<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

          /X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) of the
                         Securities Exchange Act of 1934


                                                               Commission
For the Quarterly Period Ended March 31, 2001                  File No. 33-76716


                               General Media, Inc.
    ------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)



          Delaware                  13-3750988
---------------------------------   -----------------------
(State or other jurisdiction        (IRS Employer
of incorporation or organization)   Identification Number)

11 Penn Plaza, New York, NY         10001
-------------------------------     --------
(Address of Principal Executive     Zip Code
Offices)

                                 (212) 702-6000
    -----------------------------------------------------------------------
              (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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
              Class                          Outstanding at May 15, 2001
              -----                          ---------------------------
<S>                                          <C>
Common stock, $.01 par value                            477,401
</TABLE>



<PAGE>   2




                      GENERAL MEDIA, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS


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

        Item 1.  Financial Statements                                            3

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

        Item 3.  Quantitative and Qualitative Disclosures About Market Risk     19

PART II- OTHER INFORMATION

        Item 1.  Legal Proceedings                                              19

        Item 2.  Changes in Securities and Use of Proceeds                      19

        Item 3.  Defaults Upon Senior Securities                                20

        Item 4.  Submission of Matters to a Vote
                 of Security Holders                                            N/A

        Item 5.  Other Information                                              N/A

        Item 6.  Exhibits and Reports on Form 8-K                               20

        Signatures                                                              21
</TABLE>






                                        2




<PAGE>   3


ITEM 1. FINANCIAL STATEMENTS


                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND ACCUMULATED DEFICIT
                                   (UNAUDITED)

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                                    MARCH 31,
                                                                           ------------------------------
                                                                             2000                 2001
                                                                           --------             --------
<S>                                                                        <C>                  <C>
NET REVENUES                                                               $ 18,896             $ 17,599
                                                                           --------             --------

OPERATING COSTS AND EXPENSES
      Publishing-production, distribution and editorial                       7,464                6,076
      Online-direct costs                                                       143                  155
      Entertainment- direct costs                                               158                  107
      Selling, general and administrative                                     8,258                7,719
      Rent expense from affiliated companies                                    135                  147
      Depreciation and amortization                                             213                  154
                                                                           --------             --------

                            Total operating costs and expenses               16,371               14,358
                                                                           --------             --------

                             Income from operations                           2,525                3,241
                                                                           --------             --------

OTHER INCOME (EXPENSE)
      Debt restructuring expenses (Note 5)                                                        (9,453)
      Interest expense                                                       (1,697)              (2,069)
      Interest income                                                           126                  103
                                                                           --------             --------
                             Total other income (expense), net               (1,571)             (11,419)
                                                                           --------             --------

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                                 954               (8,178)

      Provision for income taxes                                                375                  511
                                                                           --------             --------

      Net income (loss)                                                         579               (8,689)


Accumulated deficit-beginning of period                                     (59,606)             (55,807)
                                                                           --------             --------

Accumulated deficit-end of period                                          ($59,027)            ($64,496)
                                                                           ========             ========
</TABLE>



            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.



                                        3
<PAGE>   4

                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,          MARCH 31,
                                                                                     2000                2001
                                                                                   --------            --------
                                                                                                      (unaudited)
<S>                                                                              <C>                  <C>
                                     ASSETS
CURRENT ASSETS
       Cash and cash equivalents                                                    $  6,425            $  4,845
       Accounts receivable, net of allowance
          for doubtful accounts                                                        6,220               2,994
       Inventories                                                                     6,323               5,954
       Prepaid expenses and other current assets                                       1,896               1,608
       Due from affiliated companies                                                   1,389               2,288
       Loan to shareholder                                                             1,000               1,027
                                                                                    --------            --------

                                          TOTAL CURRENT ASSETS                        23,253              18,716

WORKS OF ART AND OTHER COLLECTIBLES                                                    2,270               2,270

PROPERTY AND EQUIPMENT - AT COST;
   net of accumulated depreciation and amortization                                    2,890               2,784

OTHER ASSETS
       Rent security deposits                                                          1,562               1,568
       Deferred subscription acquisition costs, net                                      690               1,287
       Loan to affiliated company                                                      1,086               1,086
       Deferred debt issuance costs, net                                                 165
       Other                                                                             896               1,062
                                                                                    --------            --------

                                                                                       4,399               5,003
                                                                                    --------            --------

                                                                                    $ 32,812            $ 28,773
                                                                                    ========            ========

                     LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
       Current maturities of Senior Secured Notes                                   $  2,943            $  3,700
       Accounts payable                                                                9,799               9,532
       Deferred  revenue                                                              10,151               9,888
       Accrued interest - Senior Secured Notes                                         2,763               1,950
       Other liabilities and accrued expenses                                          7,323               6,301
                                                                                    --------            --------

                                          TOTAL CURRENT LIABILITIES                   32,979              31,371

SENIOR SECURED NOTES, LESS CURRENT MATURITIES                                         49,057              47,807

UNEARNED REVENUE                                                                       1,702               1,613

OTHER NON-CURRENT LIABILITIES                                                          1,223               1,202

CONTINGENCIES

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK                                                         8,200

REDEEMABLE WARRANTS                                                                      582

STOCKHOLDERS' DEFICIENCY
       Common stock, $.01 par value; 1,000,000
          shares; issued and outstanding, 477,401 shares                                   5                   5
       Capital in excess of par value                                                  3,071               3,071
       Accumulated deficit                                                           (55,807)            (64,496)
                                                                                    --------            --------

                                                                                     (52,731)            (61,420)
                                                                                    --------            --------

                                                                                    $ 32,812            $ 28,773
                                                                                    ========            ========
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        4

<PAGE>   5

                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                                 ----------------------------
                                                                                  2000                2001
                                                                                 -------             -------
<S>                                                                              <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                                $   579             ($8,689)
Adjustments to reconcile net income to
cash provided by (used in) operating activities
Depreciation and amortization                                                        213                 154
Debt restructuring expenses                                                                            9,453
Amortization of bond costs                                                           219
Amortization of unearned revenue                                                     (77)                (89)
Income taxes reimbursable to affiliated companies                                    375                 511
Interest on loan to shareholder                                                      (24)                (27)
Changes in operating assets and liabilities
    Accounts receivable                                                            2,629               3,226
    Inventories                                                                     (289)                369
    Other current assets                                                             231                 288
    Other assets                                                                     151                (769)
    Accounts payable, accrued expenses and
       other current liabilities                                                    (446)             (1,265)
    Accrued interest on Senior Secured Notes                                       1,381                (813)
    Income taxes payable                                                            (147)                (24)
    Deferred revenue                                                                (249)               (263)
    Other long-term liabilities                                                      (46)                (21)
                                                                                 -------             -------

                                                                                   3,921              10,730
                                                                                 -------             -------

     Net cash provided by operations                                               4,500               2,041
                                                                                 -------             -------


CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                                 (98)                (48)
                                                                                 -------             -------

     Net cash used in investing activities                                           (98)                (48)
                                                                                 -------             -------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs                                                                                   (1,670)
Advance to affiliated companies                                                   (1,815)             (1,410)
Repayment of Senior Secured Notes                                                                       (493)
                                                                                 -------             -------
     Net cash used in financing activities                                        (1,815)             (3,573)
                                                                                 -------             -------

     Net increase (decrease) in cash and cash equivalents                          2,587              (1,580)

Cash and cash equivalents at beginning of period                                   5,659               6,425
                                                                                 -------             -------

Cash and cash equivalents at end of period                                       $ 8,246             $ 4,845
                                                                                 =======             =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
          Interest                                                               $    60             $ 2,896
          Income taxes                                                                 9                  24

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

Noncash issuance of mandatorily redeemable convertible
    preferred stock                                                                                  $ 8,200
Noncash expiration of redeemable common stock warrants                                                   582
Noncash repayment by affiliated companies                                        $ 1,800
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        5



<PAGE>   6


                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)

1.   BASIS OF PREPARATION

General Media International, Inc. ("GMI") is the holder of 99.5% of the common
stock of General Media, Inc. (the "Company"). On March 29, 2001 the Company also
issued 10,000 shares of mandatorily redeemable convertible preferred stock (See
Note 6). The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal, recurring adjustments considered necessary for a fair
presentation, have been included. The balance sheet information for December 31,
2000 has been derived from the audited financial statements at that date.


2.   INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                        December 31,            March 31,
                                           2000                   2001
                                         -------- In  Thousands --------
<S>                                       <C>                    <C>
Paper and printing                        $ 3,432                $ 2,689
Editorials and pictorial                    2,271                  2,404
Film and programming costs                    620                    861
                                          -------                -------
                                          $ 6,323                $ 5,954
                                          =======                =======
</TABLE>


3.   Management Charge

The Company incurs shared common indirect expenses for the benefit of GMI and
affiliated companies, including accounting, personnel, management information
systems, employee relations and other administrative services. In addition, the
Company is charged by GMI and its subsidiaries for the benefit of other
corporate overhead costs, executive compensation and other costs which
principally relate to office space. These allocations are based on factors
determined by management of the Company and GMI to be appropriate for the
particular item, including estimated relative time commitments of managerial
personnel, relative number of employees and relative square footage of all space
occupied. Management believes that the allocation method and amounts are
reasonable.










                                        6

<PAGE>   7



                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)

4.   SENIOR SECURED NOTES

On December 21, 1993, the Company issued $85,000,000 of Senior Secured Notes
(the "Notes") at an issue price equal to 99.387% of the principal amount of the
Notes. In July 1995, the Company repurchased $5,000,000 face amount of its
outstanding Notes, including 5,000 warrants, for cash of $4,050,000. In May
1999, the Company repurchased $28,000,000 face amount of its outstanding Notes
for cash of $26,600,000. The remaining Notes matured on December 31, 2000 and
bore interest at 10-5/8% per annum, which was payable semiannually.

As part of the original issuance of the Notes, the Company issued 85,000 common
stock purchase warrants to the purchasers of the Notes and sold to the
underwriter at a discount 102,506 warrants (the "Warrants"). The Warrants
entitled the holders to purchase in the aggregate 25,000 shares of the Company's
common stock at the exercise price of $0.01 per share. The Warrants also gave
the holders the right to require the Company to purchase for cash all of the
Warrants at their fair value. The Warrants came due on December 22, 2000. On
December 22, 2000, 18,009 of the Warrants were converted into 2,401 shares of
the Company's Common Stock and 104,076 Warrants expired without being timely
exercised in accordance with the Warrant agreement. The due date of the
remaining 60,421 Warrants held by holders of the Notes was extended as part of
the negotiations for refinancing the Notes. The exercise of the 18,009 Warrants
were recorded in December 2000 as a reduction in redeemable warrants and a
contribution to capital of $173,000. The expiration of the 104,076 Warrants has
been recorded in the financial statements in December 2000 as an
extraordinary gain from extinguishment of debt of $571,000, net of income tax of
$465,000. At the time of issuance, the Company recorded the Warrants at fair
value.

The Notes were collateralized by a first priority security interest in all
intellectual property rights (including copyrights and trademarks) and
substantially all other intangible and tangible assets of the Company, other
than accounts receivable, inventory and cash equivalents.

The indenture under the Notes (the "Indenture") contains covenants which, among
other things, (i) restrict the ability of the Company to dispose of assets,
incur indebtedness, create liens and make certain investments, (ii) require the
Company to maintain a minimum consolidated tangible net worth deficiency of
$81,600,000, and (iii) restrict the Company's ability to pay dividends unless
certain financial performance tests are met. The Company's subsidiaries, who are
guarantors of the Senior Secured Notes under the indenture, however, are
permitted to pay intercompany dividends on their shares of common stock. The
ability of the Company and its subsidiaries to incur additional debt is severely
limited by such covenants. As of March 31, 2001, the Company was in compliance
with all such covenants.

During the first three months of 2000, the Company made non-permitted advances
of approximately $1,005,000 to GMI that caused non-compliance with certain
covenants of the indenture. This amount was repaid in full with interest on
March 27, 2000 by a transfer of the outstanding stock of a subsidiary of GMI,
whose net assets have an appraised value of $1,800,000 consisting of works of
art and other collectibles. The remaining balance of $795,000, was applied
against the outstanding receivable from GMI.

On March 29, 2001 (the "Closing Date"), the Company refinanced the Notes. Under
the refinancing

                                        7

<PAGE>   8



                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)

4.   (CONTINUED)

agreement, the Company exchanged the $51,507,000 of principal amount of Notes
and any warrants held by Noteholders (the "Consenting Holders") for Series C
Notes and mandatorily redeemable convertible preferred stock (the "Preferred
Stock") (See Note 6) meeting certain specified terms and conditions. The
remaining $493,000 of principal amount of Notes that were not exchanged was
retired by payments made to the holders on March 29, 2001.

The Series C Notes will mature on March 29, 2004, bear interest at a rate of 15%
per annum from and after January 1, 2001 and require amortization payments
ranging from a total of $3,700,000 during the first year following the Closing
Date to a total of $6,500,000 in the second year following the Closing Date and
$4,600,000 in the first three quarters of the third year following the Closing
Date. In addition, further amortization equal to 50% of excess cash flow in each
year will be required. The Indenture was amended to reflect the above mentioned
payments and to reflect the March 29, 2004 maturity of the Series C Notes.

5.   DEBT RESTRUCTURING EXPENSES

In connection with the refinancing of the Company's debt, as more fully
described in Note 4 above, the Company recorded debt restructuring expenses of
$9,453,000 consisting of a fee of approximately $1,030,000 to Consenting Holders
as well as their legal fees and expenses of approximately $143,000, legal fees
and expenses for the Company's own lawyers and representatives of approximately
$662,000 and the fair market value of 10,000 shares of Preferred Stock of
$8,200,000 issued to the Consenting Holders, as more fully described in Note 6
below, less the remaining $582,000 of liability associated with 60,421 Warrants
surrendered in connection with the refinancing.

6.   MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

On March 29, 2001, the Company issued 10,000 shares of Preferred Stock to the
Consenting Holders at a fair market value of $8,200,000. The Preferred Stock
carries a liquidation preference of $10,000,000, provides for "paid-in-kind"
dividends at a 13% per annum rate and is convertible at the option of the
holders, after two years following the Closing Date, into 10% of the Company's
common stock on a fully diluted basis in the third year, 12.5% of the Company's
common stock on a fully diluted basis in the fourth year, and 15% of such common
stock on a fully diluted basis during the fifth year. The Preferred Stock is
mandatorily redeemable by the Company (subject to the aforementioned conversion
rights) at it's liquidation preference including the "paid-in-kind" dividends at
the end of the fifth year.

The Preferred Stock may be optionally redeemed by the Company at a discount
during the first and second years following the Closing Date at redemption
prices of $4,000,000 if redeemed in the first six months, $6,000,000 thereafter
in the first year and $10,000,000 in the second year, and may be optionally
redeemed at increasing premiums of 110%, 115% and 120% during the third, fourth
and fifth years, respectively, provided that the Series C Notes are paid in full
at or before the time of any redemption.

7.   INCOME TAXES

The Company and its subsidiaries are included in the consolidated Federal income
tax return of GMI. The provision for income taxes in the accompanying statements
of operations is allocated to the Company from GMI as if the Company filed
separate income tax returns. Since each member of a consolidated tax group is
jointly and severally liable for Federal income taxes of the entire group, the
Company may be liable for taxes of GMI or other members of the consolidated
group. Under the terms of a Tax Sharing and Indemnification Agreement (the
"Agreement"), the Company is required to remit income taxes to GMI for years
beginning with the year ended December 31, 2000 to the extent that the Company
utilizes the net operating losses ("NOL's") of GMI

                                        8

<PAGE>   9



                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)

7.   (CONTINUED)

to reduce its income tax liabilities. At January 1, 2001, GMI had available for
Federal income tax purposes NOL's aggregating approximately $88,030,000, which
can be used by the Company to reduce future income taxes, as long as the Company
is a member of GMI's consolidated group. These NOL's expire in tax years 2005 to
2018. To the extent that the Company utilizes such NOL's, the Company is
required to pay GMI, within thirty days after the Company pays the group
consolidated tax liability, an amount that would have been paid in taxes had
such NOL's not been available. The Company generated approximately $1.3 million
of taxable income for the first three months of 2001. The amount of taxes that
the Company would have paid for the three months ended March 31, 2001 had GMI's
NOL's not been made available to the Company was approximately $0.5 million.
This amount has been recorded in the accompanying financial statements as the
income tax provision for the period and as a reduction of the amount due from
affiliated companies. The income tax provision for the three months ended March
31, 2001 consists of federal income taxes of approximately $0.5 million and
state income taxes of approximately $43,000.

8.   CONTINGENCIES

On January 23,1997, the Company filed in United States District Court for the
Southern District of New York an action under the Racketeer Influenced and
Corrupt Organizations Act alleging, among other things, that certain defendants
conspired to defraud the Company by fraudulently backdating a contract (the "DEC
Contract") which awarded exclusive rights to develop a "live" Penthouse internet
site to defendant Deluxe Entertainment Corp. ("DEC"). On January 24, 1997 DEC
served a demand on the Company for arbitration under the DEC Contract on the
issues of breach and damages. The DEC Contract provides a minimum damage award
of $30 million in addition to incidental, consequential and punitive damages and
compensation for lost profits. In July 1998 the United States District Court
granted DEC's motion for an arbitration which is scheduled to begin in
California in October 2001. The Company intends to vigorously defend the
arbitration. In the opinion of management, the outcome of this litigation is not
reasonably likely to have a material adverse effect on the Company's financial
position or results of operations.

There are various other lawsuits claiming amounts against the Company. It is the
opinion of the Company's management that the ultimate liabilities, if any, in
the outcome of these cases will not have a material effect on the Company's
financial statements.

9.   SEGMENT INFORMATION

The Company is currently engaged in activities in three industry segments:
publishing, online and entertainment. The publishing segment of the Company is
engaged in the publication of Penthouse magazine and four affiliate magazines
(the "Affiliate Publications" and, together with Penthouse magazine, the "Men's
Magazines"), the licensing of the Company's trademarks to publishers in foreign
countries and for use on various consumer products and services, and until
October 2000, the publication of Mind and Muscle Power Magazine. The online
segment is engaged in the sale of memberships to the Company's Internet site
(the "Internet Site") and advertising revenue from banners posted on the
Internet Site. The entertainment segment of the Company produces a number of
adult-oriented entertainment products, including pay-per-call telephone lines,
digital video discs ("DVD's"), video cassettes and pay-per-view programming.

                                        9

<PAGE>   10



                      GENERAL MEDIA, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)

9.   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                       Corporate
                                                                                                           and
                                                           Publishing       Online    Entertainment    reconciling      Consolidated
                                                                                                          items
                                                         ----------------------------( in thousands)--------------------------------
<S>                                                      <C>               <C>        <C>              <C>               <C>
Three Months Ended
March 31, 2001
 Revenues from customers                                      $13,572        $3,083        $944                              $17,599
 Depreciation and amortization                                    125            20           9                                  154
 Income (loss) from operations                                  3,750         2,093         602           (3,204)              3,241
 Debt restructuring expenses                                                                                9,453              9,453
 Interest expense                                                 119                                       1,950              2,069
 Segment profit (loss)                                          3,631         2,093         602          (14,504)            (8,178)
 Segment assets                                                14,015           295       1,329            13,134             28,773

 Capital expenditures                                              32            16                                               48

Three Months Ended
March 31, 2000
 Revenues from customers                                      $14,789        $3,048      $1,059                              $18,896
 Depreciation and amortization                                    185            19           9                                  213
 Income (loss) from operations                                  3,120         1,958         620           (3,173)              2,525
 Interest expense                                                  98                                       1,599              1,697
 Segment profit (loss)                                          3,022         1,958         620           (4,646)                954
 Segment assets                                                12,922           185       1,064            17,167             31,338
 Capital expenditures                                              86            12                                               98
</TABLE>


The Corporate and reconciling items column represents corporate administrative
expenses such as executive, human resources, finance and accounting, management
information systems, costs related to the operation of the corporate and
executive offices, interest expense, interest income and, in 2001, debt
restructuring expenses resulting in the segment profit (loss) shown. Corporate
and reconciling items included in segment assets include all cash, deferred debt
issuance costs, loan to shareholder and loan to affiliated company.

The market for the Company's products is worldwide; however 90% of the Company's
revenue is derived from U.S.-based sources.

No customer of the Company accounted for more than ten percent of the Company's
net revenue during the three months ended March 31, 2001 and 2000, and no part
of the business is dependent upon a single customer or a few customers, the loss
of any one of which would have a material adverse effect on the Company.




                                       10

<PAGE>   11



ITEM 2.

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

Several of the Company's businesses can experience fluctuations in quarterly
performance. For example, newsstand revenues vary from issue to issue with
higher revenues for special and higher priced issues and any issue including
editorial or pictorial features that generate unusual public interest. In
addition, revenues from the licensing of the Company's trademarks, products and
videos vary with the timing of new agreements. As a result, the Company's
performance in any quarterly period is not necessarily reflective of full-year
results.

The Company is currently engaged in activities in three industry segments:
publishing, online and entertainment. The publishing segment of the Company is
engaged in the publication of Penthouse magazine and four affiliate magazines,
the licensing of its trademarks to publishers in foreign countries and for use
on various consumer products and services. In December 1999, the Company
launched Mind & Muscle Power ("Power") magazine which targeted the men's health
magazine market. Results were below expectations and the publication was
suspended after the November 2000 issue. The online segment is engaged in the
sale of memberships to the Company's Internet Site and advertising revenue from
banners posted on the Internet Site. The entertainment segment of the Company
produces a number of adult-oriented entertainment products and services,
including pay- per-call telephone lines, video cassettes, DVD's and pay-per-view
programming,

RESULTS OF OPERATIONS (THREE MONTHS ENDED MARCH 31, 2001 VS. 2000)

The Company's revenues were $17.6 million for the three months ended March 31,
2001, compared to revenues of $18.9 million for the three months ended March 31,
2000, a decrease of $1.3 million. Newsstand revenues were $8.9 million and $9.9
million for the three months ended March 31, 2001 and 2000, respectively, a
decrease of $1.0 million. Newsstand revenues from Mens Magazines were $8.9
million and $9.6 million for the three months ended March 31, 2001 and 2000,
respectively, a decrease of $0.7 million. Power magazine accounted for $0.3
million of newsstand revenues for the three months ended March 31, 2000.
Advertising revenues were $2.1 million and $2.4 million for the three months
ended March 31, 2001 and 2000, respectively, a decrease of $0.3 million.
Advertising revenues from Mens Magazines were $2.1 million and $2.3 million for
the three months ended March 31, 2001 and 2000, respectively, a decrease of $0.2
million. Power magazine accounted for $0.1 million of advertising revenues for
the three months ended March 31, 2000. Subscription revenues were $1.9 million
and $1.7 million for the three months ended March 31, 2001 and 2000,
respectively, an increase of $0.2 million. The increase in subscription revenues
is attributable to the Mens Magazines. Revenues for the Online Segment were $3.1
million and $3.0 million for the three months ended March 31, 2001 and 2000, an
increase of $0.1 million. Revenues for the Entertainment Segment were $0.9
million for the three months ended March 31, 2001, compared to revenues of $1.0
million for the three months ended March 31, 2000. Revenues from the Company's
video business were $0.7 million for both the three months ended March 31, 2001
and 2000, respectively. Revenues from the Company's pay-per-call business were
$0.2 million and $0.3 million for the three months ended March 31, 2001 and
2000, respectively, a decrease of $0.1 million.

Income from operations was $3.2 million for the three months ended March 31,
2001, compared to $2.5 million for the three months ended March 31, 2000. Income
from operations was impacted by:

-    an increase in the newsstand cover price of Penthouse, Penthouse Letters
     and Variations Magazine,

-    an increase in the subscription price of Penthouse Magazine,


                                       11

<PAGE>   12



ITEM 2. (CONTINUED)

-    decreased production costs as a result of a decrease in the number of
     newsstand copies printed, the price of paper and the number of pages per
     issue,

-    increased revenues from advertising banners on the Company's Internet Site,

-    decreased selling, general and administrative expenses due to decreased
     retail distribution allowance expense, public relations expense, bank
     charges, insurance expense, and

-    reduced salary and benefit expenses caused by a reduction in the number of
     employees as a result of restructuring the Company's operations.


Other income (expense) was $(11.4) million for the three months ended March 31,
2001 compared to net other income (expense) of $(1.6) million for the three
months ended March 31, 2000. Included in other income (expense) are debt
restructuring expenses of $9.5 million for the three months ended March 31, 2001
related to the refinancing of the Company's Notes on March 29, 2001 (See Note 4
of the Notes To Condensed Consolidated Financial Statements). Other income
(expense) also includes interest expense of $2.1 million for the three months
ended March 31, 2001, compared to interest expense of $1.7 million for the three
months ended March 31, 2000, an increase of $0.4 million. The increase is
primarily due to an increase in the interest rate paid on the Company's Senior
Secured Notes as a result of the refinancing of the Notes. The interest rate on
the Series C Notes issued on March 29, 2001 is 15% compared to an interest rate
of 10-5/8% on the Notes which were retired on that date. The new interest rate
went into effect on January 1, 2001. Included in interest expense for the three
months ended March 31, 2000 are amortized debt issuance costs and discounts of
$0.2 million.

As a result of the above discussed factors, net loss before provision for income
taxes for the three months ended March 31, 2001 was $8.2 million, compared to
net income of $1.0 million for the three months ended March 31, 2000.

The net revenues and income from operations of the Company were (in millions):

<TABLE>
<CAPTION>
                                                                                                 Income (loss)
                                                             Net Revenue                        from operations
                                                    ------------------------             ------------------------
                                                            Three Months                         Three Months
                                                              March 31,                            March 31,
                                                    ------------------------             ------------------------
                                                      2000               2001              2000              2001
                                                      ----               ----              ----              ----
<S>                                                 <C>                <C>                <C>              <C>
Publishing Segment                                  $  14.8            $  13.6            $  3.1           $  3.7
Online Segment                                          3.0                3.1               2.0              2.1
Entertainment Segment                                   1.1                0.9               0.6              0.6
                                                    -------            -------            ------           ------
                                                    $  18.9            $  17.6            $  5.7           $  6.4
Corporate Administrative Expenses                                                           (3.2)            (3.2)
                                                    -------            -------            ------           ------
                                                    $  18.9            $  17.6            $  2.5           $  3.2
                                                    =======            =======            ======           ======
</TABLE>





                                       12

<PAGE>   13



ITEM 2. (CONTINUED)

PUBLISHING SEGMENT

The net revenues and income from operations of the Publishing Segment were as
follows (in millions):

<TABLE>
<CAPTION>
                                                                                                Income (loss)
                                                           Net Revenues                        from operations
                                                     --------------------------             ------------------------
                                                           Three Months                          Three Months
                                                             March  31,                            March 31,
                                                     --------------------------             ------------------------
                                                       2000               2001               2000              2001
                                                     -------            -------             ------            ------
<S>                                                  <C>                <C>                 <C>               <C>
Penthouse Magazine and
   the Affiliate Publications                        $  13.8            $  13.1             $  2.7            $  3.3
Foreign edition licensing                                0.6                0.5                0.5               0.4
Power Magazine                                           0.4                                  (0.1)
                                                     -------            -------             ------            ------
                                                     $  14.8            $  13.6             $  3.1            $  3.7
                                                     =======            =======             ======            ======
</TABLE>



PENTHOUSE MAGAZINE AND THE AFFILIATE PUBLICATIONS

Revenues for Penthouse magazine and the Affiliate Publications were $13.1
million and $13.8 million for the three months ended March 31, 2001 and 2000,
respectively, a decrease of $0.7 million. Newsstand revenue was $8.9 million and
$9.6 million for the three months ended March 31, 2001 and 2000, respectively, a
decrease of $0.7 million. The decrease is primarily attributable to a decrease
in the number of copies of Penthouse magazine and the Affiliate Publications
sold, partially offset by an increase in the cover price of Penthouse Magazine.
Advertising revenue was $2.1 million and $2.3 million for the three months ended
March 31, 2001 and 2000, respectively, a decrease of $0.2 million. The decrease
in advertising revenue is primarily attributable to a decrease in the average
rate per page of advertising pages sold in Penthouse magazine partially offset
by an increase in the number of ad pages sold in this publication. Subscription
revenue was $1.9 million and $1.7 million for the three months ended March 31,
2001 and 2000, respectively, an increase of $0.2 million due primarily to an
increase in the net revenue per copy sold of Penthouse magazine, partially
offset by a decrease in the number of subscription copies sold of Penthouse
magazine and the Affiliate Publications. In the third quarter of 1999 the
Company increased the subscription price for Penthouse magazine and reduced
discounts offered to its subscription agents to improve the profitability of
subscriptions sold. This change has had the effect of increasing the net revenue
per copy for subscriptions over the past eighteen months as old subscriptions
expire and they are replaced by new subscriptions taken out at the increased
rate. This increase has been partially offset by a decrease in the number of
subscription copies sold during the three months ended March 31, 2001 as
compared to the three months ended March 31, 2000.

Publishing-production, distribution and editorial expenses were $6.1 million and
$7.3 million for the three months ended March 31, 2001 and 2000, respectively, a
decrease of $1.2 million. Paper costs were $2.2 million and $2.9 million for the
three months ended March 31, 2001 and 2000, respectively, a decrease of $0.7
million. Print costs were $2.2 million for the three months ended March 31,
2001, compared to $2.5 million for the three months ended March 31, 2000, a
decrease of $0.3 million. The decreases are due primarily to a decrease in the
number of copies printed, a decrease in the price of paper and a decrease in the
number of pages per issue. Distribution costs were $1.1 million for the three
months ended March 31, 2001 and 2000 respectively. Editorial costs were $0.6
million and $0.8 million for the three months ended March 31, 2001 and 2000,
respectively, a decrease of $0.2 million.

                                       13

<PAGE>   14



ITEM 2. (CONTINUED)

Selling, general and administrative expenses were $3.6 million for the three
months ended March 31, 2001, compared to $3.9 million for the three months ended
March 31, 2000, a decrease of $0.3 million. The decrease is primarily due to a
decrease in retail distribution allowance expense of $0.4 million, salary
expense of $0.1 million and public relations expense of $0.1 million, partially
offset by an increase in bad debt expense of $0.3 million during the three
months ending March 31, 2001.

FOREIGN EDITION LICENSING

Revenues from licensing of foreign editions were $0.5 million and $0.6 million
for the three months ended March 31, 2001 and 2000, respectively, a decrease of
$0.1 million.

Selling, general and administrative expenses were $0.1 million for both the
three months ended March 31, 2001 and 2000.

POWER MAGAZINE

Publication of Power magazine was suspended after the November 2000 issue.
Revenues for Power magazine were $0.4 million for the three months ended March
31, 2000, consisting of newsstand and subscription revenues of $0.3 million and
advertising revenues of $0.1 million.

Publishing production, distribution and editorial expenses were $0.2 million for
the three months ended March 31, 2000.

Selling, general and administrative expenses were $0.2 million for the three
months ended March 31, 2000.

ONLINE SEGMENT

Revenues for the Online Segment were $3.1 million for the three months ended
March 31, 2001, compared to $3.0 million for the three months ended March 31,
2000, an increase of $0.1 million. The increase is primarily due to an increase
in advertising revenue from banners on the Internet Site of $0.4 million,
partially offset by a decrease in the sale of memberships to the Internet Site
of $0.3 million during the three months ended March 31, 2001. The Company
experienced a decline in new members due to weakness in the U.S. economy during
the three months ended March 31, 2001 and due to its use of more aggressive
credit card validation methods in order to comply with Visa and MasterCard's
more stringent requirements regarding chargeback levels. Memberships were also
impacted by the decision of American Express to withdraw from the adult
entertainment business, which eliminated one possible payment option for
customers. To offset this decline the Company has intensified its effort to
attract more advertisers to the Internet Site, which has resulted in increased
advertising revenue during the three months ended March 31, 2001 and has
implemented more varied pricing plans to attract new members and retain existing
members.

Direct Costs were $0.2 million for the three months ended March 31, 2001,
compared to $0.1 million for the three months ended March 31, 2000, an increase
of $0.1 million. The increase is primarily attributable to increased costs for
content purchased for the Internet Site.

Selling, general and administrative expenses were $0.8 million for the three
months ended March 31, 2001,


                                       14

<PAGE>   15



ITEM 2. (CONTINUED)

compared to $0.9 million for the three months ended March 31, 2000, a decrease
of $0.1 million. This decrease is primarily attributable to decreased bank
charges of $0.1 million and a decrease in web hosting charges of $0.1 million,
partially offset by increased salaries of $0.1 million.

ENTERTAINMENT SEGMENT

Revenues from the Entertainment Segment were $0.9 million for the three months
ended March 31, 2001, compared to $1.0 million for the three months ended March
31, 2000, a decrease of $0.1 million. The Company's video business revenues were
$0.7 million for both the three months ended March 31, 2001 and March 31, 2000.
Revenues from the Company's pay-per-call business were $0.2 million and $0.3
million for the three months ended March 31, 2001 and 2000, respectively, a
decrease of $0.1 million. Revenue for the three months ended March 31, 2001 was
lower due to lower billable minutes.

Direct costs were $0.1 million for three months ended March 31, 2001, compared
to $0.2 million for the three months ended March 31, 2000, a decrease of $0.1
million. The decrease was primarily due to a decrease in duplication costs for
video products sold during the three months ended March 31, 2001.

Selling, general and administrative expenses were $0.2 million for the three
months ended March 31, 2001, compared to $0.3 million for the three months ended
March 31, 2000, an decrease of $0.1 million. The decrease was primarily
attributable to decreased bad debt expenses and consulting fees during the three
months ended March 31, 2001.

CORPORATE ADMINISTRATIVE EXPENSE

Included in selling, general and administrative expenses are corporate
administrative expenses which includes executive, legal, human resources,
finance and accounting, management information systems, costs related to the
operation of the corporate and executive offices and various other expenses.
Corporate administrative expenses were $3.2 million for both the three months
ended March 31, 2001 and 2000.

RENT EXPENSE FROM AFFILIATED COMPANY

Rent expense from affiliated company represents charges from an affiliated
company for the use by the Company of the affiliate's facilities. The charge is
based upon the Company's proportionate share of the operating expenses of such
facilities. Rent expense from affiliated companies was $0.1 million for both the
three months ended March 31, 2001 and 2000.


LIQUIDITY AND CAPITAL RESOURCES

The Company had $4.8 million in cash and cash equivalents at March 31, 2001,
compared to $6.4 million at December 31, 2000. The decrease in cash and cash
equivalents during the three months ended March 31, 2001, resulted from cash
flows used in financing activities of $3.6 million and cash flows used in
investing activities of $48,000, partially offset by cash flows provided by
operating activities of $2.0 million.

Cash flows from  operating activities

Net cash provided by operating activities was $2.0 million for the three months
ended March 31, 2001,

                                       15

<PAGE>   16



ITEM 2. (CONTINUED)

compared to net cash provided by operating activities of $4.5 million for the
three months ended March 31, 2000. Net cash provided by operating activities for
the three months ended March 31, 2001 was derived by adjusting the net loss for
the period by the effect of restructuring expenses and non-cash items as well as
a decrease in circulation accounts receivable due to the timing of advance
payments from the Company's newsstand distributor and decreased paper inventory
levels, partially offset by decreased accounts payable and accrued expenses due
to the timing of payments to vendors, increased spending on subscription
acquisition drives in the first quarter of 2001 and the payment of interest on
the Notes during the first quarter of 2001. The net cash provided by operating
activities for the three months ended March 31, 2000 was primarily the result of
income from operations for the period after adjusting for the effect of non-cash
items, the timing of advance payments from the Company's newsstand distributor
and improved collections of accounts receivable, partially offset by decreased
accounts payable and accrued expenses due to the timing of payments to vendors
and by higher paper inventory levels due to an increase in the price of paper
and the timing of paper purchases related to the printing of the Canadian
editions of the Company's magazines.

The Company normally experiences a decrease in its accounts receivable in the
first quarter of each year because of the timing of advance payments with
respect to the January and February issues of Penthouse Magazine. The advance
for the January issue of Penthouse Magazine is received in the early part of
January of each year. In addition the Company receives the advance for its
February issue at the end of January each year. As a result two advances are
received in January with respect to Penthouse while none is received in the
previous December. This results in an increase in accounts receivable at the end
of the year and a decrease in the first quarter of each year. The Company
received advances of $2.2 million and $2.4 million in January of 2001 and 2000,
respectively which are included as part of accounts receivable at December 31 of
2000 and 1999. In December of 2000 the Company also recorded a receivable of
approximately $1.2 million due to higher than normal sales of the December 2000
issue of Penthouse Magazine which featured a well known personality. This
receivable was received in January 2001 as a second advance payment. The timing
of the receipt of these advances and second payments is reflected in the
Company's Condensed Consolidated Statements of Cash Flows as cash provided by a
change in accounts receivable for the first quarter of each year and is
reflected on the Company's Condensed Consolidated Balance Sheets as a decrease
in the accounts receivable balance during the current period.

The Company also increased its spending on subscription acquisition drives
during the three months ended March 31, 2001. The Company did not conduct a
subscription acquisition drive during the three months ended March 31, 2000.
Included in the change in other assets for the three months ended March 31, 2001
on the Condensed Consolidated Statements of Cash Flow is $0.6 million of
expenses for subscription acquisition drives in the three months ended March 31,
2001. The expenses for the subscription acquisition drives also resulted in an
increase in deferred subscription acquisition costs, net as reflected on the
Company's Condensed Consolidated Balance Sheets as of March 31, 2001.

The Company paid $2.8 million of interest on its Notes during the three months
ended March 31, 2001 compared with no interest payments during the three months
ended March 31, 2000. This change is due to the fact that while the bi-annual
interest payment under the Notes came due on December 31, 1999 and 2000, since
December 31, 2000 was a Sunday, the payment was not required to be made until
January 2001 and consequently fell into the first quarter of 2001. This is
reflected on the balance sheet for December 31, 2000 as an accrual of interest
on Senior Secured Notes and the payment made in the first quarter of 2001
resulted

                                       16

<PAGE>   17



ITEM 2. (CONTINUED)

in the reduction in the accrual of interest on Senior Secured Notes that appears
in Condensed Consolidated Statements of Cash Flows for the first three months
ended March 31, 2001.

Cash flows from investing activities

Net cash used in investing activities was $48,000 for the three months ended
March 31, 2001, compared to net cash used in investing activities of $0.1
million for the three months ended March 31, 2000. The cash used in investing
activities for the three months ended March 31, 2001 and 2000 was the result of
capital expenditures made during the respective periods.

Cash flows from financing activities

Cash flows used in financing activities were $3.6 million for the three months
ended March 31, 2001, compared to cash flows used in financing activities of
$1.8 million for the three months ended March 31, 2000. Cash used in financing
activities for the three months ended March 31, 2001 was primarily the result of
the payment of debt issuance costs of $1.7 million relating to the refinancing
of the Company's Series C Notes (See Notes 4 and 5 of the Notes to Condensed
Consolidated Financial Statements), advances of $1.4 million to GMI during the
three months ended March 31, 2001 and the repayment of $0.5 million of principal
amount of the Notes. Cash used in financing activities for the three months
ended March 31, 2000 was primarily the result of $1.8 million of advances to GMI
during the period. GMI repaid $0.5 million of advances to GMI during the three
months ended March 31, 2001 by the Company's utilization of GMI's net operating
loss carryforwards in accordance with the tax sharing agreement between the
affiliated companies (See Note 7 of the Notes to Condensed Consolidated
Financial Statements). Affiliated company advances at March 31, 2001 increased
$0.9 million from December 31, 2000 as a result of these advances and
repayments. These balances regularly result from the impact of certain cost
sharing and expense allocation agreements with GMI and its subsidiaries, whereby
certain costs, such as shared corporate salaries and overhead, are paid by the
Company and a portion charged to GMI and its subsidiaries as incurred. These
charges generally result in amounts due to the Company, and are to be repaid
sixty days after the end of each quarter in accordance with the terms of an
expense sharing agreement. The management of the Company believes that GMI and
its subsidiaries have sufficient net assets to enable the Company to ultimately
recover its advance through liquidation of certain of those assets or through
the refinancing of GMI's debts. The ability of the Company to realize repayment
of its advance is dependant upon the success of GMI in refinancing its existing
debt obligations, some of which are currently in default. At March 31, 2001, the
Company has a loan outstanding to the principal shareholder of GMI of $1.0
million. The loan is evidenced by a promissory note, bears interest at 11% per
annum, and is payable on December 31, 2001.

The ability of the Company to incur additional debt is severely limited by the
terms of its Series C Notes and the Indenture. Pursuant to the Indenture, the
Company may not declare a dividend on its common stock, subject to certain
exceptions, unless it meets certain financial covenants set forth therein.

 Future outlook

The Company's cash balance was $4.8 million at March 31, 2001, compared to $6.4
million at December 31, 2000. During the three months ended March 31, 2001 the
company provided $2.0 million in cash flows from operating activities. However,
at March 31, 2001, current liabilities exceeded current assets by approximately
$12.7 million and the Company had a stockholders deficiency of $64.5 million.

The Company's Series B Notes totaling $52.0 million matured on December 31,
2000. On March 29, 2001 the Company exchanged $51.5 million of principal amount
of Series B Notes and any warrants held by exchanging noteholders for Series C
Notes and Preferred Stock meeting certain specified terms and conditions.


                                       17

<PAGE>   18



ITEM 2. (CONTINUED)

The remaining $0.5 million of principal amount of Series B Notes that were not
exchanged were retired by payments made to the holders on March 29, 2001.

The Series C Notes will mature on March 29, 2004, bear interest at a rate of 15%
per annum from and after January 1, 2001 and require amortization payments
ranging from a total of $3.7 million during the first year following the Closing
Date to a total of $6.5 million in the second year following the Closing Date
and $4.6 million in the first three quarters of the third year following the
Closing Date. In addition, further amortization equal to 50% of excess cash flow
in each year will be required. The Preferred Stock carries a liquidation
preference of $10 million, provides for "paid-in-kind" dividends at a 13% per
annum rate and is convertible, after two years following the Closing Date, into
10% of the Company's common stock on a fully diluted basis in the third year,
12.5% of the Company's common stock on a fully diluted basis in the fourth year,
and 15% of such common stock on a fully diluted basis during the fifth year. The
Preferred Stock is mandatorily redeemable by the Company (subject to the
aforementioned conversion rights) at it's liquidation preference including the
"paid-in-kind" dividends at the end of the fifth year.

The Preferred Stock may be optionally redeemed by the Company at a discount
during the first and second years following the Closing Date at redemption
prices of $4 million if redeemed in the first six months, $6 million thereafter
in the first year and $10 million in the second year, and may be optionally
redeemed at increasing premiums of 110%, 115% and 120% during the third, fourth
and fifth years, respectively, provided that the Series C Notes are paid in full
at or before the time of any redemption. The Company has paid a fee of
approximately $1,030,000 to Consenting Holders, has reimbursed the Consenting
Holders for their legal fees and expenses of approximately $143,000 and has
incurred legal fees and expenses of $662,000 for its own lawyers and
representatives in connection with the refinancing.

In the event that the Company is unable to make the payments required, the
trustee under the Indenture could assume control over the Company and
substantially all its assets including its registered trademarks. Should the
Company be forced to cease operations and liquidate its assets, it would most
likely be unable to recover the full carrying amount of the assets shown on the
balance sheet.

The Company has undertaken several actions which improved its profitability
during the three months ended March 31, 2001, resulting in income from
operations of $3.2 million and positive cash flows from operating activities of
$2.0 million. Further actions are currently under way and planned for the future
to improve the Company's profitability and cash flow. However, there can be no
assurance that the management will be successful in achieving the improvements
desired.

Forward-Looking Statements

In addition to historical information, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements 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 and are based on
certain assumptions, which could cause actual results or outcomes to differ
materially from those expressed in the forward looking statements. The following
are important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements: (a)
government actions or initiatives, including (1) attempts to limit or otherwise
regulate the sale of adult-oriented materials, including print, video and online
materials; (2) regulation of the advertisement of tobacco products, or (3)
significant changes in postal regulations or rates, (b) increases in paper
prices; (c) increased competition for advertisers from other publications and
media or

                                       18

<PAGE>   19



ITEM 2. (CONTINUED)

any significant decrease in spending by advertisers generally, or with respect
to the adult male market; (d) effects of the consolidations taking place among
businesses which are part of the magazine distribution system; (e) uncertainty
with regard to the future market for entertainment, e-commerce and advertising
by way of the Internet, (f) the impact of an increasingly competitive
environment for advertising sales and the impact of competition from other
content and merchandise providers; and (g) the ability of the Company to
generate sufficient cash from future operations to make all the payments
required under the Series C Notes. Readers are cautioned not to place undue
reliance in these forward-looking statements, which reflect management's
opinions only as of the date hereof. The Company undertakes no obligation to
revise or publicly release the results of any revision to these forward-looking
statements.

Item 3. Quantitative And Qualitative Disclosures About Market Risk.

The Company is exposed to market risk from changes in interest rates. Management
does not believe that it has any foreign currency rate risk.

Interest Rates-As of December 31, 2000, the Company had debt of $52.0 million
with a fixed rate of 10 5/8%. On March 29, 2001 the Company exchanged $51.5
million of this debt for new debt with a fixed rate of 15% and retired $0.5
million of the debt. The Company is subject to market risk based on potential
fluctuations in current interest rates.

Foreign-Exchange Rate Risk-The Company does not believe it has exposure to
foreign exchange rate risk because all of its financial instruments are
denominated in U.S. dollars.


                            PART II-OTHER INFORMATION
ITEM 1.                         LEGAL PROCEEDINGS

On January 23,1997, the Company filed in United States District Court for the
Southern District of New York an action under the Racketeer Influenced and
Corrupt Organizations Act alleging, among other things, that certain defendants
conspired to defraud the Company by fraudulently backdating a contract (the "DEC
Contract") which awarded exclusive rights to develop a "live" Penthouse internet
site to defendant Deluxe Entertainment Corp. ("DEC"). On January 24, 1997 DEC
served a demand on the Company for arbitration under the DEC Contract on the
issues of breach and damages. The DEC Contract provides a minimum damage award
of $30 million in addition to incidental, consequential and punitive damages and
compensation for lost profits. In July 1998 the United States District Court
granted DEC's motion for an arbitration which is scheduled to begin in
California in October 2001. The Company intends to vigorously defend itself in
the arbitration. In the opinion of management, the outcome of this litigation is
not reasonably likely to have a material adverse effect on the Company's
financial position or results of operations.


ITEM 2.             CHANGES IN SECURITIES AND USE OF PROCEEDS

The Company's Series B Notes totaling $52.0 million matured on December 31,
2000. On March 29, 2001 the Company exchanged $51.5 million of principal amount
of Series B Notes and any warrants held by exchanging noteholders for Series C
Notes and Preferred Stock meeting certain specified terms and conditions. The
remaining $0.5 million of principal amount of Series B Notes that were not
exchanged were retired by

                                       19

<PAGE>   20



ITEM 2. (CONTINUED)

payments made to the holders on March 29, 2001.

The Series C Notes will mature on March 29, 2004, bear interest at a rate of 15%
per annum from and after January 1, 2001 and require amortization payments
ranging from a total of $3.7 million during the first year following the Closing
Date to a total of $6.5 million in the second year following the Closing Date
and $4.6 million in the first three quarters of the third year following the
Closing Date. In addition, further amortization equal to 50% of excess cash flow
in each year will be required. The Indenture governing the rights of the holders
of the Series C Notes has been modified to provide additional "Change of
Control" events (requiring the commencement of an offer to purchase Notes), to
provide additional flexibility as to the nature of, but also set a fixed dollar
limit for, "Owner Payments", and to require Noteholder consent to entering into
new lines of business or for sales or other conveyances of the Penthouse
trademark (other than ordinary course licensing) or other assets for net
proceeds in excess of $500,000. In addition, the related Security Agreement was
amended to grant additional security interests in inventory and accounts
receivable as well as a security interest in proceeds of the sale of certain
real property (after payment of existing debt obligations thereon) and on any
proceeds to the Company from payment on split dollar life insurance on the life
of the Company's principal beneficial owner.

The Preferred Stock carries a liquidation preference of $10 million, provides
for "paid-in-kind" dividends at a 13% per annum rate and is convertible, after
two years following the Closing Date, into 10% of the Company's common stock on
a fully diluted basis in the third year, 12.5% of the Company's common stock on
a fully diluted basis in the fourth year, and 15% of such common stock on a
fully diluted basis during the fifth year. The Preferred Stock is mandatorily
redeemable by the Company (subject to the aforementioned conversion rights) at
it's liquidation preference including the "paid-in-kind" dividends at the end of
the fifth year. The Preferred Stock may be optionally redeemed by the Company at
a discount during the first and second years following the Closing Date at
redemption prices of $4 million if redeemed in the first six months, $6 million
thereafter in the first year and $10 million in the second year, and may be
optionally redeemed at increasing premiums of 110%, 115% and 120% during the
third, fourth and fifth years, respectively, provided that the Series C Notes
are paid in full at or before the time of any redemption. The Company has paid a
fee of approximately $1,030,000 to Consenting Holders, has reimbursed the
Consenting Holders for their legal fees and expenses of approximately $143,000
and has incurred legal fees and expenses of $662,000 for its own lawyers and
representatives in connection with the restructuring.

ITEM 3.                  DEFAULTS UPON SENIOR SECURITIES

On December 31, 2000 the Company defaulted in the payment of principal due on
maturity of the Series B Notes referred to in Item 2, above. In connection with
the issuance of the Series C Notes on March 29, 2001 such default was waived.


ITEM 6.             EXHIBITS AND REPORTS ON FORM 8-K

   (a)              The exhibits listed in the "Exhibit Index" are filed as part
                    of this report.

   (b)              Reports on Form 8-K.

                    On January 4, 2001, the Company filed a report on Form 8-K,
                    concerning the refinancing of the Company's outstanding
                    public debt.


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<PAGE>   21




                                   SIGNATURES


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





                                        General Media, Inc.
                                         (Registrant)


Dated: May 15, 2001            By:   /s/ John D. Orlando
                                   ---------------------------------------------
                                                 Signature

                                        John D. Orlando
                                        Senior Vice President-Chief Financial
                                        Officer

                                        (Duly Authorized Officer and
                                        Principal Accounting Officer)





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