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 March 31, 2004

                                       or

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

For the transition period from _____________ to ______________

Commission file number 001-14790

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

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

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

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

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_|

      At April 30, 2004, there were 4,864,102 shares of Class A common stock,
par value $0.01 per share, and 28,522,577 shares of Class B common stock, par
value $0.01 per share, outstanding.

<PAGE>

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

                                     PART I
                              FINANCIAL INFORMATION

                                                                            Page
                                                                            ----

Item 1.    Financial Statements

                Condensed Consolidated Statements of Operations and
                Comprehensive Income for the Quarters Ended March 31,
                2004 and 2003 (Unaudited)                                      3

                Condensed Consolidated Balance Sheets at March 31,
                2004 (Unaudited) and December 31, 2003                         4

                Condensed Consolidated Statements of Cash Flows for the
                Quarters Ended March 31, 2004 and 2003 (Unaudited)             5

                Notes to Condensed Consolidated Financial Statements           6

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                14

Item 3.    Quantitative and Qualitative Disclosures About Market Risk         19

Item 4.    Controls and Procedures                                            20

                                     PART II
                                OTHER INFORMATION

Item 1.    Legal Proceedings                                                  20

Item 6.    Exhibits and Reports on Form 8-K                                   21


                                       2
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                   for the Quarters Ended March 31 (Unaudited)
                    (In thousands, except per share amounts)

                                                           2004        2003
                                                       --------    --------

Net revenues                                           $ 80,870    $ 74,281
                                                       --------    --------

Costs and expenses
   Cost of sales                                        (58,984)    (52,301)
   Selling and administrative expenses                  (14,434)    (12,530)
                                                       --------    --------
      Total costs and expenses                          (73,418)    (64,831)
                                                       --------    --------
Operating income                                          7,452       9,450
                                                       --------    --------
Nonoperating income (expense)
   Investment income                                         90          56
   Interest expense                                      (4,158)     (3,562)
   Amortization of deferred financing fees                 (375)       (275)
   Minority interest                                       (351)       (452)
   Debt extinguishment expenses                              --      (3,263)
   Other, net                                              (459)        (72)
                                                       --------    --------
      Total nonoperating expense                         (5,253)     (7,568)
                                                       --------    --------
Income before income taxes                                2,199       1,882
Income tax expense                                         (311)     (1,250)
                                                       --------    --------
Net income                                                1,888         632
                                                       --------    --------

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities          132        (155)
   Unrealized gain (loss) on derivatives                    (28)        609
   Foreign currency translation adjustments                (420)        153
                                                       --------    --------
      Total other comprehensive income (loss)              (316)        607
                                                       --------    --------
Comprehensive income                                   $  1,572    $  1,239
                                                       ========    ========

Net income                                             $  1,888    $    632
Dividend requirements of preferred stock                   (335)         --
                                                       --------    --------
Net income applicable to common shareholders           $  1,553    $    632
                                                       ========    ========

Weighted average number of common shares outstanding
   Basic                                                 27,478      26,155
                                                       ========    ========
   Diluted                                               29,345      26,159
                                                       ========    ========

Basic and diluted earnings per common share            $   0.06    $   0.02
                                                       ========    ========

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


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                    (Unaudited)
                                                                      Mar. 31,     Dec. 31,
                                                                          2004         2003
                                                                     ---------    ---------
<S>                                                                  <C>          <C>
Assets
Cash and cash equivalents                                            $  15,398    $  31,332
Marketable securities                                                    3,687        3,546
Receivables, net of allowance for doubtful accounts of
   $4,626 and $4,364, respectively                                      44,682       52,230
Receivables from related parties                                         1,876        1,226
Inventories, net                                                        11,729       12,017
Deferred subscription acquisition costs                                 12,262       11,759
Other current assets                                                     9,851       10,208
                                                                     ---------    ---------
   Total current assets                                                 99,485      122,318
                                                                     ---------    ---------
Property and equipment, net                                             11,781       12,020
Long-term receivables                                                    2,755           --
Programming costs, net                                                  57,776       57,426
Goodwill                                                               111,893      111,893
Trademarks                                                              54,628       58,159
Distribution agreements, net of accumulated amortization
   of $1,205 and $970, respectively                                     31,935       32,170
Other noncurrent assets                                                 22,757       24,074
                                                                     ---------    ---------
Total assets                                                         $ 393,010    $ 418,060
                                                                     =========    =========

Liabilities
Acquisition liabilities                                              $  13,502    $  15,392
Accounts payable                                                        18,018       22,899
Accrued salaries, wages and employee benefits                            5,471       11,472
Deferred revenues                                                       53,685       53,963
Accrued litigation settlement                                            1,000        6,500
Other liabilities and accrued expenses                                  16,322       19,088
                                                                     ---------    ---------
   Total current liabilities                                           107,998      129,314
                                                                     ---------    ---------
Financing obligations                                                  115,000      115,000
Acquisition liabilities                                                 22,025       26,982
Net deferred tax liabilities                                            13,456       13,877
Accrued litigation settlement                                            1,000        2,000
Other noncurrent liabilities                                            13,382       13,170
                                                                     ---------    ---------
   Total liabilities                                                   272,861      300,343
                                                                     ---------    ---------
Minority interest                                                       11,432       11,081

Shareholders' equity
Preferred stock, $10,000 par value - 10,000,000 shares authorized;
   1,674 issued                                                         17,294       16,959
Common stock, $0.01 par value
   Class A voting - 7,500,000 shares authorized; 4,864,102 issued           49           49
   Class B nonvoting - 30,000,000 shares authorized; 22,649,175
     and 22,579,363 issued, respectively                                   226          226
Capital in excess of par value                                         153,840      152,969
Accumulated deficit                                                    (60,957)     (62,510)
Unearned compensation - restricted stock                                  (362)          --
Accumulated other comprehensive loss                                    (1,373)      (1,057)
                                                                     ---------    ---------
   Total shareholders' equity                                          108,717      106,636
                                                                     ---------    ---------
Total liabilities and shareholders' equity                           $ 393,010    $ 418,060
                                                                     =========    =========
</TABLE>

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


                                       4
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   for the Quarters Ended March 31 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   2004         2003
                                                              ---------    ---------
<S>                                                           <C>          <C>
Cash flows from operating activities
Net income                                                    $   1,888    $     632
Adjustments to reconcile net income to net cash used for
  operating activities:
   Depreciation of property and equipment                           776        1,009
   Amortization of intangible assets                                875        2,185
   Amortization of investments in entertainment programming      10,327        9,523
   Amortization of deferred financing fees                          375          275
   Debt extinguishment expenses                                      --        3,263
   Deferred income taxes                                           (470)        (153)
   Net change in operating assets and liabilities                (7,053)      (9,754)
   Investments in entertainment programming                     (11,477)     (12,399)
   Litigation settlement                                         (6,500)          --
   Other, net                                                        37          806
                                                              ---------    ---------
Net cash used for operating activities                          (11,222)      (4,613)
                                                              ---------    ---------
Cash flows from investing activities
Proceeds from disposals                                              --           36
Additions to property and equipment                                (649)        (623)
Other, net                                                          140           (3)
                                                              ---------    ---------
Net cash used for investing activities                             (509)        (590)
                                                              ---------    ---------
Cash flows from financing activities
Proceeds from financing obligations                                  --      115,000
Repayment of financing obligations                                   --      (65,767)
Payment of debt extinguishment expenses                              --         (355)
Payment of acquisition liabilities                               (4,519)     (14,219)
Payment of deferred financing fees                                   --       (6,370)
Proceeds from stock plans                                           316           22
                                                              ---------    ---------
Net cash provided by (used for) financing activities             (4,203)      28,311
                                                              ---------    ---------
Net increase (decrease) in cash and cash equivalents            (15,934)      23,108
Cash and cash equivalents at beginning of period                 31,332        4,118
                                                              ---------    ---------
Cash and cash equivalents at end of period                    $  15,398    $  27,226
                                                              =========    =========
</TABLE>

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


                                       5
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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, 2003. Certain amounts
reported for prior periods have been reclassified to conform to the current
year's presentation.

(B)   RESTRUCTURING EXPENSES

      In 2004, we made cash payments of $0.5 million on our 2002 and 2001
restructuring plans. Approximately $7.6 million of the total restructuring
charges of $10.3 million for those plans, net of non-cash adjustments, has been
paid as of March 31, 2004 with most of the remainder to be paid in 2004,
although some payments will continue through 2007.

      Our 2002 restructuring initiative to reduce our ongoing operating expenses
resulted in a $5.7 million charge, of which $2.9 million related to workforce
reductions and $2.8 million related to consolidation of our office space. Our
2001 restructuring plan resulted in a $4.6 million charge, of which $2.6 million
related to workforce reductions and $2.0 million related to excess office space.
In 2003, we recorded adjustments of $0.3 million related to these charges.

The following table displays the activity and balances of the restructuring
reserve for the year ended December 31, 2003 and the quarter ended March 31,
2004 (in thousands):

                                                   Consolidation
                                  Workforce    of Facilities and
                                  Reduction           Operations      Total
                                  ---------    -----------------    -------
Balance at December 31, 2002      $   2,772            $   3,805    $ 6,577
Adjustment to previous estimate        (168)                 518        350
Cash payments                        (1,974)              (1,760)    (3,734)
                                  ---------            ---------    -------
Balance at December 31, 2003            630                2,563      3,193
Cash payments                          (196)                (328)      (524)
                                  ---------            ---------    -------
Balance at March 31, 2004         $     434            $   2,235    $ 2,669
                                  =========            =========    =======

(C)   EARNINGS PER COMMON SHARE

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

                                                    (Unaudited)
                                                  Quarters Ended
                                                     March 31,
                                                -----------------
                                                   2004      2003
                                                -------   -------

Numerator:
For basic EPS - net income                      $ 1,553   $   632
   Preferred stock dividends                        335        --
                                                -------   -------
For diluted EPS - net income                    $ 1,888   $   632
                                                =======   =======

Denominator:
For basic EPS - weighted-average shares          27,478    26,155
  Effect of dilutive potential common shares:
    Employee stock options and other                359         4
   Restricted stock awards                           22        --
   Preferred stock                                1,486        --
                                                -------   -------
      Dilutive potential common shares            1,867         4
                                                -------   -------
For diluted EPS - weighted-average shares        29,345    26,159
                                                =======   =======
Basic and diluted EPS                           $  0.06   $  0.02
                                                =======   =======


                                       6
<PAGE>

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

                            (Unaudited)
                          Quarters Ended
                             March 31,
                          --------------
                           2004    2003
                          -----   -----
Stock options             3,390   3,165
Restricted stock awards     193      --
                          -----   -----
Total                     3,583   3,165
                          =====   =====

      On May 1, 2003, $10.0 million of PEI Holdings, Inc., or Holdings, Series A
Preferred Stock held by Hugh M. Hefner, along with accumulated dividends of $0.1
million, were exchanged for 1,122,209 shares of Playboy Class B stock.

      On April 26, 2004, we completed a public offering of 6,021,340 shares of
our Class B stock. See Note (I) Subsequent Event for additional information.

(D)   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):

                                          (Unaudited)
                                             Mar. 31,     Dec. 31,
                                                 2004         2003
                                             --------     --------
Paper                                        $  2,334     $  2,613
Editorial and other prepublication costs        5,953        6,082
Merchandise finished goods                      3,442        3,322
                                             --------     --------
Total inventories, net                       $ 11,729     $ 12,017
                                             ========     ========

(E)   INCOME TAXES

      Our income tax provision consists primarily of foreign income tax related
to our international networks and withholding tax on licensing income for which
we do not receive a current U.S. income tax benefit. The tax provision also
includes non-cash deferred federal and state income tax related to the
amortization of goodwill and other indefinite-lived intangibles, for which we
had previously provided valuation allowances for the related deferred tax
benefits. The tax provision for the first quarter of 2004 reflects a benefit of
approximately $1.0 million from the reversal of deferred income taxes provided
in prior periods relating to the tax amortization of the Sarah Coventry
trademarks and service marks, which we sold in the first quarter.

(F)   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 to us under the license agreement. We have posted a bond in the amount of
$7.7 million, which represents the amount of the judgment, costs and estimated
pre- and post-judgment interest. We, on advice of legal counsel, believe that it
is not probable that a material judgment against us will be sustained and have
not recorded a liability for this case in accordance with Statement 5,
Accounting for Contingencies. We are currently pursuing an appeal.

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


                                       7
<PAGE>

(G)   STOCK-BASED COMPENSATION

We account for stock options as prescribed by Accounting Principles Board
Opinion No. 25 and disclose pro forma information as provided by Statement 123,
as amended by Statement 148, Accounting for Stock Based Compensation.

Pro forma net income (loss) and net income (loss) per common share, presented
below (in thousands, except per share amounts), were determined as if we had
accounted for our stock options under the fair value method of Statement 123.
The fair value of these options was estimated at the date of grant using an
option pricing model. Such models require the input of highly subjective
assumptions including the expected volatility of the stock price. For pro forma
disclosures, the options' estimated fair value was amortized over their vesting
period. No stock-based employee compensation expense is recognized because all
options granted under those plans had an exercise price equal to or in excess of
the market value of the underlying common stock at the grant date. If we
accounted for our employee stock options under Statement 123, compensation
expense would have been $0.7 million and $1.1 million for the quarters ended
March 31, 2004 and 2003.

                        (Unaudited)
                      Quarters Ended
                         March 31,
                    -----------------
                       2004      2003
                    -------   -------
Net income (loss)
   As reported      $ 1,888   $   632
   Pro forma          1,139      (425)

Basic EPS
   As reported      $  0.06   $  0.02
   Pro forma           0.03     (0.02)

Diluted EPS
   As reported      $  0.06   $  0.02
   Pro forma           0.04     (0.02)

(H)   SEGMENT INFORMATION

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

                                               (Unaudited)
                                             Quarters Ended
                                                March 31,
                                          --------------------
                                              2004        2003
                                          --------    --------

Net revenues
Entertainment                             $ 35,471    $ 33,203
Publishing                                  29,677      26,634
Online                                      10,973       9,240
Licensing                                    4,749       5,204
                                          --------    --------
Total                                     $ 80,870    $ 74,281
                                          ========    ========
Income before income taxes
Entertainment                             $  6,400    $  7,952
Publishing                                   1,899         507
Online                                       1,153         320
Licensing                                    2,571       3,571
Corporate Administration and Promotion      (4,571)     (2,900)
Investment income                               90          56
Interest expense                            (4,158)     (3,562)
Amortization of deferred financing fees       (375)       (275)
Minority interest                             (351)       (452)
Debt extinguishment expenses                    --      (3,263)
Other, net                                    (459)        (72)
                                          --------    --------
Total                                     $  2,199    $  1,882
                                          ========    ========


                                       8
<PAGE>

                                      (Unaudited)
                                         Mar. 31,   Dec. 31,
                                             2004       2003
                                         --------   --------

Identifiable assets
Entertainment                            $264,963   $265,056
Publishing                                 44,445     48,462
Online                                      5,704      5,493
Licensing                                   5,581      8,199
Corporate Administration and Promotion     72,317     90,850
                                         --------   --------
Total                                    $393,010   $418,060
                                         ========   ========

(I)   SUBSEQUENT EVENT

      On April 26, 2004, we completed a public offering of 6,021,340 Class B
shares at $12.69 per share, before underwriting discounts. Included in this
offering were 4,385,392 shares sold by Playboy, 1,485,948 shares sold by Hugh
Hefner, our Editor-in-Chief, and 150,000 shares sold by Christie Hefner, our
Chairman and Chief Executive Officer. Playboy's shares included 3,600,000
initial shares, plus an additional 785,392 shares due to the underwriters'
exercise of the over-allotment option. The shares sold by Mr. Hefner consisted
of all of the shares of Class B common stock he received upon conversion of all
of the outstanding shares of Playboy's Series A convertible preferred stock,
which we refer to as the Playboy Preferred Stock, at the time of the offering.

      Net proceeds to us from the sale of our shares were approximately $51.8
million. We intend to use $38.9 million of the net proceeds of this sale to
redeem $35.0 million in aggregate principal amount of the outstanding 11.00%
senior secured notes due 2010, and pay approximately $0.5 million of accrued and
unpaid interest through the date of redemption. We used approximately $0.7
million of net proceeds to pay accrued and unpaid dividends on the Playboy
Preferred Stock up to the time of conversion. The balance of the net proceeds
will be used for general corporate purposes. If we had completed the offering
and the expected redemption of $35.0 million of senior secured notes as of March
31, 2004, we would have incurred approximately $3.9 million in expenses for the
bond redemption premium and approximately $2.1 million to write-off the related
deferred financing costs.

(J)   SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

      On March 11, 2003, Holdings issued in a private offering $115.0 million of
11.00% senior secured notes due in 2010, which we refer to as the Old Notes. On
September 17, 2003, the Old Notes were exchanged for new 11.00% senior secured
notes due in 2010, which we refer to as the New Notes. The form and terms of the
New Notes are identical in all material respects (including principal amount,
interest rate, maturity, ranking and covenant restrictions) to the form and
terms of the Old Notes, except that the New Notes (a) have been registered under
the Securities Act of 1933, as amended, or the Securities Act, (b) do not bear
restrictive legends restricting their transfer under the Securities Act, (c) are
not entitled to the registration rights that apply to the Old Notes and (d) do
not contain provisions relating to liquidated damages in connection with the Old
Notes under circumstances related to the timing of the exchange offer. The
payment obligations under the New Notes are fully and unconditionally
guaranteed, jointly and severally, on a senior secured basis, by us and by
substantially all of our domestic subsidiaries, referred to as the guarantors,
excluding Playboy.com and its subsidiaries. All of our remaining subsidiaries,
referred to as the nonguarantors, are wholly-owned by the guarantors except for
Playboy.com and its subsidiaries, which are majority-owned subsidiaries. The
following supplemental Condensed Consolidating Statements of Operations for the
quarters ended March 31, 2004 and 2003, the Condensed Consolidating Balance
Sheets at March 31, 2004 and December 31, 2003 and the Condensed Consolidating
Statements of Cash Flows for the quarters ended March 31, 2004 and 2003, present
financial information for (a) us (carrying our investment in Holdings under the
equity method), (b) Holdings, the issuer of the New Notes (carrying its
investment in the guarantors under the equity method), (c) on a combined basis
the guarantors (carrying any investment in nonguarantors under the equity
method) and (d) on a combined basis the nonguarantors. Separate financial
statements of the guarantors are not presented because the guarantors are
jointly, severally, and unconditionally liable under the guarantees, and we
believe that separate financial statements and other disclosures regarding the
guarantors are not material to investors. In general, Holdings has entered into
third-party borrowings and financed its subsidiaries via intercompany accounts.
All intercompany activity has been included as "Net receipts from (payments to)
subsidiaries" in the Condensed Consolidating Statements of Cash Flows. In
certain cases, taxes have been calculated on the basis of a group position that
includes both guarantors and nonguarantors. In such cases, the taxes have been
allocated to individual legal entities based upon each legal entity's actual
contribution to the tax provision.


                                       9
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     Quarter Ended March 31, 2004 (Unaudited)
                                           ----------------------------------------------------------------------------------------
                                                 Playboy                                       Non-                         Playboy
                                            Enterprises,   Holdings       Guarantor       Guarantor                    Enterprises,
                                           Inc. (Parent)   (Issuer)    Subsidiaries    Subsidiaries    Eliminations            Inc.
                                           -------------   --------    ------------    ------------    ------------    ------------
<S>                                        <C>             <C>         <C>             <C>             <C>             <C>
Net revenues                               $          --   $     --    $     64,515    $     21,072    $     (4,717)   $     80,870
                                           -------------   --------    ------------    ------------    ------------    ------------
Costs and expenses
   Cost of sales                                      --         --         (47,636)        (16,065)          4,717         (58,984)
   Selling and administrative expenses                --         --         (11,558)         (2,876)             --         (14,434)
                                           -------------   --------    ------------    ------------    ------------    ------------
     Total costs and expenses                         --         --         (59,194)        (18,941)          4,717         (73,418)
                                           -------------   --------    ------------    ------------    ------------    ------------
Operating income                                      --         --           5,321           2,131              --           7,452
                                           -------------   --------    ------------    ------------    ------------    ------------
Nonoperating income (expense)
   Investment income                                  --         --              97              13             (20)             90
   Interest expense                                   --     (3,173)           (985)            (20)             20          (4,158)
   Amortization of deferred
     financing fees                                   --       (375)             --              --              --            (375)
   Minority interest                                (351)        --              --              --              --            (351)
   Equity income (loss) from subsidiaries          2,239      5,925           1,917              --         (10,081)             --
   Other, net                                         --       (138)           (272)            (49)             --            (459)
                                           -------------   --------    ------------    ------------    ------------    ------------
     Total nonoperating income
       (expense)                                   1,888      2,239             757             (56)        (10,081)         (5,253)
                                           -------------   --------    ------------    ------------    ------------    ------------
Income before income taxes                         1,888      2,239           6,078           2,075         (10,081)          2,199
Income tax expense                                    --         --            (153)           (158)             --            (311)
                                           -------------   --------    ------------    ------------    ------------    ------------
Net income                                 $       1,888   $  2,239    $      5,925    $      1,917    $    (10,081)   $      1,888
                                           =============   ========    ============    ============    ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                                     Quarter Ended March 31, 2003 (Unaudited)
                                           ----------------------------------------------------------------------------------------
                                                 Playboy        PEI                            Non-                         Playboy
                                            Enterprises,   Holdings       Guarantor       Guarantor                    Enterprises,
                                           Inc. (Parent)   (Issuer)    Subsidiaries    Subsidiaries    Eliminations            Inc.
                                           -------------   --------    ------------    ------------    ------------    ------------
<S>                                        <C>             <C>         <C>             <C>             <C>             <C>
Net revenues                               $          --   $     --    $     60,520    $     17,978    $     (4,217)   $     74,281
                                           -------------   --------    ------------    ------------    ------------    ------------
Costs and expenses
   Cost of sales                                      --         --         (42,321)        (14,197)          4,217         (52,301)
   Selling and administrative expenses                --         --          (9,949)         (2,581)             --         (12,530)
                                           -------------   --------    ------------    ------------    ------------    ------------
     Total costs and expenses                         --         --         (52,270)        (16,778)          4,217         (64,831)
                                           -------------   --------    ------------    ------------    ------------    ------------
Operating income                                      --         --           8,250           1,200              --           9,450
                                           -------------   --------    ------------    ------------    ------------    ------------
Nonoperating income (expense)
   Investment income                                  --         --              67              22             (33)             56
   Interest expense                                   --     (1,772)         (1,353)           (470)             33          (3,562)
   Amortization of deferred
     financing fees                                   --       (251)             --             (24)             --            (275)
   Minority interest                                (119)        --            (333)             --              --            (452)
   Debt extinguishment expenses                       --     (3,060)             --            (203)             --          (3,263)
   Equity income (loss) from subsidiaries            751      5,841             (65)             --          (6,527)             --
   Other, net                                         --         (7)            (27)            (38)             --             (72)
                                           -------------   --------    ------------    ------------    ------------    ------------
     Total nonoperating income (expense)             632        751          (1,711)           (713)         (6,527)         (7,568)
                                           -------------   --------    ------------    ------------    ------------    ------------
Income before income taxes                           632        751           6,539             487          (6,527)          1,882
Income tax expense                                    --         --            (698)           (552)             --          (1,250)
                                           -------------   --------    ------------    ------------    ------------    ------------
Net income (loss)                          $         632   $    751    $      5,841    $        (65)   $     (6,527)   $        632
                                           =============   ========    ============    ============    ============    ============
</TABLE>


                                       10
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATING BALANCE SHEET
                           March 31, 2004 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                               Playboy                                       Non-                         Playboy
                                          Enterprises,   Holdings       Guarantor       Guarantor                    Enterprises,
                                         Inc. (Parent)   (Issuer)    Subsidiaries    Subsidiaries    Eliminations            Inc.
                                         -------------   ---------   ------------    ------------    ------------    ------------
<S>                                      <C>             <C>         <C>             <C>             <C>             <C>
Assets
Cash and cash equivalents                $          --   $      --   $     12,005    $      3,393    $         --    $     15,398
Marketable securities                               --          --          3,687              --              --           3,687
Receivables, net of allowance for
   doubtful accounts                                --          --         38,308           6,374              --          44,682
Receivables from related parties                    --          --         (7,276)          9,152              --           1,876
Inventories, net                                    --          --          9,196           2,533              --          11,729
Deferred subscription acquisition
   costs                                            --          --         12,262              --              --          12,262
Other current assets                                --          --          7,300           2,551              --           9,851
                                         -------------   ---------   ------------    ------------    ------------    ------------
   Total current assets                             --          --         75,482          24,003              --          99,485
                                         -------------   ---------   ------------    ------------    ------------    ------------
Receivables from affiliates                         --     108,028         40,063              --        (148,091)             --
Property and equipment, net                         --          --         10,267           1,514              --          11,781
Long-term receivables                               --          --          2,755              --              --           2,755
Programming costs, net                              --          --         56,528           1,248              --          57,776
Goodwill                                            --          --        111,370             523              --         111,893
Trademarks                                          --          --         54,628              --              --          54,628
Distribution agreements, net of
   accumulated amortization                         --          --         31,935              --              --          31,935
Investment in subsidiaries                     108,717     108,717        (33,954)             --        (183,480)             --
Other noncurrent assets                             --       7,638         15,083              36              --          22,757
                                         -------------   ---------   ------------    ------------    ------------    ------------
Total assets                             $     108,717   $ 224,383   $    364,157    $     27,324    $   (331,571)   $    393,010
                                         =============   =========   ============    ============    ============    ============

Liabilities
Acquisition liabilities                  $          --   $      --   $     12,127    $      1,375    $         --    $     13,502
Accounts payable                                    --         104         13,240           4,674              --          18,018
Accrued salaries, wages and
   employee benefits                                --          --          5,245             226              --           5,471
Deferred revenues                                   --          --         47,116           6,569              --          53,685
Accrued litigation settlement                       --          --          1,000              --              --           1,000
Other liabilities and accrued expenses              --         562         14,696           1,064              --          16,322
                                         -------------   ---------   ------------    ------------    ------------    ------------
   Total current liabilities                        --         666         93,424          13,908              --         107,998
                                         -------------   ---------   ------------    ------------    ------------    ------------
Financing obligations                               --     115,000             --              --              --         115,000
Financing obligations to affiliates                 --          --        108,028          40,063        (148,091)             --
Acquisition liabilities                             --          --         15,960           6,065              --          22,025
Net deferred tax liabilities                        --          --         13,456              --              --          13,456
Accrued litigation settlement                       --          --          1,000              --              --           1,000
Other noncurrent liabilities                        --          --         12,140           1,242              --          13,382
                                         -------------   ---------   ------------    ------------    ------------    ------------
Total liabilities                                   --     115,666        244,008          61,278        (148,091)        272,861
                                         -------------   ---------   ------------    ------------    ------------    ------------
Minority interest                                   --          --         11,432              --              --          11,432

Shareholders' equity                           108,717     108,717        108,717         (33,954)       (183,480)        108,717
                                         -------------   ---------   ------------    ------------    ------------    ------------
Total liabilities and
   shareholders' equity                  $     108,717   $ 224,383   $    364,157    $     27,324    $   (331,571)   $    393,010
                                         =============   =========   ============    ============    ============    ============
</TABLE>


                                       11
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATING BALANCE SHEET
                          December 31, 2003 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                 Playboy                                       Non-                         Playboy
                                            Enterprises,   Holdings       Guarantor       Guarantor                    Enterprises,
                                           Inc. (Parent)   (Issuer)    Subsidiaries    Subsidiaries    Eliminations            Inc.
                                           -------------   ---------   ------------    ------------    ------------    ------------
<S>                                        <C>             <C>         <C>             <C>             <C>             <C>
Assets
Cash and cash equivalents                  $          --   $      --   $     24,445    $      6,887    $         --    $     31,332
Marketable securities                                 --          --          3,546              --              --           3,546
Receivables, net of allowance for
   doubtful accounts                                  --          --         43,948           8,282              --          52,230
Receivables from related parties                      --          --         (7,277)          8,503              --           1,226
Inventories, net                                      --          --          9,624           2,393              --          12,017
Deferred subscription acquisition
   costs                                              --          --         11,759              --              --          11,759
Other current assets                                  --          --          8,420           1,788              --          10,208
                                           -------------   ---------   ------------    ------------    ------------    ------------
   Total current assets                               --          --         94,465          27,853              --         122,318
                                           -------------   ---------   ------------    ------------    ------------    ------------
Receivables from affiliates                           --     110,843         49,315              --        (160,158)             --
Property and equipment, net                           --          --         10,621           1,399              --          12,020
Programming costs, net                                --          --         56,442             984              --          57,426
Goodwill                                              --          --        111,370             523              --         111,893
Trademarks                                            --          --         58,159              --              --          58,159
Distribution agreements, net of
   accumulated amortization                           --          --         32,170              --              --          32,170
Investment in subsidiaries                       106,636     106,636        (41,990)             --        (171,282)             --
Other noncurrent assets                               --       8,013         16,023              38              --          24,074
                                           -------------   ---------   ------------    ------------    ------------    ------------
Total assets                               $     106,636   $ 225,492   $    386,575    $     30,797    $   (331,440)   $    418,060
                                           =============   =========   ============    ============    ============    ============

Liabilities
Acquisition liabilities                    $          --   $      --   $     13,244    $      2,148    $         --    $     15,392
Accounts payable                                      --         131         17,205           5,563              --          22,899
Accrued salaries, wages and
   employee benefits                                  --          --         11,200             272              --          11,472
Deferred revenues                                     --          --         47,098           6,865              --          53,963
Accrued litigation settlement                         --          --          6,500              --              --           6,500
Other liabilities and accrued expenses                --       3,725         13,896           1,467              --          19,088
                                           -------------   ---------   ------------    ------------    ------------    ------------
   Total current liabilities                          --       3,856        109,143          16,315              --         129,314
                                           -------------   ---------   ------------    ------------    ------------    ------------
Financing obligations                                 --     115,000             --              --              --         115,000
Financing obligations to related parties              --          --        110,843          49,315        (160,158)             --
Acquisition liabilities                               --          --         21,107           5,875              --          26,982
Net deferred tax liabilities                          --          --         13,877              --              --          13,877
Accrued litigation settlement                         --          --          2,000              --              --           2,000
Other noncurrent liabilities                          --          --         11,888           1,282              --          13,170
                                           -------------   ---------   ------------    ------------    ------------    ------------
Total liabilities                                     --     118,856        268,858          72,787        (160,158)        300,343
                                           -------------   ---------   ------------    ------------    ------------    ------------
Minority interest                                     --          --         11,081              --              --          11,081

Shareholders' equity                             106,636     106,636        106,636         (41,990)       (171,282)        106,636
                                           -------------   ---------   ------------    ------------    ------------    ------------
Total liabilities and
   shareholders' equity                    $     106,636   $ 225,492   $    386,575    $     30,797    $   (331,440)   $    418,060
                                           =============   =========   ============    ============    ============    ============
</TABLE>


                                       12
<PAGE>

                   PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   Quarter Ended March 31, 2004 (Unaudited)
                                         ----------------------------------------------------------------------------------------
                                               Playboy                                        Non-                        Playboy
                                          Enterprises,    Holdings       Guarantor       Guarantor                   Enterprises,
                                         Inc. (Parent)    (Issuer)    Subsidiaries    Subsidiaries    Eliminations           Inc.
                                         -------------    --------    ------------    ------------    ------------   ------------
<S>                                      <C>              <C>         <C>             <C>             <C>            <C>
Cash flows from operating activities
Net cash provided by (used for)
   operating activities                  $        (351)   $ (6,501)   $     (4,822)   $        452    $         --   $    (11,222)
                                         -------------    --------    ------------    ------------    ------------   ------------
Cash flows from investing activities
Additions to property and equipment                 --          --            (320)           (329)             --           (649)
Other, net                                          --          --             140              --              --            140
                                         -------------    --------    ------------    ------------    ------------   ------------
Net cash used for investing activities              --          --            (180)           (329)             --           (509)
                                         -------------    --------    ------------    ------------    ------------   ------------
Cash flows from financing activities
Payment of acquisition liabilities                  --          --          (3,684)           (835)             --         (4,519)
Proceeds from stock plans                          316          --              --              --              --            316
                                         -------------    --------    ------------    ------------    ------------   ------------
Net cash provided by (used for)
   financing activities                            316          --          (3,684)           (835)             --         (4,203)
                                         -------------    --------    ------------    ------------    ------------   ------------
Net receipts from (payments to)
   subsidiaries                                     35       6,501          (3,754)         (2,782)             --             --
                                         -------------    --------    ------------    ------------    ------------   ------------
Net decrease in cash and
   cash equivalents                                 --          --         (12,440)         (3,494)             --        (15,934)
Cash and cash equivalents
   at beginning of period                           --          --          24,445           6,887              --         31,332
                                         -------------    --------    ------------    ------------    ------------   ------------
Cash and cash equivalents
   at end of period                      $          --    $     --    $     12,005    $      3,393    $         --   $     15,398
                                         =============    ========    ============    ============    ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                    Quarter Ended March 31, 2003 (Unaudited)
                                         -----------------------------------------------------------------------------------------
                                               Playboy                                         Non-                        Playboy
                                          Enterprises,     Holdings       Guarantor       Guarantor                   Enterprises,
                                         Inc. (Parent)     (Issuer)    Subsidiaries    Subsidiaries    Eliminations           Inc.
                                         -------------    ---------    ------------    ------------    ------------   ------------
<S>                                      <C>              <C>          <C>             <C>             <C>            <C>
Cash flows from operating activities
Net cash provided by (used for)
   operating activities                  $          --    $  (1,698)   $     (3,057)   $        142    $         --   $     (4,613)
                                         -------------    ---------    ------------    ------------    ------------   ------------
Cash flows from investing activities
Proceeds from disposals                             --           --              36              --              --             36
Additions to property and equipment                 --           --            (508)           (115)             --           (623)
Other, net                                          --           --              (6)              3              --             (3)
                                         -------------    ---------    ------------    ------------    ------------   ------------
Net cash used for investing activities              --           --            (478)           (112)             --           (590)
                                         -------------    ---------    ------------    ------------    ------------   ------------
Cash flows from financing activities
Proceeds from financing obligations                 --      115,000              --              --              --        115,000
Repayment of financing obligations                  --      (65,267)             --            (500)             --        (65,767)
Payment of debt extinguishment
   expenses                                         --         (355)             --              --              --           (355)
Payment of acquisition liabilities                  --           --         (13,145)         (1,074)             --        (14,219)
Payment of deferred financing fees                  --       (6,370)             --              --              --         (6,370)
Other, net                                          22           --              --              --              --             22
                                         -------------    ---------    ------------    ------------    ------------   ------------
Net cash provided by (used for)
   financing activities                             22       43,008         (13,145)         (1,574)             --         28,311
                                         -------------    ---------    ------------    ------------    ------------   ------------
Net receipts from (payments to)
   subsidiaries                                    (22)     (41,310)         41,533            (201)             --             --
                                         -------------    ---------    ------------    ------------    ------------   ------------
Net increase (decrease) in cash
   and cash equivalents                             --           --          24,853          (1,745)             --         23,108
Cash and cash equivalents
   at beginning of period                           --           --          (1,908)          6,026              --          4,118
                                         -------------    ---------    ------------    ------------    ------------   ------------
Cash and cash equivalents
   at end of period                      $          --    $      --    $     22,945    $      4,281    $         --   $     27,226
                                         =============    =========    ============    ============    ============   ============
</TABLE>


                                       13
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

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

                                              Quarters Ended
                                                 March 31,
                                             ----------------
                                               2004      2003
                                             ------    ------

Net revenues
Entertainment
   Domestic TV networks                      $ 24.4    $ 23.4
   International TV                             9.9       8.5
   Worldwide DVD/home video                     1.1       1.1
   Other                                        0.1       0.2
                                             ------    ------
   Total Entertainment                         35.5      33.2
                                             ------    ------
Publishing
   Playboy magazine
     Subscription                              13.4      12.4
     Newsstand                                  4.3       2.6
     Advertising                                7.7       7.4
   Other domestic publishing                    2.7       2.9
   International publishing                     1.6       1.3
                                             ------    ------
   Total Publishing                            29.7      26.6
                                             ------    ------
Online
   Subscriptions                                5.2       4.1
   E-commerce                                   4.8       3.9
   Other                                        1.0       1.3
                                             ------    ------
   Total Online                                11.0       9.3
                                             ------    ------
Licensing
   International licensing                      3.2       1.8
   Domestic licensing                           0.8       0.9
   Entertainment licensing                      0.5       0.3
   Artwork sales                                 --       1.9
   Marketing events                             0.2       0.3
                                             ------    ------
   Total Licensing                              4.7       5.2
                                             ------    ------
Total net revenues                           $ 80.9    $ 74.3
                                             ======    ======
Net income
Entertainment
   Before programming expense                $ 16.7    $ 17.5
   Programming expense                        (10.3)     (9.5)
                                             ------    ------
   Total Entertainment                          6.4       8.0
                                             ------    ------
Publishing                                      1.9       0.5
                                             ------    ------
Online                                          1.2       0.3
                                             ------    ------
Licensing                                       2.6       3.6
                                             ------    ------
Corporate Administration and Promotion         (4.6)     (2.9)
                                             ------    ------
Operating income                                7.5       9.5
                                             ------    ------
Nonoperating income (expense)
   Investment income                            0.1       0.1
   Interest expense                            (4.2)     (3.6)
   Amortization of deferred financing fees     (0.4)     (0.3)
   Minority interest                           (0.4)     (0.4)
   Debt extinguishment expenses                  --      (3.3)
   Other, net                                  (0.4)     (0.1)
                                             ------    ------
Total nonoperating expense                     (5.3)     (7.6)
                                             ------    ------
Income before income taxes                      2.2       1.9
Income tax expense                             (0.3)     (1.3)
                                             ------    ------
Net income                                   $  1.9    $  0.6
                                             ======    ======
Basic and diluted EPS                        $ 0.06    $ 0.02
                                             ======    ======


                                       14
<PAGE>

      Our revenues increased approximately 9% for the quarter primarily due to
higher revenues in each of our groups except Licensing, which experienced an
expected decrease due to the sale of a Salvador Dali painting in the prior year
quarter.

      Operating income decreased for the quarter due to an increase in corporate
administration and promotion expenses coupled with higher programming
amortization, as well as the absence in the current quarter of the sale of
original art that occurred in the prior year quarter. The impact of these
factors was partially offset by increased income from Playboy magazine, online
subscriptions and e-commerce.

      The net loss for the prior year quarter included $3.3 million of debt
extinguishment expenses in connection with financing obligations, which were
paid upon completion of our debt offering in the first quarter of 2003.

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

ENTERTAINMENT GROUP

      Revenues from our domestic TV networks business increased $1.0 million, or
4%, for the quarter. The increase was due to increased video on demand, or VOD,
revenues due to the launch of several new systems by existing operators.
Satellite direct-to-home, or DTH, revenues also increased due primarily to
greater home access as well as an increase in the retail rates in some systems.
Renting our studio facility and providing various related services to third
parties also contributed favorably to revenues. These revenue increases were
partially offset by decreases in cable revenues, which we believe are due in
part to shifts in demand to satellite and VOD.

      Revenues from our international TV business increased $1.4 million, or
17%, for the quarter due primarily to higher revenues in the U.K.

      The group's segment income prior to programming amortization decreased
$0.8 million as the increase in revenues was more than offset by planned
increases in revenue-related expenses, including marketing, combined with higher
than normal legal and technology costs.

      The programming amortization increased $0.8 million from the prior year
quarter. We continue to expect our programming amortization to be approximately
$42 million for the year, up less than 4% from last year, and our programming
cash expenditures to be approximately $46 million for the year, up less than 5%
from 2003.

PUBLISHING GROUP

      Playboy magazine revenues increased $3.0 million, or 13%. Newsstand
revenues were $1.7 million higher largely due to a 39% increase in the number of
U.S. and Canadian newsstand copies sold due to three celebrity issues in the
quarter, including the Jaime Pressly, Torrie Wilson/Sable and Rachel Hunter
issues, which we sold at a higher cover price. Subscription revenues increased
$1.0 million primarily due to increased revenues from direct-to-publisher
subscriptions in the quarter and a favorable adjustment for paid subscriptions
that will not be served. Advertising revenues increased $0.3 million due to a
3.5% increase in ad pages and a slight increase in net revenue per page. Ad
sales for the 2004 second quarter magazine issues are closed, and we expect to
report 15% higher ad revenues and 19% more ad pages compared to the 2003 second
quarter.

      Revenues from our other domestic publishing businesses decreased $0.2
million, or 9%, primarily due to a 14% decrease in the number of newsstand
copies of special editions sold, partially offset by revenues from royalties
from two books: Playboy: 50 Years: The Photographs and Playboy Bartender's
Guide.

      International publishing revenues increased $0.3 million, or 24%,
primarily due to higher revenues from the Brazilian edition.

      The group's segment income increased $1.4 million, which was attributable
to the higher revenues, partially offset by higher magazine editorial costs
related to the celebrity pictorials.


                                       15
<PAGE>

ONLINE GROUP

      The Online Group's revenues increased $1.7 million, or 19%. Subscription
revenues increased $1.1 million, or 28%, due primarily to an increase in our
revenues per subscriber as customers are choosing additional higher priced
offerings, as well as an increase in total subscribers. Increased email
campaigns and special offers combined with increased catalog circulation helped
improve e-commerce revenues by $0.9 million. The group's segment income
increased $0.9 million, which was attributable to the higher revenues, partially
offset by increases in the related costs and expenses.

LICENSING GROUP

      Licensing Group revenues decreased $0.5 million, as an increase in
international revenues of $1.4 million, due to higher royalties from existing
licenses in Japan, Western Europe and Southeast Asia, as well as several new
licensing arrangements, was more than offset by the sale in the prior year
quarter of an original painting by Salvador Dali for $1.9 million. Segment
income from our Licensing Group decreased $1.0 million primarily due to the
revenue decrease stated above combined with an increase in international
revenue-related expenses. In the first quarter, we sold our Sarah Coventry
trademarks and service marks for their approximate book value, pursuant to an
agreement under which we will receive payments over a period not to exceed ten
years.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses increased $1.7 million, or
58%, for the quarter due to unusually low expenses in a number of areas in the
prior year quarter combined with higher benefit plan and variable compensation
costs in the current year.

INCOME TAX EXPENSE

      Our income tax provision consists primarily of foreign income tax related
to our international networks and withholding tax on licensing income for which
we do not receive a current U.S. income tax benefit. The tax provision also
includes non-cash deferred federal and state income tax related to the
amortization of goodwill and other indefinite-lived intangibles, for which we
had previously provided valuation allowances for the related deferred tax
benefits. The tax provision for the first quarter of 2004 reflects a benefit of
approximately $1.0 million from the reversal of deferred income taxes provided
in prior periods relating to the tax amortization of the Sarah Coventry
trademarks and service marks, which we sold in the first quarter.

LIQUIDITY AND CAPITAL RESOURCES

      At March 31, 2004, we had $15.4 million in cash and cash equivalents
compared to $31.3 million in cash and cash equivalents at December 31, 2003.
Total financing obligations were $115.0 million at both March 31, 2004 and
December 31, 2003.

      At March 31, 2004, our liquidity requirements were being provided by the
cash generated from our March 2003 offering of $115.0 million in aggregate
principal amount of 11.00% senior secured notes due 2010, through Holdings, one
of our wholly-owned subsidiaries. In addition, we have a $20.0 million revolving
credit facility. At March 31, 2004, there were no borrowings and $9.6 million in
letters of credit outstanding under this facility.

      On April 26, 2004, we completed a public offering of 6,021,340 Class B
shares at $12.69 per share, before underwriting discounts. Included in this
offering were 4,385,392 shares sold by Playboy, 1,485,948 shares sold by Hugh
Hefner and 150,000 shares sold by Christie Hefner. Playboy's shares included
3,600,000 initial shares, plus an additional 785,392 shares due to the
underwriters' exercise of the over-allotment option. The shares sold by Mr.
Hefner consisted of all of the shares of Class B common stock he received upon
conversion of all of the outstanding shares of Playboy Preferred Stock at the
time of the offering.


                                       16
<PAGE>

      Net proceeds to us from the sale of our shares were approximately $51.8
million. We intend to use approximately $38.9 million of the net proceeds to
redeem $35.0 million in aggregate principal amount of the outstanding senior
secured notes, and pay approximately $0.5 million of accrued and unpaid interest
through the date of redemption. We will also use approximately $0.7 million of
the net proceeds to pay accrued and unpaid dividends on the Playboy Preferred
Stock up to the time of conversion. The balance of the net proceeds will be used
for general corporate purposes. As a result of the redemption of the senior
secured notes, we expect to incur second quarter charges of approximately $3.9
million for the bond redemption premium and approximately $2.1 million for the
write-off of the related deferred financing costs.

DEBT FINANCINGS

      On March 11, 2003, we completed the offering of $115.0 million in
aggregate principal amount of senior secured notes of Holdings. On September 17,
2003, the senior secured notes were exchanged for new registered senior secured
notes. The form and terms of the new senior secured notes are identical in all
material respects (including principal amount, interest rate, maturity, ranking
and covenant restrictions) to the form and terms of the old notes. The senior
secured notes mature on March 15, 2010 and bear interest at the rate of 11.00%
per annum, with interest payable on March 15th and September 15th of each year,
beginning September 15, 2003.

      Under the terms of the indenture governing the notes, we have the right to
redeem up to 35% of the original $115.0 in aggregate principal amount of the
notes, or $40.25 million, at a redemption price of 111.0% of the principal
amount of the notes redeemed, plus accrued and unpaid interest, with the net
cash proceeds from a qualifying equity offering. With the proceeds of our
recently completed stock offering, we intend to redeem $35.0 million in
aggregate principal amount of the outstanding notes and pay approximately $0.5
million of accrued and unpaid interest through the date of redemption. We
anticipate that the redemption will occur on or about June 11, 2004, at which
time our financing obligations will decrease to $80.0 million.

FINANCING FROM RELATED PARTY

      At December 31, 2002, Playboy.com had an aggregate of $27.2 million of
outstanding indebtedness to Mr. Hefner in the form of three promissory notes.
Upon the closing of the senior secured notes offering on March 11, 2003,
Playboy.com's debt to Mr. Hefner was restructured. One promissory note, in the
amount of $10.0 million, was extinguished in exchange for shares of Holdings
Series A Preferred Stock with an aggregate stated value of $10.0 million. The
two other promissory notes, in a combined principal amount of $17.2 million,
were extinguished in exchange for $0.5 million in cash and shares of Holdings
Series B Preferred Stock with an aggregate stated value of $16.7 million.
Pursuant to the terms of an exchange agreement between us, Holdings, Playboy.com
and Mr. Hefner and certificates of designation governing the Holdings Series A
and Series B Preferred Stock, we were required to exchange the Holdings Series A
Preferred Stock for shares of Playboy Class B stock and to exchange the Holdings
Series B Preferred Stock for shares of Playboy Preferred Stock.

      In order to issue the Playboy Preferred Stock, we were required to amend
our certificate of incorporation to authorize the issuance, which we refer to as
the certificate amendment. In accordance with applicable law, Mr. Hefner, the
holder of more than a majority of our outstanding Class A voting common stock,
approved the certificate amendment by written consent. As a result, on May 1,
2003, we filed an amendment to our certificate of incorporation and exchanged
the Holdings Series A Preferred Stock plus accumulated dividends for 1,122,209
shares of Playboy Class B stock and exchanged the Holdings Series B Preferred
Stock for 1,674 shares of Playboy Preferred Stock with an aggregate stated value
of $16.7 million. The Playboy Preferred Stock accrues dividends at a rate of
8.00% per annum, which are paid semi-annually.

      The Playboy Preferred Stock was convertible at the option of Mr. Hefner,
the holder, into shares of our Class B stock at a conversion price of $11.2625,
which is equal to 125% of the weighted average closing price of our Class B
stock over the 90-day period prior to the exchange of Holdings Series B
Preferred Stock for Playboy Preferred Stock.

      On April 26, 2004, Mr. Hefner converted his $16.7 million of Playboy
Preferred Stock into 1,485,948 shares of our Class B stock and sold these shares
as part of our public equity offering on April 26, 2004. Mr. Hefner chose not to
sell the 1,122,209 shares that he had previously received in exchange for his
Holdings Series A Preferred Stock, as had been contemplated in our February 11,
2004 registration statement.


                                       17
<PAGE>

CALIFA ACQUISITION

      The Califa acquisition agreement gave us the option of paying up to $71
million of the purchase price in cash or Class B stock through 2007. We have
notified the sellers that the base consideration of $7.0 million and the
performance-based payment of $7.0 million that are due in 2004 will be paid in
cash. Under the terms of the agreement, the performance-based payment was paid
in full on March 1, 2004 and the base consideration will be paid in two equal
installments of $3.5 million on May 3, 2004 and November 1, 2004.

CASH FLOWS USED FOR OPERATING ACTIVITIES

      Net cash used for operating activities was $11.2 million, which represents
an increase of $6.6 million from the prior year quarter, primarily due to the
payment of $6.5 million of the Logix settlement.

CASH FLOWS USED FOR FINANCING ACTIVITIES

      Net cash used for financing activities was $4.2 million for the quarter
principally due to the payment of $4.5 million of Califa acquisition
liabilities.


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<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, 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 and our
      ability to manage the risk associated with our exposure to foreign
      currency exchange rate fluctuations;

(3)   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;

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

(5)   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;

(6)   Dilution from any potential issuance of additional common or convertible
      preferred stock in connection with financings or acquisitions;

(7)   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;

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

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

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

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

(12)  The impact of industry consolidation, any decline in our access to, and
      acceptance by, DTH and/or cable systems and the possible resulting
      deterioration in the terms, cancellation of fee arrangements or pressure
      on margin splits with operators of these systems;

(13)  Risks that we may not realize the expected increased sales and profits and
      other benefits from acquisitions and the restructuring of our
      international TV joint ventures;

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

(15)  Increases in paper or printing costs;

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

(17)  Uncertainty of the viability of our primarily subscription- and
      e-commerce-based Internet model.

           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Effective with the refinancing of our financing obligations, which
occurred on March 11, 2003, we no longer have any floating interest rate
exposure. All of our current debt is represented by the senior secured notes,
which are fixed rate obligations. Therefore, the fair value of the $115.0
million senior secured notes will be influenced by changes in market rates and
our credit quality. At March 31, 2004, the notes were trading above par for an
implied fair value of $132.8 million.


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<PAGE>

                             CONTROLS AND PROCEDURES

(a)   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.

(b)   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.

                                LEGAL PROCEEDINGS

      On February 17, 1998, Eduardo Gongora, or Gongora, filed suit in state
court in Hidalgo County, Texas against Editorial Caballero SA de CV, or EC,
Grupo Siete International, Inc., or GSI, collectively the Editorial Defendants,
and us. In the complaint, Gongora alleged that he was injured as a result of the
termination of a publishing license agreement, or the License Agreement, between
us and EC for the publication of a Mexican edition of Playboy magazine, or the
Mexican Edition. We terminated the License Agreement on or about January 29,
1998 due to EC's failure to pay royalties and other amounts due us under the
License Agreement. On February 18, 1998, the Editorial Defendants filed a
cross-claim against us. Gongora alleged that in December 1996 he entered into an
oral agreement with the Editorial Defendants to solicit advertising for the
Mexican Edition to be distributed in the United States. The basis of GSI's
cross-claim was that it was the assignee of EC's right to distribute the Mexican
Edition in the United States and other Spanish-speaking Latin American countries
outside of Mexico. On May 31, 2002, a jury returned a verdict against us in the
amount of approximately $4.4 million. Under the verdict, Gongora was awarded no
damages. GSI and EC were awarded $4.1 million in out-of-pocket expenses and
approximately $0.3 million for lost profits, respectively, even though the jury
found that EC had failed to comply with the terms of the License Agreement. On
October 24, 2002, the trial court signed a judgment against us for $4.4 million
plus pre- and post-judgment interest and costs. On November 22, 2002, we filed
post-judgment motions challenging the judgment in the trial court. The trial
court overruled those motions and we are vigorously pursuing an appeal with the
State Appellate Court sitting in Corpus Christi challenging the verdict. We have
posted a bond in the amount of approximately $7.7 million (which represents the
amount of the judgment, costs and estimated pre- and post-judgment interest) in
connection with the appeal. We, on advice of legal counsel, believe that it is
not probable that a material judgment against us will be sustained. In
accordance with Statement of Financial Accounting Standards, or Statement, 5,
Accounting for Contingencies, no liability has been accrued.

      On May 17, 2001, Logix Development Corporation, or Logix, D. Keith
Howington and Anne Howington filed suit in state court in Los Angeles County
Superior Court in California against Spice Entertainment Companies, Inc., or
Spice, Emerald Media, Inc., or EMI, Directrix, Inc., or Directrix, Colorado
Satellite Broadcasting, Inc., New Frontier Media, Inc., J. Roger Faherty, Donald
McDonald, Jr., and Judy Savar. On February 8, 2002, plaintiffs amended the
complaint and added as a defendant Playboy, which acquired Spice in 1999. The
complaint alleged 11 contract and tort causes of action arising principally out
of a January 18, 1997 agreement between EMI and Logix in which EMI agreed to
purchase certain explicit television channels broadcast over C-band satellite.
The complaint further sought damages from Spice based on Spice's alleged failure
to provide transponder and uplink services to Logix. Playboy and Spice filed a
motion to dismiss plaintiffs' complaint. After pre-trial motions, Playboy was
dismissed from the case and a number of causes of action were dismissed against
Spice. A trial date for the remaining breach of contract claims against Spice
was set for December 10, 2003, and then continued, first to February 11, 2004
and then to March 17, 2004. Spice and the plaintiffs filed cross-motions for
summary judgment or, in the alternative, for summary adjudication, on September
5, 2003. Those motions were heard on November 19, 2003 and were denied. In
February 2004, prior to the trial, Spice and the plaintiffs agreed to a
settlement in the amount of $8.5 million, which we recorded as a charge in the
fourth quarter of 2003, $6.5 million of which was paid in February 2004. The
remaining $2.0 million will be paid in $1.0 million installments in 2005 and
2006.


                                       20
<PAGE>

      On September 26, 2002, Directrix filed suit in the U.S. Bankruptcy Court
in the Southern District of New York against Playboy Entertainment Group, Inc.
In the complaint, Directrix alleged that it was injured as a result of the
termination of a Master Services Agreement under which Directrix was to perform
services relating to the distribution, production and post production of our
cable networks and a sublease agreement under which Directrix would have
subleased office, technical and studio space at our Los Angeles, California
production facility. Directrix also alleged that we breached an agreement under
which Directrix had the right to transmit and broadcast certain versions of
films through C-band satellite, commonly known as the TVRO market, and Internet
distribution. On November 15, 2002, we filed an answer denying Directrix's
allegations, along with counterclaims against Directrix relating to the Sublease
Agreement and the Master Services Agreement and seeking damages. On May 15,
2003, we filed an amended answer and counterclaims. On July 30, 2003, Directrix
moved to dismiss one of the amended counterclaims, and on October 20, 2003, the
Court denied Directrix's motion. Both sides have commenced discovery. We intend
to vigorously defend ourselves against Directrix's claims. We believe its claims
are without merit and that we have good defenses against them. We believe it is
not probable that a material judgment against us will result.

                        EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

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

   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

(b)   Reports on Form 8-K

      On February 11, 2004, we furnished a Current Report on Form 8-K, dated
February 11, 2004, under Item 12., attaching our press release announcing our
financial results for the fourth quarter and year ending December 31, 2003.


                                       21
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:     May 7, 2004                         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)


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