America,  N.A.,  as  agent  for the
                  Lenders

10.3*         Satellite  Capacity  Lease,  dated as of August 21,  2006,  by and
              among Playboy  Entertainment Group, Inc., Spice Hot Entertainment,
              Inc. and Transponder Encryption Services Corporation

10.4          Amended and Restated Playboy Enterprises, Inc. Board of Directors'
              Deferred Compensation Plan, effective January 1, 2005

10.5          Amended  and   Restated   Playboy   Enterprises,   Inc.   Deferred
              Compensation Plan, effective January 1, 2005

10.6          Fourth  Amendment,  dated as of August 30,  2006,  to the  Playboy
              Enterprises,  Inc.  Employees  Investment Savings Plan (as amended
              and restated effective January 1, 1997)

10.7          Amendment to the Second Amended and Restated Playboy  Enterprises,
              Inc. 1995 Stock Incentive Plan, effective August 30, 2006

10.8          Selected Employment and Termination Agreements

       10.8.1     Employment  Agreement dated as of September 15, 2006,  between
                  Playboy Enterprises, Inc. and Robert Meyers

       10.8.2     Severance  Agreement  dated as of September 18, 2006,  between
                  Playboy Enterprises, Inc. and Robert Meyers

10.9          Chicago Office Lease Documents

       10.9.1     Sixth Amendment to April 7, 1988 Lease effective May 1, 2006

31.1          Certification  of Chief Executive  Officer pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002

31.2          Certification  of Chief Financial  Officer pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002

32            Certification  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

       *      Portions of this exhibit  have been  omitted and filed  separately
              with the Securities and Exchange  Commission pursuant to a request
              for  confidential   treatment   pursuant  to  Rule  24b-2  of  the
              Securities and Exchange Act of 1934.


                                       23
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                             PLAYBOY ENTERPRISES, INC.
                                             -------------------------
                                                  (Registrant)


Date: November 8, 2006                       By  /s/ Linda Havard
      ----------------                           ----------------
                                                 Linda G. Havard
                                                 Executive Vice President,
                                                 Finance and Operations,
                                                 and Chief Financial Officer
                                                 (Authorized Officer and
                                                 Principal Financial and
                                                 Accounting Officer)


                                       24
<PAGE>

                                      EXHIBIT INDEX

Exhibit Number                         Description
--------------                         -----------

10.1          Fourth  Amendment  to the Amended and Restated  Credit  Agreement,
              effective  April 1,  2005,  or the  Credit  Agreement,  among  PEI
              Holdings,  Inc., as borrower, and Bank of America, N.A., as Agent,
              and the other lenders from time to time party thereto

       10.1.1     Fourth  Amendment,  dated as of July 21,  2006,  to the Credit
                  Agreement, or the Fourth Amendment

       10.1.2     Reaffirmation of Guaranty,  dated as of July 21, 2006, by each
                  of the Guarantors, pursuant to the Fourth Amendment

10.2          Fifth Amendment to the Credit Agreement, or the Fifth Amendment

       10.2.1     Fifth Amendment, dated as of September 28, 2006, to the Credit
                  Agreement

       10.2.2     Reaffirmation of Guaranty,  dated as of September 28, 2006, by
                  each of the Guarantors, pursuant to the Fifth Amendment

       10.2.3     Joinder  and  Amendment  No. 1 to Master  Corporate  Guaranty,
                  dated as of September 28, 2006, by Playboy Enterprises,  Inc.,
                  Playboy   Enterprises    International,    Inc.,   Spice   Hot
                  Entertainment,  Inc. and Spice Platinum  Entertainment,  Inc.,
                  and  accepted  by Bank of  America,  N.A.,  as  agent  for the
                  Lenders

10.3*         Satellite  Capacity  Lease,  dated as of August 21,  2006,  by and
              among Playboy  Entertainment Group, Inc., Spice Hot Entertainment,
              Inc. and Transponder Encryption Services Corporation

10.4          Amended and Restated Playboy Enterprises, Inc. Board of Directors'
              Deferred Compensation Plan, effective January 1, 2005

10.5          Amended  and   Restated   Playboy   Enterprises,   Inc.   Deferred
              Compensation Plan, effective January 1, 2005

10.6          Fourth  Amendment,  dated as of August 30,  2006,  to the  Playboy
              Enterprises,  Inc.  Employees  Investment Savings Plan (as amended
              and restated effective January 1, 1997)

10.7          Amendment to the Second Amended and Restated Playboy  Enterprises,
              Inc. 1995 Stock Incentive Plan, effective August 30, 2006

10.8          Selected Employment and Termination Agreements

       10.8.1     Employment  Agreement dated as of September 15, 2006,  between
                  Playboy Enterprises, Inc. and Robert Meyers

       10.8.2     Severance  Agreement  dated as of September 18, 2006,  between
                  Playboy Enterprises, Inc. and Robert Meyers

10.9          Chicago Office Lease Documents

       10.9.1     Sixth Amendment to April 7, 1988 Lease effective May 1, 2006

31.1          Certification  of Chief Executive  Officer pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002

31.2          Certification  of Chief Financial  Officer pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002

32            Certification  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

       *      Portions of this exhibit  have been  omitted and filed  separately
              with the Securities and Exchange  Commission pursuant to a request
              for  confidential   treatment   pursuant  to  Rule  24b-2  of  the
              Securities and Exchange Act of 1934.


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