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, 2005
                                       or
|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from               to
                               -------------    --------------
Commission file number 001-14790

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

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

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

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

      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 an accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_|

      At October 31, 2005,  there were 4,864,102 shares of Class A common stock,
par value $0.01 per share,  and 28,253,294  shares of Class B common stock,  par
value $0.01 per share, outstanding.

<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q
                                TABLE OF CONTENTS

                                     PART I
                              FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                            <C>
Item 1. Financial Statements

             Condensed Consolidated Statements of Operations and
             Comprehensive Income for the Quarters Ended September 30,
             2005 and 2004 (Unaudited)                                          3

             Condensed Consolidated Statements of Operations and
             Comprehensive Loss for the Nine Months Ended September 30,
             2005 and 2004 (Unaudited)                                          4

             Condensed Consolidated Balance Sheets at September 30,
             2005 (Unaudited) and December 31, 2004                             5

             Condensed Consolidated Statements of Cash Flows for the
             Nine Months Ended September 30, 2005 and 2004 (Unaudited)          6

             Notes to Condensed Consolidated Financial Statements (Unaudited)   7

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations                                    12

Item 3. Quantitative and Qualitative Disclosures About Market Risk             19

Item 4. Controls and Procedures                                                19

                                     PART II
                                OTHER INFORMATION

Item 1. Legal Proceedings                                                      19

Item 6. Exhibits                                                               21
</TABLE>


                                       2
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                                                               2005        2004
-------------------------------------------------------------------------------
Net revenues                                               $ 80,884    $ 80,258
-------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                            (62,180)    (59,314)
   Selling and administrative expenses                      (13,355)    (14,239)
-------------------------------------------------------------------------------
      Total costs and expenses                              (75,535)    (73,553)
-------------------------------------------------------------------------------
Operating income                                              5,349       6,705
-------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                            661         114
   Interest expense                                          (1,425)     (2,928)
   Amortization of deferred financing fees                     (135)       (275)
   Minority interest                                           (384)       (364)
   Other, net                                                  (294)        (96)
-------------------------------------------------------------------------------
      Total nonoperating expense                             (1,577)     (3,549)
-------------------------------------------------------------------------------
Income before income taxes                                    3,772       3,156
Income tax expense                                             (594)     (1,229)
-------------------------------------------------------------------------------
Net income                                                    3,178       1,927
===============================================================================

Other comprehensive income (loss)
   Unrealized gain on marketable securities                     107          --
   Unrealized loss on derivatives                               (55)         (3)
   Foreign currency translation adjustments                     (91)         99
-------------------------------------------------------------------------------
      Total other comprehensive income (loss)                   (39)         96
-------------------------------------------------------------------------------
Comprehensive income                                       $  3,139    $  2,023
===============================================================================

Weighted average number of common shares outstanding
   Basic                                                     33,102      33,371
===============================================================================
   Diluted                                                   33,366      33,384
===============================================================================

Basic and diluted earnings per common share                $   0.10    $   0.06
===============================================================================

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


                                       3
<PAGE>

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

                                                            2005           2004
-------------------------------------------------------------------------------
Net revenues                                           $ 247,206      $ 239,845
-------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                        (183,511)      (179,742)
   Selling and administrative expenses                   (40,143)       (42,785)
-------------------------------------------------------------------------------
      Total costs and expenses                          (223,654)      (222,527)
-------------------------------------------------------------------------------
Gains on disposal                                             14              2
-------------------------------------------------------------------------------
Operating income                                          23,566         17,320
-------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                       1,443            337
   Interest expense                                       (5,485)       (10,737)
   Amortization of deferred financing fees                  (501)        (1,007)
   Minority interest                                      (1,124)        (1,066)
   Debt extinguishment expenses                          (19,280)        (5,908)
   Other, net                                             (1,094)          (793)
-------------------------------------------------------------------------------
      Total nonoperating expense                         (26,041)       (19,174)
-------------------------------------------------------------------------------
Loss before income taxes                                  (2,475)        (1,854)
Income tax expense                                        (2,826)        (2,622)
-------------------------------------------------------------------------------
Net loss                                                  (5,301)        (4,476)
-------------------------------------------------------------------------------

Other comprehensive income (loss)
   Unrealized gain on marketable securities                   36            107
   Unrealized gain on derivatives                            202             34
   Foreign currency translation adjustments                  101           (209)
-------------------------------------------------------------------------------
      Total other comprehensive income (loss)                339            (68)
-------------------------------------------------------------------------------
Comprehensive loss                                     $  (4,962)     $  (4,544)
===============================================================================

Net loss                                               $  (5,301)     $  (4,476)
Dividend requirements of preferred stock                      --           (428)
-------------------------------------------------------------------------------
Net loss applicable to common shareholders             $  (5,301)     $  (4,904)
===============================================================================

Basic and diluted weighted average number
   of common shares outstanding                           33,178         30,978
===============================================================================

Basic and diluted loss per common share                $   (0.16)     $   (0.16)
===============================================================================

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


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     (Unaudited)     (Unaudited)
                                                                       Sept. 30,        Dec. 31,
                                                                            2005            2004
------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>
Assets
Cash and cash equivalents                                              $  27,504       $  26,668
Marketable securities and short-term investments                          36,882          24,052
Receivables, net of allowance for doubtful accounts of
   $4,029 and $3,897, respectively                                        39,582          45,084
Receivables from related parties                                           1,280           1,281
Inventories, net                                                          15,021          12,437
Deferred subscription acquisition costs                                   11,021          13,104
Other current assets                                                       8,812           8,596
------------------------------------------------------------------------------------------------
   Total current assets                                                  140,102         131,222
------------------------------------------------------------------------------------------------
Property and equipment, net                                               13,087          11,491
Long-term receivables                                                      2,562           2,755
Programming costs, net                                                    52,482          55,997
Goodwill                                                                 121,897         111,893
Trademarks                                                                60,007          57,296
Distribution agreements, net of accumulated amortization
   of $2,589 and $1,935, respectively                                     30,552          31,206
Other noncurrent assets                                                   18,271          18,721
------------------------------------------------------------------------------------------------
Total assets                                                           $ 438,960       $ 420,581
================================================================================================

Liabilities
Acquisition liabilities                                                $  11,998       $  10,184
Accounts payable                                                          22,437          21,796
Accrued salaries, wages and employee benefits                              8,622           8,286
Deferred revenues                                                         47,088          51,421
Accrued litigation settlement                                              1,000           1,000
Other liabilities and accrued expenses                                    14,947          18,040
------------------------------------------------------------------------------------------------
   Total current liabilities                                             106,092         110,727
------------------------------------------------------------------------------------------------
Financing obligations                                                    115,000          80,000
Acquisition liabilities                                                   14,793          19,085
Net deferred tax liabilities                                              16,868          15,023
Accrued litigation settlement                                                 --           1,000
Other noncurrent liabilities                                              12,974          13,779
------------------------------------------------------------------------------------------------
   Total liabilities                                                     265,727         239,614
------------------------------------------------------------------------------------------------
Minority interest                                                         13,641          12,517

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; 28,630,435
     and 28,521,493 issued, respectively                                     286             285
Capital in excess of par value                                           223,388         222,285
Accumulated deficit                                                      (58,250)        (52,949)
Treasury stock, at cost, 381,971 and 0 shares, respectively               (5,000)             --
Accumulated other comprehensive loss                                        (881)         (1,220)
------------------------------------------------------------------------------------------------
   Total shareholders' equity                                            159,592         168,450
------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                             $ 438,960       $ 420,581
================================================================================================
</TABLE>

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


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      2005           2004
-----------------------------------------------------------------------------------------
<S>                                                              <C>             <C>
Cash flows from operating activities
Net loss                                                         $  (5,301)      $ (4,476)
Adjustments to reconcile net loss to net cash provided by
  (used for) operating activities:
   Depreciation of property and equipment                            2,340          2,390
   Amortization of intangible assets                                 1,260          1,711
   Amortization of investments in entertainment programming         28,131         31,984
   Amortization of deferred financing fees                             501          1,007
   Debt extinguishment expenses                                     19,280          5,908
   Deferred income taxes                                             1,203            534
   Net change in operating assets and liabilities                     (341)          (435)
   Investments in entertainment programming                        (24,276)       (34,211)
   Litigation settlement                                            (1,875)        (6,500)
   Other, net                                                          205            710
-----------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities                21,127         (1,378)
-----------------------------------------------------------------------------------------
Cash flows from investing activities
Payment for acquisition                                             (8,283)            --
Purchases of investments                                           (41,494)       (10,000)
Proceeds from sale of investments                                   28,700             --
Additions to property and equipment                                 (4,010)        (2,308)
Proceeds from disposals                                                 --            150
Other, net                                                              --            201
-----------------------------------------------------------------------------------------
Net cash used for investing activities                             (25,087)       (11,957)
-----------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from financing obligations                                115,000             --
Repayment of financing obligations                                 (80,000)       (35,000)
Proceeds from public equity offering                                    --         51,844
Payment of debt extinguishment expenses                            (15,197)        (3,850)
Payment of acquisition liabilities                                  (5,871)        (8,691)
Purchase of treasury stock                                          (5,000)            --
Payment of deferred financing fees                                  (5,057)            --
Payment of preferred stock dividends                                    --           (651)
Proceeds from stock plans                                              959            407
Other                                                                  (38)           (19)
-----------------------------------------------------------------------------------------
Net cash provided by financing activities                            4,796          4,040
-----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                   836         (9,295)
Cash and cash equivalents at beginning of period                    26,668         31,332
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                       $  27,504       $ 22,037
=========================================================================================
</TABLE>

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


                                       6
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
              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/A for the fiscal year ended  December  31,  2004.  Certain  amounts
reported  for prior  periods  have been  reclassified  to conform to the current
year's  presentation.  At the end of the third  quarter,  we  acquired an online
distribution   business  to   complement   our  current   online   business  for
consideration of $12.0 million, of which $8.0 million was paid at closing,  with
an additional $2.0 million payable on each of the first and second anniversaries
of the closing.  Pursuant to the asset purchase  agreement,  we are obligated to
pay future contingent earnout payments,  payable over a five-year period,  based
primarily on the financial performance of the acquired lines of business.

(B)   RESTRUCTURING EXPENSES

      During the  nine-month  period  ended  September  30,  2005,  we made cash
payments  of  $0.8  million   related  to  our  various   restructuring   plans.
Approximately  $9.8  million  of the  total  restructuring  charges  was paid by
September  30, 2005,  with most of the  remaining  $1.2  million  related to the
consolidation  of our facilities to be paid in the fourth quarter of the current
year with some payments continuing through 2007.

      In 2004, we recorded a  restructuring  charge of $0.5 million  relating to
the  realignment  of our  entertainment  and  online  businesses.  In  addition,
primarily  due to excess office space,  we recorded  additional  charges of $0.4
million related to the 2002 restructuring plan and reversed $0.2 million related
to the 2001 restructuring plan as a result of changes in plan assumptions.

      Our 2002  restructuring  initiative to reduce ongoing  operating  expenses
resulted  in a $5.7  million  charge,  of  which  $2.9  million  related  to the
termination of employees and $2.8 million  related to the  consolidation  of our
office spaces in Los Angeles and Chicago.  Our 2001  restructuring plan resulted
in a $4.6 million  charge,  of which $2.6 million  related to the termination of
employees  and $2.0 million  related to excess space in our Chicago and New York
offices.

The  following  table  displays the  activity and balances of the  restructuring
reserve  for the  year  ended  December  31,  2004,  and the nine  months  ended
September 30, 2005 (in thousands):

<TABLE>
<CAPTION>
                                                        Consolidation
                                         Workforce  of Facilities and
                                         Reduction         Operations            Total
--------------------------------------------------------------------------------------
<S>                                       <C>                <C>              <C>
Balance at December 31, 2003              $    630           $  2,563         $  3,193
Additional reserve recorded                    466                 --              466
Adjustment to previous estimate                 --                278              278
Cash payments                                 (917)            (1,014)          (1,931)
--------------------------------------------------------------------------------------
Balance at December 31, 2004                   179              1,827            2,006
Cash payments                                 (179)              (588)            (767)
--------------------------------------------------------------------------------------
Balance at September 30, 2005             $     --           $  1,239         $  1,239
======================================================================================
</TABLE>


                                       7
<PAGE>

(C)   EARNINGS PER COMMON SHARE

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

                                                                (Unaudited)
                                                              Quarters Ended
                                                                September 30,
                                                          ----------------------
                                                             2005           2004
--------------------------------------------------------------------------------
Numerator:
For basic and diluted EPS - net income                    $ 3,178        $ 1,927
================================================================================

Denominator:
For basic EPS - weighted-average shares                    33,102         33,371
  Effect of dilutive potential common shares:
    Employee stock options and other                          264             13
--------------------------------------------------------------------------------
      Dilutive potential common shares                        264             13
--------------------------------------------------------------------------------
For diluted EPS - weighted-average shares                  33,366         33,384
================================================================================

Basic and diluted earnings per common share               $  0.10        $  0.06
================================================================================

      The  reconciliations  of basic and diluted EPS for the nine-month  periods
ending  September 30, 2005 and 2004, were excluded as both periods resulted in a
net  loss  position;   therefore,   potential  common  shares  would  have  been
antidilutive.

The following  table  represents  the  approximate  number of shares  related to
options  to  purchase  our  Class B common  stock,  or Class B stock,  that were
outstanding,  which were not included in the  computation of diluted EPS, as the
inclusion of these shares would have been antidilutive (in thousands):

                                     Quarters Ended            Nine Months Ended
                                      September 30,              September 30,
                                   ------------------        -------------------
                                    2005         2004         2005          2004
--------------------------------------------------------------------------------
Stock options                      1,866        3,262        2,576         2,636
--------------------------------------------------------------------------------
Total                              1,866        3,262        2,576         2,636
================================================================================

      In addition,  in accordance  with  Emerging  Issues Task Force Issue 04-8,
"The Effect of Contingently Convertible Debt on Diluted Earnings per Share", the
shares used in the calculation of diluted EPS also exclude the potential  shares
of Class B stock  contingently  issuable  under  our  3.00%  convertible  senior
secured  notes  because the shares are  antidilutive.  See  Footnote  (I),  Debt
Refinancing, for additional information.

(D) INVENTORIES, NET

Inventories,  net of reserves,  which are stated at the lower of cost  (specific
cost and average cost) or fair value, consisted of the following (in thousands):

                                                      (Unaudited)
                                                        Sept. 30,      Dec. 31,
                                                             2005          2004
-------------------------------------------------------------------------------
Paper                                                    $  4,818     $   2,573
Editorial and other prepublication costs                    7,254         7,814
Merchandise finished goods                                  2,949         2,050
-------------------------------------------------------------------------------
Total inventories, net                                   $ 15,021     $  12,437
===============================================================================

(E)   INCOME TAXES

      Our income tax  provision  consists  of foreign  income tax related to our
international  networks and withholding tax on licensing  income for which we do
not receive a current U.S.  income tax benefit because of our net operating loss
position.  The 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.  During the third
quarter,  we recorded a $0.5 million  adjustment  to our tax  provision due to a
refund related to our European television operations.


                                       8
<PAGE>

(F)   CONTINGENCIES

      In order to create  opportunities  to promote  our  websites  to a broader
audience and enhance our current  product  offerings,  at the end of the current
year  quarter we  acquired an online  distribution  business  with an  extensive
affiliate network. Pursuant to the asset purchase agreement, we are obligated to
pay future contingent earnout payments,  payable over a five-year period,  based
primarily on the financial  performance  of the acquired  lines of business.  As
contingencies  have not been met as of September 30, 2005, these amounts are not
recorded.  If future payments are made based on contingencies being met, amounts
will be recorded as a combination of additional  purchase price and compensation
expense.

      In the fourth  quarter of 2003,  we recorded  $8.5 million  related to the
settlement  of the Logix  litigation,  which related to events prior to our 1999
acquisition of Spice Entertainment Companies,  Inc., or Spice. We made a payment
of $6.5  million in February  2004 and a payment of $1.0 million in January 2005
and will make the remaining payment of $1.0 million in 2006.

      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 to us under the  license  agreement.  We have posted a bond in the amount of
$8.5 million,  which represents the amount of the judgment,  costs and estimated
pre- and post-judgment interest. We, on advice of legal counsel, believe that it
is not probable that a material  judgment  against us will be sustained and have
not  recorded  a  liability  for  this  case in  accordance  with  Statement  5,
Accounting for Contingencies. We are currently pursuing an appeal.

(G)   STOCK-BASED COMPENSATION

      We account for stock options as prescribed by Accounting  Principles Board
Opinion, or APB, No. 25, Accounting for Stock Issued to Employees,  and disclose
pro forma information as provided by Statement 123, as amended by Statement 148,
Accounting  for Stock  Based  Compensation.  In  December  2004,  the  Financial
Accounting  Standards  Board (the "FASB") issued  Statement 123 (revised  2004),
Share-Based Payment ("Statement 123(R)"), which supersedes APB No. 25 and amends
Statement  No. 95,  Statement  of Cash Flows.  The  implementation  of Statement
123(R) has since been  delayed and will be  effective  for the first fiscal year
beginning  after June 15,  2005.  We are required to adopt  Statement  123(R) on
January 1, 2006,  and will  utilize  the  modified  prospective  method.  We are
currently conducting an analysis of the impact on our financial statements.

      Pro forma net  income  (loss) and net  income  (loss)  per  common  share,
presented below (in thousands,  except per share amounts), were determined as if
we had  accounted for our stock options under the fair value method of Statement
123. The fair value of these options was estimated at the date of grant using an
option  pricing  model.  Such  models  require  the input of  highly  subjective
assumptions, including the expected volatility of the stock price. For pro forma
disclosures,  the options' estimated fair value was amortized over their vesting
period. No stock-based  employee  compensation expense is recognized because all
options granted under those plans had an exercise price equal to or in excess of
the  market  value of the  underlying  common  stock at the  grant  date.  If we
accounted  for our employee  stock  options under  Statement  123,  compensation
expense  related to stock  options  would have been $0.7 million for each of the
quarters  ended  September 30, 2005 and 2004,  and $2.2 million and $2.1 million
for the nine months ended September 30, 2005 and 2004, respectively.

                                   Quarters Ended       Nine Months Ended
                                    September 30,         September 30,
                                 ------------------    ------------------
                                    2005       2004       2005       2004
-------------------------------------------------------------------------
Net income (loss)
   As reported                   $ 3,178    $ 1,927    $(5,301)   $(4,476)
   Pro forma                       2,441      1,238     (7,460)    (6,567)

Basic and Diluted EPS
   As reported                   $  0.10    $  0.06    $ (0.16)   $ (0.16)
   Pro forma                        0.07       0.04      (0.22)     (0.23)
-------------------------------------------------------------------------

      Our  restricted  stock unit  expense was $0.5 million and $0.1 million for
the quarters ended September 30, 2005 and 2004,  respectively,  and $1.2 million
and  $0.4  million  for the nine  months  ended  September  30,  2005 and  2004,
respectively, as it is probable that the performance criteria will be met.


                                       9
<PAGE>

(H)   SEGMENT INFORMATION

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

<TABLE>
<CAPTION>
                                                  Quarters Ended                 Nine Months Ended
                                                   September 30,                   September 30,
                                             -----------------------       -------------------------
                                                 2005           2004            2005            2004
----------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>             <C>
Net revenues
Entertainment                                $ 47,765       $ 46,153       $ 147,123       $ 136,017
Publishing                                     27,224         29,521          79,758          88,291
Licensing                                       5,895          4,584          20,325          15,537
----------------------------------------------------------------------------------------------------
Total                                        $ 80,884       $ 80,258       $ 247,206       $ 239,845
====================================================================================================
Income (loss) before income taxes
Entertainment                                $  7,289       $  7,802       $  29,099       $  18,456
Publishing                                       (704)         1,275          (3,444)          5,239
Licensing                                       3,165          2,614          10,648           7,564
Corporate Administration and Promotion         (4,401)        (4,986)        (12,751)        (13,941)
Gain on disposal                                   --             --              14               2
Investment income                                 661            114           1,443             337
Interest expense                               (1,425)        (2,928)         (5,485)        (10,737)
Amortization of deferred financing fees          (135)          (275)           (501)         (1,007)
Minority interest                                (384)          (364)         (1,124)         (1,066)
Debt extinguishment expenses                       --             --         (19,280)         (5,908)
Other, net                                       (294)           (96)         (1,094)           (793)
----------------------------------------------------------------------------------------------------
Total                                        $  3,772       $  3,156       $  (2,475)      $  (1,854)
====================================================================================================
</TABLE>

Prior  period  segment  information  has  been  restated  as  a  result  of  the
realignment  of  our   Entertainment  and  Online  businesses  into  a  combined
Entertainment segment, as announced during the fourth quarter of 2004.

                                                       (Unaudited)
                                                         Sept. 30,      Dec. 31,
                                                              2005          2004
--------------------------------------------------------------------------------
Identifiable assets
Entertainment                                            $ 274,535    $  266,736
Publishing                                                  39,124        45,724
Licensing                                                    6,553         5,344
Corporate Administration and Promotion (1)                 118,748       102,777
--------------------------------------------------------------------------------
Total (1)                                                $ 438,960    $  420,581
================================================================================

(1)   The increase in identifiable assets since December 31, 2004, was primarily
      due to our  debt  refinancing  in  March  2005.  See  Footnote  (I),  Debt
      Refinancing.

(I)   DEBT REFINANCING

      On March 15,  2005,  we  issued  and sold in a  private  placement  $100.0
million aggregate  principal amount of our 3.00% convertible senior subordinated
notes due 2025, or the convertible  notes. On March 28, 2005, we issued and sold
in a private placement an additional $15.0 million aggregate principal amount of
the  convertible  notes  due  to  the  initial   purchasers'   exercise  of  the
over-allotment option. The net proceeds of approximately $110.3 million from the
issuance  and  sale  of the  convertible  notes,  after  deducting  the  initial
purchasers'  discount and estimated  offering expenses payable by us, were used,
together  with  available  cash,  (i) to  complete  a tender  offer and  consent
solicitation  for, and to purchase  and retire,  all $80.0  million  outstanding
principal  amount of the  11.00%  senior  secured  notes of our  subsidiary  PEI
Holdings,  Inc.,  or  Holdings,  for a total  of  approximately  $95.2  million,
including  the bond tender  premium  and consent fee of $14.9  million and other
expenses of $0.3 million,  (ii) to purchase  381,971 shares of our Class B stock
for an aggregate  purchase price of $5.0 million  concurrently  with the sale of
the  convertible  notes and (iii) for  working  capital  and  general  corporate
purposes.

      The  convertible  notes bear  interest at a rate of 3.00% per annum on the
principal amount of the notes, payable  semi-annually in arrears on March 15 and
September 15 of each year,  beginning on September 15, 2005. In addition,  under
certain circumstances beginning in 2012, if the trading price of the convertible
notes exceeds a specified threshold during a prescribed measurement period prior
to any semi-annual  interest period,  contingent interest will become payable on
the convertible notes for that semi-annual  interest period at an annual rate of
0.25% per annum.


                                       10
<PAGE>

      The convertible notes are convertible into cash and, if applicable, shares
of our Class B stock based on an initial conversion rate, subject to adjustment,
of 58.7648 shares per $1,000  principal  amount of the convertible  notes (which
represents an initial  conversion price of approximately  $17.02 per share) only
under the  following  circumstances:  (1) during any  fiscal  quarter  after the
fiscal  quarter  ending March 31, 2005, if the closing sale price of our Class B
stock  for  each of 20 or  more  consecutive  trading  days  in a  period  of 30
consecutive  trading  days  ending on the last  trading  day of the  immediately
preceding  fiscal quarter exceeds 130% of the conversion price in effect on that
trading day; (2) during the five business day period after any five  consecutive
trading  day period in which the  average  trading  price per  $1,000  principal
amount of convertible  notes over that five  consecutive  trading day period was
equal to or less than 95% of the  average  conversion  value of the  convertible
notes  during  that  period;  (3) upon the  occurrence  of  specified  corporate
transactions,  as set forth in the indenture governing the convertible notes; or
(4) if we have called the convertible notes for redemption. Upon conversion of a
convertible note, a holder will receive cash in an amount equal to the lesser of
the  aggregate  conversion  value of the note being  converted and the aggregate
principal amount of the note being converted.  If the aggregate conversion value
of the convertible note being converted is greater than the cash amount received
by the holder, the holder will also receive an amount in whole shares of Class B
stock equal to the aggregate  conversion  value less the cash amount received by
the holder. A holder will receive cash in lieu of any fractional shares of Class
B stock.

      The  convertible  notes  mature on March 15,  2025.  On or after March 15,
2010, if the closing  price of our Class B stock exceeds a specified  threshold,
we may redeem any of the convertible  notes at a redemption  price in cash equal
to 100% of the  principal  amount of the  notes,  plus any  accrued  and  unpaid
interest up to, but excluding,  the redemption date. On or after March 15, 2012,
we may at any time redeem any of the  convertible  notes at the same  redemption
price. On each of March 15, 2012, March 15, 2015 and March 15, 2020, or upon the
occurrence of a fundamental  change, as specified in the indenture governing the
convertible notes,  holders may require us to purchase all or a portion of their
convertible  notes at a purchase  price in cash  equal to 100% of the  principal
amount of the notes,  plus any accrued and unpaid interest up to, but excluding,
the purchase date.

      The convertible notes are unsecured senior subordinated obligations of the
issuer,  Playboy  Enterprises,  Inc., or Playboy,  and rank junior to all of the
issuer's senior debt,  including its guarantee of Holdings' borrowings under our
credit  facility;  equally with all of the issuer's  future senior  subordinated
debt; and senior to all of the issuer's future  subordinated  debt. In addition,
the assets of the issuer's  subsidiaries  are subject to the prior claims of all
creditors, including trade creditors, of those subsidiaries.

(J) SUBSEQUENT EVENT

      On  November  3,  2005,   Playboy  purchased  the  outstanding  shares  of
Playboy.com Series A Preferred Stock held by Hugh M. Hefner, our Editor-in-Chief
and Chief Creative Officer, for $6.9 million. The repurchase amount was equal to
the original issue price plus 8% per annum compounded annually from the issuance
date through October 31, 2005. As a result of the  repurchase,  Playboy now owns
approximately 97% of the outstanding equity of Playboy.com and is in discussions
with the one remaining preferred  shareholder that owns Series A Preferred Stock
with an aggregate  original  purchase price of $5,147,778  about a repurchase of
its shares.

      The shares of Playboy.com  Series A Preferred  Stock were issued on August
13, 2001 at an issue price of $7.1097 per share. From and after August 10, 2006,
the holders of the Series A Preferred Stock could require  Playboy.com to redeem
any and all of  their  shares  of  Playboy.com  Series  A  Preferred  Stock at a
redemption  price equal to the original issue price plus 8% per annum compounded
annually  through the redemption  date. At August 10, 2006,the  redemption price
for Mr. Hefner's shares would have been $7.4 million.


                                       11
<PAGE>

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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                      Quarters Ended              Nine Months Ended
                                                                        September 30,                September 30,
                                                                    -------------------          -------------------
                                                                      2005         2004(1)         2005         2004(1)
--------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>             <C>          <C>
Net revenues
Entertainment
   Domestic TV networks                                             $ 25.4       $ 24.5          $ 75.5       $ 71.4
   International                                                      12.2         11.3            37.5         32.2
   Online subscriptions                                                5.4          5.3            16.9         15.4
   E-commerce                                                          3.6          3.4            13.9         12.0
   Other                                                               1.1          1.6             3.3          5.0
--------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                47.7         46.1           147.1        136.0
--------------------------------------------------------------------------------------------------------------------
Publishing
   Playboy magazine                                                   22.5         24.6            67.5         74.8
   Other domestic publishing                                           3.2          3.4             7.4          8.9
   International publishing                                            1.6          1.5             4.9          4.6
--------------------------------------------------------------------------------------------------------------------
   Total Publishing                                                   27.3         29.5            79.8         88.3
--------------------------------------------------------------------------------------------------------------------
Licensing
   International licensing                                             4.2          3.1            13.3          8.9
   Domestic licensing                                                  0.8          0.8             2.4          2.3
   Entertainment licensing                                             0.5          0.5             1.5          1.5
   Marketing events                                                    0.2          0.2             2.8          2.7
   Other                                                               0.2           --             0.3          0.1
--------------------------------------------------------------------------------------------------------------------
   Total Licensing                                                     5.9          4.6            20.3         15.5
--------------------------------------------------------------------------------------------------------------------
Total net revenues                                                  $ 80.9       $ 80.2          $247.2       $239.8
====================================================================================================================
Net income (loss)
Entertainment
   Before programming amortization and online content expenses      $ 17.0       $ 18.9          $ 58.8       $ 52.2
   Programming amortization and online content expenses               (9.7)       (11.0)          (29.7)       (33.8)
--------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                 7.3          7.9            29.1         18.4
--------------------------------------------------------------------------------------------------------------------
Publishing                                                            (0.7)         1.2            (3.4)         5.2
--------------------------------------------------------------------------------------------------------------------
Licensing                                                              3.1          2.6            10.6          7.6
--------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion                                (4.3)        (5.0)          (12.7)       (13.9)
--------------------------------------------------------------------------------------------------------------------
Operating income                                                       5.4          6.7            23.6         17.3
--------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                   0.6          0.1             1.4          0.3
   Interest expense                                                   (1.4)        (2.9)           (5.5)       (10.7)
   Amortization of deferred financing fees                            (0.1)        (0.3)           (0.5)        (1.0)
   Minority interest                                                  (0.4)        (0.4)           (1.1)        (1.1)
   Debt extinguishment expenses                                         --           --           (19.3)        (5.9)
   Other, net                                                         (0.4)        (0.1)           (1.1)        (0.8)
--------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                            (1.7)        (3.6)          (26.1)       (19.2)
--------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                      3.7          3.1            (2.5)        (1.9)
Income tax expense                                                    (0.5)        (1.2)           (2.8)        (2.6)
--------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                   $  3.2       $  1.9          $ (5.3)      $ (4.5)
====================================================================================================================
Basic and diluted EPS                                               $ 0.10       $ 0.06          $(0.16)      $(0.16)
====================================================================================================================
</TABLE>

(1)   Prior period information has been restated, as a result of the realignment
      of our Entertainment and Online businesses,  into a combined Entertainment
      segment, as announced during the fourth quarter of 2004.


                                       12
<PAGE>

      Our revenues increased $0.7 million,  or 1%, and $7.4 million,  or 3%, for
the quarter and nine-month period,  respectively.  Both periods were impacted by
expected lower revenues from our  Publishing  Group,  more than offset by higher
Entertainment and Licensing Group revenues.

      Our operating  income  decreased $1.3 million,  or 20%, and increased $6.3
million,  or 36%,  for the  quarter and  nine-month  period,  respectively.  The
quarter  decreased due to lower results from our  Publishing  and  Entertainment
Groups,  partially offset by strong results from our Licensing Group.  Operating
income  increased for the nine-month  period due to improved  operating  results
from our Entertainment  and Licensing Groups,  partially offset by lower results
from our Publishing Group.

      Net income of $3.2  million for the quarter was $1.3  million  higher than
the prior year quarter, reflecting a decrease in interest expense related to our
first quarter debt  refinancing.  Net loss for the current  nine-month period of
$5.3 million includes $19.3 million of debt extinguishment  expenses compared to
$5.9 million in the prior year period.

      Several  of  our  businesses   can  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 of
each of our Entertainment  Group businesses before programming  amortization and
online content expenses.

      Revenues from our domestic TV networks business increased $0.9 million, or
4%,  and  $4.1  million,   or  6%,  for  the  quarter  and  nine-month   period,
respectively.  Direct-to-home,  or DTH, revenues increased $1.1 million, or 20%,
and $3.0 million,  or 19%, for the quarter and nine-month period,  respectively,
due to subscriber growth and an increase in average pay-per-view,  or PPV, buys.
Playboy TV cable  revenues  were  relatively  flat for the quarter and decreased
$0.5 million for the nine-month  period.  The quarter results were impacted by a
decrease  in PPV buys,  but mostly  offset by an  increase in Playboy TV monthly
subscription  revenues. For the nine-month period, PPV buys decreased as certain
cable  companies   continued  to  migrate  consumers  from  linear  channels  to
video-on-demand,  or VOD. Also as a result of this  transition to VOD,  revenues
from our movie networks  decreased $1.1 million and $2.4 million for the quarter
and nine-month period,  respectively.  VOD revenues  increased $0.9 million,  or
116%,  for the quarter and increased  $2.6 million,  or 102%, for the nine-month
period.  Our VOD business  experienced this growth due to the continued roll out
of VOD  service  in  additional  cable  systems  as well as a growing  number of
consumer buys in existing  cable  systems.  Favorably  impacting the  nine-month
period was the discontinuation of a distributor's  high-definition  subscription
service  agreement,  which  resulted  in  the  accelerated  recognition  of  the
remaining  $1.4  million  of  deferred  revenue   associated  with  the  service
agreement. Profit contribution from domestic TV networks decreased $1.4 million,
or 8%, for the quarter primarily due to a one-time,  $1.3 million adjustment for
a contractual obligation related to licensed programming recorded in the current
quarter combined with an increase in cable and satellite  marketing expenses due
to  reimbursements  received in the prior year  quarter.  Conversely,  decreased
marketing and overhead  expenses  combined with the revenue  activity  described
above  resulted  in a $3.2  million  increase  in  profit  contribution  for the
nine-month period.

      International revenues increased $0.9 million, or 9%, and $5.3 million, or
17%,  for the quarter and  nine-month  period,  respectively.  Revenues  for the
quarter and nine-month period increased due to the launch of new networks in the
U.K.,  as well as in  Australia  and  Germany,  in the prior  year  quarter  and
revenues from several third-party  licensees.  Increased royalties from wireless
agreements also contributed favorably in both periods.  Profit contribution from
our  international  businesses  was  flat for the  quarter  and  increased  $2.6
million,  or 21%, for the  nine-month  period,  respectively,  due to the higher
revenues mentioned above in both periods,  mostly offset by increased  marketing
and bad debt expenses  during the quarter and  partially  offset by higher costs
related to the new U.K. channels in the nine-month period.


                                       13
<PAGE>

      Online  subscription  revenues were  relatively  flat and  increased  $1.5
million,  or 10%, for the quarter and nine-month  period,  respectively.  Profit
contribution  decreased $0.5 million or 5%, and increased  $0.6 million,  or 6%,
for the quarter and nine-month periods,  respectively.  Our increased technology
investments,  new marketing  initiatives and the recent acquisition of an online
distribution  business  are expected to return this  business to its  historical
growth rate.

      E-commerce  revenues increased $0.2 million,  or 6%, and $1.9 million,  or
16%, for the quarter and nine-month period, respectively. A $1.2 million payment
due to the termination of a marketing  alliance  favorably impacted revenues for
the nine-month period. Increased  business-to-business revenues also contributed
favorably in both periods.  Profit  contribution from e-commerce  decreased $0.4
million and $0.6 million for the quarter and  nine-month  period,  respectively,
due to  increased  product  fulfillment  and system  support  costs and bad debt
expense  combined  with  higher  anticipated  paper  costs  in the  quarter  and
nine-month  period.  Expenses  associated  with the production of a test catalog
also impacted the nine-month period.

      Profit  contribution  from other  businesses  was flat for the quarter and
decreased $0.2 million for the nine-month period.

      The group's  administrative  expenses  decreased  for both the quarter and
nine-month  period  due in part to  lower  legal  costs  in both  periods  and a
contractually  obligated  severance charge recorded in the nine-month  period of
the prior year.

      Segment  income  for the group  decreased  $0.6  million,  or 7%,  for the
quarter and increased $10.7 million, or 58%, for the nine-month period primarily
due to the  previously  mentioned  revenue  activity and a one-time  adjustment.
Segment income was favorably impacted by both lower administrative  expenses and
lower  programming  amortization  and online content  expenses,  which were $1.3
million,  or 12%, lower for the quarter and $4.1 million,  or 12%, lower for the
nine-month period primarily due to the mix of programming. We continue to expect
that our cash programming investments for television will be approximately $38.0
million for the year, down nearly 10% from last year, and online content expense
will be approximately $2.0 million. We expect programming  amortization  expense
related to television to decline to about $38.0 million for the year,  down from
$41.7  million  in  2004,  and  online  content   amortization   expense  to  be
approximately $2.0 million, down from $2.3 million in 2004.

PUBLISHING GROUP

      Playboy magazine revenues decreased $2.1 million, or 8%, and $7.3 million,
or 10%, for the quarter and nine-month period, respectively.  Newsstand revenues
were  relatively  flat  for  the  quarter  and  declined  $1.7  million  for the
nine-month  period,  primarily  due to fewer  copies sold,  partially  offset by
higher  display  costs in both  periods  in the prior  year.  Additionally,  the
current  year  nine-month  period  included an  unfavorable  adjustment  of $0.1
million  related to prior  year  issues  compared  to a $0.4  million  favorable
adjustment in the prior year period.  Subscription revenues were relatively flat
for the quarter and decreased $1.3 million for the nine-month period,  primarily
due to lower average net revenue per copy in the current year periods, partially
offset by an increase in the number of subscription copies served in the current
year periods.  Also  contributing to the decrease for the nine-month period were
higher favorable  adjustments  recorded in the prior year to recognize  revenues
for paid subscriptions that will not be served and lower list rental revenues in
the current year.  Advertising  revenues decreased $1.8 million and $4.4 million
for the quarter and nine-month  period,  respectively,  due to fewer advertising
pages. Additionally, the decrease for the quarter was partially offset by higher
net revenue per page while the nine-month period reflected lower net revenue per
page.  Advertising sales for the 2005 fourth quarter magazine issues are closed,
and we expect to report  approximately  23% lower  advertising  revenues and 23%
fewer advertising pages compared to the 2004 fourth quarter.

      Revenues from our other  domestic  publishing  businesses  decreased  $0.2
million, or 8%, and $1.5 million, or 17%, for the quarter and nine-month period,
respectively,  primarily due to fewer newsstand  copies of special editions sold
in the current year  periods and higher  unfavorable  adjustments  to prior year
issues for the nine-month  period.  An expected decrease in royalties from books
published in prior  periods  also  contributed  to the revenue  decrease for the
nine-month period.

      International  publishing revenues were relatively flat and increased $0.3
million, or 7%, for the quarter and nine-month period,  respectively,  primarily
due to higher royalties from the German edition.


                                       14
<PAGE>

      The group's segment income decreased $1.9 million and $8.6 million for the
quarter and nine-month period,  respectively,  as a result of the lower revenues
discussed above combined with higher subscription  acquisition  expenses of $0.3
million and $1.3 million and higher paper costs of $0.6 million and $1.4 million
for the quarter and nine-month period, respectively,  partially offset by a $1.0
million and $1.9  million  decrease in  editorial  expenses  for the quarter and
nine-month period, respectively.

LICENSING GROUP

      Licensing Group revenues increased $1.3 million, or 29%, and $4.8 million,
or 31%, for the quarter and nine-month  period,  respectively,  primarily due to
higher royalties from existing and new licensees in Europe and Asia. The group's
segment income increased $0.5 million, or 21%, and $3.0 million, or 41%, for the
quarter  and  nine-month  period,  respectively,  due to the  revenue  increase,
partially  offset by  higher  revenue-related  expenses  and  development  costs
related to our location-based entertainment business.

CORPORATE ADMINISTRATION AND PROMOTION

Corporate  Administration and Promotion expenses decreased $0.7 million, or 12%,
for the quarter and $1.2 million, or 9%, for the nine-month period primarily due
to a legal  settlement  and  the  reclassification  of a  senior  position  from
Corporate to a division that impacted prior year periods, partially offset by an
increase in internal audit expenses in the current year periods.

NONOPERATING INCOME (EXPENSES)

      The  nine-month  period  included  debt  extinguishment  expenses of $19.3
million  related to our  redemption  of all $80.0  million of the 11.00%  senior
secured notes due 2010, or the senior secured notes,  issued by our  subsidiary,
PEI Holdings,  Inc., or Holdings. These expenses were comprised of $14.9 million
of bond redemption  premium  combined with $0.3 million of related  expenses and
$4.1 million for the non-cash write-off of the related deferred financing costs.
The senior secured notes were repurchased  using the proceeds of the issuance of
$115.0 million of 3.00% convertible  senior  subordinated notes due 2025, or the
convertible  notes.  The prior year  nine-month  period included $5.9 million of
debt  extinguishment  expenses  related  to  our  redemption  of  $35.0  million
aggregate principal amount of the senior secured notes. Reduced interest expense
of $1.5  million  and  $5.2  million  for the  quarter  and  nine-month  period,
respectively,  related to the lower interest rate on the new convertible  notes,
partially offset the redemption expenses.

INCOME TAX EXPENSE

      Our  effective  income tax rate differs  from U.S.  statutory  rates.  The
income tax provision consists of foreign income tax related to our international
networks and withholding  tax on licensing  income for which we do not receive a
current U.S. income tax benefit because of our net operating loss position.  The
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.  During the third quarter, we recorded a
$0.5 million  adjustment  to our tax  provision  due to a refund  related to our
European television operations.

LIQUIDITY AND CAPITAL RESOURCES

      At September 30, 2005,  we had $27.5 million in cash and cash  equivalents
compared to $26.7 million in cash and cash  equivalents at December 31, 2004. At
September  30, 2005, we had $32.1  million of auction rate  securities,  or ARS,
included in  short-term  investments  compared to $20.0  million at December 31,
2004. ARS generally have long-term maturities;  however,  these investments have
characteristics  similar to  short-term  investments  because  at  predetermined
intervals,  typically  every 28  days,  there is a new  auction  process.  Total
financing  obligations  were $115.0  million and $80.0  million at September 30,
2005, and December 31, 2004, respectively.

      At September 30, 2005, our liquidity  requirements  were being provided by
cash generated from our operating activities, existing cash and cash equivalents
and short-term investments. At September 30, 2005, we had 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, 2005,  there were no borrowings  and
$10.8 million in letters of credit  outstanding under this facility,  permitting
$39.2 million of available borrowings under this facility. See "Credit Facility"
for additional information.


                                       15
<PAGE>

DEBT FINANCINGS

      On March 15,  2005,  we  issued  and sold in a  private  placement  $100.0
million aggregate  principal amount of our 3.00% convertible senior subordinated
notes due 2025. On March 28, 2005, we issued and sold in a private  placement an
additional $15.0 million aggregate principal amount of the convertible notes due
to the  initial  purchasers'  exercise  of the  over-allotment  option.  The net
proceeds of  approximately  $110.3  million  from the  issuance  and sale of the
convertible  notes,  after  deducting  the  initial  purchasers'   discount  and
estimated  offering  expenses payable by us, were used,  together with available
cash,  (i) to  complete a tender  offer and  consent  solicitation  for,  and to
purchase  and retire,  all $80.0  million  outstanding  principal  amount of the
11.00%  senior  secured  notes,  for a total  of  approximately  $95.2  million,
including  the bond tender  premium  and consent fee of $14.9  million and other
expenses of $0.3 million,  (ii) to purchase 381,971 shares of our Class B common
stock,  or Class B  stock,  for an  aggregate  purchase  price  of $5.0  million
concurrently  with the sale of the  convertible  notes  and  (iii)  for  working
capital and general corporate  purposes.  Also, on March 15, 2005,  concurrently
with the convertible  note offering,  Hugh M. Hefner,  our  Editor-In-Chief  and
Chief  Creative  Officer,  purchased  381,971 shares of our Class B stock for an
aggregate purchase price of $5.0 million.

      The  convertible  notes bear  interest at a rate of 3.00% per annum on the
principal amount of the notes, payable  semi-annually in arrears on March 15 and
September  15 of each year,  beginning  on  September  15,  2005.  In  addition,
beginning in March 2012, if the trading price of the convertible notes exceeds a
specified  threshold  during  a  prescribed  measurement  period  prior  to  any
semi-annual  interest  period,  contingent  interest will become  payable on the
convertible  notes for that  semi-annual  interest  period at an annual  rate of
0.25% per annum. The notes are convertible  under specified  circumstances  into
cash  and,  if  applicable,  shares  of our  Class B stock  based on an  initial
conversion rate of 58.7648 shares per $1,000 principal amount of the convertible
notes (which represents an initial conversion price of approximately  $17.02 per
share).  In general,  upon  conversion of a convertible  note, the holder of the
note will receive cash in an amount  equal to the  principal  amount of the note
and Class B stock for the  note's  conversion  value in excess of the  principal
amount. See Footnote (I), Debt Refinancing, for additional information.

      The  convertible  notes  mature on March 15,  2025.  On or after March 15,
2010, if the closing  price of our Class B stock exceeds a specified  threshold,
we may redeem any of the convertible  notes at a redemption  price in cash equal
to 100% of the  principal  amount of the  notes,  plus any  accrued  and  unpaid
interest to, but excluding,  the redemption date. On or after March 15, 2012, we
may at any time  redeem  any of the  convertible  notes  at the same  redemption
price. On each of March 15, 2012, March 15, 2015 and March 15, 2020, or upon the
occurrence of a fundamental  change, as specified in the indenture governing the
convertible notes,  holders may require us to purchase all or a portion of their
convertible  notes at a purchase  price in cash  equal to 100% of the  principal
amount of the notes,  plus any accrued and unpaid interest up to, but excluding,
the purchase date.

      The convertible notes are unsecured senior subordinated obligations of the
issuer,  Playboy  Enterprises,  Inc., or Playboy,  and rank junior to all of the
issuer's senior debt,  including its guarantee of Holdings' borrowings under our
credit  facility;  equally with all of the issuer's  future senior  subordinated
debt; and senior to all of the issuer's future  subordinated  debt. In addition,
the assets of the issuer's  subsidiaries  are subject to the prior claims of all
creditors, including trade creditors, of those subsidiaries.

CREDIT FACILITY

      Effective April 1, 2005, Holdings and its lenders amended and restated the
credit agreement  governing our credit facility,  primarily to increase the size
of the credit facility from $30.0 million to $50.0 million.  Our credit facility
provides for  revolving  borrowings  by Holdings of up to $50.0  million and the
issuance  of up to $30.0  million in letters of credit,  subject to a maximum of
$50.0 million in combined  borrowings  and letters of credit  outstanding at any
time.  Borrowings  under the credit  facility bear interest at a variable  rate,
equal to a specified  Eurodollar,  LIBOR or base rate plus a specified borrowing
margin  based on our  Transactions  Adjusted  EBITDA,  as  defined in the credit
agreement.  We pay fees on the outstanding amount of letters of credit under the
credit  facility  based on the  margin  that  applies  to  borrowings  that bear
interest  at a rate based on LIBOR.  All  amounts  outstanding  under the credit
facility will mature on April 1, 2008.  Holdings'  obligations as borrower under
the  credit   facility  are  guaranteed  by  us  and  each  of  our  other  U.S.
subsidiaries,  except for Playboy.com and its  subsidiaries.  The obligations of
the borrower and each of the guarantors under the credit facility are secured by
a first-priority lien on substantially all of the borrower's and the guarantors'
assets.


                                       16
<PAGE>

CALIFA ACQUISITION

      The  Califa  acquisition  agreement  gave us the  option of  paying  $17.5
million of the remaining $23.5 million purchase price consideration  obligation,
as of September 30, 2005, in cash or in shares of Class B stock. We notified the
sellers that the $7.0 million of base consideration due in 2005 would be paid in
cash. Under the terms of the agreement,  the base  consideration  was due in two
installments  of $3.5  million,  one of which was paid on May 2,  2005,  and the
other which was paid on November 1, 2005.

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash  provided  by  operating  activities  was $21.1  million  for the
nine-month period,  which represents an increase of $22.5 million from the prior
year  period.  This  increase is  primarily  due to improved  overall  operating
results  combined with a decrease in  investments  in television  programming of
$9.9 million and a decrease in legal settlement  payments of approximately  $4.6
million compared to the prior year period.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash used for investing  activities  increased $13.1 million primarily
due to investments made in auction rate securities during the nine-month period.
During  the  third  quarter,   $8.3  million  was  used  to  acquire  an  online
distribution  business to complement our current  business.  An additional  $2.0
million is payable on each of the first and second anniversaries of the closing.
Additionally,  $4.0 million of cash was used for capital expenditures  primarily
related to our Andrita and U.K. studios.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net  cash  provided  by  financing  activities  was $4.8  million  for the
nine-month  period primarily due to the proceeds from the sale of $115.0 million
aggregate principal amount of convertible notes, partially offset by the payment
of $94.9  million in  connection  with the purchase and  retirement of all $80.0
million  outstanding  principal  amount of Holdings' 11.00% senior secured notes
and the payment of $0.3 million in associated debt  extinguishment  expenses and
$5.1 million of related  financing  fees.  Proceeds  from the  convertible  note
offering were also used to purchase  381,971  shares of our Class B stock for an
aggregate  purchase price of $5.0 million.  See Footnote (I), Debt  Refinancing,
for additional information.


                                       17
<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  or rates  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 or  convertible  preferred
      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  and Internet  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)  The impact of  industry  consolidation,  any decline in our access to, and
      acceptance  by,  DTH  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,   joint  ventures  and/or  licensing
      arrangements;

(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, postage or printing costs;

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

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


                                       18
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      At  September  30,  2005,  we did not  have  any  floating  interest  rate
exposure.  All  of  our  outstanding  debt  as of  that  date  consisted  of the
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.  As of September 30, 2005, the convertible  senior
subordinated notes had an implied fair value of $119.3 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.

                                     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 are vigorously  pursuing an appeal with the
State Appellate Court sitting in Corpus Christi challenging the verdict. We have
posted a bond in the amount of approximately  $8.5 million (which represents the
amount of the judgment,  costs and estimated pre- and post-judgment interest) in
connection with the appeal.  We, on advice of legal counsel,  believe that it is
not  probable  that a  material  judgment  against  us  will  be  sustained.  In
accordance with Statement of Financial Accounting  Standards,  or Statement,  5,
Accounting for Contingencies, no liability has been accrued.


                                       19
<PAGE>

      On May 17,  2001,  Logix  Development  Corporation,  or  Logix,  D.  Keith
Howington  and Anne  Howington  filed suit in state court in Los Angeles  County
Superior Court in California  against Spice  Entertainment  Companies,  Inc., or
Spice,  Emerald Media,  Inc., or EMI,  Directrix,  Inc., or Directrix,  Colorado
Satellite  Broadcasting,  Inc., New Frontier Media,  Inc., J. Roger Faherty,  or
Faherty,  Donald McDonald,  Jr., and Judy Savar. On February 8, 2002, plaintiffs
amended the complaint and added as a defendant Playboy,  which acquired Spice in
1999.  The  complaint  alleged 11  contract  and tort  causes of action  arising
principally  out of a January 18, 1997 agreement  between EMI and Logix in which
EMI agreed to purchase  certain  explicit  television  channels  broadcast  over
C-band  satellite.  The  complaint  further  sought  damages from Spice based on
Spice's  alleged  failure to provide  transponder  and uplink services to Logix.
Playboy  and Spice filed a motion to dismiss the  plaintiffs'  complaint.  After
pre-trial motions, Playboy was dismissed from the case and a number of causes of
action were dismissed  against  Spice. A trial date for the remaining  breach of
contract claims against Spice was set for December 10, 2003, and then continued,
first to February 11, 2004, and then to March 17, 2004. Spice and the plaintiffs
filed  cross-motions  for summary judgment or, in the  alternative,  for summary
adjudication,  on  September 5, 2003.  Those  motions were heard on November 19,
2003,  and were  denied.  In February  2004,  prior to the trial,  Spice and the
plaintiffs  agreed  to a  settlement  in the  amount of $8.5  million,  which we
recorded as a charge in the fourth  quarter of 2003,  $6.5  million of which was
paid in 2004 and $1.0 million in 2005.  The remaining  $1.0 million will be paid
in 2006.

      On April 12, 2004,  Faherty filed suit in the United States District Court
for  the  Southern  District  of  New  York  against  Spice,  Playboy,   Playboy
Enterprises  International,  Inc., or PEII, D. Keith  Howington,  Anne Howington
(together,  the "Howington  defendants") and Logix.  The complaint  alleges that
Faherty is entitled to statutory and contractual  indemnification  from Playboy,
PEII and Spice with respect to defense costs and liabilities incurred by Faherty
in the litigation described in the preceding paragraph, or the Logix litigation.
The complaint  further alleges that Playboy,  PEII,  Spice, D. Keith  Howington,
Anne  Howington and Logix  conspired to deprive  Faherty of his alleged right to
indemnification by excluding him from the settlement of the Logix litigation. On
June 18, 2004,  a jury  entered a special  verdict  finding  Faherty  personally
liable for $22.5 million in damages to the plaintiffs in the Logix litigation. A
judgment was entered on the verdict on or around  August 2, 2004.  Faherty filed
post-trial motions for a judgment  notwithstanding  the verdict and a new trial,
but these  motions were both denied on or about  September  21, 2004. On October
20, 2004, Faherty filed a notice of appeal from the verdict. In consideration of
this  appeal  Faherty and  Playboy  have agreed to seek a temporary  stay of the
indemnification  action  filed  in the  United  States  District  Court  for the
Southern  District of New York.  On January 14,  2005,  Logix and the  Howington
defendants filed a motion to dismiss the Faherty action for, among other things,
lack  of  personal   jurisdiction.   On  February  15,  2005,  Faherty  filed  a
cross-motion  to stay the action  pending the outcome of his appeal.  The motion
and  cross-motions  are  pending.  In the event  Faherty's  indemnification  and
conspiracy  claims go forward  against us, we believe they are without merit and
that we have good defenses against them. As such, based on the information known
to us to date,  we do not believe that it is probable  that a material  judgment
against  us  will  result.  In  accordance  with  Statement  5,  Accounting  for
Contingencies, no liability has been accrued.

      On September 26, 2002,  Directrix filed suit in the U.S.  Bankruptcy Court
in the Southern District of New York against Playboy  Entertainment  Group, Inc.
In the  complaint,  Directrix  alleged  that it was  injured  as a result of the
termination of a Master Services  Agreement under which Directrix was to perform
services relating to the  distribution,  production and  post-production  of our
cable  networks  and a  sublease  agreement  under  which  Directrix  would have
subleased  office,  technical  and studio space at our Los  Angeles,  California
production facility.  Directrix also alleged that we breached an agreement under
which  Directrix  had the right to transmit and  broadcast  certain  versions of
films through C-band satellite,  commonly known as the TVRO market, and Internet
distribution.  On November  15,  2002,  we filed an answer  denying  Directrix's
allegations,  along with counterclaims  against Directrix relating to the Master
Services  Agreement  and seeking  damages.  On May 15, 2003, we filed an amended
answer and  counterclaims.  On July 30, 2003,  Directrix moved to dismiss one of
the amended counterclaims, and on October 20, 2003, the Court denied Directrix's
motion.  The  parties  are engaged in  discovery.  We believe  that we have good
defenses  against  Directrix's  claims.  We  believe it is not  probable  that a
material  judgment  against us will  result.  In  accordance  with  Statement 5,
Accounting for Contingencies, no liability has been accrued.

      In the  fourth  quarter of 2004,  we  received  a $5.6  million  insurance
recovery partially related to the prior year litigation settlement with Logix.


                                       20
<PAGE>

ITEM 6. EXHIBITS

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

    10.1          Affiliation  Agreement  between  Spice,  Inc.,  and  Satellite
                  Services, Inc.

    10.1.1*       Affiliation Agreement,  dated November 1, 1992, between Spice,
                  Inc., and Satellite Services, Inc.

    10.1.2*       Amendment  No. 1, dated  September  29, 1994,  to  Affiliation
                  Agreement,  dated November 1, 1992,  between Spice,  Inc., and
                  Satellite Services, Inc.

    10.1.3*       Letter   Agreement,   dated  July  18,   1997,   amending  the
                  Affiliation Agreement,  dated November 1, 1992, between Spice,
                  Inc., and Satellite Services, Inc.

    10.1.4*       Letter  Agreement,  dated  December  18,  1997,  amending  the
                  Affiliation  Agreement  between  Spice,  Inc.,  and  Satellite
                  Services, Inc.

    10.1.5*       Amendment,   effective  September  26,  2005,  to  Affiliation
                  Agreement,  dated November 1, 1992,  between Spice,  Inc., and
                  Satellite Services, Inc.

    10.2          Affiliation  Agreement  between Playboy  Entertainment  Group,
                  Inc., and Satellite Services, Inc.

    10.2.1*       Affiliation  Agreement,   dated  February  10,  1993,  between
                  Playboy  Entertainment  Group,  Inc., and Satellite  Services,
                  Inc.

    10.2.2*       Amendment,   effective  September  26,  2005,  to  Affiliation
                  Agreement,   dated   February   10,  1993,   between   Playboy
                  Entertainment Group, Inc., and Satellite Services, Inc.

    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 21
<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, 2005                       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)


                                       22