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 June 30, 2006

                                       OR

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

                        Commission file number 001-14790

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

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

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

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

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

Yes |X| No |_|

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

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

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act).

Yes |_| No |X|

At July 31,  2006,  there  were  4,864,102  shares  of Class A common  stock and
28,302,525 shares of Class B common stock outstanding.

<PAGE>

                                    FORWARD-LOOKING STATEMENTS

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

(1)   Foreign,  national,  state and local  government  regulation,  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,  Internet  and  wireless  businesses'  reliance  on third
      parties  for  technology  and  distribution,   and  any  changes  in  that
      technology  and/or  unforeseen  delays in its  implementation  which might
      affect our plans and assumptions;

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

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

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

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

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

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

(19)  Risks  associated  with revenue  guarantees  under our cable  distribution
      agreements;

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

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


                                       2
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

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

Item 1.  Financial Statements

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

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

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

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

              Notes to Condensed Consolidated Financial Statements (Unaudited)                8

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                          22

Item 4.  Controls and Procedures                                                             22

                                              PART II
                                         OTHER INFORMATION

Item 1.  Legal Proceedings                                                                   23

Item 1A. Risk Factors                                                                        23

Item 4.  Submission of Matters to a Vote of Security Holders                                 23

Item 6.  Exhibits                                                                            24
</TABLE>


                                       3
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                              2006                  2005
--------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                   <C>
Net revenues                                                           $    80,477           $    82,871
--------------------------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                                           (65,567)              (62,055)
   Selling and administrative expenses                                     (14,257)              (13,521)
   Restructuring expenses                                                   (1,906)                    -
--------------------------------------------------------------------------------------------------------
Total costs and expenses                                                   (81,730)              (75,576)
--------------------------------------------------------------------------------------------------------
Gains on disposal                                                               29                    14
--------------------------------------------------------------------------------------------------------
Operating income (loss)                                                     (1,224)                7,309
--------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                           602                   595
   Interest expense                                                         (1,281)               (1,412)
   Amortization of deferred financing fees                                    (134)                 (133)
   Minority interest                                                             -                  (370)
   Other, net                                                                   50                  (324)
--------------------------------------------------------------------------------------------------------
Total nonoperating expense                                                    (763)               (1,644)
--------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                           (1,987)                5,665
Income tax expense                                                          (1,320)               (1,025)
--------------------------------------------------------------------------------------------------------
Net income (loss)                                                           (3,307)                4,640
--------------------------------------------------------------------------------------------------------

Other comprehensive income (loss)
   Unrealized loss on marketable securities                                   (111)                  (46)
   Unrealized gain (loss) on derivatives                                       (59)                   46
   Foreign currency translation gain (loss)                                    502                   (84)
--------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss)                                        332                   (84)
--------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                            $    (2,975)          $     4,556
========================================================================================================

Weighted average number of common shares outstanding
   Basic                                                                    33,158                33,080
========================================================================================================
   Diluted                                                                  33,158                33,265
========================================================================================================

Basic and diluted earnings (loss) per common share                     $     (0.10)           $     0.14
========================================================================================================
</TABLE>

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


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            2006                    2005
--------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                    <C>
Net revenues                                                           $ 162,597              $  166,322
--------------------------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                                        (128,819)               (121,331)
   Selling and administrative expenses                                   (29,594)                (26,788)
   Restructuring expenses                                                 (1,906)                     --
--------------------------------------------------------------------------------------------------------
Total costs and expenses                                                (160,319)               (148,119)
--------------------------------------------------------------------------------------------------------
Gains on disposal                                                             29                      14
--------------------------------------------------------------------------------------------------------
Operating income                                                           2,307                  18,217
--------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                       1,209                     782
   Interest expense                                                       (2,709)                 (4,060)
   Amortization of deferred financing fees                                  (268)                   (366)
   Minority interest                                                          --                    (740)
   Debt extinguishment expenses                                               --                 (19,280)
   Other, net                                                               (146)                   (800)
--------------------------------------------------------------------------------------------------------
Total nonoperating expense                                                (1,914)                (24,464)
--------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                            393                  (6,247)
Income tax expense                                                        (2,911)                 (2,232)
--------------------------------------------------------------------------------------------------------
Net loss                                                                  (2,518)                 (8,479)
--------------------------------------------------------------------------------------------------------

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities                             9                     (71)
   Unrealized gain (loss) on derivatives                                     (61)                    257
   Foreign currency translation gain                                         417                     192
--------------------------------------------------------------------------------------------------------
Total other comprehensive income                                             365                     378
--------------------------------------------------------------------------------------------------------
Comprehensive loss                                                     $  (2,153)              $  (8,101)
========================================================================================================

Weighted average number of common shares outstanding
   Basic and diluted                                                      33,149                  33,216
========================================================================================================

Basic and diluted loss per common share                                $   (0.08)              $   (0.26)
========================================================================================================
</TABLE>

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


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     (Unaudited)
                                                                        June 30,                Dec. 31,
                                                                            2006                    2005
--------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>
Assets
Cash and cash equivalents                                            $    25,556         $        26,089
Marketable securities and short-term investments                          15,308                  25,963
Receivables, net of allowance for doubtful accounts of
   $4,102 and $3,883, respectively                                        38,477                  46,296
Receivables from related parties                                           1,475                   1,928
Inventories, net                                                          12,554                  12,846
Deferred subscription acquisition costs                                    9,767                  10,452
Other current assets                                                       9,354                   8,761
--------------------------------------------------------------------------------------------------------
   Total current assets                                                  112,491                 132,335
--------------------------------------------------------------------------------------------------------
Property and equipment, net                                               14,814                  13,771
Long-term receivables                                                      2,777                   2,628
Programming costs, net                                                    56,340                  52,683
Goodwill                                                                 133,056                 122,448
Trademarks                                                                62,055                  61,139
Distribution agreements, net of accumulated amortization
   of $2,945 and $2,779, respectively                                     30,196                  30,362
Other noncurrent assets                                                   15,844                  13,603
--------------------------------------------------------------------------------------------------------
Total assets                                                         $   427,573         $       428,969
========================================================================================================

Liabilities
Acquisition liabilities                                              $    12,074         $        11,782
Accounts payable                                                          24,919                  25,429
Accrued salaries, wages and employee benefits                              5,449                  10,068
Deferred revenues                                                         44,285                  45,987
Accrued litigation settlement                                                 --                   1,000
Other liabilities and accrued expenses                                    16,274                  16,396
--------------------------------------------------------------------------------------------------------
   Total current liabilities                                             103,001                 110,662
--------------------------------------------------------------------------------------------------------
Financing obligations                                                    115,000                 115,000
Acquisition liabilities                                                   15,041                  11,792
Net deferred tax liabilities                                              19,706                  17,555
Other noncurrent liabilities                                              16,291                  16,713
--------------------------------------------------------------------------------------------------------
   Total liabilities                                                     269,039                 271,722
--------------------------------------------------------------------------------------------------------

Shareholders' equity
Common stock, $0.01 par value
   Class A voting - 7,500,000 shares authorized; 4,864,102 issued             49                      49
   Class B nonvoting - 75,000,000 shares authorized;
      28,680,804 and 28,643,443 issued, respectively                         287                     286
Capital in excess of par value                                           226,976                 223,537
Accumulated deficit                                                      (62,494)                (59,976)
Treasury stock, at cost, 381,971 shares                                   (5,000)                 (5,000)
Accumulated other comprehensive loss                                      (1,284)                 (1,649)
--------------------------------------------------------------------------------------------------------
   Total shareholders' equity                                            158,534                 157,247
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                           $   427,573         $       428,969
========================================================================================================
</TABLE>

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


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  2006              2005
--------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>
Cash flows from operating activities
Net loss                                                                    $   (2,518)       $   (8,479)
Adjustments to reconcile net loss to net cash provided by
  operating activities
   Depreciation of property and equipment                                        1,827             1,542
   Amortization of intangible assets                                               612               868
   Amortization of investments in entertainment programming                     17,561            18,968
   Amortization of deferred financing fees                                         268               366
   Debt extinguishment expenses                                                     --            19,280
   Deferred income taxes                                                         2,151               498
   Net change in operating assets and liabilities                                1,275              (207)
   Investments in entertainment programming                                    (19,545)          (15,984)
   Litigation settlement                                                        (1,000)           (1,875)
   Stock-based compensation                                                      1,794                74
   Other, net                                                                    1,275               363
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                        3,700            15,414
--------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Payments for acquisitions                                                       (7,761)               --
Purchases of investments                                                          (267)          (34,107)
Proceeds from sales of investments                                              11,000            18,700
Additions to property and equipment                                             (2,826)           (2,164)
Other, net                                                                         (95)                -
--------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities                                51           (17,571)
--------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from financing obligations                                                 --           115,000
Repayment of financing obligations                                                  --           (80,000)
Payment of debt extinguishment expenses                                             --           (15,197)
Payment of acquisition liabilities                                              (4,511)           (4,558)
Purchase of treasury stock                                                          --            (5,000)
Payment of deferred financing fees                                                  --            (4,040)
Proceeds from stock-based compensation                                             227               784
Other, net                                                                          --               (39)
--------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities                            (4,284)            6,950
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                              (533)            4,793
Cash and cash equivalents at beginning of period                                26,089            26,668
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                  $   25,556        $   31,461
========================================================================================================
</TABLE>

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


                                       7
<PAGE>

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(A)   BASIS OF PREPARATION

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

(B)   RECENTLY ISSUED ACCOUNTING STANDARDS

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

      In March 2006, the FASB issued Statement of Financial Accounting Standards
No. 156,  Accounting  for  Servicing of  Financial  Assets,  or  Statement  156.
Statement 156 permits an entity to choose either the amortization method or fair
value  method  for each  class of  separately  recognized  servicing  assets and
servicing liabilities. At June 30, 2006, we did not have any financial assets or
liabilities  relating  to  servicing  rights  subject to  Statement  156. We are
required to adopt  Statement  156  effective at the beginning of 2007. We do not
expect the adoption of Statement 156 to have a significant  impact on our future
results of operations or financial condition.

      In  February  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 155,  Accounting  for Certain  Hybrid  Financial  Instruments,  or
Statement  155.  Statement 155 resolves  issues  addressed in FASB Statement 133
Implementation  Issue  No.  D1,  Application  of  Statement  133  to  Beneficial
Interests in Securitized Financial Assets. Amongst other things, it permits fair
value  remeasurement  for any  hybrid  financial  instrument  that  contains  an
embedded derivative that otherwise would require bifurcation.  At June 30, 2006,
we did not have any  hybrid  financial  instruments  subject  to the fair  value
election under  Statement 155. We are required to adopt  Statement 155 effective
at the beginning of 2007. We do not expect the adoption of Statement 155 to have
a significant impact on our future results of operations or financial condition.

(C)   RESTRUCTURING EXPENSES

      In the current quarter,  we implemented a cost reduction plan that reduces
our annual  programming  and editorial  investments  while also  lowering  other
discretionary expenses. As a result of this 2006 restructuring plan, we reported
a charge of $2.1 million related to costs associated with a workforce  reduction
of 15 employees. We reduced our 2002 restructuring plan estimate by $0.3 million
and  recorded  an  additional  charge  of  $0.1  million  related  to  our  2001
restructuring  plan in the current quarter as a result of changes in assumptions
related to leased space.

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

      During the six-month  period ended June 30, 2006, we made cash payments of
$0.3 million related to our 2002 restructuring  plan. Of the total costs related
to our  restructuring  plans,  approximately  $10.3 million was paid by June 30,
2006, with the remaining $2.8 million to be paid through 2007.


                                       8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            Consolidation
                                                                                            of Facilities
                                                                               Workforce              and
                                                                               Reduction       Operations         Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>          <C>
Balance at December 31, 2004                                                  $      179        $   1,827    $    2,006
Adjustments to previous estimates                                                     17              132           149
Cash payments                                                                       (196)            (749)         (945)
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005                                                          --            1,210         1,210
Reserve recorded                                                                   2,108               --         2,108
Adjustments to previous estimates                                                     --             (202)         (202)
Cash payments                                                                         --             (294)         (294)
-----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2006                                                      $    2,108        $     714    $    2,822
=======================================================================================================================
</TABLE>

(D)   EARNINGS PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                                                                    Quarters Ended
                                                                                                       June 30,
                                                                                               -----------------------
                                                                                                    2006          2005
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>          <C>
Numerator:
For basic and diluted EPS - net income (loss)                                                  $  (3,307)   $    4,640
======================================================================================================================

Denominator:
For basic EPS - weighted average shares                                                           33,158        33,080
   Effect of dilutive potential common shares:
   Employee stock options and other                                                                   --           185
----------------------------------------------------------------------------------------------------------------------
      Dilutive potential common shares                                                                --           185
----------------------------------------------------------------------------------------------------------------------
For diluted EPS - weighted average shares                                                         33,158        33,265
======================================================================================================================

Basic and diluted EPS                                                                          $   (0.10)   $     0.14
======================================================================================================================
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                          Quarters Ended            Six Months Ended
                                                                             June 30,                   June 30,
                                                                       ----------------------------------------------
                                                                         2006         2005         2006          2005
---------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>          <C>           <C>
Stock options                                                           3,975        1,982        3,192         2,864
Convertible notes                                                       6,758        6,758        6,758         6,758
---------------------------------------------------------------------------------------------------------------------
Total                                                                  10,733        8,740        9,950         9,622
=====================================================================================================================
</TABLE>


                                       9
<PAGE>

(E)   INVENTORIES, NET

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

                                                     June 30,          Dec. 31,
                                                         2006              2005
-------------------------------------------------------------------------------
Paper                                              $    3,310        $    3,939
Editorial and other prepublication costs                6,533             6,529
Merchandise finished goods                              2,711             2,378
-------------------------------------------------------------------------------
Total inventories, net                             $   12,554        $   12,846
===============================================================================

(F)   INCOME TAXES

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

(G)   CONTINGENCIES

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

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

      In the third quarter of 2005, we acquired an affiliate network of websites
to complement  our existing  online  business.  We paid $8.3 million at closing,
which  included $8.0 million for the initial  purchase price and $0.3 million of
acquisition-related  costs.  Additional payments of $2.0 million are required in
each of 2006 and 2007.  Pursuant to the asset  purchase  agreement,  we are also
obligated to make future  contingent  earnout  payments over a five-year  period
based primarily on the financial  performance of the acquired  business.  If the
required  performance  benchmarks are achieved,  any contingent earnout payments
will be recorded as additional purchase price and/or compensation expense. As of
June 30, 2006,  an earnout  payment of  approximately  $0.1 million was made and
recorded as additional purchase price.

      Late in the  current  quarter of 2006,  we  acquired a  multi-media  adult
entertainment   business  to  complement  our  existing  television  and  online
businesses.  As the pro forma  results would not be  materially  different  from
actual  results,  they are not  presented.  We paid $7.7 million at closing with
additional payments of $1.6 million, $1.7 million, $2.3 million and $4.3 million
required in 2007, 2008, 2009 and 2010, respectively. Pursuant to the acquisition
agreement,  we are also  obligated to make future  contingent  earnout  payments
based  primarily on sales of existing  content of the acquired  business  over a
ten-year  period  after the  closing  of the  acquisition  and based on  content
produced by the acquired  business during the five-year period after the closing
of the acquisition. As of June 30, 2006, no earnout payments have been made.


                                       10
<PAGE>

(H)   STOCK-BASED COMPENSATION

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

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

      We have stock plans for key employees  and  nonemployee  directors,  which
provide for the grant of nonqualified  and incentive stock options and/or shares
of restricted  stock units,  deferred stock and other  performance-based  equity
awards  in our  Class B  stock.  The  Compensation  Committee  of the  Board  of
Directors,  which is composed  entirely of  independent  nonemployee  directors,
administers  all the plans.  These  plans are  designed  to further  our growth,
development  and  financial  success by  providing  key  employees  with  strong
additional  incentives to maximize long-term stockholder value. The Compensation
Committee  believes that this objective can be best achieved  through  assisting
key employees to become owners of our stock,  which aligns their  interests with
our interests.  As  stockholders,  key employees will benefit  directly from our
growth, development and financial success. These plans also enable us to attract
and retain the services of those  executives  whom we consider  essential to our
long-range success by providing these executives with a competitive compensation
package and an opportunity  to become owners of our stock.  At June 30, 2006, we
had 387,861 shares of our Class B stock available for grant under these plans.

      Stock  options,  exercisable  for shares of Class B stock,  generally vest
over a two- to  four-year  period  from the grant date and expire ten years from
the grant date.  It is our policy that  options are priced  based on the closing
price on the day prior to the date of grant.

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

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

      Finally,  we also have an  Employee  Stock  Purchase  Plan  that  provides
substantially  all regular  full- and  part-time  employees  an  opportunity  to
purchase shares of our Class B stock through payroll  deductions.  The funds are
withheld and then used to acquire stock on the last trading day of each quarter,
based on that day's closing price less a 15% discount.  Employee  Stock Purchase
Plan expense is reflected in our Condensed Consolidated Statements of Operations
and Comprehensive  Income (Loss) in selling and administrative  expenses and the
proceeds are reflected in our Condensed Consolidated Statements of Cash Flows in
proceeds from stock-based compensation. At June 30, 2006, we had 9,152 shares of
our Class B stock available for purchase under this plan.


                                       11

<PAGE>

Valuation Information

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

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

<TABLE>
<CAPTION>


                                            Quarters Ended                        Six Months Ended
                                               June 30,                               June 30,
                                   -------------------------------         ------------------------------
                                           2006              2005                  2006             2005
---------------------------------------------------------------------------------------------------------
<S>                                <C>                       <C>           <C>             <C>
Expected volatility                          38%               46%                   38%             46%
Risk-free interest rate            4.32% - 4.51%             3.80%         4.32% - 4.51%   3.80% - 4.18%
Expected dividends                           --                --                    --              --
---------------------------------------------------------------------------------------------------------
</TABLE>

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

      The weighted  average  expected life for options  granted during the first
quarter of 2006  using the  Lattice  model was 5.8 years.  There were no options
granted in the current  quarter.  The weighted average expected life for options
granted   during  the  prior  year  quarter  and  six-month   period  using  the
Black-Scholes model was 6.0 years. The weighted average fair value per share for
stock  options  granted  during the first  quarter  of 2006 was $6.40  using the
Lattice model,  and the weighted  average fair value per share for stock options
granted during the prior year quarter and six-month  period was $5.84 and $5.98,
respectively, using the Black-Scholes model.

Stock Option Activity

      This table sets forth stock option activity for the six-month period ended
June 30, 2006:

<TABLE>
<CAPTION>
                                                                               Weighted Average
                                                      Shares                    Exercise Price
-----------------------------------------------------------------------    -------------------------
                                            Class A             Class B        Class A       Class B
-----------------------------------------------------------------------    -------------------------
<S>                                             <C>           <C>          <C>           <C>
Outstanding at December 31, 2005                  -           3,374,135    $         -   $     15.85
Granted                                           -             670,500              -         14.50
Exercised                                         -             (13,666)             -         10.84
Canceled                                          -            (149,220)             -         14.20
-----------------------------------------------------------------------
Outstanding at June 30, 2006                      -           3,881,749    $         -   $     15.70
=======================================================================    -------------------------
</TABLE>


                                       12

<PAGE>

      At June 30, 2006,  the weighted  average  remaining  contractual  lives of
options  outstanding  and  options  exercisable  were 6.1 years  and 4.8  years,
respectively.  At June 30,  2006,  the  number of  options  exercisable  and the
weighted  average  exercise  price of options  exercisable  were  2,759,083  and
$16.54, respectively.

      There  were no  options  granted  or  exercised  in the  current  quarter.
However,  for the six-month  period ended June 30, 2006, we had proceeds of $0.1
million from exercises of stock options.  There was no aggregate intrinsic value
for options  granted in the  six-month  period  ended June 30,  2006,  since the
closing price of our Class B stock on that date was less than the exercise price
on the date of grant. The aggregate intrinsic value for options exercised during
the six-month period ended June 30, 2006, was  approximately  $0.1 million.  The
aggregate  intrinsic  value of options  outstanding  and exercisable at June 30,
2006, was $1 thousand.  The aggregate intrinsic value for options granted during
the quarter and six-month  period ended June 30, 2005,  was $2 thousand and $0.7
million,  respectively.  The  aggregate  intrinsic  value for options  exercised
during the quarter and  six-month  period ended June 30, 2005,  was $0.1 million
and $0.4 million, respectively.

      As a result of adopting  Statement  123(R) on January 1, 2006,  our income
(loss) from  continuing  operations  before  income  taxes,  income  (loss) from
continuing operations and net income (loss) for the quarter and six-month period
ended June 30, 2006,  were $0.8 million and $1.5  million  lower,  respectively,
than if we had continued to account for stock-based  compensation  under APB 25.
Basic and diluted EPS for the quarter and six-month  period ended June 30, 2006,
were $0.02 and $0.05 lower,  respectively,  than if we had  continued to account
for stock-based compensation under APB 25.

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

<TABLE>
<CAPTION>
                                                       Quarters Ended                    Six Months Ended
                                                          June 30,                            June 30,
                                               -----------------------------       -----------------------------
                                                      2006              2005              2006              2005
----------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>               <C>               <C>
Stock options                                  $       796       $       718       $     1,505       $     1,422
Employee stock purchase plan                             8                --                14                --
----------------------------------------------------------------------------------------------------------------
   Total                                       $       804       $       718       $     1,519       $     1,422
================================================================================================================

Net income (loss)
   As reported                                 $    (3,307)      $     4,640       $    (2,518)      $    (8,479)
   Fair value of stock-based compensation
     excluded from net income, gross                                    (718)                             (1,422)
                                                                 -----------                         -----------
   Pro forma                                                     $     3,922                         $    (9,901)
                                                                 ===========                         ===========

Basic and diluted EPS
   As reported                                 $     (0.10)      $      0.14       $     (0.08)      $     (0.26)
   Pro forma                                                     $      0.12                         $     (0.30)
----------------------------------------------------------------------------------------------------------------
</TABLE>

      As of June 30, 2006,  there was $5.2 million of  unrecognized  stock-based
compensation  expense  related  to  non-vested  stock  options,  which  will  be
recognized over a weighted average period of 1.5 years.


                                       13
<PAGE>

Restricted Stock Unit Activity

      At June 30, 2006, we had 488,000 restricted stock units outstanding,  none
of which were vested, and all of which were  performance-based  restricted stock
awards contingent upon meeting certain performance goals.

                                                                        Weighted
                                                                         Average
                                                     Number of        Grant-Date
                                                        Shares        Fair Value
--------------------------------------------------------------------------------
Outstanding at December 31, 2005                       319,000        $    13.07
Granted                                                188,500             14.51
Canceled                                               (19,500)            13.16
--------------------------------------------------------------
Outstanding at June 30, 2006                           488,000        $    13.62
================================================================================

      Stock-based  compensation  expense  related to restricted  stock units was
$0.2  million and $0.4  million for the  quarters  ended June 30, 2006 and 2005,
respectively,  and $0.2 million and $0.7 million for the six-month periods ended
June 30,  2006 and  2005,  respectively.  As of June 30,  2006,  there  was $2.1
million of unrecognized  stock-based  compensation expense related to non-vested
restricted stock units,  which will be recognized over a weighted average period
of 1.6 years.

Employee Stock Purchase Plan Activity

      The Employee  Stock  Purchase Plan had minimal impact on our expenses as a
result of the adoption of Statement 123(R).

Income Taxes

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

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

(I)    BENEFIT PLANS

      We currently  maintain a practice of paying a separation  allowance  under
our  salary  continuation  policy  to  employees  with at  least  five  years of
continuous service who voluntarily  terminate  employment with us and are at age
60 or  thereafter.  For the quarter and  six-month  period  ended June 30, 2006,
payments   made  under  this  policy  were  $0.1   million  and  $0.2   million,
respectively.


                                       14
<PAGE>

(J)   SEGMENT INFORMATION (1)

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

<TABLE>
<CAPTION>
                                                                       Quarters Ended            Six Months Ended
                                                                          June 30,                  June 30,
                                                                  ----------------------    -----------------------
                                                                       2006         2005         2006          2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>          <C>          <C>
Net revenues
Entertainment                                                     $  47,545    $  48,908    $  98,722    $   99,390
Publishing                                                           23,790       25,530       47,285        52,534
Licensing                                                             9,142        8,433       16,590        14,398
-------------------------------------------------------------------------------------------------------------------
Total                                                             $  80,477    $  82,871    $ 162,597    $  166,322
===================================================================================================================
Income (loss) before income taxes
Entertainment                                                     $   4,881    $   9,866    $  12,754    $   21,686
Publishing                                                           (1,752)      (2,356)      (4,049)       (2,740)
Licensing                                                             4,076        3,929        8,422         7,607
Corporate Administration and Promotion                               (6,552)      (4,144)     (12,943)       (8,350)
Restructuring expenses                                               (1,906)          --       (1,906)           --
Gains on disposal                                                        29           14           29            14
Investment income                                                       602          595        1,209           782
Interest expense                                                     (1,281)      (1,412)      (2,709)       (4,060)
Amortization of deferred financing fees                                (134)        (133)        (268)         (366)
Minority interest                                                        --         (370)          --          (740)
Debt extinguishment expenses                                             --           --           --       (19,280)
Other, net                                                               50         (324)        (146)         (800)
------------------------------------------------------------------------------------------------------------------
Total                                                             $  (1,987)   $   5,665    $     393    $   (6,247)
===================================================================================================================

<CAPTION>
                                                                                             June 30,      Dec. 31,
                                                                                                 2006          2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>          <C>
Identifiable assets
Entertainment                                                                               $ 286,343    $  274,473
Publishing                                                                                     34,415        38,833
Licensing                                                                                       8,448         7,539
Corporate Administration and Promotion                                                         98,367       108,124
-------------------------------------------------------------------------------------------------------------------
Total                                                                                       $ 427,573    $  428,969
===================================================================================================================
</TABLE>

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

(K)    SUBSEQUENT EVENT

      On August 4, 2006, the Sixth  Amendment to our Chicago lease, or the Sixth
Amendment,  with Golub LSP  Investors,  LP was signed.  The Sixth  Amendment was
effective  May 1, 2006,  and  extends our lease  through  August 31,  2022.  Our
current lease was to expire August 31, 2007.  This space serves as our corporate
headquarters  and is used  by all of our  operating  groups  and  executive  and
administrative personnel.


                                       15
<PAGE>

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

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

RESULTS OF OPERATIONS (1)

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

<TABLE>
<CAPTION>
                                                                           Quarters Ended                  Six Months Ended
                                                                               June 30,                         June 30,
                                                                    ---------------------------       ---------------------------
                                                                          2006             2005             2006             2005
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>              <C>              <C>
Net revenues
Entertainment
   Domestic TV                                                      $     20.9       $     24.9       $     43.2       $     50.1
   International                                                          13.2             11.9             27.0             25.3
   Online subscriptions and e-commerce                                    11.4             10.8             24.6             21.8
   Other                                                                   2.0              1.3              3.9              2.2
---------------------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                    47.5             48.9             98.7             99.4
---------------------------------------------------------------------------------------------------------------------------------
Publishing
   Playboy magazine                                                       20.2             22.1             39.4             45.0
   Special editions and other                                              2.0              1.9              4.6              4.2
   International publishing                                                1.6              1.5              3.3              3.3
---------------------------------------------------------------------------------------------------------------------------------
   Total Publishing                                                       23.8             25.5             47.3             52.5
---------------------------------------------------------------------------------------------------------------------------------
Licensing
   International licensing                                                 5.6              4.7             11.1              9.2
   Domestic licensing                                                      1.3              1.2              2.6              2.5
   Marketing events                                                        2.3              2.4              2.5              2.6
   Other                                                                    --              0.1              0.4              0.1
---------------------------------------------------------------------------------------------------------------------------------
   Total Licensing                                                         9.2              8.4             16.6             14.4
---------------------------------------------------------------------------------------------------------------------------------
Total net revenues                                                  $     80.5       $     82.8       $    162.6       $    166.3
=================================================================================================================================

Net income (loss)
Entertainment
   Before programming amortization and online content expenses      $     15.2       $     20.0       $     32.5       $     41.7
   Programming amortization and online content expenses                  (10.3)           (10.2)           (19.7)           (20.0)
---------------------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                     4.9              9.8             12.8             21.7
---------------------------------------------------------------------------------------------------------------------------------
Publishing                                                                (1.8)            (2.3)            (4.1)            (2.7)
---------------------------------------------------------------------------------------------------------------------------------
Licensing                                                                  4.1              4.0              8.4              7.6
---------------------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion                                    (6.5)            (4.2)           (12.9)            (8.4)
---------------------------------------------------------------------------------------------------------------------------------
Segment income                                                             0.7              7.3              4.2             18.2
Restructuring expenses                                                    (1.9)              --             (1.9)              --
---------------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                   (1.2)             7.3              2.3             18.2
---------------------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                       0.6              0.6              1.2              0.8
   Interest expense                                                       (1.3)            (1.5)            (2.7)            (4.1)
   Amortization of deferred financing fees                                (0.2)            (0.2)            (0.3)            (0.4)
   Minority interest                                                        --             (0.3)              --             (0.7)
   Debt extinguishment expenses                                             --               --               --            (19.3)
   Other, net                                                              0.1             (0.2)            (0.1)            (0.7)
---------------------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                                (0.8)            (1.6)            (1.9)           (24.4)
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                         (2.0)             5.7              0.4             (6.2)
Income tax expense                                                        (1.3)            (1.1)            (2.9)            (2.3)
---------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                   $     (3.3)      $      4.6       $     (2.5)      $     (8.5)
=================================================================================================================================
Basic and diluted earnings (loss) per common share                  $    (0.10)      $     0.14       $    (0.08)      $    (0.26)
=================================================================================================================================
</TABLE>

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


                                       16
<PAGE>

      Our revenues decreased $2.3 million,  or 3%, and $3.7 million,  or 2%, for
the quarter and six-month period, respectively,  primarily due to expected lower
revenues from our  Publishing  and  Entertainment  Groups,  partially  offset by
higher revenues from our Licensing Group.

      Segment income decreased $6.6 million,  or 91%, and $14.0 million, or 77%,
for the quarter  and  six-month  period,  respectively,  primarily  due to lower
results from our  Entertainment  Group and higher Corporate  Administration  and
Promotion expenses. The six-month comparison also was impacted by expected lower
results from our Publishing Group, partially offset by improved results from our
Licensing  Group.  Our segment income also was impacted by $0.8 million and $1.5
million for the quarter and  six-month  period,  respectively,  of stock  option
expense as a result of our  implementation of Statement of Financial  Accounting
Standards No. 123 (revised 2004), Share-Based Payment, at the beginning of 2006.

      The operating loss of $1.2 million for the quarter and operating income of
$2.3 million for the six-month  period  included  $1.9 million of  restructuring
expenses  primarily  related to a cost reduction plan we implemented  during the
current quarter.

      The net loss of $3.3 million for the quarter was $7.9 million  unfavorable
compared  to the prior year  period as a result of the lower  operating  results
discussed  above.  The net loss of $2.5 million for the  six-month  period was a
$6.0  million  improvement  over the prior  year  period as the lower  operating
results  previously  discussed  were  more than  offset  by debt  extinguishment
expense  of $19.3  million  in the prior  year and a $1.4  million  decrease  in
interest expense in the current year.

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

ENTERTAINMENT GROUP

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

      Revenues from our domestic TV business decreased $4.0 million, or 16%, and
$6.9 million, or 14%, for the quarter and six-month period, respectively.  Movie
network  revenues  decreased  $2.0  million and $3.7 million for the quarter and
six-month period, respectively,  primarily due to a decrease in pay-per-view, or
PPV,  buys as a  result  of  DirecTV,  the  satellite  provider  that  currently
generates the largest portion of our domestic TV revenues,  reducing our channel
carriage.  A new contract with DirecTV is currently under negotiation,  however,
we expect the loss of carriage will continue to unfavorably  impact  domestic TV
revenues and  profitability.  The decline was partially offset by adjustments to
previously  estimated  revenues during the current  quarter.  Playboy TV network
revenues  decreased  $1.8 million and $2.7 million for the quarter and six-month
period,  respectively,  as the prior year periods were favorably impacted by the
discontinuation  of  a  distributor's   high-definition   subscription   service
agreement,  which  resulted in the  accelerated  recognition  of $1.4 million of
deferred revenues  associated with the agreement.  Cable revenues decreased $0.5
million and $1.5 million for the quarter and six-month period, respectively, due
to decreases in PPV buys for both periods. These decreases were partially offset
by increases in monthly  subscription  revenues for both periods.  Revenues from
video-on-demand, or VOD, decreased $0.5 million and $0.9 million for the quarter
and  six-month  period,  respectively,  primarily  due to a decrease in buys and
adjustments to previously  estimated  revenues.  The decreases in Playboy TV and
movie  network PPV buys were also  impacted by consumers  migrating  from linear
channels  to VOD. We  continue  to expect  this trend to  negatively  impact our
networks as we have less shelf space in the VOD  environment  than in the linear
network  environment.  We also expect Playboy TV to be favorably impacted by the
launch of our monthly subscription service with an on-demand component. Revenues
associated with our studio facility  increased $0.3 million and $0.4 million for
the quarter and six-month period, respectively, primarily due to the addition of
new clients.  Direct-to-home,  or DTH, revenues  increased $0.3 million and $0.4
million for the quarter and  six-month  period,  respectively,  primarily due to
increased monthly


                                       17
<PAGE>

subscriptions.

      Profit  contribution from our domestic TV business  decreased $6.1 million
and $10.8  million for the  quarter and  six-month  period,  respectively,  as a
result  of the lower  revenues  previously  discussed  combined  with  increased
expenses largely due to marketing, revenue sharing and staffing.

      International  revenues increased $1.3 million,  or 11%, and $1.7 million,
or 7%,  for  the  quarter  and  six-month  period,  respectively.  International
television  revenues  increased  $1.0 million for the quarter  primarily  due to
increased DTH and cable revenues from our U.K.  networks combined with favorable
foreign currency exchange rate fluctuations.  International  television revenues
increased  $1.9  million  for the  six-month  period  primarily  as a result  of
increased DTH and cable  revenues from our U.K.  networks,  partially  offset by
unfavorable  foreign currency exchange rate fluctuations and lower revenues from
several  third-party  network  licensees.   International  online  and  wireless
revenues  increased  $0.3 million for the quarter and decreased $0.2 million for
the six-month period. International profit contribution was flat for the quarter
and  increased  $0.4 million for the  six-month  period  principally  due to the
higher revenues  previously  discussed,  offset by increased  television network
distribution expenses, in part related to our additional networks, and increased
marketing expenses.

      Online  subscriptions and e-commerce  revenues increased $0.6 million,  or
6%,  and  $2.8  million,   or  13%,  for  the  quarter  and  six-month   period,
respectively,  primarily  due to our  acquisition  of an  affiliate  network  of
websites  late in the third  quarter of the prior  year,  partially  offset by a
decrease in revenues from our existing  sites.  The prior year periods were also
favorably   impacted  by  a  $1.2  million   payment  we  received  due  to  the
discontinuation  of a marketing  alliance.  Costs  associated  with the acquired
websites and increased  investments in technology and marketing initiatives more
than offset the increases in revenues.

      Revenues from other  businesses  increased $0.7 million,  or 47%, and $1.7
million, or 74%, for the quarter and six-month period,  respectively,  primarily
due to advertising  revenues from the acquired  websites  combined with revenues
from the current-year  launch of Playboy Radio on SIRIUS Satellite Radio. Profit
contribution  was flat and increased  $0.6 million for the quarter and six-month
period,  respectively,   primarily  due  to  the  revenue  increases  previously
discussed.  Both periods  were  impacted by costs  associated  with our acquired
websites as well as project development.

      The  group's  administrative  expenses  decreased  $1.7  million  and $2.4
million for the quarter and six-month period, respectively. These decreases were
primarily due to the  elimination  of our  intra-company  agreements  related to
trademark,  content and  administrative  fees that had been paid by Playboy.com,
Inc., or  Playboy.com,  to us as a result of our October 2005  repurchase of the
remaining minority interest of Playboy.com, largely offset by increases in other
administrative expenses.

      Programming  amortization  and online  content  expenses were flat for the
quarter and decreased $0.3 million for the six-month period primarily due to the
mix  of  television  programming,  partially  offset  by new  programming  costs
associated  with  Playboy  Radio and the  acquired  websites.  We now expect our
programming  and online  content  cash  investments  to be  approximately  $43.0
million.  Our original  projection of $43.7 million excluded  approximately $1.4
million of programming for Playboy Radio. We anticipate that our programming and
online content amortization expenses will improve slightly.

      Segment  income for the group  decreased  $4.9  million,  or 51%, and $8.9
million, or 41%, for the quarter and six-month period, respectively,  due to the
previously discussed operating results.

PUBLISHING GROUP

      Playboy magazine revenues decreased $1.9 million, or 9%, and $5.6 million,
or 12%, for the quarter and six-month period, respectively. Advertising revenues
decreased  $1.2 million and $3.5 million for the quarter and  six-month  period,
respectively,   primarily   due  to  19%  and  24%  fewer   advertising   pages,
respectively.  Advertising  sales for the 2006 third quarter magazine issues are
closed, and we expect to report approximately 17% lower advertising revenues and
7% fewer  advertising  pages  compared to the 2005 third  quarter as a result of
continued softness in the market.  Subscription  revenues decreased $1.1 million
and $1.8 million for the quarter and six-month period,  respectively,  primarily
due to lower average revenue per copy, partially offset by revenues from our new
Playboy


                                       18
<PAGE>

magazine digital edition in the current year periods.  For the six-month period,
subscription  revenues were favorably  impacted by a lower  provision for unpaid
copies as a result of improved payment experience.  Newsstand revenues increased
$0.4 million for the quarter  primarily  due to the impact of a $1.00 and C$1.00
cover price  increase  effective  with the  February  2006 issue and a favorable
variance related to prior issue adjustments, partially offset by 6% fewer copies
sold.  For the  six-month  period,  newsstand  revenues  were $0.3 million lower
primarily due to 18% fewer copies sold,  partially  mitigated by the  previously
discussed cover price increase and a favorable  variance  related to prior issue
adjustments.

      Revenues  from  special  editions and other were flat and  increased  $0.4
million,  or 9%, for the quarter and  six-month  period,  respectively.  Special
editions  revenues  increased  $0.3 million and $0.5 million for the quarter and
six-month  period,  respectively,  primarily  due to the  impact  of a $1.00 and
C$1.00 cover price increase  effective with the November 2005 issues,  favorable
variances  related  to prior  issue  adjustments  and higher  revenues  from our
special editions  digital edition in the current year periods,  partially offset
by 12% and 13% fewer newsstand copies sold for the quarter and six-month period,
respectively.  The  current  year  periods  also  included  unfavorable  revenue
adjustments related to prior years' calendars.

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

      The group's  segment loss decreased $0.5 million,  or 26%, for the quarter
as the lower  revenues  previously  discussed  were  more  than  offset by lower
editorial  content,  subscription  acquisition  amortization  and  manufacturing
expenses.  The group's  segment loss  increased  $1.4  million,  or 48%, for the
six-month  period  primarily  due to the lower  revenues  previously  discussed,
partially  offset  by lower  subscription  acquisition  amortization,  editorial
content, manufacturing, advertising sales and marketing expenses.

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

LICENSING GROUP

      Licensing Group revenues increased $0.8 million,  or 8%, and $2.2 million,
or 15%, for the quarter and six-month period,  respectively,  principally due to
higher  royalties  from existing and new  international  licensees.  The current
six-month  period also  reflects  higher  revenues from the sale of art from our
collection.  The group's segment income was flat and increased $0.8 million,  or
11%,  for the quarter and  six-month  period,  respectively,  due to the revenue
increases previously discussed, offset by higher growth-related costs.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses increased $2.3 million, or
58%,  and  $4.5  million,   or  55%,  for  the  quarter  and  six-month  period,
respectively,  largely due to the  elimination of our  intra-company  agreements
related  to  trademark,  content  and  administrative  fees as a  result  of the
previously discussed Playboy.com minority interest repurchase.  The current year
periods also reflected higher marketing expenses.

RESTRUCTURING EXPENSES

      In the current quarter,  we implemented a cost reduction plan that reduces
our  annual   programming  and  editorial   investments   while  lowering  other
discretionary expenses. As a result of this 2006 restructuring plan, we reported
a charge of $2.1 million related to costs associated with a workforce  reduction
of 15 employees. Partially offsetting this charge was a net favorable adjustment
of $0.2 million related to prior plans.

INCOME TAX EXPENSE

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


                                       19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      At June 30,  2006,  we had  $25.6  million  in cash  and cash  equivalents
compared to $26.1 million in cash and cash  equivalents at December 31, 2005. We
also had $10.0  million  of  auction  rate  securities  included  in  marketable
securities  and  short-term  investments  at June 30,  2006,  compared  to $21.0
million  at  December  31,  2005.  The  decrease  is  primarily  related  to our
acquisition  of a multi-media  adult  entertainment  business.  Total  financing
obligations were $115.0 million at both June 30, 2006 and December 31, 2005.

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

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash provided by operating  activities was $3.7 million, a decrease of
$11.7 million  compared to the prior year period  primarily due to the operating
results previously discussed.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash provided by investing activities increased $17.6 million compared
to the prior year period primarily due to a $33.8 million decrease in investment
purchases, partially offset by a $7.7 million decrease in proceeds from sales of
investments and payments of $7.8 million primarily related to the acquisition of
a multi-media adult entertainment business in the current year. This acquisition
requires  additional  payments of $1.6 million,  $1.7 million,  $2.3 million and
$4.3 million in 2007, 2008, 2009 and 2010, respectively.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash used for  financing  activities  was $4.3  million in the current
year  period  compared  to net cash  provided by  financing  activities  of $7.0
million in the prior year  period.  The current and prior year  periods  reflect
payments  of   acquisition   liabilities  of  $4.5  million  and  $4.6  million,
respectively. The prior year period also reflects the issuance of $115.0 million
of 3.00% convertible  senior  subordinated notes due 2025, or convertible notes,
and the use of the proceeds to pay $95.2 million in connection with the purchase
and  retirement  of all of the $80.0  million  outstanding  principal  amount of
11.00% senior secured notes issued by one of our  subsidiaries  and $4.0 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 $5.0 million.


                                       20
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

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

      In March 2006, the FASB issued Statement of Financial Accounting Standards
No. 156,  Accounting  for  Servicing of  Financial  Assets,  or  Statement  156.
Statement 156 permits an entity to choose either the amortization method or fair
value  method  for each  class of  separately  recognized  servicing  assets and
servicing liabilities. At June 30, 2006, we did not have any financial assets or
liabilities  relating  to  servicing  rights  subject to  Statement  156. We are
required to adopt  Statement  156  effective at the beginning of 2007. We do not
expect the adoption of Statement 156 to have a significant  impact on our future
results of operations or financial condition.

      In  February  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 155,  Accounting  for Certain  Hybrid  Financial  Instruments,  or
Statement  155.  Statement 155 resolves  issues  addressed in FASB Statement 133
Implementation  Issue  No.  D1,  Application  of  Statement  133  to  Beneficial
Interests in Securitized Financial Assets. Amongst other things, it permits fair
value  remeasurement  for any  hybrid  financial  instrument  that  contains  an
embedded derivative that otherwise would require bifurcation.  At June 30, 2006,
we did not have any  hybrid  financial  instruments  subject  to the fair  value
election under  Statement 155. We are required to adopt  Statement 155 effective
at the beginning of 2007. We do not expect the adoption of Statement 155 to have
a significant impact on our future results of operations or financial condition.


                                       21
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      At June 30, 2006, we did not have any floating interest rate exposure. All
of our outstanding debt at that date consisted of the 3.00%  convertible  senior
subordinated  notes  due  2025,  or  convertible  notes,  which  are  fixed-rate
obligations.  The fair value of the $115.0 million aggregate principal amount of
the  convertible  notes will be influenced by changes in market  interest rates,
the share price of our Class B stock and our credit  quality.  At June 30, 2006,
the convertible notes had an implied fair value of $102.1 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.


                                       22
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Our annual meeting of shareholders  was held on May 17, 2006, in which the
holders of our Class A common stock  ratified the  appointment  of Ernst & Young
LLP as our independent  registered  public  accounting firm for 2006 and elected
the following individuals as directors:

<TABLE>
<CAPTION>
                                                                                               Withheld
                    Proposals                                     For          Against     or Abstained
-------------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>             <C>
Election of Directors
       Dennis S. Bookshester                                4,592,495              N/A           77,558
       David I. Chemerow                                    4,569,646              N/A          100,407
       Donald G. Drapkin                                    4,592,398              N/A           77,655
       Christie Hefner                                      3,920,543              N/A          749,510
       Jerome H. Kern                                       4,592,397              N/A           77,656
       Russell I. Pillar                                    4,592,398              N/A           77,655
       Sol Rosenthal                                        4,592,488              N/A           77,565
       Richard S. Rosenzweig                                3,920,660              N/A          749,393

Appointment of Ernst & Young LLP                            4,599,746           70,074              233
-------------------------------------------------------------------------------------------------------
</TABLE>


                                       23
<PAGE>

ITEM 6. EXHIBITS

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

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

    10.1.1    Second  Amendment,  dated  as of April  27,  2006,  to the  Credit
              Agreement, or the Second Amendment

    10.1.2    Reaffirmation of Guaranty,  dated as of April 27, 2006, by each of
              the Guarantors, pursuant to the Second Amendment

10.2     Third Amendment to the Credit Agreement

    10.2.1    Third Amendment, dated as of May 15, 2006, to the Credit Agreement

    10.2.2    Pledge  Amendment,   dated  as  of  May  15,  2006,  from  Playboy
              Enterprises International, Inc.

    10.2.3    Pledge  Amendment,   dated  as  of  May  15,  2006,  from  Playboy
              Entertainment Group, Inc.

    10.2.4    Joinder to Master Corporate Guaranty, dated as of May 15, 2006, by
              Playboy.com,  Inc., Playboy.com Internet Gaming, Inc., Playboy.com
              Racing,  Inc.,  SpiceTV.com,  Inc.,  and CJI Holdings,  Inc.,  and
              accepted by Bank of America, N.A., as agent for the Lenders

    10.2.5    Joinder  to  Security  Agreement,  dated  as of May 15,  2006,  by
              Playboy.com,  Inc., Playboy.com Internet Gaming, Inc., Playboy.com
              Racing,  Inc.,  SpiceTV.com,  Inc.,  and CJI Holdings,  Inc.,  and
              accepted by Bank of America, N.A., as agent for the Lenders

    10.2.6    Pledge Agreement,  dated as of May 15, 2006, between  Playboy.com,
              Inc. and Bank of America, N.A., as agent for the Lenders

    10.2.7    Pledge Agreement,  dated as of May 15, 2006,  between  Playboy.com
              Internet Gaming, Inc. and Bank of America,  N.A., as agent for the
              Lenders

    10.2.8    Trademark  Security  Agreement,  dated  as of  May  15,  2006,  by
              Playboy.com,  Inc. in favor of Bank of America, N.A., as agent for
              the Lenders

    10.2.9    Copyright  Security  Agreement,  dated  as of  May  15,  2006,  by
              Playboy.com,  Inc. in favor of Bank of America, N.A., as agent for
              the Lenders

10.3     Playboy Enterprises,  Inc. Employee Stock Purchase Plan, as amended and
         restated through April 25, 2006

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

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

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


                                       24
<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: August 9, 2006                         By   /s/ Linda Havard
      --------------                              ----------------
                                                  Linda G. Havard
                                                  Executive Vice President,
                                                  Finance and Operations,
                                                  and Chief Financial Officer
                                                  (Authorized Officer and
                                                  Principal Financial and
                                                  Accounting Officer)


                                       25
<PAGE>

                                  EXHIBIT INDEX

Exhibit Number                     Description

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

    10.1.1    Second  Amendment,  dated  as of April  27,  2006,  to the  Credit
              Agreement, or the Second Amendment

    10.1.2    Reaffirmation of Guaranty,  dated as of April 27, 2006, by each of
              the Guarantors, pursuant to the Second Amendment

10.2     Third Amendment to the Credit Agreement

    10.2.1    Third Amendment, dated as of May 15, 2006, to the Credit Agreement

    10.2.2    Pledge  Amendment,   dated  as  of  May  15,  2006,  from  Playboy
              Enterprises International, Inc.

    10.2.3    Pledge  Amendment,   dated  as  of  May  15,  2006,  from  Playboy
              Entertainment Group, Inc.

    10.2.4    Joinder to Master Corporate Guaranty, dated as of May 15, 2006, by
              Playboy.com,  Inc., Playboy.com Internet Gaming, Inc., Playboy.com
              Racing,  Inc.,  SpiceTV.com,  Inc.,  and CJI Holdings,  Inc.,  and
              accepted by Bank of America, N.A., as agent for the Lenders

    10.2.5    Joinder  to  Security  Agreement,  dated  as of May 15,  2006,  by
              Playboy.com,  Inc., Playboy.com Internet Gaming, Inc., Playboy.com
              Racing,  Inc.,  SpiceTV.com,  Inc.,  and CJI Holdings,  Inc.,  and
              accepted by Bank of America, N.A., as agent for the Lenders

    10.2.6    Pledge Agreement,  dated as of May 15, 2006, between  Playboy.com,
              Inc. and Bank of America, N.A., as agent for the Lenders

    10.2.7    Pledge Agreement,  dated as of May 15, 2006,  between  Playboy.com
              Internet Gaming, Inc. and Bank of America,  N.A., as agent for the
              Lenders

    10.2.8    Trademark  Security  Agreement,  dated  as of  May  15,  2006,  by
              Playboy.com,  Inc. in favor of Bank of America, N.A., as agent for
              the Lenders

    10.2.9    Copyright  Security  Agreement,  dated  as of  May  15,  2006,  by
              Playboy.com,  Inc. in favor of Bank of America, N.A., as agent for
              the Lenders

10.3     Playboy Enterprises,  Inc. Employee Stock Purchase Plan, as amended and
         restated through April 25, 2006

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

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

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


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