<PAGE>
 
               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, 1999


                                      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 1-6813


                           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 
                                 ____     ____

As of April 30, 1999, there were 4,748,954 shares of Class A Common Stock, par
value $0.01 per share, and 17,915,577 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


<TABLE> 
<CAPTION> 

                                                                         Page
                                                                         ----

Item 1.  Financial Statements
<S>                                                                      <C> 
         Condensed Consolidated Statements of Operations and
         Comprehensive Income for the Quarters Ended March 31,
         1999 and 1998 (Unaudited)                                          3

         Condensed Consolidated Balance Sheets at March 31,
         1999 (Unaudited) and December 31, 1998                             4

         Condensed Consolidated Statements of Cash Flows for the
         Quarters Ended March 31, 1999 and 1998 (Unaudited)                 5

         Notes to Condensed Consolidated Financial Statements            6-10

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                            11-17

Item 3.  Quantitative and Qualitative Disclosures About Market Risk        18


                                    PART II
                               OTHER INFORMATION

Item 1.  Legal Proceedings                                                  19

Item 6.  Exhibits and Reports on Form 8-K                                   19

</TABLE> 

                                       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)

<TABLE>
<CAPTION>

 
                                                              1999            1998
                                                              ----             ----
<S>                                                          <C>              <C>
Net revenues                                                 $73,611          $71,762
                                                              -------         -------

Costs and expenses
 Cost of sales                                               (63,535)         (61,760)
 Selling and administrative expenses                         (12,067)          (8,758)
                                                              ------           ------
   Total costs and expenses                                  (75,602)         (70,518)
                                                              ------           ------
Operating income (loss)                                       (1,991)           1,244
                                                               -----            -----
Nonoperating income (expense)
 Investment income                                                77               34
 Interest expense                                               (941)            (215)
 Gain on sale of investment                                    1,728                -
 Other, net                                                     (207)            (419)
                                                               -----              ---
   Total nonoperating income (expense)                           657             (600)
                                                               -----              ---

Income (loss) before income taxes                             (1,334)             644

Income tax benefit (expense)                                     292             (584)
                                                                 ---              ---
Net income (loss)                                             (1,042)              60
                                                               -----               --

Other comprehensive income (loss) (net of taxes)

 Foreign currency translation adjustment                         (58)              (5)
 Unrealized gain on marketable securities                          7                -
                                                                 --                --
   Total other comprehensive loss                                (51)              (5)
                                                                 ---               --
Comprehensive income (loss)                                  $(1,093)             $55
                                                             =======              ===

Weighted average number of common shares outstanding

 Basic                                                        20,972           20,531
                                                              ======           ======
 Diluted                                                      21,747           21,035
                                                              ======           ======
Basic and diluted net income (loss) per common share          $(0.05)           $0.00
                                                              ======            =====

</TABLE>

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)   
                                                                     March 31,    Dec 31,
                                                                       1999        1998
                                                                     --------    --------
<S>                                                                  <C>          <C>
Assets
 Cash and cash equivalents                                           $ 18,845    $    341
 Marketable securities                                                  1,522         505
 Receivables, net of allowance for doubtful accounts of
  $7,774 and $6,349, respectively                                      47,004      49,879
 Inventories                                                           25,777      25,685
 Programming costs                                                     48,429      43,342
 Deferred subscription acquisition costs                               11,120      11,570
 Other current assets                                                  21,176      21,097
                                                                     --------    --------
   Total current assets                                               173,873     152,419
                                                                     --------    --------

 Property and equipment, at cost                                       39,254      39,042
 Accumulated depreciation                                             (30,336)    (29,885)
                                                                     --------    --------
   Property and equipment, net                                          8,918       9,157
                                                                     --------    --------

 Programming costs                                                      9,119       5,983
 Goodwill, net of amortization of $551 and $432, respectively         107,239       2,053
 Trademarks                                                            44,452      17,294
 Net deferred tax assets                                                    -       6,525
 Other noncurrent assets                                               28,366      18,676
                                                                     --------    --------
 Total assets                                                        $371,967    $212,107
                                                                     ========    ========

Liabilities
 Short-term borrowings                                              $      -    $ 29,750
 Current financing obligations                                           187           -
 Accounts payable                                                     25,043      30,834
 Accrued salaries, wages and employee benefits                         4,114       6,024
 Income taxes payable                                                    238         819
 Deferred revenues                                                    44,759      41,647
 Other liabilities and accrued expenses                               38,106       9,919
                                                                    --------    --------

   Total current liabilities                                         112,447     118,993



 Long-term financing obligations                                     109,813           -
 Net deferred tax liabilities                                          8,610           -
 Other noncurrent liabilities                                          9,429       8,912
                                                                    --------    --------
   Total liabilities                                                 240,299     127,905
                                                                    --------    --------

Shareholders' Equity
 Common stock, $0.01 par value
  Class A voting - 7,500,000 shares authorized; 4,748,954 and
  5,042,381 issued, respectively                                          47          50
  Class B nonvoting - 30,000,000 shares authorized; 18,187,190
  and 17,149,691 issued, respectively                                    182         171
 Capital in excess of par value                                       87,205      44,860
 Retained earnings                                                    48,535      49,577
 Foreign currency translation adjustment                                (226)       (137)
 Unearned compensation restricted stock                               (4,054)     (3,716)
 Unrealized loss on marketable securities                                (21)        (32)
 Less cost of treasury stock                                               -      (6,571)
                                                                    --------    --------

   Total shareholders' equity                                        131,668      84,202
                                                                    --------    --------

 Total liabilities and shareholders' equity                         $371,967    $212,107
                                                                    ========    ========
</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>


                                                                        1999         1998
                                                                      --------     --------
<S>                                                                   <C>          <C>
Cash Flows From Operating Activities
Net income (loss)                                                      $(1,042)    $    60
Adjustments to reconcile net income (loss) to net cash
  used for operating activities:
 Depreciation of property and equipment                                    474         478
 Amortization of intangible assets                                         652         438
 Gain on sale of investment                                             (1,728)          -
 Amortization of investments in entertainment programming                5,600       5,000
 Investments in entertainment programming                               (8,423)     (6,828)
 Net change in operating assets and liabilities                            546      (2,602)
 Other, net                                                                (66)         (3)
                                                                       -------     -------
   Net cash used for operating activities                               (3,987)     (3,457)
                                                                       -------     -------

Cash Flows From Investing Activities
Sale of investment                                                       4,500           -
Additions to property and equipment                                       (258)       (141)
Acquisition of Spice Entertainment Companies, Inc.                     (45,707)       (354)
Funding of equity interests in international ventures                   (1,317)       (572)
Purchase of marketable securities                                       (1,000)          -
Other, net                                                                   3          23
                                                                       -------     -------
   Net cash used for investing activities                              (43,779)     (1,044)
                                                                       -------     -------

Cash Flows From Financing Activities
Increase (decrease) in short-term borrowings                           (29,750)      4,500
Increase in financing obligations                                      110,000           -
Debt assumed in acquisition of Spice Entertainment Companies, Inc.     (10,471)          -
Deferred financing fees                                                 (3,781)       (100)
Proceeds from exercise of stock options                                    221          88
Proceeds from sales under employee stock purchase plan                      51          48
                                                                       -------     -------
   Net cash provided by financing activities                            66,270       4,536
                                                                       -------     -------
Net increase in cash and cash equivalents                               18,504          35

Cash and cash equivalents at beginning of period                           341         947
                                                                       -------     -------

Cash and cash equivalents at end of period                             $18,845     $   982
                                                                       =======     =======


</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 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 the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (the "1998 Form 10-K") of Playboy Enterprises, Inc.
and its subsidiaries (the "Company").


(B)  ACQUISITION

On March 15, 1999, the Company completed its acquisition of Spice Entertainment
Companies, Inc. ("Spice"), a leading provider of adult television entertainment.
The initial determination of the purchase price, including transaction costs and
the assumption of Spice debt, was approximately $136 million, which, net of
assets assumed, resulted in a net transaction value of approximately $117
million. The purchase price and its allocation are subject to change upon final
determination. The purchase was financed through the issuance of approximately
$48 million of the Company's Class B common stock and the remainder through the
assumption and issuance of long-term debt. See Note H Financing Obligations. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the results of Spice since the acquisition date have been included
in the Company's Condensed Consolidated Statement of Operations and
Comprehensive Income. The excess of the purchase price over the fair value of
the net assets acquired was approximately $105 million and has been recorded as
goodwill, which is being amortized over 40 years.

The following unaudited pro forma information presents a summary of the results
of operations of the Company assuming the acquisition occurred on January 1,
1998 (in thousands, except per share amounts):

<TABLE> 
<CAPTION> 
                                                            Quarters Ended
                                                              March 31,
                                                         ------------------
                                                           1999       1998
                                                         -------    -------
<S>                                                      <C>        <C> 

Net revenues...................................          $79,902    $77,971
Net loss.......................................           (2,612)    (1,108)
Basic and diluted net loss per common share:
 Basic.........................................            (0.12)     (0.05)
 Diluted.......................................          $ (0.11)   $ (0.05)
</TABLE>

These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense
primarily related to goodwill and increased interest expense related to the debt
financing. They do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on January 1,
1998, or of future results of operations.

(C)   SALE OF INVESTMENT

In the quarter ended March 31, 1999, the Company sold its wholly-owned
subsidiary, Playboy Gaming Greece Ltd., which owned a 12% equity interest in the
Playboy Casino at Hotel des Roses (the "Rhodes Casino"). Total proceeds of
$5,200,000 have been received. These proceeds included a repayment of a loan of
$1,200,000 owed to the Company by the Rhodes Casino. The Company realized a gain
before income taxes of $1,728,000 on the sale. The taxable gain on the sale was
immaterial and will be offset by the application of a capital loss carryforward.


(D)   INCOME TAXES

Associated with the Spice acquisition, $15.7 million of deferred tax liabilities
were recorded under the purchase method of accounting for certain identifiable
intangible assets, comprising trademarks, non-compete agreements and a film
library. Accordingly, after consideration of this additional $15.7 million of
deferred tax liabilities, at March 31, 1999, the Company was in a net deferred
tax liability position of $1.2 million that consisted of $7.4 million of current
deferred tax assets and $8.6 million of noncurrent deferred tax liabilities. At
December 31, 1998, prior to the Spice acquisition, the Company was in a net
deferred tax asset position of $13.9 million that consisted of $7.4 million of
current deferred tax assets and $6.5 million of noncurrent deferred tax assets.

                                       6
<PAGE>
 
As reported in the Company's 1998 Form 10-K, the deferred tax assets principally
include the anticipated benefit of net operating loss carryforwards ("NOLs").
Realization of those assets is dependent upon the Company's ability to generate
taxable income in future years. The recognition of benefits in the financial
statements is based upon projections by management of future operating income
and the anticipated reversal of temporary differences that will result in
taxable income. Projections of future earnings were based on adjusted historical
earnings.

In order to fully realize the net deferred tax asset of $13.9 million at
December 31, 1998, the Company will need to generate future taxable income of
approximately $39.7 million prior to the expiration, beginning in 2009, of the
Company's NOLs. Management believes that it is more likely than not that the
required amount of such taxable income will be realized. Management will
periodically reconsider the assumptions utilized in the projection of future
earnings and, if warranted, increase or decrease the amount of deferred tax
assets through an adjustment to the valuation allowance.


(E)  COMPREHENSIVE INCOME

The following sets forth the components of other comprehensive income (loss),
and the related tax expense or benefit allocated to each item (in thousands):


<TABLE> 
<CAPTION> 
                                                              (Unaudited)
                                                            Quarters Ended
                                                               March 31,
                                                          ---------------- 
                                                            1999     1998
                                                           -----    -----
<S>                                                        <C>      <C>    
Foreign currency translation adjustment (1)....            $ (58)   $  (5)
Unrealized gain on marketable securities (2)...            $   7    $   -

</TABLE>

(1)  Net of a related tax benefit of $31 and $3 for the quarters ended March 31,
     1999 and 1998, respectively.
(2)  Net of related tax expense of $4 for the quarter ended March 31, 1999.

(F)  INCOME (LOSS) PER COMMON SHARE

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


<TABLE> 
<CAPTION> 
                                                            (Unaudited)
                                                           Quarters Ended
                                                              March 31,
                                                         -----------------
                                                         1999         1998
                                                         ----         ----
Numerator:
<S>                                                    <C>           <C>   
 For basic and diluted EPS--net income (loss)
  available to common shareholders.............        $(1,042)       $60
                                                       =======        ===

Denominator:
 Denominator for basic EPS--
  weighted-average shares......................         20,972     20,531
                                                        ------     ------
 Effect of dilutive potential common shares:
   Stock options...............................            775        504
                                                        ------     ------
     Dilutive potential common shares..........            775        504
                                                        ------     ------
 Denominator for diluted EPS--
  adjusted weighted-average shares.............         21,747     21,035
                                                        ======     ======
Basic and Diluted EPS..........................         $(0.05)     $0.00
                                                        ======     ======


</TABLE> 

During the quarter ended March 31, 1999, approximately 345,000 weighted-average
shares of Class B restricted stock awards outstanding were not included in the
computation of diluted EPS as the operating income objectives applicable to
these restricted awards were not met during that period. Additionally, options
to purchase approximately 340,000 weighted-average shares of Class B common
stock were outstanding during the quarter ended March 31, 1999, but were not
included in the computation of diluted EPS as the options' exercise prices were
greater than the average market price of the Class B common stock, the effect of
which was antidilutive.

                                       7
<PAGE>
 
(G)  INVENTORIES

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


<TABLE> 
<CAPTION> 
                                            (Unaudited)
                                              March 31,     Dec. 31,  
                                                1999          1998   
                                                ----          ----   
<S>                                           <C>          <C>        
Paper......................................   $ 7,811      $ 8,277    
Editorial and other prepublication costs...     5,335        6,052    
Merchandise finished goods.................    12,631       11,356    
                                              -------      -------    
 Total inventories.........................   $25,777      $25,685    
                                              =======      =======     


</TABLE> 

(H)  FINANCING OBLIGATIONS

In connection with financing the Company's acquisition of Spice, the Company
entered into a new $150.0 million credit agreement dated as of February 26,
1999. The new agreement provided financing to (a) purchase all of the
outstanding shares of Spice and pay related acquisition costs; (b) repay the
existing debt of the Company and Spice; and (c) fund future general working
capital and investment needs.

The new agreement consists of three components: a $40.0 million revolving credit
facility with a $10.0 million letter of credit sublimit; a $35.0 million tranche
A term loan; and a $75.0 million tranche B term loan. The revolving credit
facility and tranche A term loan mature on March 15, 2004. The tranche B term
loan matures on March 15, 2006. Loans bear interest at a rate equal to specified
index rates plus margins that fluctuate based on the Company's ratio of
consolidated debt to consolidated adjusted EBITDA (earnings before income taxes
plus interest expense, depreciation and amortization, less cash investments in
programming). The Company's obligations under the agreement are unconditionally
guaranteed by each of the Company's existing and subsequently acquired domestic
restricted subsidiaries (all domestic subsidiaries except Playboy Online, Inc.).
The agreement and related guarantees are secured by substantially all of Playboy
Enterprises, Inc.'s and its domestic restricted subsidiaries' assets.

The agreement contains financial covenants requiring the Company to maintain
certain leverage, cash flow, interest coverage and fixed charge coverage ratios.
Other covenants include limitations on other indebtedness, investments, capital
expenditures and dividends. The agreement also requires mandatory prepayments
with net cash proceeds resulting from excess cash flow, asset sales and the
issuance of certain debt obligations or equity securities, with certain
exceptions as described in the agreement.

(I)  CONTINGENCIES

In February 1996, the Company filed suit challenging Section 505 of the
Telecommunications Act of 1996 (the "Telecommunications Act"), which, among
other things, regulates the cable transmission of adult programming, such as the
Company's domestic pay television programs. Enforcement of Section 505 of the
Telecommunications Act ("Section 505") commenced May 18, 1997. The Company's
full case on the merits was heard by the United States District Court in
Wilmington, Delaware (the "Delaware District Court") in March 1998. In December
1998, the Delaware District Court unanimously declared Section 505
unconstitutional. The defendants have appealed this judgment. Management
believes that the effect of Section 505 on the Company's financial performance
is likely to continue until the case is finally decided.

(J)  TREASURY STOCK

There were no Class A or Class B common shares held as treasury stock at March
31, 1999. All shares of treasury stock were cancelled under terms of the merger
agreement between the Company and Spice. At December 31, 1998, treasury stock
consisted of 293,427 Class A common shares and 951,041 Class B common shares.

                                       8
<PAGE>
 
(K)  CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

The following summarizes non-cash investing and financing activities 
(in thousands):


<TABLE> 
<CAPTION> 
                                                          (Unaudited)
                                                         Quarter Ended
                                                            March 31,
                                                              1999
                                                           ---------
<S>                                                        <C>     

Fair value of net assets acquired, including goodwill...   $134,916
Acquisition liabilities.................................    (30,104)
Debt assumed............................................    (10,471)
Common stock issued.....................................    (48,307)
                                                           --------
Cash paid...............................................     46,034   
Less: cash acquired.....................................       (327)
                                                           --------
Net cash paid for the Spice acquisition.................   $ 45,707
                                                           ========
</TABLE>

See Note B.

(L)  SEGMENT INFORMATION

The following tables represent financial information by reportable segment (in
thousands):


<TABLE>
<CAPTION>

                                                           (Unaudited)
                                                          Quarters Ended
                                                             March 31,
                                                        ------------------
                                                          1999       1998
                                                        -------    -------
<S>                                                    <C>         <C> 
Net Revenues
Publishing (1)...............................          $33,299    $29,998
Entertainment................................           20,443     18,294
Product Marketing............................            1,583      2,599
Catalog......................................           15,739     19,400
Casino Gaming................................                -          -
Playboy Online...............................            2,469      1,423
Corporate Marketing (1)......................               78         48
                                                       -------    ------- 
 Total.......................................          $73,611    $71,762
                                                       =======    =======

Income (Loss) Before Income Taxes
Publishing (1)...............................          $ 1,840    $   206
Entertainment................................            4,389      4,859
Product Marketing............................              307        692
Catalog......................................             (301)     1,040
Casino Gaming................................             (228)      (191)
Playboy Online...............................           (1,959)      (694)
Corporate Administration and Promotion (1)...           (6,039)    (4,668)
Investment income............................               77         34
Interest expense.............................             (941)      (215)
Gain on sale of investment...................            1,728          -
Other, net...................................             (207)      (419)
                                                       -------    -------
 Total.......................................          $(1,334)   $   644
                                                       =======    =======
</TABLE>

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                                                     (Unaudited)
                                                       March 31,     Dec. 31,
                                                         1999          1998  
                                                       --------      --------
<S>                                                   <C>           <C>      
Identifiable Assets                                                          
Publishing (1)...................................     $ 44,026       $ 50,171
Entertainment (2)................................      236,979         85,783
Product Marketing................................        5,388          5,764
Catalog..........................................       18,356         17,871
Casino Gaming....................................        6,263          4,416
Playboy Online...................................          804          1,282
Corporate Administration and Promotion (1) (2)...       60,151         46,820
                                                      --------       -------- 
  Total (2)......................................     $371,967       $212,107
                                                      ========       ======== 
</TABLE>

(1) Corporate amounts now include certain Company-wide marketing activities like
    the Jazz Festival that had previously been reported in the Publishing Group.
(2) The increase in identifiable assets since December 31, 1998 is primarily due
    to the Company's acquisition of Spice on March 15, 1999.

(M)  SUBSEQUENT EVENT

In April 1999, the Company filed a registration statement to sell shares of its
nonvoting Class B common stock. The stock was offered at a price of $30.00 per
share. Two million shares will be sold by a trust established by, and for the
benefit of, Hugh M. Hefner, the Company's founder and principal stockholder, and
500,000 shares will be sold by the Company. The underwriters have an option to
purchase from the Company a maximum of 375,000 additional shares to cover over-
allotments of shares. The Company will use the proceeds from this offering for
general corporate purposes. The Company will not receive any of the proceeds
from the sale of Class B common stock by Mr. Hefner. Mr. Hefner will pay
expenses related to this transaction proportionate to the number of shares of
Class B common stock he sells to the total number of shares sold in the
offering.

                                       10
<PAGE>
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

   The Company's revenues increased 3% to $73.6 million for the quarter ended
March 31, 1999 compared to $71.8 million for the quarter ended March 31, 1998.
The increase was primarily due to higher revenues from the Publishing and
Entertainment Groups, partially offset by lower Catalog Group revenues.

   The Company reported an operating loss of $2.0 million for the quarter ended
March 31, 1999 compared to operating income of $1.2 million in the prior year
quarter. The decrease in operating performance reflected higher operating income
for the Publishing Group, which was more than offset by higher Corporate
Administration and Promotion expenses, lower operating performance for the
Catalog Group and higher planned investments in the Playboy Online Group.

   The net loss for the quarter ended March 31, 1999 was $1.0 million, or $0.05
per basic and diluted common share, compared to net income of $0.1 million, or
$0.00 per basic and diluted common share, for the prior year quarter. The net
loss for the current year quarter included a $1.7 million gain from the sale of
the Company's equity interest in the Rhodes Casino.

   Several of the Company's businesses can experience variations in quarterly
performance. As a result, the Company's performance in any quarterly period is
not necessarily reflective of full-year or longer-term trends. For example,
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 unusual public interest. Advertising revenues
also vary from quarter to quarter, depending on product introductions by
advertising customers, changes in advertising buying patterns and economic
conditions. In addition, Entertainment Group revenues vary with the timing of
international sales.

PUBLISHING GROUP

   Beginning with the quarter ended March 31, 1999, certain Company-wide
marketing activities like the Jazz Festival that had previously been reported in
the Publishing Group are now included in Corporate Administration and Promotion
results. The revenues and operating income of the Publishing Group were as
follows for the periods indicated below (in millions):

<TABLE>
<CAPTION>

                                         Quarters Ended
                                             March 31,
                                        ----------------
                                         1999       1998
                                        -----      -----
<S>                                    <C>      <C>  
Revenues
Playboy Magazine...................     $26.7      $24.0
Other Domestic Publishing..........       4.1        3.8
International Publishing...........       2.5        2.2
                                        -----      -----
 Total Revenues....................     $33.3      $30.0
                                        =====      =====
Operating Income...................     $ 1.8      $ 0.2
                                        =====      =====

</TABLE> 

   Publishing Group revenues for the quarter ended March 31, 1999 increased $3.3
million, or 11%, compared to the prior year quarter primarily due to higher
revenues from Playboy magazine.

   For the quarter ended March 31, 1999, Playboy magazine revenues increased
$2.7 million, or 11%, compared to the prior year quarter. Circulation revenues
increased $2.7 million due to a $4.1 million, or 134%, increase in newsstand
revenues principally due to extraordinary sales of the April 1999 issue
featuring Sable. The higher newsstand revenues were partially offset by a $1.4
million, or 10%, decrease in subscription revenues, reflecting in part the
problems facing direct marketing stamp sheet agents, which is affecting all
publishers. Advertising revenues increased $0.6 million, or 10%, compared to the
prior year quarter primarily due to more ad pages. Advertising sales for the
fiscal year 1999 second quarter issues of the magazine are closed and the
Company expects to report 5% lower ad revenues compared to the quarter ended
June 30, 1998.

                                       11
<PAGE>
 
   Revenues from other domestic publishing businesses increased $0.3 million, or
9%, compared to the prior year quarter largely as the result of an additional
newsstand special issue in the current year quarter.

   International publishing revenues increased $0.3 million, or 9%, compared to
the prior year quarter primarily due to higher revenues from the Polish edition
of Playboy magazine, in which the Company owns a majority interest. Lower
royalties from the Brazilian edition, due to economic problems in that country,
partially offset this increase.

   Publishing Group operating income increased $1.6 million compared to the
prior year quarter primarily due to the aforementioned increases in Playboy
magazine newsstand and advertising revenues, partially offset by the lower
Playboy magazine subscription revenues and higher editorial costs associated in
part with the feature on Sable.

ENTERTAINMENT GROUP

   Beginning with the quarter ended March 31, 1999, the international home video
business, previously combined with international TV sales and network results,
has been combined with the domestic home video business and is now reported as
worldwide home video. Additionally, programming expense for all of the group's
businesses, including certain licensing expenses that were previously reported
as direct costs, are now reported collectively as programming expense.
Previously, results from AdulTVision and movies and other had been reported net
of programming expense. The revenues and operating income of the Entertainment
Group were as follows for the periods indicated below (in millions):


<TABLE>
<CAPTION>

                                                   Quarters Ended            
                                                      March 31,              
                                                   ---------------           
                                                    1999     1998            
                                                    -----    -----           
<S>                                                 <C>      <C>             
Revenues                                                                     
Playboy TV                                                                   
 Cable...........................................   $ 5.2    $ 5.4           
 Satellite Direct-to-Home........................     9.3      7.9           
 Off-Network Productions and Other...............     0.4      0.2           
                                                     ----     ----           
Total Playboy TV.................................    14.9     13.5           
International TV.................................     1.5      1.6           
Worldwide Home Video.............................     1.9      1.6           
Spice/AdulTVision................................     1.9      1.4           
Movies and Other.................................     0.2      0.2           
                                                    -----    -----           
 Total Revenues..................................   $20.4    $18.3           
                                                    =====    =====           
Operating Income                                                             
Profit Contribution Before Programming Expense...   $10.0    $ 9.9           
Programming Expense..............................    (5.6)    (5.0)          
                                                    -----    -----           
 Total Operating Income..........................   $ 4.4    $ 4.9           
                                                    =====    =====           

</TABLE>

   Entertainment Group revenues increased $2.1 million, or 12%, for the quarter
ended March 31, 1999 compared to the prior year quarter largely due to higher
Playboy TV satellite direct-to-home ("DTH") revenues. Operating income decreased
$0.5 million, or 10%, reflecting an increase in Playboy TV profit contribution,
which was more than offset by higher group administrative and programming
expenses.

   The following discussion focuses on the profit contribution of each business
before programming expense ("profit contribution").

Playboy TV
----------

   For the quarter ended March 31, 1999, revenues of $14.9 million from the
Company's domestic pay television service, Playboy TV, were $1.4 million, or
11%, higher compared to the prior year quarter.

   Cable revenues were $0.2 million, or 3%, lower compared to the prior year
quarter primarily due to favorable adjustments to pay-per-view revenues in the
prior year quarter, partially offset by higher retail rates. At March 31, 1999,
Playboy TV was available to approximately 11.7 million cable addressable
households, an increase of 4% compared to March 31, 1998 and flat compared to
December 31, 1998.

                                       12
<PAGE>
 
   In February 1996, the Company filed suit challenging Section 505 of the
Telecommunications Act, which, among other things, regulates the cable
transmission of adult programming, such as the Company's domestic pay television
programs. Enforcement of Section 505 commenced May 18, 1997. The Company's full
case on the merits was heard by the Delaware District Court in March 1998. In
December 1998, the Delaware District Court unanimously declared Section 505
unconstitutional. The defendants have appealed this judgment. Management
believes that the effect of Section 505 on the Company's financial performance
is likely to continue until the case is finally decided. See "Legal
Proceedings."

   Additionally, management believes that the growth in cable access for the
Company's domestic pay television businesses has slowed in recent years given
the combination of constraints on channel capacity and the effects of cable
reregulation by the Federal Communications Commission (the "FCC"), including the
"going-forward rules" which provide cable operators with incentives to add basic
services. As cable operators have utilized available channel space to comply
with "must-carry" provisions, mandated retransmission consent agreements and
"leased access" provisions, competition for channel space has increased.

   New technology, primarily digital set-top converters, will dramatically
increase channel capacity, and cable operators have begun to introduce digital
technology in order to upgrade their cable systems and to counteract competition
from DTH operators. Digital cable television has several advantages over analog
cable television, including more channels, better audio and video quality and
advanced set-top boxes that are addressable, provide a secure fully scrambled
signal and have integrated program guides and advanced ordering technology. As
digital technology, which is unaffected by the relevant sections of the
Telecommunications Act, becomes more available, however, the Company believes
that ultimately its pay television networks will be available to the majority of
cable households on a 24-hour basis.

   DTH revenues increased $1.4 million, or 18%, for the quarter primarily due to
increases in addressable universes for all of the digital broadcast satellite
("DBS") services combined with more aggressive marketing. Unlike cable, the DTH
market is unaffected by Section 505. Revenues from TVRO, or the big-dish market,
continued to decline, as expected, due to the maturity of this platform. Playboy
TV was available to approximately 10.7 million DTH households at March 31, 1999,
an increase of 27% and 9% compared to March 31, 1998 and December 31, 1998,
respectively.

   Revenues from off-network productions and other increased $0.2 million
compared to the prior year quarter.

   Profit contribution for Playboy TV increased $0.9 million for the quarter
primarily due to the net increase in DTH revenues.


International TV
----------------

   Revenues and profit contribution from the international TV sales and network
business both decreased $0.1 million compared to the prior year quarter.
Variances in quarterly performance are caused in part by the recognition of
revenues and profit contribution from tier sales, which are dependent upon the
timing of program delivery, license periods and other factors.


Worldwide Home Video
--------------------

   Revenues and profit contribution from the worldwide home video business
increased $0.3 million and $0.1 million, respectively, for the quarter primarily
due to higher international home video revenues.

Spice/AdulTVision
-----------------

   The acquisition of Spice was effective on March 15, 1999. Revenues and profit
contribution, excluding amortization, from the Spice networks were $0.5 million
and $0.2 million, respectively, for the quarter. The quarter also reflected
amortization of $0.2 million for goodwill, trademarks and non-compete agreements
related to the acquisition. AdulTVision revenues and profit contribution
remained flat and increased $0.1 million, respectively, for the quarter.

                                       13
<PAGE>
 
Movies and Other
----------------

   Revenues and profit contribution from movies and other businesses both
remained flat compared to the prior year quarter.

   The Entertainment Group's administrative expenses increased $0.9 million.
This increase was largely due to higher performance-related variable
compensation expense, which is accrued based on the anticipated improvement in
the group's fiscal year 1999 operating performance, combined with higher
expenses to support the group's growth.

Programming Expense
-------------------

   Programming amortization expense increased $0.6 million for the quarter.

PRODUCT MARKETING GROUP

   The revenues and operating income of the Product Marketing Group were as
follows for the periods indicated below (in millions):

<TABLE> 
<CAPTION> 
                                                       Quarters Ended
                                                          March 31,
                                                     ------------------
                                                     1999          1998
                                                     ----          ----
<S>                                                  <C>           <C> 
Revenues .......................................     $1.6          $2.6
                                                     ====          ====
                                                     
Operating Income................................     $0.3          $0.7 
                                                     ====          ====

</TABLE> 

   Revenues for the quarter ended March 31, 1999 decreased $1.0 million, or 39%,
compared to the prior year quarter. The decrease was primarily due to lower
revenues from Special Editions, Ltd. as a result of a barter agreement in the
prior year quarter related to the sale of prints and posters from the Company's
art publishing inventory. The comparison also reflected lower international
product licensing royalties, largely from Asia.

   Operating income of $0.3 million decreased $0.4 million, or 56%, compared to
the prior year quarter largely due to the lower Asian royalties.

CATALOG GROUP

   The revenues and operating performance of the Catalog Group were as follows
for the periods indicated below (in millions):


<TABLE>
<CAPTION>
                                                      Quarters Ended
                                                         March 31,
                                                     -----------------
                                                     1999         1998
                                                     ----         ----
<S>                                                 <C>          <C>
Revenues........................................    $15.7        $19.4
                                                    =====        =====

Operating Income (Loss).........................    $(0.3)        $1.0
                                                    =====         ====


</TABLE> 


   For the quarter ended March 31, 1999, revenues decreased $3.7 million, or
19%, compared to the prior year quarter as all of the catalogs reported lower
revenues, except for the recently launched Spice catalog. These net lower
revenues, partially offset by lower related costs, resulted in an operating loss
of $0.3 million compared to operating income of $1.0 million in the prior year
quarter. Online sales for video, music and Playboy-branded products, which are
reported in Playboy Online's results, partially offset the lower print catalog
revenues.

                                       14
<PAGE>
 
CASINO GAMING GROUP

   In the quarter ended March 31, 1999, the Company sold its 12% equity interest
in the Rhodes Casino, which resulted in a nonoperating gain of $1.7 million. In
connection with the sale, the Company negotiated a minimum guarantee against its
licensing agreement for the Rhodes Casino. The Company will begin reporting
licensing revenues in the second quarter of fiscal year 1999 as a result of the
opening of the Rhodes Casino in April 1999.

   The Company continues to explore additional casino gaming opportunities. For
both the current and prior year quarters, the Casino Gaming Group incurred
operating losses of $0.2 million as a result of administrative expenses.

PLAYBOY ONLINE GROUP

   The revenues and operating losses of the Playboy Online Group were as follows
for the periods indicated below (in millions):

<TABLE>
<CAPTION>

                                                       Quarters Ended
                                                          March 31,
                                                     -----------------
                                                     1999         1998
                                                     ----         ----
<S>                                                  <C>          <C>
Revenues........................................     $2.5         $1.4
                                                     ====         ====

Operating Loss..................................    $(2.0)       $(0.7)
                                                    =====        =====
</TABLE>


   For the quarter ended March 31, 1999, Playboy Online Group revenues increased
$1.1 million, or 74%, compared to the prior year quarter. This increase was
primarily due to higher advertising and e-commerce revenues. The current year
quarter also reflected higher subscription revenues related to Playboy Cyber
Club.

   The Playboy Online Group reported an operating loss of $2.0 million compared
to $0.7 million in the prior year quarter. The higher operating loss reflects
higher planned investments related to the group's continued growth and
development.

CORPORATE ADMINISTRATION AND PROMOTION

   Beginning with the quarter ended March 31, 1999, certain Company-wide
marketing activities like the Jazz Festival that had previously been reported in
the Publishing Group are now included in Corporate Administration and Promotion
results. As a result, revenues are now reported in Corporate Administration and
Promotion.

   Corporate Administration and Promotion net expenses of $6.0 million for the
quarter increased $1.3 million, or 29%, compared to the prior year quarter
largely due to higher marketing expenses.

LIQUIDITY AND CAPITAL RESOURCES

   At March 31, 1999, the Company had $18.8 million in cash and cash
equivalents, no short-term borrowings and $110.0 million in financing
obligations, compared to $0.3 million in cash and cash equivalents, $29.8
million in short-term borrowings and no financing obligations at December 31,
1998. The Company expects to meet its short- and long-term cash requirements
through its new $150.0 million credit agreement. See Cash Flows From Financing
Activities.

CASH FLOWS FROM OPERATING ACTIVITIES

   Net cash used for operating activities was $4.0 million for the quarter ended
March 31, 1999, which reflected $8.4 million of investments in Company-produced
and licensed entertainment programming during the current year quarter.

                                       15
<PAGE>
 
CASH FLOWS FROM INVESTING ACTIVITIES

   Net cash used for investing activities was $43.8 million for the quarter
ended March 31, 1999. This primarily reflects the Company's acquisition of
Spice, resulting in cash paid of $45.7 million in the current year quarter. On
December 31, 1998, the Company sold to duPont Publishing, Inc. ("duPont") the
shares of duPont's common stock owned by the Company. Sale proceeds were $5.0
million, which consisted of $0.5 million in cash, received in fiscal year 1998,
and a $4.5 million promissory note, which was paid off January 4, 1999.

CASH FLOWS FROM FINANCING ACTIVITIES

   Net cash provided by financing activities was $66.3 million for the quarter
ended March 31, 1999, principally due to the $110.0 million increase in
financing obligations, partially offset by the repayment of $29.8 million of
short-term borrowings and the payment of $10.5 million of debt assumed in the
Spice acquisition.

   In connection with financing the Company's acquisition of Spice, the Company
entered into a new $150.0 million credit agreement dated as of February 26,
1999. The new agreement provided financing to (a) purchase all of the
outstanding shares of Spice and pay related acquisition costs; (b) repay the
existing debt of the Company and Spice; and (c) fund future general working
capital and investment needs.

   The new agreement consists of three components: a $40.0 million revolving
credit facility with a $10.0 million letter of credit sublimit; a $35.0 million
tranche A term loan; and a $75.0 million tranche B term loan. The revolving
credit facility and tranche A term loan mature on March 15, 2004. The tranche B
term loan matures on March 15, 2006. Loans bear interest at a rate equal to
specified index rates plus margins that fluctuate based on the Company's ratio
of consolidated debt to consolidated adjusted EBITDA. The Company's obligations
under the agreement are unconditionally guaranteed by each of the Company's
existing and subsequently acquired domestic restricted subsidiaries (all
domestic subsidiaries except Playboy Online, Inc.). The agreement and related
guarantees are secured by substantially all of Playboy Enterprises, Inc.'s and
its domestic restricted subsidiaries' assets.

   The agreement contains financial covenants requiring the Company to maintain
certain leverage, cash flow, interest coverage and fixed charge coverage ratios.
Other covenants include limitations on other indebtedness, investments, capital
expenditures and dividends. The agreement also requires mandatory prepayments
with net cash proceeds resulting from excess cash flow, asset sales and the
issuance of certain debt obligations or equity securities, with certain
exceptions as described in the agreement.

INCOME TAXES

   Based on current tax law, the Company will need to generate approximately
$39.7 million of future taxable income prior to the expiration of the Company's
NOLs for full realization of the $13.9 million net deferred tax asset at
December 31, 1998. At December 31, 1998, the Company had NOLs of $14.2 million
for tax purposes, with $11.7 million expiring in 2009 and $2.5 million expiring
in 2012.

   Management believes that it is more likely than not that the required amount
of such taxable income will be generated in years subsequent to December 31,
1998 and prior to the expiration of the Company's NOLs to realize the $13.9
million net deferred tax asset at December 31, 1998. Associated with the Spice
acquisition, $15.7 million of deferred tax liabilities were recorded under the
purchase method of accounting for certain identifiable intangible assets,
comprising trademarks, non-compete agreements and a film library. Accordingly,
after consideration of this additional $15.7 million of deferred tax
liabilities, at March 31, 1999, the Company was in a net deferred tax liability
position of $1.2 million that consisted of $7.4 million of current deferred tax
assets and $8.6 million of noncurrent deferred tax liabilities. Following is a
summary of the bases for management's belief that a valuation allowance of $15.4
million at December 31, 1998 is adequate, and that it is more likely than not
that the net deferred tax asset of $13.9 million will be realized:


 .  In establishing the net deferred tax asset, management reviewed the
   components of the Company's NOLs and determined that they primarily resulted
   from several nonrecurring events, which were not indicative of the Company's
   ability to generate future earnings.

 .  Several of the Company's operating groups continue to generate meaningful
   earnings, particularly the Entertainment Group, and the Company's investments
   in the Entertainment, Playboy Online and Casino Gaming Groups are anticipated
   to lead to increased earnings in future years.

                                       16
<PAGE>
 
 .  The Company has opportunities to accelerate taxable income into the NOL
   carryforward period. Tax planning strategies would include the capitalization
   and amortization versus immediate deduction of circulation expenditures, the
   immediate inclusion versus deferred recognition of prepaid subscription
   income, the revision of depreciation and amortization methods for tax
   purposes and the sale-leaseback of certain property that would generate
   taxable income in future years.

YEAR 2000 COMPLIANCE

   In response to the Year 2000 problem, the Company has identified and is
implementing changes to its existing computerized business systems. The Company
is addressing the issue through a combination of modifications to existing
programs and conversions to Year 2000 compliant software. In addition, the
Company has communicated with its vendors and other service providers to ensure
that their products and business systems are or will be Year 2000 compliant. If
modifications and conversions by the Company and those it conducts business with
are not made in a timely manner, the Year 2000 problem could have a material
adverse effect on the Company's business, financial condition and results of
operations. All major systems of the Company have either been identified as Year
2000 compliant, or remediation has been completed to ensure Year 2000
compliance. These major systems include financial applications and key operating
systems for the Entertainment, Catalog and Playboy Online Groups. The Company is
currently evaluating less critical systems, such as desktop applications, with
plans for all systems to be in compliance by the third quarter of fiscal year
1999. The Company is also reviewing its non-information technology systems to
determine the extent of any modifications and believes that there will be
minimal changes necessary for compliance. Although the Company is still
quantifying the impact, the current estimate of the total costs associated with
the required modifications and conversions are expected to be slightly in excess
of $1.0 million, of which approximately $0.8 million has been expensed to date.
These costs are being expensed as incurred.

   The Company believes its technology systems will be ready for the Year 2000
and, as a result, has not developed a comprehensive contingency plan. High-risk
vendors, however, are being examined throughout the year with contingency plans
developed on a case-by-case basis where needed. Additionally, the Company is
aware that it may experience other isolated incidences of non-compliance and
plans to allocate internal resources and retain dedicated consultants and vendor
representatives to be ready to take action if necessary. Although the Company
values its established relationships with key vendors and other service
providers, if certain vendors are unable to perform on a timely basis due to
their own Year 2000 issues, the Company believes that substitute products or
services are available from other vendors. The Company also recognizes that it,
like all other businesses, is at risk if other key suppliers in utilities,
communications, transportation, banking and government are not ready for the
Year 2000.

FORWARD-LOOKING STATEMENTS

   This Form 10-Q Quarterly Report 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. These forward-looking statements involve risks and
uncertainties, which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements. The following are some
of the important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements: (1)
government actions or initiatives, including (a) attempts to limit or otherwise
regulate the sale of adult-oriented materials, including print, video and online
materials or businesses such as casino gaming, (b) regulation of the
advertisement of tobacco products, or (c) substantive changes in postal
regulations or rates; (2) increases in paper prices; (3) changes in distribution
technology and/or unforeseen delays in the implementation of that technology by
the cable and satellite industries, which might affect the Company's plans and
assumptions regarding carriage of its program services; (4) increased
competition for transponders and channel space and any decline in the Company's
access to, and acceptance by, cable and DTH systems; (5) increased competition
for advertisers from other publications and media or any significant decrease in
spending by advertisers, either generally or with respect to the adult male
market; (6) effects of the consolidation taking place nationally in the single-
copy magazine distribution system; (7) new competition in the cable television
market; (8) uncertainty of market acceptance of the Internet as a medium for
information, entertainment, e-commerce and advertising, an increasingly
competitive environment for advertising sales, the impact of competition from
other content and merchandise providers, as well as the Company's reliance on
third parties for technology and distribution for its online business; (9)
potential problems associated with the integration of the Company's business
with Spice's business; and (10) potential adverse effects of unresolved Year
2000 problems, including those that may be experienced by key suppliers.

                                       17
<PAGE>
 
           QUANTITATIVE AND QUALITATIVE DISCOSURES ABOUT MARKET RISK

   At March 31, 1999, in connection with the Spice acquisition, the Company had
$110.0 million of financing obligations that are subject to market interest
rates. Under the terms of the credit agreement, the Company is required to hedge
a percentage of its outstanding term debt by June 15, 1999.

                                       18
<PAGE>
 
                               LEGAL PROCEEDINGS

   In February 1996, the Telecommunications Act was enacted. Certain provisions
of the Telecommunications Act are directed exclusively at cable programming in
general and adult cable programming in particular. In some cable systems, audio
or momentary bits of video of premium or pay-per-view channels may accidentally
become available to nonsubscribing cable customers. This is called "bleeding."
The practical effect of Section 505 is to require many existing cable systems to
employ additional blocking technology in every household in every cable system
that offers adult programming to prevent any possibility of bleeding, or to
restrict the period during which adult programming is transmitted from 10:00
p.m. to 6:00 a.m. Penalties for violation of the Telecommunications Act are
significant and include fines and imprisonment.

   On February 26, 1996, one of the Company's subsidiaries filed a civil suit in
the Delaware District Court challenging Section 505 on constitutional grounds.
The suit names as defendants The United States of America, The United States
Department of Justice, Attorney General Janet Reno and the FCC. On March 7,
1996, the Company was granted a Temporary Restraining Order ("TRO") staying the
implementation and enforcement of Section 505. In granting the TRO, the Delaware
District Court found that the Company had demonstrated it was likely to succeed
on the merits of its claim that Section 505 is unconstitutional. On November 8,
1996, eight months after the TRO was granted, a three-judge panel in the
Delaware District Court denied the Company's request for preliminary injunction
against enforcement of Section 505 and, in so denying, found that the Company
was not likely to succeed on the merits of its claim. The Company appealed the
Delaware District Court's decision to the United States Supreme Court (the
"Supreme Court") and enforcement of Section 505 was stayed pending that appeal.
On March 24, 1997, without opinion, the Supreme Court summarily affirmed the
Delaware District Court's denial of the Company's request for a preliminary
injunction. Enforcement of Section 505 commenced May 18, 1997. On July 22, 1997,
the Company filed a motion for summary judgment on the ground that Section 505
is unconstitutionally vague based on a Supreme Court decision on June 26, 1997
that certain provisions of the Telecommunications Act regulating speech on the
Internet were invalid for numerous reasons, including vagueness. On October 31,
1997, the Delaware District Court denied the motion on the grounds that further
discovery in the case was necessary to assist it in resolving the issues posed
in the motion.

   The Company's full case on the merits was heard by the Delaware District
Court in March 1998. On December 28, 1998, the Delaware District Court
unanimously declared Section 505 unconstitutional. The defendants have appealed
this judgment. Management believes that the effect of Section 505 on the
Company's financial performance is likely to continue until the case is finally
decided.

                        EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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

10.1    Selected Employment, Termination and Other Agreements
        a  Letter agreement dated January 25, 1999 regarding employment of Alex
        Mironovich

27      Financial Data Schedule

_________


(b)    Reports on Form 8-K

During the quarter ended March 31, 1999, the Company filed a Form 8-K Current
Report dated March 9, 1999 under Item 5 of the report. The purpose of this
report was to announce that the Company and Spice had entered into an amendment
to the terms of their merger agreement. The Company and Spice also made an
announcement regarding the closing of their merger.

During the quarter ended March 31, 1999, the Company filed a Form 8-K Current
Report dated March 15, 1999 under Item 5 of the report. The purpose of this
report was to announce the completion of the Company's acquisition of Spice and
the Company's new corporate structure.

                                       19
<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 14, 1999             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)

                                       20