SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549
                              _____________________

                                   Form 10-KSB
     Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
                of 1934 For the fiscal year ended March 31, 2000

                                 DIRECTRIX, INC.

                             A Delaware Corporation
                   IRS Employer Identification No. 13-4015248
                           SEC File Number: 000-25111

                         226 West 26th Street, Suite 12W
                            New York, New York 10001
                                 (212) 741-6511

Securities registered under Section 12(b) of the Exchange Act:  None

Secruities registered pursuant to Section 12(g) of the Exchange Act:
                                  Common Stock, par value $.01

Directrix, Inc., (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 within the past 90 days.

Directrix is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-B.

Directrix's revenue for its most recent fiscal year: $8,796,000.

Directrix had 2,179,785 shares of Common Stock outstanding at July 20, 2000.

<PAGE>

Item 1.  Business.

Forward-looking  statements.  Except for the historical   information  contained
herein,  the matters  discussed in herein and in  "Management's  Discussion  and
Analysis of Financial  Condition and Results of  Operations"  are not historical
facts,  but are  "forward-looking  statements,"  as that term is  defined in the
Private Securities Litigation Reform Act of 1995. In addition,  Directrix or its
representatives have made and may continue to make  forward-looking  statements,
orally or in  writing,  in other  contexts,  such as in  reports  filed with the
Securities and Exchange  Commission,  press releases or statements made with the
approval of an authorized  Directrix  executive officer.  These  forward-looking
statements can be identified by the use of  forward-looking  terminology such as
"believes,"  "expects,"  "plans,"  "may," "will,"  "would,"  "could,"  "should,"
"anticipates," "estimates," "project," "intend," or "outlook" or the negative of
these words or other variations of these words or other comparable  words, or by
discussion   of  strategy   that   involve   risks  and   uncertainties.   These
forward-looking  statements are only  predictions,  and actual events or results
may differ  materially as a result of a wide variety of factors and  conditions,
many  of  which  are  beyond Directrix's control.  Some of the more important of
these factors and  conditions  include:  (i) the possible loss of one or more of
the  satellites  on  which  Directrix's  leased   transponders are located; (ii)
Directrix's reliance on a limited number of customers  and its limited operating
history as a stand-alone  company  and  that it has  incurred  operating  losses
since it began operating  as  a  stand-alone  company;  (iii) an increase in the
availability of transponders or a  decrease  in  available  channel  capacity in
cable  or  Direct  Broadcast Satellite  television  systems, either of which may
cause a decline in the  demand for Directrix's services; (iv) that Directrix may
continue to  incur operating losses, have negative cash flow, require additional
money  and  suffer  delays in  meeting  its targets;  (v) severe  competition in
Directrix's   industry;  (vi)  changes  in   distribution   technology    and/or
unforeseen  delays   in  the  implementation of that technology by the cable and
satellite  industries,  which might affect realization of  Directrix's  business
plan; (vii) uncertainty as to the  impact of the internet as a delivery modality
for television entertainment on Directrix's business;  (viii)   governmental  or
regulatory  changes,   actions  or initiatives,   including attempts to limit or
otherwise  regulate the  distribution of  adult-oriented  materials  of the type
distributed by  Directrix's principal  customers.   In addition, as a  result of
Directrix's stock price,  trading volume and industry  sector, Directrix's stock
price may be expected to be volatile and may be influenced by economic and other
factors beyond Directrix's control.


INTRODUCTION

         Directrix, Inc. ("Directrix"), a Delaware corporation, is a provider of
digital  video  asset  management  services  principally  to  the  entertainment
industry. Included within the scope of available services,  Directrix offers all
the technical and creative  services  required to develop,  support,  manage and
deliver network television,  video,  audio,  interactive media and data services
from its recently constructed  state-of-the-art digital operations center. Since
1998,  Directrix  has been providing  turnkey 24  hours a day  by 7 days  a week
audio-video delivery systems and applications  to nine  cable channels and  four
C-band  networks  available  on  two  satellites,  Telstar  4 and Telstar 7. Its
client list features  cable and Direct Broadcast Satellite  ("DBS") networks and
Internet networks.

         Directrix   provides  major   studios,   cable   operators,   satellite
distributors,   television  networks  and  local  broadcasters  with  end-to-end
economies of scale to digitize,  encode,  encrypt,  archive and distribute their
video content for distribution via satellite,  fiber optic, Internet, video file
server and other  delivery  modalities.  These  digital  video asset  management
services include:

         *        Digitization and compression of content;
         *        downlink services;
         *        digital video playback and uplink;
         *        video streaming on the Internet;
         *        digital video archiving and trafficking;
         *        digital ad insertion; and
         *        video-on-demand ("VOD") services.

         Directrix  can also  provide  the full range of  traditional  technical
broadcast  services.  From  post-production,  editing  and  quality  control for
customer's video content to playback, uplink and transponder services, Directrix
can provide "Network in a Box" services to television  networks for distribution
via cable television and DBS systems.  Once the customer's  content is digitized
(using any number of digital  compression  technologies  employed at the digital
operations center), then Directrix's digital video asset management services can
be employed to  productively  manage this content and  distribute  it over other
delivery  modalities  such as the  Internet,  broadband  Internet and video file
servers or for example, copy it onto DVD's.

         Even  though  digital  video  asset  management  is  a  relatively  new
business,  Directrix is an experienced  operator,  having provided digital video
asset management services  since the  early broadband  delivery and VOD  trials.
Directrix  has assembled a  multi-disciplined  team of veteran  video engineers,
experienced software  developers   and creative talent to take  advantage of its
recently completed New York Metro Area-based digital operations center.

FORMATION

         Spice Entertainment Companies,  Inc. ("Spice") formed Directrix in 1998
in  contemplation   of  Spice's   acquisition  by  Playboy   Enterprises,   Inc.
("Playboy").  On the March 15, 1999  closing of the Playboy  transaction,  Spice
transferred its network services division to Directrix  including Spice's master
control and digital  playback  facility,  service  agreements to provide network
creation,  playback and other technical  services to Emerald Media, Inc. ("EMI")
and  others,  an option (the "EMI  Option")  to acquire the network  business or
stock of EMI,  certain  rights in Spice's  library of adult  films,  $750,000 in
cash,  certain prepaid assets and accounts  receivable.  Spice also  transferred
173,784 shares of Playboy Class B Common Stock to Directrix that it had acquired
as part of the Playboy transaction.  Spice then spun off Directrix to its former
stockholders,   distributing   the  Directrix   stock  as  part  of  the  merger
consideration.

         In the calendar third quarter of 1999, Directrix relocated from Spice's
former New York City operations  facility  to a newly  constructed  and expanded
digital operations facility in Northvale, New Jersey (the "Operations Facility")
adjacent to its satellite uplink provider. The Operations Facility was completed
during  the  first  calendar  quarter  of  2000.   Directrix  also relocated its
executive offices to Midtown Manhattan.

INDUSTRY ENVIRONMENT AND OUTLOOK

         Television,  movies,  expanded  cable and DBS channel  capacity and the
Internet are converging into the new world of digital technology, increasing the
demand for content - both video and audio  programming  and data services.  This
content will be created,  stored and  distributed  in digital form as compressed
digital  video  and  audio  data  files,   replacing  their  tape-based   analog
forerunners.  On the  distribution  side,  in addition  to the more  traditional
satellite/cable  television  delivery  of video  information  (both  analog  and
digitally compressed), video file servers can now provide VOD via cable systems,
the Internet,  hotels and  multi-unit  residential  dwellings.  These video file
servers can be remotely directed to replenish  content and to collect,  archive,
manage and distribute digital video. Video programming can also be streamed over
the Internet.  Directrix can manage its customer's  digitized  video content and
believes this industry - Digital Video Asset  Management - will  experience high
growth.

         According to Media  Management  Services,  Inc.,  the overall  "Digital
Media Management"  market is projected to grow from $150 million in 1998 to over
$2 billion in 2002. There are over 100,000  potential  clients for digital media
management products and services.  The first targets for Directrix are on either
side of the supply chain - video  content  owners and VOD  distributors.  Only a
few,  typically  narrow-niche,  providers are currently  serving the high-growth
digital  conversion  and  distribution  services  markets.  Being a full service
provider,  Directrix is well positioned to benefit from the projected  growth of
this  industry.   Directrix's  vision is  to become a  dominant  provider to the
growing market demand for digital video asset management services.

         Directrix has the following combination of assets to provide content
owners and content distributors with a complete end-to-end solution:

         *        A  management  team   with  years of  collective  technical
                  television network services experience;
         *        a recently completed  multi-million dollar, 57,000 square
                  foot, digital playback, storage and transmission facility
                  and satellite downlink dish field, located in Northvale, New
                  Jersey; and
         *        in-house transponder capacity, fiber and Internet
                  connections.

         On the content side, Directrix's prospective content owner clients
include:

         *        Hollywood Studios
         *        Television Producers
         *        Niche Market Producers
         *        Cable Networks Developers
         *        Established Cable Networks
         *        Copyright Holders
         *        Advertising Agencies
         *        Infomercial Producers
         *        Government Agencies
         *        Educational Institutions
         *        Universities
         *        Corporate Information/Training Groups
         *        Medical Facilities

         On  the  distribution  side,  Directrix's  prospective  VOD
distributor clients include:

         *        Cable Operators
         *        Satellite Distributors
         *        Television Networks
         *        Local Broadcasters
         *        Advertising Insertion Networks
         *        Corporate Information/Training Groups
         *        Hotel/Motel Chains & Video Distribution Networks
         *        Internet Service Providers (ISP's)

DIRECTRIX SERVICES

         Through its  infrastructure  and  experience,  Directrix can take a new
cable network and provide all the  technical  services in order to deliver their
services to cable head-ends.  These services includes post-production,  creative
and facilities services,  network operations,  transponder  capacity,  dedicated
Internet  backbone   and engineering  services.  Once the customer's  content is
digitized (using any number of digital compression  technologies employed at the
digital  operations center including MPEG-2,  RealMedia,  Microsoft Media Player
and  Apple  QuickTime   4),  then   Directrix's  digital video  asset management
services can be employed to productively  manage this content and  distribute it
over other new  media  delivery  modalities  such  as  the  Internet,  broadband
Internet and video file servers.

         The following  sections describe the menu of services  Directrix offers
its customers.

         Playback   Services.   Directrix   provides   videotape   playback  and
origination services.  Prior to broadcast, program and interstitial material are
checked for quality  control and may be  pre-compiled  into final broadcast form
prior  to  on-air  playback.  Control  procedures  are  used  to  ensure  on-air
reliability.   A  variety  of movie,    show  formatting  and  time  compression
services are  available to prepare  programming  for  distribution.  Commercial,
promotional,  billboard,  warning, logo and other integration, as well as source
identification  encoding, is performed.  Directrix also provides program log and
traffic support to programmers,   affiliate  relations and station  coordination
to aid their  ordering and billing  services.  Directrix  accepts  daily program
schedules,  programs,  promotions  and  advertising,  and  delivers  24 hours of
seamless daily programming to home satellite subscribers.

         Directrix  uses  video  file  servers  controlled  by  state-of-the-art
automation systems enabling a single Master Control engineer to cost effectively
operate and  monitor  several  channels.  Playback  systems  are both  videotape
(analog)  and  video  file  server-based  (digital),   and  subtitling,   closed
captioning and commercial advertisement insertion are supported.

         Directrix  currently provides a full range of playback services for the
three  networks and a barker channel operated by EMI.  Directrix  also  provides
playback and uplink services for the two Spice networks  acquired by Playboy and
provides downlink and turnaround  (re-uplinking)  services for an additional two
Playboy networks.  Directrix  provides a full range of playback services for the
two networks operated by Califa Entertainment  Group, Inc.  ("Califa"),  Channel
Korea  and the  Cornerstone  Digital  Network.  Because  of the  scalability  of
Directrix's playback  facility,  Directrix can add new playback  customers  with
little incremental cost.

         Post   Production  and  Facilities   Services.   Directrix   integrates
traditional   post-production   services  with  the  needs  of  digital  content
distribution.  Directrix  offers  clients  a full  spectrum  of  post-production
services such as:

         *        Traditional tape editing and duplication;
         *        MPEG-2,  RealMedia, Media Player and QuickTime 4 encoding
                  and closed caption creation;
         *        "content processing"  specialists - converting  tapes to
                  computer files for  non-linear  editing;
         *        encoding video files for video file server playback - images
                  captured on tape for embellishment in print media;
         *        scanning print  images into  image banks to be incorporated
                  back onto tape;
         *        transferring animations to disk; and
         *        transferring MPEG  files via FTP (Internet File Transfer
                  Protocol) and via satellite to remote servers.

         Directrix  operates two large analog linear edit facilities and a third
digital editing bay for non-linear  editing,  all of which incorporate  software
and peripherals which allow for automated and semi-automated creation of feature
-length and short-form videos.  Directrix also maintains two graphic suites used
to produce  three-dimensional  graphics and animation  for print,  video and the
worldwide web and  maintains an announce booth.  Directrix also utilizes various
codecs  (technology  used to encode and decode  content) for the  conversion  of
video content among various  international  standards and the  incorporation  of
various data into the video signals.

         The  Directrix  Design  Group was  developed  specifically  to leverage
creative  services  and  resources   efficiently  across  the  converging  media
platforms of print, web, tape and video server.

         The Federal  Communications  Commission now requires closed  captioning
for most television  programming.  Directrix provides closed-captioning services
to its clients.

         Compression Services.  Directix  offers digital  conversion/compression
services  for its  customer's video content.  Directrix's cost effective digital
compression services benefit customers by:

         *        Offering   ten  to  fifteen   multi-channel  transmissions  on
                  a  single transponder,   significantly  reducing  per  channel
                  transponder costs;
         *        allowing cable stations, through digitized head-ends, to offer
                  more channels in the same amount  of  bandwidth  resulting  in
                  significantly decreased costs;
         *        eliminating old technology analog disintegration; and
         *        providing  instant  video  playback  and storage  capabilities
                  from the video server.

         Directrix utilizes primarily MPEG-2 encoders (the industry standard for
the  digital  encoding  of  programming),  which are  capable  of taking  source
material  from either  analog or digital tape and creating  digitized  files for
video file  servers.  At the same time,  Directrix  can encode such  material in
RealVideo,  Microsoft Media Player, QuickTime  4 and MPEG-4 formats (a codec for
encoding  Internet video streams which includes  interactivity)  for full-motion
video transmission via the Internet.

         Directrix  owns   Digicipher   II   digital  systems  and   VideoCipher
II analog systems.  Directrix also utilizes fully redundant  Scientific  Atlanta
PowerVu  encoder  systems.  The  PowerVu  systems  enable  digitally  compressed
video/audio  programming to be added to transponders  carrying analog television
signals.

         Digital Archiving and Tape Duplication  Services.  Nearly all Directrix
clients  still  produce  and master  their  content  on some form of tape.  As a
result,  over 3,000  cubic  feet of the  Operations  Facility  is  dedicated  to
high-density  tape  storage for storage and traffic of broadcast  master  tapes.
Directrix's high-density, fire-resistant tape storage facility has a capacity of
over  25,000  tapes.  Videotapes  are  bar-coded and tracked  using  Directrix's
distributed  database which can be customized to meet its customers'  needs. The
tape database is web-enabled allowing customers to log onto the database through
any web browser and track the disposition of their tapes.

         Unauthorized  duplication,  lost or stolen master tapes and the lack of
proper security cost the major Hollywood producers millions of dollars annually.
Directrix has created a secure digital environment for distribution of video and
filmed  entertainment  to file server  ready  head-ends  across  America and the
world.  Through  its secure  network of  encrypted  satellites  and  fiber-optic
distribution,  Directrix  delivers  not  only  digital  video  files,  but  also
state-of-the-art industry security, accountability and cost savings. Directrix's
secure work flow management offers its clients:

         *        A full audit of every movie purchased;
         *        conditional  customer  access to control and monitor who
                  receives  the video content;
         *        denial of access to the casual or professional  video pirate;
                  and
         *        increased revenues from VOD.

         Directrix  also  maintains  duplication  facilities for both analog and
digital tape. The duplication  facilities are equipped to digitize  materials in
digital-video-disc  format  and in  alternative  formats  such as  AVI,  MPEG-1,
MPEG-2, RealMedia,  Microsoft Media Player and Apple QuickTime  4.  In addition,
Directrix  currently  provides  one-to-one analog tape dubbing.  The analog tape
duplication  facilities can be expanded to accommodate  mass  simultaneous  tape
duplication in various tape formats, including Beta SP,  DigiBeta, VHS and SVHS.

         Prior to the move  of the Operations Facility to Northvale, New Jersey,
Directrix was certified by the Motion Pictures Association  of America  ("MPAA")
as a secure tape storage facility.  Directrix has applied for MPAA certification
for its new Operations Facility.

         Directrix  offers these  services in a package price or ordered on an a
la carte basis. It is expected,  based on its prior experience,  that a la carte
services will be an important source of revenue for Directrix from customers who
use Directrix to provide basic network operational services.

         Network Operations and Engineering.  Directrix offers video file server
and videotape playback and network origination services on a 24 hours a day by 7
days a week basis to television  networks  from its digital  operations  center.
Directrix  currently employs a 12-channel  SeaChange  MediaCluster  server and a
10-channel  Compaq  Alpha  Server.  Directrix  also  offers  editing and quality
control  services  for  customer  supplied  programming,   prior  to  broadcast.
Directrix  will provide  program logs and traffic  support to its  customers and
their  affiliates to interface with their ordering and billing  functions.  This
data can be transmitted in any medium and/or format specified by the customer or
its affiliate.

         Regionally  Deployed Video File Servers.  Using the digital  operations
center as a hub for the  distribution of digitized video content,  Directrix was
one of the early  users of  regionally  deployed  video file  servers to deliver
video programming through its participation in near-VOD initiatives.  Video file
servers are computers  which store and  distribute  compressed  digitized  video
programming.  Many cable  headends are investing in file servers that can handle
VOD and set-top boxes that can offer VOD to the home.

         Regionally  deployed  video file servers allow a distributor  to tailor
the  programming  distributed  to  the  local  demographic  audience  such  as a
metropolitan  area  or,  on  a  smaller  scale,  a  hotel  or  other  commercial
establishment,  and  provide  near-VOD  and VOD  which  cannot  be  effected  by
traditional  satellite  distribution.  Directrix  believes it can  leverage  the
experience  of its personnel  and  management to provide  services in connection
with the use of video file servers  including  digitization of content,  turnkey
refreshing of file servers (the ability to replace the video content of the file
server) and remote file server  management  (maintenance  of the  replacement of
video, scheduling of the delivery of content and distribution of content).

         Terrestrial   Connectivity  and  Uplink  Services.   Directrix  uplinks
networks  originated from its digital operations center to an adjacently located
Northvale,   New   Jersey   uplink   facility   owned  by   Atlantic   Satellite
Communications,  Inc.  ("Atlantic").  (Uplinking refers to the  transmission  of
television  programming  or  data  to  a  communications  satellite.)  Directrix
transmits  programming  and  data  signals  from  its  facility  to the Atlantic
facility  over fiber optic  lines. Transponder  customers may  arrange  to  have
their signal delivered directly to the Atlantic uplink facility.

         Directrix's   customers    may    also    connect    to    the    video
switching/distribution  hub operated by Waterfront  Communications,  an Atlantic
affiliate.  Connection to the Waterfront Communications  hub  would  facilitate,
for example, the movement of video files to and from other persons connected  to
the hub.

         Transponder  Services.  Loral SpaceCom  Communications,  Inc. ("Loral")
provides transponder services to Directrix  on one  non-pre-emptible  and  three
pre-emptible  transponders.  Directrix  is  able  to  add  up to  two  digitally
compressed  networks to each of its  transponders  that carry an analog  signal.
Adding  digitally  compressed  networks to a transponder is  accomplished  using
Scientific Atlanta's PowerVu digital compression system. Each of Directrix's two
PowerVu systems  includes a primary system capable of digitally  compressing two
channels and a back-up  system for one  channel.  Other  manufacturers,  such as
Motorola, also make equipment which enables the addition of digitally compressed
channels  to a  transponder  carrying  an analog  television  signal.  Directrix
continually evaluates new technology to expand the productive utilization of its
transponder capacity.

         If sufficient  demand for  digitally  compressed  transponder  services
exists,  Directrix  may use an  entire  transponder's  bandwidth  for  digitally
compressed transponder services. With today's technology,  Directrix can acquire
an encoder  (the device that  compresses  the  television  signals and outputs a
digital  data  stream  to  the  transponder)  capable  of  compressing  up to 12
television  channels.  There  may be  other  uses  for  Directrix's transponders
including  transmission of audio,  video or other data.  Directrix  monitors the
marketplace  for  transponder  services  with a view to putting its  transponder
capacity to its highest and best use.

         Internet  Hosting and Content  Streaming.  The Directrix  Internet data
center can  source  and route over  800,000  secure  Internet  transactions  per
second,   supporting  10,000  simultaneous  streams  of  web-directed   content.
Directrix can provide web authoring,  web-based database publishing,  electronic
commerce,  creation of graphics and animation  services.  Directrix  applies its
expertise, storage capabilities and bandwidth to Internet services.

         Directrix offers 24 hours a day by 7 days a week  Internet  hosting and
video streaming  services.  Akamai provides Directrix with dedicated  multimedia
Internet backbone  connectivity  deployable across 5,000 simultaneous 56 kilobit
streams. This connectivity  increases the reliability and quality of video files
streamed over the Internet.  A portion of this Internet  connectivity is used to
provide a  simultaneous  webcast of the EMI networks and related  programming on
demand over the Internet. Directrix provides web hosting services to General TV.

         Directrix  currently  serves as a principal  point-of-presence  on both
the Akamai and Globix  multimedia  data  networks and provides  downlinking  and
Internet  video  encoding  for  these   networks.   Additionally,   through  its
connectivity  with  Atlantic,  Directrix has access to multiple  national  fiber
networks including Vyvx, AT&T and Sprint.

         New television networks may begin network  distribution using streaming
technology over the Internet (a webcast) before migrating to satellite delivery.
Directrix offers one-stop shopping for these start-up networks.

EXISTING CUSTOMERS

         Directrix's principal current  customers include EMI, Playboy,  Califa,
Bloomberg   L.P.,   Channel   Korea,   Cornerstone   Media  Group,   Kino  Films
International,  Troma Films,  General TV, Akamai and Globix.  Many customers are
under multi-year agreements that expire on various dates.

         The agreements  with Playboy and Califa  currently  expire on March 15,
2001.  Directrix  is  currently  in  negotiations to  extend  the terms of these
agreements and is seeking to add additional networks and services.

SALES AND MARKETING

         Directrix has  positioned  itself as a one-stop  video service  company
that can create and distribute  television  networks and other video content via
any medium.  Directrix will rely on the business  contacts and experience of its
management to attract  customers and market Directrix's business.  Directrix has
recently augmented its sales staff, adding two industry veterans as senior sales
executives in May, 2000.

         By   participating   in  cable  industry  trade  shows  and  sponsoring
educational  forums  for the  industry,  Directrix  plans  to make  its  service
capabilities known to the marketplace. There can be no assurances that Directrix
will be successful in marketing some or all of these services.

GOVERNMENTAL REGULATION

         Directrix's business is not currently subject to material  governmental
regulation.  Some of  Directrix's customers  distribute  adult  sexually  themed
programming.  Federal and state governments, along with various advocacy groups,
consistently  propose and support legislation aimed at restricting the provision
of,  access to  and content of adult  entertainment.  Were any such  legislation
enacted,  it could adversely affect  Directrix's customers which could, in turn,
adversely affect Directrix.

SUBSEQUENT DEVELOPMENTS

         To  assist  Directrix  in its acheving its business objectives, Messrs.
Faherty, McDonald and  Kirby, Directrix's Chief Executive Officer, President and
Chief Operating  Officer,  respectively,  voluntarily  agreed to a reduction  in
their annual salaries of $200,000 for Mr. Faherty, $24,750 for Mr. McDonald  and
$22,584 for Mr. Kirby.  The salary  reductions  took effect on June 24, 2000 and
will  continue  for  the  remainder  of  the  year  ended  March  31,  2001.  In
consideration  of  Mr.  Faherty's   agreement  to  the  salary  reduction,   the
Compensation  Committee of the Board of Directors  re-priced the 50,000  options
previously  granted to Mr. Faherty to an exercise price of $4.00 per share,  the
closing  price of  Directrix  on June 22, 2000 and  provided  for the  immediate
vesting of the options. The Compensation  Committee also granted each of Messrs.
McDonald and Kirby 5,000 fully vested options   exercisable  at  $4.00 per share
in consideration of their agreement to the salary reduction.

         Management forecasts that Directrix will require additional funding  to
provide  for  the  deficiency  in  working  capital  until  Directrix  generates
operating cash flow (see, "Management's Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operation,   LIQUIDITY  AND   CAPITAL  RESOURCES").
Management  believes  that  it  has  access  to  potential  sources  of  capital
sufficient  enough  to  meet  Directrix's needs over the next twelve months. The
potential sources of capital include, but are not limited to: (i) an increase in
its  line  of  credit  (see  "Certain  Relationships  and Related Transactions,"
below), (ii) the sale of its option to  acquire  EMI  and/or  (iii)  a  possible
private  placement  of  equity  securities  with  individual,  institutional and
strategic investors.  There can be no assurance, however, that  management  will
be successful in its efforts to obtain sufficient capital.

EMPLOYEES

         At March 31, 2000,  Directrix  had a total of 35  employees.  Directrix
believes that its relationship with its employees is satisfactory.

Item 2.  Properties.

         Executive  and Sales  Offices.  Directrix  leases  approximately  3,000
square feet of office space at 236 West 26th Street,  New York, New York for its
executive and sales  offices  pursuant to a lease  commencing  April 1, 1999 and
expiring on January 31, 2002.  The lease  provides for monthly rent ranging from
$5,200 per month to $5,624 per month over the life of the lease.

         Operations Facility.   The Operations Facility is  located  in a 22,000
square  foot  building  located  at 230  Pegasus  Avenue,  Northvale, New Jersey
and includes a 25,000 square foot downlink and satellite  dish field.  Directrix
executed a four-year sublease  with the building's existing tenant which expires
April, 2003 and a six-year lease with the building owner  which  expires  April,
2009.  The monthly  rent ranges  from  $14,427 to $16,230  over  the life of the
leases.  Directrix was granted eight months free rent  following  the  inception
of the sublease.

         The  Operations  Facility was  formerly  located on the 10th floor  and
a  portion  of the roof at  Spice's  former  offices  located  at 536  Broadway,
New York, New York. As provided for in the Merger  Agreement  between  Spice and
Playboy,  a March 8, 1999 letter  agreement  among Playboy,  Spice and Directrix
and  an  agreement  among  Spice,   Playboy,  Directrix  and the landlord of 536
Broadway ("Landlord"), the 10th floor lease (including  use  of a portion of the
roof) was assigned  to Directrix  and the 6th and 7th floor leases were assigned
to Playboy. In addition,  Playboy agreed to provide Directrix with rent-free use
of the 7th floor  until June 30, 1999 and agreed to pay Directrix's rent for the
10th  floor  and roof  until  August  31,  1999.  Under the  agreement  with the
Landlord,  the 10th floor rent was  increased by $3,000 per month to $13,500 per
month  commencing  March 16,  1999 and the  landlord  was  granted the option of
terminating  the 10th floor lease on 30 days prior written notice but not before
August 31, 1999.  Directrix assumed  responsibility for restoring the 10th floor
and roof to its former condition.

         On September 1, 1999,  Directrix  relocated the Operations  Facility to
its current  location in  Northvale,  New Jersey  and completed  the  Operations
Facility in the first  calendar  quarter of 2000. On March 3, 2000, the Landlord
located a tenant  for the 10th floor at 536  Broadway  and  terminated  the 10th
floor lease with Directrix.

         Directrix  believes  its leased  premises  are  adequate to conduct its
business operations.

Item 3.  Legal Proceedings.

         Directrix is not currently involved in any legal proceedings.

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

         There were no matters  submitted to a vote of security  holders  during
the fourth quarter of the year ended March 31, 2000.

                                     PART II

Item 5.  Market for Registrants' Common Equity and Related  Stockholder Matters.

         Directrix's  Common Stock began trading on the OTC Electronic  Bulletin
Board ("OTC") on March 15, 1999 under the symbol  "DRCX".  (for  the period from
March 16, 1999 to March 31, 1999, Directrix Common Stock traded under the symbol
("DRCXV".)

         The  following  table sets forth,  for the periods  indicated,  the per
share range of high and low sales prices for Directrix' Common Stock as reported
on the OTC.

                                                     High              Low
                                                    ------            ------
Transition Period Ended March 31, 1999
--------------------------------------

         Fourth Quarter .........................   $ 4.13            $3.88

Year Ended March 31, 2000
-------------------------

         First Quarter ..........................   $ 8.75            $3.88
         Second Quarter .........................   $ 7.13            $4.75
         Third Quarter ..........................   $ 4.75            $3.69
         Fourth Quarter .........................   $15.00            $4.00

         Directrix currently has approximately 1,351 beneficial shareholders.

         Directrix has never paid cash dividends on  its Common  Stock,  intends
to retain  future  earnings to support the growth of its  business  and does not
anticipate  paying any cash  dividends  in the near  future.  The payment of any
future cash dividend on common stock will  be determined by Directrix's Board of
Directors in light of  conditions then existing, including Directrix's earnings,
financial condition, capital requirements and other factors.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operation.

OVERVIEW

         Business.  Directrix,  a Delaware corporation, is a
full service provider of digital video asset management  services,  primarily to
the entertainment  industry.  Directrix  provides all of the technical  services
required to create,  support  and deliver  digital  video  programming  and data
services from its advanced digital network  facility.  Directrix offers a number
of services  including  digital video playback,  downlink and uplink,  satellite
space  segments,  digital  video  archiving  and  trafficking,   video  Internet
streaming,  digital  ad  insertion  and  digital  archiving and distribution for
VOD platforms.

         Formation  and Asset  Transfer. Spice formed Directrix in contemplation
of the merger  ("Merger") of Spice with a wholly-owned subsidiary of Playboy and
spun  off  Directrix  to  the  former Spice stockholders. On March 15, 1999 as a
condition to the closing  ("Closing") of the Merger, Spice and Directrix entered
into a  Transfer and Redemption Agreement (the "Transfer Agreement") and certain
related agreements.

         Pursuant to the terms of the Transfer  Agreement,  immediately prior to
the Merger, Spice contributed certain assets to Directrix,  including (a) all of
the  equipment and  facilities  relating to the Operations Facility, (b) the EMI
Option, (c) certain rights to Spice's library of adult films, (d)  approximately
$0.8 million in cash, (e) 173,784 shares of Playboy stock with a market value of
approximately $4.5  million, and  (f)  accounts  receivable  and  other  current
assets,    totaling   approximately  $1.2  million.   Directrix  assumed certain
liabilities (the "Assumed Liabilities")  including (i)  the liabilities relating
to EMI, (ii)  the liabilities relating to the Operations  Facility arising after
March 15, 1999, and (iii) those liabilities and obligations arising out  of  the
assets being transferred  to Directrix. Under the Transfer  Agreement, Directrix
indemnified Spice for the Assumed Liabilities.

RESULTS OF OPERATIONS

         Year  Ended  March 31,  2000.  The  financial  statements  for the year
ended March 31, 2000,  reflect the results of  operations,  financial  position,
changes  in  stockholders'  equity  and cash  flows of  Directrix  as a separate
entity.

         Directrix  became a stand-alone entity on March 16, 1999  following the
merger of Spice with Playboy.  In May, 1999, the Board of Directors of Directrix
approved a change in  Directrix's fiscal year to March 31 from  December 31. The
three-month  transition  period  from  January  1, 1999 to March  31,  1999 that
preceded  the  start  of the  new  fiscal  year was  presented  in  Form  10-QSB
Transition  Report filed with the  Securities and  Exchange Commission in
May, 1999.

         Year Ended December 31, 1998. Prior to the  March  15,   1999  Closing,
Directrix  was  a  wholly-owned  subsidiary  of  Spice and  consequently  had no
operating history as a stand-alone entity. Accordingly, the financial statements
of Directrix  prior to Closing were carved out from the financial statements  of
Spice using the historical  results of operations  and  historical  basis of the
assets and liabilities of such business.

         Directrix's revenues  prior to Closing were  generated principally from
services provided to two customers,  EMI and internally to Spice. These revenues
were  comprised  of  revenues  from  network  operations,   post-production  and
technical  services.  For  services  provided to EMI and  unrelated  third party
customers, revenues were recorded based on contractual amounts or cash receipts.
For  services  provided  to  Spice,  revenues  were  recorded  based on the cost
associated  with an  applicable  service plus an  appropriate  markup based on a
reasonable  assessment of a market-based  charge.  Management  believes that the
methods used to record revenues were reasonable.

         Transition Period Ended March 31,  1999.   The  financial statements of
Directrix  include the results of  operations,  financial  position,  changes in
stockholders'  equity and cash flows of the business  that were  contributed  to
Directrix by Spice on March 15, 1999.  Accordingly,  the financial statements of
Directrix  prior  to   Closing  have  been  carved   out  from   the   financial
statements of Spice using the  historical  results of operations  and historical
basis of the assets and liabilities of such business.

         The  financial  information  included  herein   for   the   year  ended
December  31,  1998 and the  transition  period  ended  March  31,  1999 may not
necessarily reflect the results of operations,  financial  position,  changes in
stockholders'  equity  and cash  flows of  Directrix  in the future or what they
would have been had  Directrix  been a separate,  stand-alone  entity during the
periods presented.

YEAR ENDED MARCH 31, 2000 COMPARED TO DECEMBER 31, 1998

         Net Loss.  Directrix  reported a net loss of $6.1  million for the year
ended  March 31,  2000 as  compared  to a net loss of $4.2  million for the year
ended December 31, 1998. The increase in net loss was primarily  attributable to
an increase in selling, general and administrative expenses of $1.7  million and
a  decrease  in revenue  of  $0.8  million,  offset by a gain on the disposal of
Playboy stock of approximately $0.4 million.  The increase in  selling,  general
and administrative expenses is primarily attributable to an increase in bad debt
expense  relating to EMI of $1.0 million for the year ended March 31, 2000. Also
contributing  to the net loss  for the  year  ended  December  31,  1998 was the
write-down of leasehold improvements and accrued rent associated with the former
operations facility of $0.6 million.

         Revenues. Directrix reported total revenue of $8.8 million for the year
ended March 31, 2000 as compared to total  revenue of $9.6  million for the year
ended December 31, 1998. The decline in total revenue was primarily attributable
to a decline  in  revenue  from  networks  owned by  Playboy  and Califa of $3.9
million offset by increases in revenue associated with EMI of $3.0 million.  For
the year ended March 31, 2000, approximately $6.7  million of  revenues recorded
by Directrix were attributable to EMI.

         For the  period  from April 1, 1999 to  December  31,  1999,  Directrix
recorded  revenues from EMI based on  contractual  amounts.  Prior to that time,
Directrix had been recording  revenues from EMI based on cash  receipts.  During
the  fourth  quarter  ended  March  31,   2000,   due  to  renewed   uncertainty
surrounding  EMI's ability to pay for all services  provided,  Directrix resumed
recording revenues from EMI based on cash receipts. For the year ended March 31,
2000,  Directrix  recorded bad debt expense associated with EMI of approximately
$1.0 million.

         The  amount  of accounts receivable due from EMI at March 31,  2000 was
approximately $0.8 million,  which equaled the exercise price of the EMI Option.
On September 30, 1999,  Directrix and EMI reached an agreement whereby Directrix
acquired all broadcast and Internet worldwide rights to EMI's library of movies.
In consideration for these rights,  Directrix reduced  EMI's accounts receivable
balance  by  $735,000,  the fair  market  value of  the acquired  rights  on the
agreement  date.

         Salaries,  Wages and Benefits.  Directrix reported salaries,  wages and
benefits  of $3.0  million for the year ended March 31, 2000 as compared to $2.7
million for the year ended  December 31, 1998.  The increase in salaries,  wages
and benefits was attributable to the fact that salaries,  wages and benefits for
the year ended December 31, 1998 were allocated among Spice subsidiaries whereas
for the year ended March 31, 2000,  Directrix was a  stand-alone  company and no
allocation was appropriate.

         Library  Amortization.  Directrix reported library amortization for the
year ended  March 31, 2000 of $0.4  million as compared to $0.3  million for the
year  ended  December  31,  1998.  The  increase  is associated  with additional
rights acquired from EMI.

         Satellite  Cost.  Directrix  reported  satellite,  playback  and uplink
expenses for the year ended March 31, 2000 of approximately $6.5 million,  which
was  substantially the same for the year ended December 31, 1998. The assignment
of one  transponder  to Playboy at Closing was offset by Directrix's addition of
another transponder.

         Selling,  General  and  Administrative  Expenses.   Directrix  reported
selling,  general and administrative expenses of $3.9 million for the year ended
March 31, 2000 as compared to $2.2 million for the year ended December 31, 1998.
The  increase  was  primarily attributable to an increase of $1.0 million in bad
debt expense associated with the  accounts receivable  balance due  from EMI.  A
portion  of  the  selling,  general  and  administrative  expenses in  1998 were
allocated amoung Spice subsidaries.

         Depreciation of Fixed Assets.  Directrix reported depreciation of fixed
assets of $1.3 million for the year ended March 31, 2000 which was comparable to
depreciation expense for the year ended December 31, 1998.

         Interest Expense.  Directrix  reported interest expense of $0.2 million
for the year ended March 31, 2000, which was substantially the same for the year
ended December 31, 1998.

RELIANCE ON A LIMITED NUMBER OF CUSTOMERS

         For the year ended March 31, 2000, a significant portion of Directrix's
revenue was generated by a limited  number of  customers.  While the loss of any
of  these  customers  or  a  substantial  reduction  in  orders  by any of these
customers could have a material adverse effect on Directrix's operating results,
management believes that since the relocation and  buildout  of  the  Operations
Facility at Northvale is substantially complete, Directrix  now has the capacity
to increase revenue by using its technological resources  to expand its customer
base and develop new business lines.

         Directrix's service agreements with Playboy and Califa currently expire
on March 15, 2001.  Directrix is  currently in  negotiations  to extend the term
of these agreements and is seeking to add additional networks and services.

LIQUIDITY AND CAPITAL RESOURCES

         Prior  to  the  Merger,  Spice  used a  centralized  approach  to  cash
management  and the  financing  of its  operations.  As a  result,  prior to the
Merger,  Spice funded all of the  activities  of  Directrix.  For the year ended
December 31, 1998 Spice provided funding of $3.9 million to Directrix.

         Directrix had a working capital deficiency of $1.1 million on March 31,
2000 as compared to positive  working capital of  approximately  $5.4 million on
March 31, 1999. The decline in working capital for the year ended March 31, 2000
was primarily  attributable  to purchases of property and  equipment  associated
with the  buildout of the Operations  Facility  at Northvale, New Jersey of $3.7
million and an operating  loss of  $6.3 million.  Directrix projects to spend an
additional $0.4 million  on  the  renovation  and  buildout  of  the  Operations
Facility at Northvale.

         Directrix  has a  revolving  line  of credit  of $3.5 million  ("Credit
Facility")  pursuant  to  the  terms  of a March  15,  1999  Security  and  Loan
Agreement,  as  amended  by the Amended and Restated Loan and Security Agreement
(as amended, the "Amended Loan  Agreement")  dated February 15, 2000.  Under the
terms of the Amended Loan Agreement, the Credit Facility was increased from $1.5
million to $3.5 million, the maturity date  of the Credit  Facility  was changed
from March 15, 2004 to March 15, 2002 and  the  terms of the Loan Agreement were
modified to provide that Directrix was not permitted to draw down on the  Credit
Facility after March 15, 2001. The providers of the Credit Facility include  the
Chairman of the Board and Chief Executive Officer,  the President and a Director
of Directrix,  as well as two unrelated parties (collectively,  the  "Lenders").
The  Credit  Facility  bears  interest at 11% per annum,  payable  monthly,  and
matures  on  March 15, 2002. In  consideration  of  their  agreeing  to  provide
the Credit  Facility,  Directrix granted the Lenders  an  aggregate  of  105,000
Common Stock  purchase  warrants,  exercisable  for 10 years at $0.01 per share.
The   aggregate  fair  market   value  of  the   warrants (determined  using the
Black-Scholes  pricing  model)  amounts  to  approximately  $0.7 million  and is
being amortized  over the term of the Credit Facility.  All of the warrants were
exercised as of March 31, 2000.

         As of March 31, 2000,  Directrix has drawn down $1.9  million  from the
Credit  Facility,  with $1.6 million unused and available  funds remaining under
the Credit Facility.

         During the year ended March 31, 2000, Directrix sold all 173,784 shares
of its Playboy  stock  (contributed  by Spice at Closing) for net cash  proceeds
aggregating  approximately  $4.8 million,  resulting in a gain of  approximately
$0.4 million.

         On September 1, 1999, Directrix relocated its Operations Facility to  a
new facility located in Northvale,  New Jersey. The new fully automated  network
origination center  is designed  to  be  a  24 hours a day by 7 days a week full
service  provider  of all the technical  and  creative  services   required   to
develop, support  and deliver network television, video, audio and data services
via satellite, fiber and Internet.

         As  previously    mentioned,  Directrix  commenced   operations   as  a
stand-alone  business  following its  spin-off  from Spice  on  March 16,  1999.
Directrix incurred net losses of $4.2 million and $1.7  million for  the  fiscal
year ended  December 31, 1998 and the  transition  period ended  March 31, 1999,
respectively, on the basis of the  presentation  described  above.  For the year
ended  March 31,  2000, Directrix incurred a net loss of $6.1 million.  At March
31,  2000, Directrix has a working capital deficiency  of  $1.1  million.  These
matters raise substantial doubt  about  Directrix's  ability  to  continue  as a
going  concern.  Directrix's  continued  existence  is  dependant  upon  several
factors, including it's ability to generate operating  cash flow  via  execution
of  its  long term  business plan, and  secure  additional financing  to provide
for the immediate deficiency in working capital.

         Management  believes    that  the  relocation  and    buildout  of  the
Operations Facility is critical to  the  realization  of  Directrix's  long-term
business  plan.    Management  also  believes  that   since  the buildout of the
Operations Facility is  substantially complete, Directrix now has  the  capacity
to increase revenue by using its  technological resources to expand its customer
base  and develop new business  lines  without  significantly  changing its cost
structure  and, as a result, generate operating cash flow.

         Management  forecasts that Directrix  will require  additional  funding
to  provide  for  the  deficiency  in working  capital until Directrix generates
operating cash flow. Management believes that it has access to potential sources
of capital sufficient enough to meet Directrix's  needs  over  the  next  twelve
months.  The potential  sources of capital include, but are not limited to:  (i)
an increase in its  line of  credit  (see  "Certain  Relationships  and  Related
Transactions,"  below), (ii) the sale of its option to acquire EMI and/or  (iii)
a possible private placement of equity securities with individual, institutional
and strategic  investors.  There can be no assurance, however,  that  management
will be  successful in its  efforts to obtain  sufficient capital,  execute  its
long-term  business  plan,  or  that  the   successful   implementation  of  the
business plan will improve operating results.

Item 7.  Financial Statements.

         See the Financial Statements at pages F-1 through F-17.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

         None.

                                    PART III

Item 9.  Directors; Executive Officers, Promoters and Control Persons;
         Compliance with Exchange Act Section 16(a).

         The executive officers and directors of Directrix are as follows:

Name                     Age         Position
----                     ---         --------

J. Roger Faherty         61         Chairman of the Board of Directors and
                                     Chief Executive Officer

Donald J. McDonald, Jr.  48         President, Director, Treasurer and Chief
                                     Financial Officer

Richard J. Kirby         39         Chief Operating Officer, Executive Vice
                                     President and Secretary

Richard M. Cohen         49         Director

Rudy R. Miller           53         Director

Leland H. Nolan          53         Director


         J. ROGER FAHERTY has  been Chairman  of the  Board  and Chief Executive
Officer of Directrix since its incorporation.  From  December, 1991 to March 15,
1999, Mr. Faherty was  the Chairman of  the Board  and a  director of  Spice. In
1991,  he  was  elected  as the  Chief  Executive  Officer  of  Spice and became
President of Spice in 1996.

         DONALD J. MCDONALD, JR. has been President and a director of  Directrix
since its incorporation. Mr. McDonald assumed the additional responsibilities of
Chief  Financial  Officer and Treasurer of Directrix on September 30, 1999.  Mr.
McDonald  joined Spice in 1995 and from January, 1997 until March 15, 1999,  Mr.
McDonald  was  the  president  of  Spice  Direct,  Inc.,  a  wholly-owned  Spice
subsidiary  principally  engaged in  marketing  Spice's  products  and  services
directly to consumers.  From 1990 to 1995, Mr.  McDonald was President of Summit
Corporate  Group,  a venture  capital fund involved in the video  production and
television programming industries.

         RICHARD J. KIRBY  has been Chief Operating   Officer,   Executive  Vice
President and Secretary of Directrix since its  incorporation.  Mr. Kirby was an
executive officer  of Spice  since 1988 and most  recently  and until  March 15,
1999  was  Senior  Vice  President,  Network  Operations   and Chief  Technology
Officer of Spice.

         RICHARD M. COHEN has been a director of Directrix since its  incorpora-
tion.  Since 1996, he  has been President  of Richard M. Cohen Consultants, Inc.
From 1993 through  1995,  Mr. Cohen was   President of General  Media,  Inc., an
adult  media  company.  From  1988  through  1993,  Mr.  Cohen was  Director of
Investment Banking at Furman Selz, Inc.

         RUDY R. MILLER has been a director of  Directrix  since its  incorpora-
tion. He has served as Chairman, President and Chief Executive Officer of Miller
Management Corp., a financial  consulting firm, since 1972 and of Miller Capital
Corp., a venture capital,  financial services and investor relations firm, since
1993. From July, 1996 until March 15, 1999 Mr. Miller was a director of Spice.

         LELAND H. NOLAN has been a director of Directrix  since its  incorpora-
tion.  From 1988 to March 15, 1999 Mr.  Nolan was a director of Spice. From 1988
until  December 31, 1995, he  held various  executive positions with Spice, most
recently  as Vice  Chairman,  International  Initiatives. From 1996 to 1998, Mr.
Nolan was a consultant to Infoglobal,  S.A., a  telecommunications,  engineering
and consulting firm based in Madrid, Spain. Mr. Nolan is currently  Chairman and
Chief Execcutive Officer  of  Metronet  S.A., a technology  and services company
providing  Internet  and  on-line  services  through television  to customers in
Spain, Portugal  and Latin America.

         Directrix's Board of Directors is divided into three classes. Mr. Cohen
serves in the class whose term expires in 1999;  Messrs.  Miller and Nolan serve
in the class whose term expires in 2000; and Messrs.  Faherty and McDonald serve
in the class whose term expires in 2001.  Upon the  expiration  of the term of a
class of directors, directors within that class may  be elected for a three-year
term at the  annual  meeting  of  stockholders  in the year in which  their term
expires. Directors will hold office until the expiration of their term and until
that director's successor has been duly elected and qualified. It is anticipated
that at the next annual  meeting of  stockholders, currently  scheduled  for the
third  quarter of 2000,  Mr.  Cohen will  stand for re-election  to the Board of
Directors of Directrix.

         Executive  officers of Directrix  are elected by the Board of Directors
on an annual  basis and serve  until  the next  annual  meeting  of the Board of
Directors and until their successors have been duly elected and qualified. There
are no family  relationships among any of the executive officers or directors of
Directrix.

CERTAIN PROCEEDINGS

         On October 14, 1998, the National  Adjudicatory Council of the National
Association  of  Securities  Dealers,  Inc.  (the "NASD")  (the  self-regulatory
organization  for  broker-dealers)  issued a  decision  (the  "Decision")  which
reversed  in part and  affirmed  in part a prior  decision  of the  NASD  Market
Surveillance Committee regarding Mr. Faherty's activities as a corporate finance
consultant  to a now  defunct  brokerage  firm,  Hibbard  Brown & Co.  Inc.  The
Decision  dismissed two of three remaining  causes of action against Mr. Faherty
and rejected  findings that he had violated  NASD Conduct  Rules 2110,  2120 and
2440,  as well as Section  10(b) of the Exchange Act and Rule 10b-5  promulgated
thereunder.  The  Decision  did,  however,  hold  that his  activities  with the
brokerage  firm  gave  rise  to  aider-and-abettor  liability  for  such  firm's
violation of Section 15(c) of the Exchange Act, which  prohibits the purchase or
sale of securities by brokers or dealers  involving  manipulative,  deceptive or
fraudulent  devices or  contrivances,  and Rule 15c1-2  promulgated  thereunder,
which defines such conduct.  The Decision affirmed the imposition on Mr. Faherty
of a censure and a bar from  association  with any member firm of the NASD,  but
reduced the fine assessed to $150,000. In November,  1998 Mr.  Faherty  appealed
the Decision to the Securities and  Exchange  Commission.  As a  result  of  the
appeal, which is still pending, enforcement of the sanctions has been stayed.

Item 10. Executive Compensation

COMPENSATION AND OPTION/SAR GRANTS DURING MOST RECENT FISCAL YEARS

         The  following  table sets forth  compensation  paid by  Directrix  for
services in all  capacities  to the Chief  Executive  Officer,  the former Chief
Financial  Officer  and  the  remaining  executive  officers  for the year ended
March 31, 2000.  Directrix did not pay executive  officers any  compensation nor
grant  any  executive  officer  any  options  or  SAR's  during the  year  ended
December 31, 1998 and prior to the Closing on March 15, 1999.  Directrix did not
grant any  executive  officer  any options or SAR's from March 16, 1999 to March
31, 1999.

<TABLE>
<CAPTION>

                                            Summary Compensation Table


                                                   Other
                                                   Annual     Restricted   Securities     All Other
                                                   Compen-      Stock      Underlying      Compen-
          Name and             3/31     Salary    sation(1)     Awards       Options      sation(2)
     Principal Position        Year       ($)       ($)          ($)           (#)           ($)
---------------------------- --------  --------- ----------- ------------ ------------- ------------
<S>                             <C>       <C>       <C>          <C>           <C>           <C>
J. Roger Faherty(4)             2000    400,716      -            -          50,000  (3)    9,945
  Chairman, Chief
  Executive Officer &
  President

Donald J. McDonald, Jr.(4)      2000    202,500      -            -          25,000  (3)    1,850
  President, Director,
  Treasurer & Chief
  Financial Officer

Richard J. Kirby(4)             2000    200,358      -            -          25,000  (3)      549
  Chief Operating Officer,
  Executive Vice President
  & Secretary

John R. Sharpe(5)               2000     73,787      -            -          25,000  (3)      212
  Vice President & Chief
  Financial Officer

</TABLE>

(1)      Refer to the "Other Annual Compensation/All Other  Compensation"  table
         on the following page for information on the components of Other Annual
         Compensation. Where no dollar amount appears, Other Annual Compensation
         for these executives is less than 10% of the executive's salary and
         bonus for the year.

(2)      Refer to the "Other Annual  Compensation/All Other Compensation"  table
         on  the  following page  for information on the components of All Other
         Compensation.

(3)      Refer  to  the  "Options/Grants in  Last  Fiscal Year" table below  for
         information concerning option grants for the year ended March 31, 2000.

(4)      To  assist  Directrix in achieving its  business  objectives,   Messrs.
         Faherty,  McDonald  and Kirby, Directrix's  Chief  Executive   Officer,
         President  and Chief  Operating  Officer,   respectively,   voluntarily
         agreed  to  a reduction  in their  annual  salaries of $200,000 for Mr.
         Faherty, $24,750 for Mr. McDonald and $22,584 for Mr. Kirby. The salary
         reductions  took  effect  on June 24,  2000 and will  continue  for the
         remainder  of the year ended March 31, 2001.  In  consideration  of Mr.
         Faherty's agreement to the salary reduction, the Compensation Committee
         of  the  Board of  Directors  re-priced the  50,000 options  previously
         granted to Mr. Faherty to an  exercise price  of $4.00  per share,  the
         closing price of Directrix's Common Stock on June 22, 2000 and provided
         for the immediate vesting of the options.  The  Compensation  Committee
         also granted  each of  Messrs. McDonald  and  Kirby  5,000 fully vested
         options   exercisable  at  $4.00  per share in  consideration of  their
         agreement to the salary reduction.

(5)      Mr. Sharpe resigned effective September 30, 1999.

<TABLE>
<CAPTION>

                                       Other Annual Compensation/All Other Compensation

                                                                                               All Other
                                                Other Annual Compensation                     Compersation
                                    ------------------------------------------------     ----------------------
                                      Automobile        Deferred
                                       Related          Compen-          Long-Term        Life Ins.
                                       Expenses         sation           Disability        Premium      401(k)
          Name               Year         ($)             ($)                ($)             ($)          ($)
-------------------------  -------  -------------      ----------       ------------     -----------   --------
<S>                          <C>         <C>               <C>              <C>              <C>          <C>
J. Roger Faherty             2000       14,460              -               4,274           9,945          -


Donald J. McDonald, Jr.      2000       12,000              -               1,277           1,850          -


Richard J. Kirby             2000       10,200              -               1,472             549          -


John R. Sharpe               2000        5,100              -                 162             212          -

</TABLE>

COMPENSATION OF DIRECTORS

         Directrix  pays its  non-employee  directors  $1,000 for each in-person
Board of Directors meeting, plus expenses and $250 for each telephone conference
call Board of Directors meeting.

EMPLOYMENT AGREEMENTS

         Effective as of March 15, 1999,  Directrix  entered into an  employment
agreement with Mr. Faherty providing for his employment as Chairman of the Board
and Chief Executive Officer of Directrix.  The agreement provides for a six-year
term;  in each year that the agreement is not  terminated,  the term is extended
for five years from that anniversary date. The agreement  provides for an annual
base  salary of  $385,875,  to be adjusted  annually by an amount  equal to five
percent (5%) of the prior year's base salary. Salary increases are cumulative so
that  the base  salary  for each  succeeding  year  includes  the  prior  year's
increase.  In addition and pursuant to the agreement,  Directrix  reimburses Mr.
Faherty for automobile costs.

         Effective  as of March 15,  1999,  Directrix  entered  into  employment
agreements  with each of Messrs.  McDonald,  Kirby and Sharpe  providing for the
employment  of Mr.  McDonald as President of  Directrix,  Mr. Kirby as Executive
Vice President of Directrix and Mr. Sharpe as Vice President and Chief Financial
Officer of Directrix.  The  employment  agreements  provide for a term ending on
December 31, 2001. The agreements provide for an annual base salary of $195,000,
$192,938 and $127,050 for Messrs. McDonald, Kirby and Sharpe,  respectively,  to
be adjusted annually by an amount equal to five percent (5%) of the prior year's
base salary.  Salary  increases are  cumulative so that the base salary for each
succeeding year includes the prior year's increase.  The agreements provide that
if employment is terminated by Directrix "without cause" or by the executive for
"good reason" (both as defined in the  agreement),  the executive is entitled to
receive an amount equal to base salary, payable in monthly installments over the
longer of (i) the  applicable  termination  date or (ii) twelve  months.  If the
executive dies or becomes disabled,  Directrix will continue to make base salary
payments to the  executive or his estate for twelve  months  following  death or
disability.  In addition,  the  agreements  provide that the  executive  will be
entitled  to  a  severance  payment  if  Directrix  terminates  the  executive's
employment within 18 months following a change in control of Directrix.

COMPENSATION PROGRAM FOR KEY EXECUTIVES

         Senior  officers  were  granted  five  percent  (5%) salary   increases
effective  March 31, 2000.   Directrix did not award cash bonuses for  the  year
ended March 31, 2000.

         During the  year  ended  March 31,  2000,  the  Compensation  Committee
approved and Directrix  granted options under the 1998 Stock Incentive Plan (the
"Stock Option Plan") to acquire 25,000 shares of Directrix  Common Stock each to
Messrs. Kirby,  McDonald and Sharpe,  exercisable at $3.94 per share, the market
price on the grant date. The Compensation  Committee also approved and Directrix
granted  options  under  the  Stock  Option  Plan to  acquire  50,000  shares of
Directrix  Common Stock to the Chief Executive Officer, exercisable at $6.44 per
share,  the market price on the grant date.

         To  accommodate  these  grants,  the  Board  of  Directors  approved an
amendment (the "Proposed  Amendment")  to the Stock Option Plan which  increases
the  available  pool  of options  from  200,000  options to  400,000 options and
increases the number of options that may be granted to  any one individual.  The
Proposed Amendment is subject  to  shareholder  approval  and  will be submitted
to  the Directrix shareholders at the forthcoming annual meeting.

         The options  granted to Mr. Sharpe were cancelled on September 30, 1999
when  Mr.  Sharpe  resigned  as Vice  President,  Chief  Financial  Officer  and
Treasurer of Directrix.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Directrix Compensation  Committee has  made recommendations relating to
executive  compensation to the Board of Directors.  The  Compensation  Committee
members  currently  are  Messrs.  Nolan and  Cohen,  non-employee  directors  of
Directrix.

BENEFIT PLANS

         401(k) Plan. Directrix has established a 401(k) retirement savings plan
(the "401(k)  Plan"),  in which all  qualified  employees,  including  executive
officers,  are  eligible  to  participate.  The 401(k) Plan  provides  that each
participant  may  contribute  up to 15% of his or her  pre-tax  salary  (up to a
statutorily prescribed annual limit) to the 401(k) Plan, although the percentage
elected by certain highly compensated  participants may be limited.  All amounts
contributed  to the 401(k) Plan by employee  participants  and earnings on these
contributions will be fully vested at all times. Directrix, at the discretion of
the Board of Directors,  may match employee  contributions.  For the  year ended
March 31,  2000,  Directrix  did not match employee contributions.  Mr. Faherty,
the 401(k) Plan  trustee,  has  retained  Morgan  Stanley  Dean Witter  Discover
to administer the 401(k) Plan.

1998 STOCK INCENTIVE PLAN

         On July 25, 1998, the Board of Directors adopted the Stock Option Plan.
The Stock Option Plan is designed to promote the  interests of Directrix and its
stockholders by providing Directrix's key employees with appropriate  incentives
and rewards to encourage them to continue their employment with Directrix and to
maximize their performance.  The following is a summary of the material features
of the Plan.

         General. The Plan provides for the issuance of a total of up to 200,000
authorized and unissued shares or treasury shares of Directrix  Common Stock, at
the  discretion  of  the  Compensation  Committee or another committee appointed
by the  Board of  Directors  to  administer  the Plan.  The  Proposed  Amendment
increases the pool of available options to 400,000 shares.

         The Plan specifically provides for the grant of (i) non-qualified stock
options,(ii) incentive stock options ("ISO's"), (iii) limited stock appreciation
rights,  (iv) tandem stock appreciation  rights, (v) dividend equivalent rights,
(vi) stand-alone stock  appreciation  rights,  (vii) shares of restricted stock,
(viii)  shares  of  phantom  stock,  (ix)  stock  bonuses  and (x) cash  bonuses
(collectively, "Incentive Awards"). The Plan also provides that the Compensation
Committee may grant other types of  stock-based  awards at the discretion of the
Compensation Committee.

         The exercise price per share of each ISO granted under the Plan must be
the fair market  value of a share of Common  Stock on the date on which such ISO
is  granted.  An ISO granted to any holder of stock  representing more than 110%
of   the   total   combined  voting  power  of all classes of stock of Directrix
is subject to the following additional  limitations:  (i) the exercise price per
share of the ISO must be at least  110% of the fair  market  value of a share of
Common  Stock at the time any such ISO is  granted  and (ii) the ISO  cannot  be
exercisable  after the  expiration  of five  years  after the  grant  date.  The
aggregate  fair  market  value of  shares of  Common  Stock  for which ISO's are
exercisable  (as  determined  on the grant  date) by a  participant  during  any
calendar   year  under  the  Plan,  or  any  other  plan  of  Directrix  or  its
subsidiaries, may not exceed $100,000.

         In general, Incentive Awards are not transferable other than by will or
the  laws of  descent  and  distribution  (except  to the  extent  an  agreement
evidencing an Incentive Award permits certain  transfers to certain members of a
participant's family or to certain trusts).

         Grants Under the Plan. Key employees,  including  officers of Directrix
and its  affiliates,  are eligible to receive  grants of Incentive  Awards.  The
Compensation   Committee  determines  which  key  employees  receive  grants  of
Incentive Awards,  the type of Incentive Awards granted and the number of shares
subject  to  each  Incentive  Award.  Subject  to the  terms  of the  Plan,  the
Compensation  Committee also determines the prices,  expiration  dates and other
material  features of Incentive Awards granted under the Plan. An individual may
be granted  Incentive Awards for no more than 20,000 shares during any one year.
The Proposed  Amendment  increases this annual  limitation to 50,000 shares.  No
Incentive  Award may be granted  under the Plan after July 25, 2008.  During the
year  ended March  31, 2000,  Directrix  granted  to key  executives  and  other
employees  204,394  options  to  acquire  shares  of  the  Common   Stock  of
Directrix, of which 100,000 options were granted to key executives.

         Administration. The Compensation Committee administers the Plan and has
the  authority to interpret  and construe any provision of the Plan and to adopt
such rules and regulations for  administering  the Plan as it deems necessary or
appropriate.  All decisions and determinations of the Compensation Committee are
final and binding on all parties.

         The  Compensation  Committee may, in its absolute  discretion,  without
amendment  to the Plan,  (i)  accelerate  the date on which any  option or stock
appreciation  right  granted  under the Plan  becomes  exercisable  or otherwise
adjust  any of the  terms of such  option  or  stock  appreciation  right,  (ii)
accelerate  the date on  which  any  Incentive  Award  vests,  (iii)  waive  any
condition  imposed  under the Plan with respect to any  Incentive  Award or (iv)
otherwise adjust any of the terms of any Incentive Award.

         The Board of Directors may, at any time, suspend,  discontinue,  revise
or amend the Plan. Directrix,  however, will obtain stockholder approval for any
amendment  (i) that  requires  stockholder  approval  under  Section  422 of the
Internal  Revenue Code of 1986, as amended (the "Code") (related to the grant of
ISO's),  or  (ii)  to   treat   some  or  all  of  the   Incentive   Awards   as
"performance-based  compensation"  within the meaning of Code Section 162(m). No
amendment or modification may, without the consent of a participant,  reduce the
participant's  rights under any  previously  granted and  outstanding  Incentive
Award  except to the extent  that the Board of  Directors  determines  that such
amendment is  necessary or  appropriate  to prevent such  Incentive  Awards from
constituting  "applicable  employee  remuneration"  within  the  meaning of Code
Section 162(m).

         Other Features of the Plan. Incentive Awards granted under the Plan and
shares  acquired  pursuant  thereto  are  subject  to a  number  of  rights  and
restrictions,  including provisions relating to a change in control of Directrix
and the termination of employment or service of the grantee.

1998 STOCK INCENTIVE PLAN FOR OUTSIDE DIRECTORS

         On November 6, 1998, the Board of Directors adopted the Directrix, Inc.
Stock Incentive Plan for Outside Directors (the "Directors Plan"). The Directors
Plan is designed to promote the interests of Directrix and its  stockholders  by
providing  Directrix's  non-employee  directors with appropriate  incentives and
rewards to encourage them to take a long-term outlook when formulating Directrix
policy and to encourage  such  individuals  to remain on the Board of Directors.
The following is a summary of the material features of the Directors Plan.

         General.  The Directors Plan provides for the issuance of a total of up
to 20,000  authorized  and unissued shares  or treasury  shares of Common Stock,
at  the   discretion   of   the   Compensation  Committee  or  another committee
appointed  by  the Board of Directors to  administer  the  Directors  Plan.  The
Directors  Plan  specifically  provides  for  the  grant  of non-qualified stock
options and limited  stock  appreciation  rights (together, "Directors Incentive
Awards").

         The Board of Directors  adopted,  subject to shareholder  approval,  an
amendment (the "Proposed Directors' Plan Amendment") which increases the pool of
available Directors Plan options to options to acquire 150,000 shares,  provides
for an initial grant of options to acquire  25,000  shares to each  non-employee
director and increases the automatic annual year-end grant of options to acquire
5,000 shares from the previous level of 1,250 shares.

         In general,  Directors Incentive Awards are not transferable other than
by will or the  laws of  descent  and  distribution  (except  to the  extent  an
agreement  evidencing a Directors  Incentive Award permits certain  transfers to
certain members of a participant's family or to certain trusts).

         Grants  Under  the  Directors  Plan.  Only  non-employee  directors are
eligible to receive grants of Directors  Incentive  Awards.  There are currently
three non-employee directors of Directrix. Prior to the adoption of the Proposed
Directors' Plan Amendment, Directors Incentive Awards under the Directors Plan
were  granted  automatically  on the last  trading  day of each  fiscal  year of
Directrix to each Director who is, on such date,  eligible to participate in the
Directors Plan. Prior to the adoption of the Proposed Directors' Plan Amendment,
the Directors Incentive Awards were in the form of non-qualified  stock  options
to purchase  1,250  shares  of  Common  Stock  and  may  include  limited  stock
appreciation rights  with  respect to  the same  number of shares.  The Proposed
Directors' Plan Amendment  increases  the  automatic  year-end  annual  grant to
options to  acquire  5,000  shares and provides  for an initial  grant of 25,000
options to each  non-employee director.

         Subject to the terms of the Directors Plan, the Compensation  Committee
determines  the  expiration  dates  and other  material  features  of  Directors
Incentive Awards granted under the Directors Plan. No Directors  Incentive Award
may be granted under the Directors Plan after November 6, 2003.

         Subject to the  adoption  of the  Proposed  Directors  Plan  Amendment,
during the year ended March 31, 2000,  25,000  options to acquire  shares of the
Common  Stock of  Directrix  were  granted to each of Messrs.  Nolan,  Cohen and
Miller.

         Administration.  The Compensation  Committee  administers the Directors
Plan and has the  authority  to  interpret  and  construe  any  provision of the
Directors Plan and to adopt such rules and  regulations  for  administering  the
Directors  Plan  as  it  deems  necessary  or  appropriate.  All  decisions  and
determinations  of the  Compensation  Committee  are  final and  binding  on all
parties.

         The  Compensation  Committee may, in its absolute  discretion,  without
amendment to the Directors  Plan, (i) accelerate the date on which any option or
stock appreciation right granted under the Directors Plan becomes exercisable or
otherwise  adjust any of the terms of such option or stock  appreciation  right,
(ii)  accelerate the date on which any Directors  Incentive  Award vests,  (iii)
waive any  condition  imposed  under the  Directors  Plan  with  respect  to any
Directors  Incentive  Award or (iv)  otherwise  adjust  any of the  terms of any
Directors Incentive Award.

         The Board of Directors may, at any time, suspend,  discontinue,  revise
or amend  the  Directors  Plan.  Directrix,  however,  will  obtain  stockholder
approval for any amendment that Rule 16b-3 Securities Act of 1934 (the "Exchange
Act") requires stockholder  approval.  No amendment or modification may, without
the  consent  of a  participant,  reduce  the  participant's  rights  under  any
previously  granted and  outstanding  Directors  Incentive  Award  except to the
extent that the Board of Directors  determines  that such amendment is necessary
or  appropriate  to  prevent  awards  from  constituting   "applicable  employee
remuneration" within the meaning of Code Section 162(m).

         Other Features of the Plan.  Directors  Incentive  Awards granted under
the Directors Plan and shares acquired  pursuant thereto are subject to a number
of rights and restrictions, including provisions relating to a change in control
of Directrix and the termination of service of a grantee.

         The following table sets forth stock options that Directrix granted  to
the named executive officers during the year ended March 31, 2000:

<TABLE>
<CAPTION>

                               Option/Grants in Last Fiscal Year

                               Number of
                               Shares of          Total
                                Common           Options
                                Stock           Granted to
                              Underlying        Employees       Exercise
                                Options         in Fiscal       or Base
                                Granted            Year          Price         Expiration
          NAME                    (#)              (%)           ($/Sh)           Date
-------------------------    -------------     ------------    ----------    -------------
<S>                               <C>              <C>            <C>             <C>
J. Roger Faherty               50,000   (1)        24.5           6.44          7/15/09
Donald J. McDonald, Jr.        25,000   (2)        12.2           3.94          4/21/09
Richard J. Kirby               25,000   (2)        12.2           3.94          4/21/09
John R. Sharpe                 25,000   (3)        12.2           3.94          4/21/09

</TABLE>

(1)      The April 21,  1999,  employee  grant did not  include  options for the
         Chief Executive Officer (the "CEO") because the Compensation  Committee
         had not yet completed its evaluation concerning the granting of options
         commensurate  with the CEO's  duties and  responsibilities.  Subject to
         shareholder  approval of the Stock Option Plan  Amendment,  on July 15,
         1999 the Compensation  Committee approved and Directrix granted options
         to  acquire  50,000  shares  of  Directrix  Common  Stock  to the  CEO,
         exercisable  at $6.44 per share,  the market  price on the grant  date.
         One-third  of the  options  will vest on  January  15,  2000.  The next
         one-third  will vest on January 15, 2001 and the final  one-third  will
         vest  on  July 15, 2001.   In consideration of a voluntary reduction in
         Mr.  Faherty annual salary from June 24,  2000 through the remainder of
         the year ended March 31, 2001, Directrix re-priced the  exercise  price
         of the foregoing options to $4.00 per share and modified the options to
         be fully vested.

(2)      These option grants are subject to shareholder approval of the Proposed
         Amendment.  One-third  of the options will vest on  October  21,  1999.
         The  next  one-third  will  vest on October  21,  2000  and  the  final
         one-third will vest on April 21, 2001.

(3)      The options were cancelled on  September  30,   1999,  when Mr.  Sharpe
         resigned as Vice President,   Chief  Financial Officer and Treasurer of
         Directrix.

<TABLE>
<CAPTION>

                              Aggregate Options Exercised in Last Fiscal Year
                                         and Year End Option Value

                                                                  Number of
                                                                  Securities          Value of
                                                                  Underlying         Unexercised
                                                                  Unexercised        In-the-Money
                                                                  Options at          Options at
                                                                    FY-End              FY-End
                                                                ---------------    -----------------
                              Shares Acquired       Value        Exercisable/         Exercisable/
                                on Exercise        Realized      Unexercisable      Unexercisable(1)
          Name                      (#)              ($)              (#)                 ($)
-------------------------    -----------------    ----------    ---------------    -----------------
<S>                                 <C>              <C>              <C>                  <C>
J. Roger Faherty                   None              None           16,667                80,208
                                                                    33,333               160,417
Donald J. McDonald, Jr.            None              None            8,333                60,938
                                                                    16,667               121,875
Richard J. Kirby                   None              None            8,333                60,938
                                                                    16,667               121,875
John R. Sharpe                     None              None               -                     -

</TABLE>

(1)      Based on the last trade price on March 31, 2000 of $11.25 quoted by the
         OTC Electronic Bulletin Board.


         Filings With Securities and Exchange  Commission.  Exchange Act Section
16(a) requires that officers,  directors and 10%  stockholders of Directrix file
reports of their ownership with the Securities and Exchange  Commission. Messrs.
McDonald,  Faherty,  Nolan, Cohen, Kirby and Miller were late with some of their
filings during the year ended March 31, 2000 due to complications  arising  from
the spin-off of Directrix as a stand-alone entity.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets forth as of July 14,  2000,  the number and
percentage of outstanding shares of Directrix Common Stock beneficially owned by
(i) each person who, to the knowledge of Directrix,  will own beneficially  more
than five percent (5%) of the outstanding  shares  of  Directrix  Common  Stock,
(ii)   each  director  and  executive  officer   of  Directrix  and (iii)    all
directors  and executive officers of Directrix as a group.

<TABLE>
<CAPTION>

                                          Shares Beneficially               Percentage of Shares
Name and address                               Owned (1)                       Outstanding (1)
-----------------                        ---------------------          ---------------------------
<S>                                               <C>                               <C>
J. Roger Faherty (2)                            423,575                            19.00%
236 W. 26th St., Suite 12W
New York, NY  10001

Donald J. McDonald, Jr.                          65,583                             2.99%
236 W. 26th St., Suite 12W
New York, NY  10001

Richard J. Kirby                                 45,458                             2.07%
236 W. 26th St., Suite 12W
New York, NY  10001

Richard M. Cohen                                 28,375                             1.29%
630 Fifth Avenue, Suite 601
New York, NY  10111

Rudy R. Miller                                   21,250                             0.97%
4909 East McDowell Road
Phoenix, AZ  85008

Leland H. Nolan                                 146,399                             6.68%
90 Prince Street
New York, NY  10012

Marlin Capital Corp. (3)                        126,000                             5.78%
11 S. LaSalle St., Suite 3310
Chicago, IL 60603

All directors and executive officers
as a group (6 persons)                          735,641                            31.85%

</TABLE>
-------------------------------

(1)      Assumes  exercise of  all  outstanding  Directrix options  and warrants
         exercisable within 60 days.

(2)      Mr. Faherty's  shares do not include  1,657 shares owned by his wife or
         1,350 shares  owned by his minor children. Mr. Faherty does not have or
         share voting or  investment power over  the shares owned by his wife or
         his minor children and disclaims beneficial ownership of such shares.

(3)      The  information  concerning  beneficial  ownership of Directrix Common
         Stock by Marlin Capital Corp. was obtained from Schedule 13D filed with
         the Commission by such stockholder. Pursuant  to  the Schedule 13D, the
         stockholder reported that Marlin Capital Corp.  owns 126,000  shares of
         Directrix Common Stock which includes 57,000 shares of Directrix Common
         Stock owned by Mark Egan.  Mr. Egan is an officer  and  shareholder  of
         Marlin Capital Corp.

Item 12. Certain Relationships and Related Transactions.

         On July 21,  1998,  J.  Roger  Faherty,  Leland H.  Nolan and Donald J.
McDonald,   Jr.  (the  "Original   Lenders") agreed  to provide Directrix with a
revolving line of  credit (the "Credit  Facility") of $1.5 million pursuant to a
March 15, 1999 Security and Loan Agreement.  Messrs.   Faherty  and McDonald are
officers and directors  of  Directrix.  Mr. Nolan is a non-employee  director of
Directrix.  The Credit Facility bears interest, payable monthly in arrears, at a
rate of 11% per annum and had  an original  maturity  date   of  March 15, 2001.
On November  1, 1999,  the Original  Lenders  agreed to extend the maturity date
of  the  Credit Facility to  March 15, 2004.  On February 16, 2000,  pursuant to
an Amended and Restated  Loan   and  Security  Agreement   (the  "Amended   Loan
Agreement"), two additional parties (the "New Lenders"), neither  of  which  are
employees or directors of  Directrix,  agreed  to  provide   Directrix  with  an
additional  $2.0 million   under  the  Credit  Facility.  Under the terms of the
Amended  Loan Agreement, the Credit Facility was increased from  $1.5 million to
$3.5 million,  the  maturity date of the Credit Facility was changed from  March
15, 2004 to March 15, 2002  and the  terms of the  Loan  Agreement were modified
to provide that Directrix was not permitted to draw down on the Credit  Facility
after March 15, 2001.  The Credit Facility is  secured  by  accounts receivable,
equipment,  intellectual  property, certain   intangibles  and the proceeds from
the sale of accounts receivable and equipment.

         In consideration of agreeing to provide the Credit Facility,  Directrix
granted  Messrs.  Faherty,  Nolan,  McDonald and the New Lenders an aggregate of
105,000 Common Stock purchase  warrants to purchase  Directrix Common Stock (the
"Lenders Warrants") of which 45,000 were issued to the officers and directors of
Directrix.  Each Lenders Warrant entitles the holder thereof to purchase, at any
time until the tenth  anniversary  of the Closing  Date,  one share of Directrix
Common Stock at an exercise  price of $.01 per common  share.  In addition,  the
Original and New Lenders have the right to (a) request Directrix to register the
Directrix  Common  Stock  underlying  the Lenders  Warrants  and (b) include the
Directrix Common Stock  underlying the Lenders Warrants in certain  registration
statements  filed  by Directrix.   At March 31, 2000, all of the Lender Warrants
have been exercised.

         Directrix  believes that the terms of the Credit  Facility that pertain
to Messrs.  Faherty,  Nolan and McDonald are no less  favorable  than those that
could be negotiated with an independent third party on an arm's length basis.

         Certain  payments made by Spice prior to Closing  resulted in a dispute
between Playboy and Directrix.  As a result, Playboy withheld approximately $0.5
million  of  severance  payments  payable  to  the   Chief  Executive Officer of
Directrix.  Pending resolution of the dispute,  Directrix  loaned  approximately
$0.6 million to the Chief  Executive  Officer.   The  loan  was  secured  by  an
assignment of the withheld  severance  payments.  In September 1999, Playboy and
Directrix settled the dispute, at which time Playboy  paid the  severance to the
Chief  Executive Officer, and the Chief Executive  Officer repaid   the loan  to
Directrix.

<PAGE>

ITEM 13. Exhibits, List and Reports of Form 8-K.

         (a)  Exhibits

Exhibit
No.            Description
--------       -----------
 2.1           Form of Transfer and Redemption Agreement between Directrix, Inc.
               ("Directrix") and Spice Entertainment Companies, Inc. ("Spice").
               Incorporated by reference to Exhibit 2.1 of the Registration
               Statement on Form SB-2, Registration No. 333-664485, effective
               December 1, 1998 (the "Form SB-2").

 3.1           Certificate of Incorporation of Directrix.  Incorporated by
               reference to Exhibit 3.1 of the Form SB-2.

 3.2           By-Laws of  Directrix.  Incorporated by reference to Exhibit 3.2
               of the Form SB-2.

 4.1           Form of certificate representing shares of Directrix Common
               Stock. Incorporated by reference to Exhibit 4.1 of the Form SB-2.

 4.2           Form of Common Stock Purchase Warrant issued to J. Roger Faherty,
               Leland H. Nolan and Donald J. McDonald, Jr. for 27,000, 12,000
               and 6,000 shares, respectively.  Incorporated by reference to
               Exhibit 4.2 of the Form 10-KSB for the year ended December 31,
               1998.

 4.3           Registration Rights Agreement between Directrix and J. Roger
               Faherty, Leland H. Nolan and Donald J. McDonald, Jr. dated as of
               March 15, 1999.  Incorporated by reference to Exhibit 4.3 of the
               Form 10-KSB for the year ended December 31, 1998.

 4.4           Form of Common Stock Purchase Warrant issued to Marlin Capital
               Corp. and New Horizons Investment Corp., N.V. for 15,000 and
               45,000 shares, respectively.  (*)

 4.5           Registration Rights Agreement between Directrix, Marlin Capital
               Corp. and New Horizons Investment Corp., N.V. dated as of
               February 16, 2000.  (*)

10.2           Form of Explicit Rights Agreement between Directrix and Spice.
               Incorporated by reference to Exhibit 10.2 of the Form SB-2.

10.3           Form of Owned Rights Agreement between Directrix and Spice.
               Incorporated by reference to Exhibit 10.3 of the Form SB-2.

10.4           Form of Non-Competition Agreement between Directrix and Spice.
               Incorporated by reference to Exhibit 10.4 of the Form SB-2.

10.5           Form of Satellite Services Agreement between Directrix and Califa
               Entertainment Group, Inc. ("Califa").  Incorporated by reference
               to Exhibit 10.5 of the Form SB-2.

10.6           Form of Non-Competition Agreement between Directrix and Califa.
               Incorporated by reference to Exhibit 10.6 of the Form SB-2.

10.7           Employment Agreement dated March 15, 1999 between Directrix and
               J. Roger Faherty.  Incorporated by reference to Exhibit 10.7 of
               the Form SB-2.

10.8           Employment Agreement dated March 15, 1999 between Directrix and
               Donald J. McDonald, Jr. Incorporated by reference to Exhibit 10.8
               of the Form SB-2.

10.9           Employment Agreement dated March 15, 1999 between Directrix and
               Richard J. Kirby.  Incorporated by reference to Exhibit 10.10 of
               the Form SB-2.

10.10          1998 Stock Incentive Plan of Directrix.  Incorporated by
               reference to Exhibit 10.11 of the Form SB-2.

10.11          1998 Stock Incentive Plan for Outside Directors of Directrix.
               Incorporated by reference to Exhibit 10.12 of the Form SB-2.

10.12          Commitment Letter Agreement dated July 20, 1998 among Directrix,
               J. Roger Faherty, Leland H. Nolan and Donald J. McDonald, Jr.
               Incorporated by reference to Exhibit 10.14 of the Form SB-2.

10.13          Loan and Security Agreement dated as of March 15, 1999 between
               Directrix and J. Roger Faherty, Leland H. Nolan and Donald J.
               McDonald, Jr. Incorporated by reference to Exhibit 10.14 of the
               Form 10-KSB for the year ended December 31, 1998.

10.14          Amended and Restated Loan and Security Agreement dated February
               16, 2000 between Directrix, J. Roger Faherty, Donald J. McDonald,
               Jr., Leland H. Nolan, Marlin Capital Corp. and New Horizons
               Investment Corp., N.V.  (*)

10.15          First Amendment to the 1998 Stock Incentive Plan of Directrix.(*)

10.16          First Amendment to the 1998 Stock Incentive Plan for Outside
               Directors of Directrix.  (*)

10.17          Letter Agreement dated June 22,2000 between Directrix and J.
               Roger Faherty.  (*)

10.18          Letter Agreement dated June 22,2000 between Directrix and Richard
               J. Kirby.  (*)

10.19          Letter Agreement dated June 22,2000 between Directrix and Donald
               J. McDonald, Jr.  (*)

27.00          Financial Data Schedule.  (*)

         (*)  Exhibit filed herein.

         (b)  Reports on Form 8-K.

         Directrix  did   not file any  reports  on Form 8-K for the  year ended
March 31, 2000.

<PAGE>

                                   SIGNATURES

         In accordance with Section 13 and 15(d) of the Securities  Exchange Act
of 1934,  Directrix,  Inc.  caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated:   July 20, 2000


DIRECTRIX, INC.

BY: /s/ J. Roger Faherty
   -------------------------
   J. Roger Faherty
   Chairman and Chief
   Executive Officer

In  accordance  with the Exchange  Act, this report has been signed below by the
following persons on behalf of Directrix,  Inc. and in the capacities and on the
dates indicated.

/s/ Donald J. McDonald, Jr.        President and Director    Date: July 20, 2000
----------------------------
Donald J. McDonald, Jr.

/s/ Rudy R. Miller                 Director                  Date: July 20, 2000
----------------------------
Rudy R. Miller

/s/ Richard M. Cohen               Director                  Date: July 20, 2000
----------------------------
Richard M. Cohen

/s/ Leland H. Nolan                Director                  Date: July 20, 2000
----------------------------
Leland H. Nolan


PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:

/s/ Donald J. McDonald, Jr.        Chief Financial Officer   Date: July 20, 2000
----------------------------       & Principal Accounting
Donald J. McDonald, Jr.            Officer


CC:  NASD

<PAGE>

Exhibits, List and Reports of Form 8-K.

Exhibit
No.            Description
--------       -----------
 2.1           Form of Transfer and Redemption Agreement between Directrix, Inc.
               ("Directrix") and Spice Entertainment Companies, Inc. ("Spice").
               Incorporated by reference to Exhibit 2.1 of the Registration
               Statement on Form SB-2, Registration No. 333-664485, effective
               December 1, 1998 (the "Form SB-2").

 3.1           Certificate of Incorporation of Directrix.  Incorporated by
               reference to Exhibit 3.1 of the Form SB-2.

 3.2           By-Laws of  Directrix.  Incorporated by reference to Exhibit 3.2
               of the Form SB-2.

 4.1           Form of certificate representing shares of Directrix Common
               Stock. Incorporated by reference to Exhibit 4.1 of the Form SB-2.

 4.2           Form of Common Stock Purchase Warrant issued to J. Roger Faherty,
               Leland H. Nolan and Donald J. McDonald, Jr. for 27,000, 12,000
               and 6,000 shares, respectively.  Incorporated by reference to
               Exhibit 4.2 of the Form 10-KSB for the year ended December 31,
               1998.

 4.3           Registration Rights Agreement between Directrix and J. Roger
               Faherty, Leland H. Nolan and Donald J. McDonald, Jr. dated as of
               March 15, 1999.  Incorporated by reference to Exhibit 4.3 of the
               Form 10-KSB for the year ended December 31, 1998.

 4.4           Form of Common Stock Purchase Warrant issued to Marlin Capital
               Corp. and New Horizons Investment Corp., N.V. for 15,000 and
               45,000 shares, respectively.  (*)

 4.5           Registration Rights Agreement between Directrix, Marlin Capital
               Corp. and New Horizons Investment Corp., N.V. dated as of
               February 16, 2000.  (*)

10.2           Form of Explicit Rights Agreement between Directrix and Spice.
               Incorporated by reference to Exhibit 10.2 of the Form SB-2.

10.3           Form of Owned Rights Agreement between Directrix and Spice.
               Incorporated by reference to Exhibit 10.3 of the Form SB-2.

10.4           Form of Non-Competition Agreement between Directrix and Spice.
               Incorporated by reference to Exhibit 10.4 of the Form SB-2.

10.5           Form of Satellite Services Agreement between Directrix and Califa
               Entertainment Group, Inc. ("Califa").  Incorporated by reference
               to Exhibit 10.5 of the Form SB-2.

10.6           Form of Non-Competition Agreement between Directrix and Califa.
               Incorporated by reference to Exhibit 10.6 of the Form SB-2.

10.7           Employment Agreement dated March 15, 1999 between Directrix and
               J. Roger Faherty.  Incorporated by reference to Exhibit 10.7 of
               the Form SB-2.

10.8           Employment Agreement dated March 15, 1999 between Directrix and
               Donald J. McDonald, Jr. Incorporated by reference to Exhibit 10.8
               of the Form SB-2.

10.9           Employment Agreement dated March 15, 1999 between Directrix and
               Richard J. Kirby.  Incorporated by reference to Exhibit 10.10 of
               the Form SB-2.

10.10          1998 Stock Incentive Plan of Directrix.  Incorporated by
               reference to Exhibit 10.11 of the Form SB-2.

10.11          1998 Stock Incentive Plan for Outside Directors of Directrix.
               Incorporated by reference to Exhibit 10.12 of the Form SB-2.

10.12          Commitment Letter Agreement dated July 20, 1998 among Directrix,
               J. Roger Faherty, Leland H. Nolan and Donald J. McDonald, Jr.
               Incorporated by reference to Exhibit 10.14 of the Form SB-2.

10.13          Loan and Security Agreement dated as of March 15, 1999 between
               Directrix and J. Roger Faherty, Leland H. Nolan and Donald J.
               McDonald, Jr. Incorporated by reference to Exhibit 10.14 of the
               Form 10-KSB for the year ended December 31, 1998.

10.14          Amended and Restated Loan and Security Agreement dated February
               16, 2000 between Directrix, J. Roger Faherty, Donald J. McDonald,
               Jr., Leland H. Nolan, Marlin Capital Corp. and New Horizons
               Investment Corp., N.V.  (*)

10.15          First Amendment to the 1998 Stock Incentive Plan of Directrix.(*)

10.16          First Amendment to the 1998 Stock Incentive Plan for Outside
               Directors of Directrix.  (*)

10.17          Letter Agreement dated June 22,2000 between Directrix and J.
               Roger Faherty.  (*)

10.18          Letter Agreement dated June 22,2000 between Directrix and Richard
               J. Kirby.  (*)

10.19          Letter Agreement dated June 22,2000 between Directrix and Donald
               J. McDonald, Jr.  (*)

27.00          Financial Data Schedule.  (*)

         (*)  Exhibit filed herein.

         (b)  Reports on Form 8-K.

         Directrix  did   not file any  reports  on Form 8-K for the  year ended
March 31, 2000.

<PAGE>

                                 DIRECTRIX, INC.
                              FINANCIAL STATEMENTS
                      For the year ended December 31, 1998,
                   transition period ended March 31, 1999 and
                          the year ended March 31, 2000


<PAGE>

                                 DIRECTRIX, INC.
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

<S>                                                                                                                       <C>
                                                                                                                         PAGE

Report of Independent Certified Public Accountants ...................................................................   F-2

Balance Sheet as of March 31, 2000 ...................................................................................   F-3

Statements  of  Operations  for the years ended March 31, 2000 and  December 31, 1998, and the transition period ended
March 31, 1999 .......................................................................................................   F-4

Statement of Stockholders' Equity for the years ended March 31, 2000 and December 31, 1998, and the transition period
ended March 31, 1999 .................................................................................................   F-5

Statements  of Cash Flows for the years ended March 31,  2000 and  December 31, 1998, and the transition period ended
March 31, 1999 .......................................................................................................   F-6

Notes to Financial Statements ........................................................................................   F-7 - F-17

                                      F-1
</TABLE>

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors

     Directrix, Inc.

We have audited the  accompanying  balance sheet of Directrix,  Inc. (a Delaware
corporation)  as of March 31, 2000,  and the related  statements of  operations,
stockholders'  equity  and cash  flows for the years  ended  March 31,  2000 and
December 31, 1998 and for the three months ended March 31, 1999. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Directrix, Inc. as of March 31,
2000 and the  results of its  operations  and its cash flows for the years ended
March 31, 2000 and  December  31, 1998 and for the three  months ended March 31,
1999, in conformity with accounting  principles generally accepted in the United
States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company incurred net losses of $6.1 million during the
year ended March 31, 2000 and, as of that date, has a working capital deficiency
of $1.1  million.  The  Company's  continuing  losses and  deficiency in working
capital  raise  substantial  doubt  about its  ability  to  continue  as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.

GRANT THORNTON LLP


New York, New York
June 28, 2000

                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                                 DIRECTRIX, INC.
                                  BALANCE SHEET
                                 MARCH 31, 2000


               ASSETS:
<S>                                                                                    <C>
Current assets:
     Cash and cash equivalents .................................................  $   324,000
     Accounts receivable .......................................................      825,000
     Prepaid expenses and other current assets .................................       87,000
                                                                                  ------------
                    Total current assets .......................................    1,236,000
Property and equipment, net ....................................................    5,141,000
Library of movies, net .........................................................    1,122,000
Deferred financing costs .......................................................      562,000
Other assets ...................................................................       93,000
                                                                                  ------------
                    Total assets ...............................................  $ 8,154,000
                                                                                  ============

               LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:
    Accounts payable ...........................................................  $ 1,867,000
    Customer deposits ..........................................................      110,000
    Accrued expenses and other current liabilities .............................      322,000
                                                                                  ------------
                    Total current liabilities ..................................    2,299,000

Transponder lease liability ....................................................      464,000
Other liabilities ..............................................................       96,000
Revolving line of credit .......................................................    1,913,000
                                                                                  ------------
                    Total liabilities ..........................................    4,772,000
                                                                                  ------------

Commitments and contingencies

Stockholders' equity
    Common stock, $.01 par value; authorized 25,000,000 shares;
      2,179,785 shares issued and outstanding  .................................       22,000
    Additional paid-in capital .................................................   20,833,000
    Accumulated deficit ........................................................  (17,473,000)
                                                                                  ------------
                    Total stockholders' equity .................................    3,382,000
                                                                                  ------------
                    Total liabilities and stockholders' equity .................  $ 8,154,000
                                                                                  ============


             The accompanying notes are an integral part of these financial statements.

</TABLE>
                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                                DIRECTRIX, INC.
                            STATEMENTS OF OPERATIONS


                                                                     YEAR                 THREE MONTHS                YEAR
                                                                     ENDED                    ENDED                   ENDED
                                                                   MARCH 31,                MARCH 31,              DECEMBER 31,
                                                             ----------------------------------------------------------------------
<S>                                                                  <C>                      <C>                       <C>
                                                                     2000                     1999                     1998
                                                                     ----                     ----                     ----

Revenues ................................................        $ 8,796,000             $  1,996,000              $ 9,581,000
                                                             -------------------     ---------------------     --------------------

Operating expenses:
    Salaries, wages and benefits ........................          2,954,000                  794,000                2,688,000
    Library amortization ................................            446,000                   81,000                  350,000
    Satellite costs .....................................          6,525,000                1,602,000                6,579,000
    Selling, general and administrative expenses ........          3,872,000                  919,000                2,199,000
    Depreciation ........................................          1,264,000                  270,000                1,174,000
    Write-down of operation facility ....................                 -                        -                   632,000
                                                             -------------------     ---------------------     --------------------
           Total operating expenses .....................         15,061,000                3,666,000               13,622,000
                                                             -------------------     ---------------------     --------------------

           Loss from operations .........................         (6,265,000)              (1,670,000)              (4,041,000)

Interest expense ........................................           (168,000)                 (24,000)                (139,000)
Gain on sale of marketable securities ...................            369,000
                                                             -------------------     ---------------------     --------------------

           Net loss .....................................        $(6,064,000)            $(1,694,000)              $(4,180,000)
                                                             ===================     =====================     ====================


Net loss per common share  (presented  on  pro forma
  basis for the fiscal year ended December 31, 1998):
      Basic and diluted .................................        $     (2.86)            $     (0.82)              $     (2.01)
                                                             ===================     =====================     ====================

Weighted average number of shares outstanding:

      Basic and diluted .................................          2,123,228               2,074,785                 2,074,785
                                                             ===================     =====================     ====================


                          The accompanying notes are an integral part of these financial statements.

</TABLE>
                                      F-4

<PAGE>

                                DIRECTRIX, INC.
                       STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                   Additional
                                                                       Common       Paid-in         Accumulated
                                                                       Stock        Capital           Deficit            Total
                                                                     ---------   --------------   ----------------   ---------------
<S>                                                                      <C>           <C>              <C>                <C>
Balance at January 1, 1998 .......................................    $    -      $  9,859,000     $  (5,535,000)     $ (4,324,000)

    Net transfers from Spice .....................................         -         3,906,000                -          3,906,000

    Net loss .....................................................         -                -         (4,180,000)       (4,180,000)

                                                                     ---------   ---------------  ----------------   ---------------
Balance at December 31, 1998 .....................................         -        13,765,000        (9,715,000)        4,050,000

    Warrants issued in connection with revolving line of credit ..         -           180,000                -            180,000

    Transfer and redemption adjustments ..........................      21,000       6,416,000                -          6,437,000

    Net loss .....................................................         -                -         (1,694,000)       (1,694,000)

                                                                     ---------   ---------------  ----------------   ---------------
Balance at March 31, 1999 ........................................      21,000      20,361,000       (11,409,000)        8,973,000

    Warrants issued in connection with credit facility ...........         -           472,000                -            472,000

    Warrants exercised in connection with credit facility ........       1,000              -                 -              1,000

    Net loss .....................................................         -                -         (6,064,000)       (6,064,000)

                                                                     ---------   ---------------  ----------------   ---------------
Balance at March 31, 2000 ........................................    $ 22,000    $ 20,833,000     $ (17,473,000)     $  3,382,000
                                                                     =========   ===============  ================   ===============


                           The accompanying notes are an integral part of these financial statements.

</TABLE>
                                      F-5
<PAGE>

                                DIRECTRIX, INC.
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>


                                                                                      YEAR          THREE MONTHS          YEAR
                                                                                      ENDED            ENDED              ENDED
                                                                                    MARCH 31,         MARCH 31,        DECEMBER 31,
                                                                                      2000              1999              1998
                                                                                ---------------    ---------------    --------------
<S>                                                                                   <C>                <C>               <C>

Cash flows from operating activities:
    Net loss ..............................................................      $ (6,064,000)      $ (1,694,000)      $ (4,180,000)
                                                                                ---------------    ---------------    --------------
Adjustments to reconcile net loss to net cash used in
operating activities:
    Depreciation of property and equipment .................................        1,264,000            270,000          2,071,000
    Amortization of library of movies ......................................          446,000             81,000            350,000
    Amortization of deferred financing costs ...............................           83,000              7,000                 -
    Gain on sale of marketable securities ..................................         (369,000)                -                  -
    Bad debt expense .......................................................          971,000                 -                  -
    Changes in assets and liabilities:
         (Increase) decrease  in accounts receivable .......................       (1,811,000)            35,000             17,000
         Decrease (increase) in prepaid expenses and other current assets ..          166,000            397,000           (577,000)
         Increase in other assets ..........................................          (27,000)           (15,000)                -
         Increase (decrease) in accounts payable and accrued expenses ......        1,294,000            957,000           (156,000)
         Increase (decrease) in customer deposits ..........................          110,000                 -            (109,000)
         Increase in other liabilities .....................................           96,000                 -                  -
                                                                                ---------------    ---------------    --------------
                   Total adjustments .......................................        2,223,000          1,732,000          1,487,000
                                                                                ---------------    ---------------    --------------
                   Net cash (used in) provided by operating activities .....       (3,841,000)            38,000         (2,693,000)
                                                                                ---------------    ---------------    --------------
Cash flows from investing activities:
    Proceeds from sale of Playboy Stock ....................................        4,844,000                 -                  -
    Purchase of property and equipment .....................................       (3,736,000)          (210,000)          (476,000)
    Purchase of rights to libraries of movies ..............................               -             (75,000)          (380,000)
                                                                                ---------------    ---------------    --------------
                   Net cash provided by (used in) investing activities .....        1,108,000           (285,000)          (856,000)
                                                                                ---------------    ---------------    --------------
Cash flows from financing activities:
    Payment of capital lease obligations ...................................         (307,000)          (265,000)          (466,000)
    Borrowings under revolving line of credit ..............................        1,913,000                 -                  -
    Proceeds from issuance of warrants .....................................            1,000                 -                  -
    Net transfers from Spice ...............................................               -           1,962,000          3,906,000
                                                                                ---------------    ---------------    --------------
                   Net cash provided by financing activities ...............        1,607,000          1,697,000          3,440,000
                                                                                --------------     ---------------    --------------
                   Net (decrease) increase in cash and cash equivalents ....       (1,126,000)         1,450,000                 -
Cash and cash equivalents, beginning of the period .........................        1,450,000                 -                  -
                                                                                ---------------    ---------------    --------------
                   Cash and cash equivalents, end of the period ............     $    324,000       $  1,450,000       $         -
                                                                                ===============    ===============    ==============


Supplemental disclosures of cash flow information:
         Cash paid during the period for:
                   Interest ................................................     $     69,000       $    16,000        $    119,000
                                                                                ===============    ===============    ==============

Supplemental schedule of non-cash investing and financing activities:
         Acquisition of movie rights for reducing EMI accounts receivable ..     $    735,000                -                   -
         Capital lease obligation ..........................................               -        $   190,000                  -
         Marketable securities contributed at spin-off .....................               -          4,475,000                  -
         Issuance of warrants in connection with the credit facility .......          472,000           180,000                  -


                          The accompanying notes are an integral part of these financial statements.

</TABLE>
                                      F-6
<PAGE>

                                 DIRECTRIX, INC.
                          NOTES TO FINANCIAL STATEMENTS


1.       BUSINESS AND BASIS OF PRESENTATION

         BUSINESS.  Directrix, Inc. ("Directrix"),  a Delaware corporation, is a
full service provider of digital video asset management  services,  primarily to
the entertainment  industry.  Directrix  provides all of the technical  services
required to create,  support  and deliver  digital  video  programming  and data
services from its advanced digital network  facility.  Directrix offers a number
of services  including  digital video playback,  downlink and uplink,  satellite
space  segments,  digital  video  archiving  and  trafficking,   video  Internet
streaming,  digital ad insertion and digital  archiving and distribution for VOD
(Video-on-Demand) platforms.

         Formation  and Asset  Transfer.  Spice  Entertainment  Companies,  Inc.
("Spice") formed  Directrix in  contemplation of the merger  ("Merger") of Spice
with a wholly-owned subsidiary of Playboy Enterprises, Inc. ("Playboy") and spun
off Directrix to the former Spice stockholders. On March 15, 1999 as a condition
to the closing  ("Closing")  of the Merger,  Spice and Directrix  entered into a
Transfer and Redemption Agreement (the "Transfer Agreement") and certain related
agreements.

         Pursuant to the terms of the Transfer  Agreement,  immediately prior to
the Merger, Spice contributed certain assets to Directrix,  including (a) all of
the  equipment and  facilities  relating to Spice's  master  control and digital
playback  center (the  "Operations  Facility"),  (b) an option ("EMI Option") to
purchase the stock or assets of Emerald Media, Inc. ("EMI"),  (c) certain rights
to Spice's library of adult films ("Library  Rights"),  (d)  approximately  $0.8
million in cash,  (e)  173,784  shares of Playboy  stock with a market  value of
approximately  $4.5  million,  and (f)  accounts  receivable  and other  current
assets,   totaling   approximately  $1.2  million.   Directrix  assumed  certain
liabilities (the "Assumed  Liabilities")  including (i) the liabilities relating
to EMI, (ii) the liabilities  relating to the Operations  Facility arising after
March 15, 1999, and (iii) those  liabilities and obligations  arising out of the
assets being transferred to Directrix.  Under the Transfer Agreement,  Directrix
indemnified Spice for the Assumed Liabilities.

         On March 15, 1999,  in connection  with the Merger,  Spice  transferred
approximately  2,075,000 shares of Common Stock to the Spice stockholders on the
basis of one share of Common Stock in partial exchange for eight shares of Spice
Common Stock owned prior to the Merger.  Fractional shares were not issued;  any
fractional share of Common Stock was rounded up to the next whole share.

         BASIS OF PRESENTATION

         Year Ended March 31, 2000.  The financial statements for the year ended
March 31, 2000, reflect the results of operations,  financial position,  changes
in stockholders' equity and cash flows of Directrix as a separate entity.

         Directrix  became a  stand-alone entity on March 16, 1999 following the
merger of Spice with  Playboy.  In May, 1999, the Board of Directors  approved a
change in Directrix's  fiscal year to March 31 from December 31. The three-month
transition period from January 1, 1999 to March 31, 1999 that preceded the start
of the new fiscal year was presented in Form 10-QSB Transition Report filed with
the Securities and Exchange Commission in May, 1999.

         Year  Ended  December  31,  1998.  Prior to the March 15, 1999 Closing,
Directrix  was a wholly-owned   subsidiary  of  Spice  and  consequently  had no
operating history as a stand-alone entity. Accordingly, the financial statements
of Directrix  prior to Closing were carved out from the financial  statements of
Spice using the historical  results of operations  and  historical  basis of the
assets and

                                      F-7
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

liabilities of such business.  The following paragraphs describe the
methodology employed in carving out the Directrix financial statements.

         For  the  year  ended  December 31,  1998,   the  financial  statements
include the results of operations,  financial position, changes in stockholders'
equity and cash flows that were directly related to the Operations Facility, the
EMI Option and the Library Rights that were contributed to Directrix by Spice as
if Directrix were a separate entity prior to Closing.  Changes in  stockholders'
equity  include the net losses of Directrix and net transfers from Spice through
Closing.

         The financial statements include certain Spice  corporate  headquarters
assets and  liabilities  relating  to the  business  that Spice  transferred  to
Directrix,  including  certain Library  Rights.  The value of the Library Rights
that Spice  transferred to Directrix were allocated  based on the relative value
of the rights to  distribute  the  explicit  versions  of the adult films to the
domestic DTH and  Internet  market to the value of all rights to the adult films
held by Spice  prior  to the  contribution  of the  Library  Rights.  Management
believes this method of allocation is reasonable. The liabilities transferred to
Directrix included capital lease obligations and the amounts of debt and related
interest expense  associated with the liabilities  assumed by Directrix pursuant
to the Merger Agreement.

         The financial statements include  allocations  of revenues and expenses
relating  to the  business  that Spice  transferred  to  Directrix.  Directrix's
revenues prior to Closing were generated  principally from services  provided to
two  customers,  EMI and  internally to Spice.  These revenues were comprised of
revenues from network operations,  post-production  and technical services.  For
services  provided to EMI and  unrelated  third party  customers,  revenues were
recorded based on contractual amounts or cash receipts. For services provided to
Spice,  revenues were recorded based on the cost  associated  with an applicable
service  plus an  appropriate  markup  based  on a  reasonable  assessment  of a
market-based  charge.  Management  believes  that  the  methods  used to  record
revenues were reasonable.

         Prior  to  Closing,   general  corporate  overhead  related  to Spice's
corporate headquarters  and common support divisions were allocated to Directrix
based on the ratio of Directrix's direct labor costs  and  expenses  to  Spice's
direct labor costs and expenses.  Management believes that these allocations are
reasonable  and are not  materially  different  from  the costs  that  Directrix
would  have incurred for these services if Directrix were a stand-alone entity.

         Transition Period Ended March 31, 1999.  The  financial  statements  of
Directrix  include the results of  operations,  financial  position,  changes in
stockholders'  equity and cash flows of the business  that were  contributed  to
Directrix by Spice on March 15, 1999.  Accordingly,  the financial statements of
Directrix    prior  to   Closing  have  been  carved   out  from  the  financial
statements of Spice using the  historical  results of operations  and historical
basis of the assets  and  liabilities  of such  business.  Directrix's  activity
during its  initial  operating  period from March 16, 1999 to March 31, 1999 was
insignificant.

         The financial   information   included   herein  for  the   year  ended
December  31,  1998 and the  transition  period  ended  March  31,  1999 may not
necessarily reflect the results of operations,  financial  position,  changes in
stockholders'  equity  and cash  flows of  Directrix  in the future or what they
would have been had  Directrix  been a separate,  stand-alone  entity during the
periods presented.

                                      F-8
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

2.       LIQUIDITY

       Directrix  commenced  operations as a stand-alone  business following its
spin-off  from Spice on March 16,  1999.  Directrix  incurred net losses of $4.2
million and $1.7 million for the year ended December 31, 1998 and the transition
period ended March 31, 1999, respectively, on  the  basis  of  the  presentation
described  above. For the  year  ended  March 31, 2000, Directrix incurred a net
loss of $6.1 million.  At March 31,  2000,   Directrix  has  a  working  capital
deficiency  of  $1.1 million.  These  matters  raise  substantial  doubt   about
Directrix's   ability  to  continue  as a going concern.  Directrix's  continued
existence is dependent upon several factors, including  its  ability to generate
operating  cash  flow via execution of its long term business  plan,  and secure
additional financing to provide for the immediate deficiency in working capital.

       Directrix's  increase  in net loss for the year ended  March 31,  2000 is
primarily  attributable  to  increases  in bad debt  expense  relating to EMI of
approximately $1.0 million and a decrease in total revenue of approximately $0.8
million, offset by a gain on the disposal of Playboy stock of approximately $0.4
million.  The working  capital  deficiency  was  primarily  attributable  to the
relocation of, and investment in equipment for the Operations Facility.

       On September 1, 1999,  Directrix  relocated its Operations  Facility to a
new facility located in Northvale,  New Jersey.  The new fully automated network
origination  center  is  designed  to be a 24 hours a day by 7 days a week  full
service provider of all the technical and creative services required to develop,
support and deliver  network  television,  video,  audio and data  services  via
satellite, fiber and Internet.

       Management  believes that the  relocation and build-out of the Operations
Facility is critical to the realization of Directrix's  long-term business plan.
Management also believes that since the build-out of the Operations  Facility is
substantially  complete,  Directrix now has the capacity to increase  revenue by
using its  technological  resources to expand its customer  base and develop new
business  lines  without  significantly  changing its cost  structure  and, as a
result,  generate operating cash flow.  However,  there can be no assurance that
management will actually be successful at executing it's long-term business plan
or  that  the  successful  implementation  of the  business  plan  will  improve
operating results.

         Directrix's service agreements with Playboy and Califa currently expire
on March 15, 2001. Directrix is currently in negotiations to extend the terms of
these agreements and is seeking to add additional networks and services.

         Directrix has a $3.5 million revolving line of credit,  from which $1.9
million  has been  drawn  down as of March 31,  2000  (see Note 10).  Management
forecasts  that Directrix  will require  additional  funding to  provide for the
deficiency in  working  capital  until  Directrix generates operating cash flow.
Management  believes  that  it  has  access  to  potential  sources  of  capital
sufficient enough to meet Directrix's needs over the  next  twelve  months.  The
potential sources of capital include, but are not limited to: (i) an increase in
its line of credit  (see   "Certain  Relationships  and  Related  Transactions,"
below), (ii)  the sale of its option to acquire EMI  and/or  (iii)   a  possible
private placement  of  equity  securities  with  individual,  institutional  and
strategic investors.  There can be no assurance, however,  that management  will
be successful in its efforts to obtain sufficient capital.

                                      F-9
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CASH AND CASH EQUIVALENTS.  Directrix  considers  all    highly  liquid
investments  with a maturity of three  months or less when  purchased to be cash
equivalents.  Cash and cash  equivalents  include  mutual fund and money  market
accounts in which the balances were insignificant at March 31, 2000.

         USE OF ESTIMATES. The preparation of financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from these estimates.

         FAIR VALUE OF FINANCIAL INSTRUMENTS. The  carrying  amounts of cash and
cash  equivalents,  accounts  receivable,  accounts payable and accrued expenses
reflected in the  financial  statements  approximate  fair value  because of the
short maturity of these items.  The carrying  amounts of the  transponder  lease
liability and the revolving line of credit reflected in the financial statements
approximate  fair value because no major changes have occurred in the applicable
interest rates.

         CONCENTRATION OF CREDIT  RISK.  Financial   instruments  which  subject
Directrix to  concentrations  of credit risk consist primarily of cash and trade
accounts receivable. Directrix's cash and cash equivalents are deposited in high
credit quality institutions. At March 31, 2000, Directrix's cash balances in one
bank exceeded the FDIC limit by approximately $0.2 million.

         At March 31, 2000,  Directrix  had a net trade  receivable  with EMI of
approximately $0.8 million,  which represented 92% of the net trade receivables.
Receivables  arising from sales to customers  are not  collateralized  and, as a
result,   management  continuously  monitors  the  financial  condition  of  its
customers to reduce the risk of loss. (See Note 8.)

         VALUATION OF LONG-LIVED   ASSETS.   Directrix   continually     reviews
long-lived  assets  and  certain  identifiable  intangibles  held  and  used for
possible  impairment  whenever events or changes in circumstances  indicate that
the carrying amount of an asset may not be recoverable. Directrix has determined
that no provision is necessary for the impairment of long-lived  assets at March
31, 2000. In the year ended  December 31, 1998,  Directrix  took a write-down of
its operations facility of approximately $0.6 million.

         PROPERTY AND EQUIPMENT. Property and equipment, including major capital
improvements,  are  recorded  at cost.  The cost of  maintenance  and repairs is
charged against results of operations as incurred.  Depreciation is provided for
using the  straight-line  method over the estimated  useful lives of the related
assets, ranging from five to seven years. Leasehold improvements  are  amortized
over the shorter of their estimated useful life or the related lease term.

         REVENUE RECOGNITION. Revenues from the sale  of  transponder,  playback
and  other  related  services  are  recognized  in  the  period  the  service is
performed. For the period  from April 1, 1999 to  December  31,  1999, Directrix
recorded revenues  from  EMI based on contractual  amounts.  Prior to that time,
Directrix  had   been  recording  revenues  from  EMI  based  on  cash receipts.
During the  fourth  quarter  ended March 31,  2000,  due to renewed  uncertainty
surrounding EMI's ability to pay for all services  provided,  Directrix  resumed
recording revenue from EMI based on cash receipts.

                                      F-10
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

         LIBRARY OF MOVIES.  Directrix capitalizes the acquisition costs for the
rights  to movie  titles  purchased  or  licensed.  The  acquisition  costs  are
amortized  on a  straight-line  basis over the shorter of the useful life or the
license  period,  ranging  from one to five  years.  Effective  April  1,  2000,
Directrix changed the estimated life of its library of movies to two years.

         NET LOSS PER  SHARE.  For the year ended  December  31, 1998, Directrix
presented  net loss per share on a pro forma basis because  historical  net loss
per share would not be meaningful. The pro forma net loss per share for the year
ended  December  31,  1998 is  calculated  by giving  retroactive  effect to the
distribution of 2,074,785  shares of Directrix  Common Stock to the former Spice
shareholders.  Net loss per  share  and pro  forma  net loss per  share  for the
transition  period  ended  March 31,  1999 and the year ended March 31, 2000 are
calculated  in  acordance  with  Statement  of Financial  Accounting  Standards
("SFAS") No. 128,  "Earnings Per Share." Since Directrix reported a net loss for
all periods presented, basic and diluted earnings per share exclude dilution and
are computed by dividing net loss  attributable  to common  shareholders  by the
weighted-average  common shares outstanding for the period. Options and warrants
were  excluded from the  calculation  of earnings per share because their effect
would be anti-dilutive.  Directrix had 239,140 Common  Stock options outstanding
as  of  March 31, 2000.  At  March 31, 2000 all  Common Stock  purchase warrants
were exercised.

         INCOME  TAXES.  Prior  to  March  16, 1999, Directrix was a division of
Spice  and did not file separate income tax  returns.   Directrix's  results  of
operations  were   included  in  the  income tax returns  filed by Spice and its
subsidiaries. Directrix  was not  allocated  any income tax  benefit  associated
with the net losses incurred through March 15, 1999.

         Directrix uses the liability  method of accounting for income taxes, as
set forth in SFAS No. 109,  "Accounting  for Income  Taxes."  Under this method,
deferred  income  taxes,  when  required,  are  provided  on  the  basis  of the
difference  between the  financial  reporting and income tax bases of assets and
liabilities at the statutory rates enacted for future periods.

4.       PROPERTY AND EQUIPMENT


                                                                March 31, 2000
                                                                ---------------

Equipment ......................................................   $ 9,412,000
Furniture and fixtures .........................................       303,000
Leasehold improvements .........................................     2,694,000
                                                                ---------------
                                                                    12,409,000

Less accumulated depreciation and amortization .................    (7,268,000)
                                                                ---------------
                                                                   $ 5,141,000
                                                                ===============

5.       STOCK OPTION PLANS

         Directrix has two Stock Incentive  Plans  covering  employees  and non-
employee directors. The employees'  plan  authorizes the Compensation  Committee
(or another Board of Directors committee

                                      F-11
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

designated  by the Board of  Directors)  to  grant  employees  non-qualified and
incentive stock options,  stock  appreciation  rights,   restricted  stock, cash
bonuses and  other  types  of  awards  at  the discretion  of  the  Compensation
Committee.  The directors'  plan  authorizes the Compensation Committee to grant
non-employee  directors  non-qualified  stock options and limited stock
appreciation rights.

         At March 31, 2000, the plans provide for an aggregate  reservation  and
availability of up to 220,000 shares of Common Stock of Directrix.  The Board of
Directors recently adopted, subject to shareholder approval,  certain amendments
to the plans that would  increase the aggregate  number of shares  available for
issuance  under the plans to  550,000,  increase  the  maximum  number of shares
issuable to an individual  during any one year and increase the aggregate number
of shares  available  under  the  initial  and the  annual  automatic  grants to
non-employee directors.

         Directrix  has   adopted  the  disclosure   provisions  of Statement of
Financial Accounting Standards No. 123,"Accounting for Stock-Based Compensation"
("SFAS No.  123").  It applies  APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in  accounting for its plans and does
not recognize  compensation  expense for  its  stock-based  compensation  plans,
which provide for  granting of options with  exercise  prices  equal to the fair
market value  of  Common  Stock at the date of  grant.  If Directrix had elected
to  recognize  compensation  expense based upon the fair value at the grant date
for awards under these plans consistent with the methodology  prescribed by SFAS
No. 123,  Directrix's  net loss and net loss per share would be increased to the
pro forma amounts as follows:


                                                                   Year Ended
                                                                 March 31, 2000
                                                                 --------------

Net loss
  As reported .................................................  $   (6,064,000)
  Pro forma ...................................................  $   (6,228,000)
Basic and diluted loss per share
  As reported .................................................  $        (2.86)
  Pro forma ...................................................  $        (2.93)


The fair value of these  options  was  estimated  at the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  for the year  ended March  31,  2000:  expected  volatility  of  50
percent; risk-free interest rates of six percent (6%); and expected lives of ten
years.

                                      F-12
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)


The table below summarizes the activity in the plans:
<TABLE>
<CAPTION>

                                                                      Weighted-
                                                                       Average
                                                   Stock Options      Exercise
                                                   Outstanding          Price
                                                  ---------------   ------------
<S>                                                    <C>                <C>

Balance at April 01, 1999 .......................         -           $    -
Granted .........................................    294,394             4.73
Exercised .......................................         -                -
Canceled ........................................    (55,254)            3.94
                                                  ---------------   ------------
Balance at March 31, 2000 .......................    239,140             4.91

Exercisable at March 31, 2000 ...................     49,800             4.77

Weighted-average fair value of options
   granted during the fiscal year
   ended March 31, 2000 .........................                        3.25

</TABLE>

At March 31, 2000,  there were 149,140 and 90,000 options issued and outstanding
under the Employees' Plan and Director's  Plan,  respectively.  Directrix has an
additional   310,860  shares  remaining  for  future  grants  under  the  plans,
consisting of 250,860 and 60,000 shares under the employees' plan and director's
plan, respectively.

The following table summarizes  information concerning currently outstanding and
exercisable stock options at March 31, 2000:

<TABLE>
<CAPTION>
                                           Options Outstanding                            Options Exercisable
                         -------------------------------------------------------    --------------------------------
                                                  Weighted            Weighted                           Weighted
                                                  Average              Average                            Average
      Ranges of              Number              Remaining            Exercise          Number           Exercise
   Exercise Prices         Outstanding        Contractual Life         Price          Exercisable         Price
---------------------    ---------------    --------------------    ------------    ---------------    -------------
<S>                           <C>                  <C>                  <C>               <C>              <C>
$ 3.69 - $6.44              224,140              9.14 years           $ 4.48             49,800          $ 4.77
 11.25                       15,000              10 years              11.25                 -               -

</TABLE>

6.       INCOME TAXES

         As described in Note 3, Directrix was a Division of   Spice until March
15, 1999 and did not file separate income tax  returns.  In  addition, Directrix
was not  allocated any  income  tax benefit  associated with  the losses that it
incurred through March 15, 1999. Directrix also had minimal activity during  its

                                      F-13
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

initial  operating period of March 16, 1999 through March 31, 1999 and therefore
did not recognize any income tax benefit or provision.

Significant  components of Directrix's net deferred tax assets at March 31, 2000
are as follows:

         Net operating loss ..........................       $1,700,000
         Bad debt ....................................          400,000
         Transponder lease liability .................          360,000
         Property and equipment ......................         (400,000)
         Other .......................................           40,000
                                                       -----------------
                                                              2,100,000
         Less valuation allowance ....................       (2,100,000)
                                                       -----------------
                                                                  -0-
                                                       =================

         At March 31, 2000, Directrix has Federal and State net  operating  loss
carryforwards of approximately  $4.0  million  that will be  available to offset
future taxable income, if any through March,  2020.   A 100% valuation allowance
has been established to reserve for the  deferred  tax  assets since there is no
assurance that theire benefit will be realized in the future.


7.       COMMITMENTS AND CONTINGENCIES

         EMPLOYMENT  AGREEMENTS.   Directrix has  employment agreements with its
three Executive Officers providing for aggregate annual  compensation  amounting
to approximately $0.8 million  plus increases of five percent (5%)per annum. The
Chief Executive Officer's agreement is for a six-year term,  renewable  annually
for five years from the agreement date. The other agreements  expire on December
31, 2001.

         The  agreements  for  the President and Chief Operating Officer provide
for up to 12  months  additional  salary upon  the  death  or  disability of the
officers or termination without cause.  In addition, the  officers  are entitled
to severance  pay,  in an amount to be  determined, upon termination following a
change in control of Directrix.

         The  officers  of Directrix have agreed to a voluntary salary reduction
as described in Note 12.

         LEASES AND  SERVICE  CONTRACTS.  Directrix  leases its office space and
operating facilities under non-cancelable operating leases, expiring March, 2002
and April, 2009, respectively.  Directrix  also  leases  satellite  transponders
under various  lease  agreements (as amended), expiring at various times through
November, 2004.   Aggregate  minimum  rental  commitments  under  non-cancelable
operating leases at March 31, 2000 are as follows:

                                      F-14
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

<TABLE>
<CAPTION>

                                                            Satellite
      Years Ending            Office Facilities            Transponder
        March 31,               and Equipment               and Uplink               Total
  --------------------    -------------------------    -------------------    -------------------
    <S>                              <C>                       <C>                    <C>
    2001                        $   327,000               $  6,444,000            $  6,771,000
    2002                            319,000                  6,436,000               6,755,000
    2003                            253,000                  6,240,000               6,493,000
    2004                            239,000                  6,240,000               6,479,000
    2005                            207,000                  3,785,000               3,992,000
    Thereafter                      795,000                         -                  795,000
                          -------------------------    -------------------    -------------------
  Total                         $ 2,140,000               $ 29,145,000            $ 31,285,000
                          =========================    ===================    ===================
</TABLE>

         Rent  expense  under  operating   leases  amounted  to  $6,778,000  and
$6,658,000   for  the  years  ended  March  31,  2000  and  December  31,  1998,
respectively.  Rent  expense for the period  ended  March 31,  1999  amounted to
$1,700,000.

         Directrix  has  the  option  to  extend  one of its  transponder  lease
agreements through November, 2007 for approximately $375,000 per month.

         In  December, 1999,  Directrix  entered  into  an  agreement  to  defer
approximately  $1.0 million of lease payments that will be repaid in twenty-four
equal monthly installments of $40,833 beginning April 1, 2000.

8.       SIGNIFICANT CUSTOMERS

         Directrix derives its revenues from a limited number of customers, some
of which are in the adult entertainment industry.  Directrix's largest customers
are EMI and Spice. Revenues from EMI and Spice amounted to $3.8 million and $5.2
million during the year ended December 31, 1998 representing 40% and 55% of that
year's  revenues,  respectively.  For the three  months  ended  March  31,  1999
revenues  from  EMI  and  Spice  amounted  to  $0.6  million  and  $1.2  million
representing 28% and 58% of that period's revenues, respectively.  Revenues from
EMI amounted to $6.7 million  during the year ended March 31, 2000  representing
76% of total revenue for the year. For the year ended March 31, 2000,  Directrix
recorded bad debt expense associated with EMI of approximately $1.0 million.

         At March 31, 2000,  accounts receivable includes $755,000 due from EMI,
which equals the exercise  price of the EMI Option,  and  represents  92% of all
accounts receivable.

         Directrix  and  EMI  are  parties  to  certain  service  and  licensing
agreements,  as  amended,  in which  Directrix  is  providing  EMI with  various
technical services including satellite uplink,  broadcast and video playback and
access to its library of movies.

9.       RETIREMENT PLAN

         Directrix has established a 401(k) retirement savings plan (the "401(k)
Plan"), in which all qualified  employees,  including  executive  officers,  are
eligible to  participate.  The 401(k) Plan  provides that each  participant  may
contribute  up to  15%  of  his or  her  pre-tax  salary  (up  to a  statutorily
prescribed annual limit) to the 401(k) Plan. Directrix, at the discretion of the
Board of Directors,  may match

                                      F-15
<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

employee contributions.  For the year ended March 31, 2000, Directrix did not
match employee contributions.

10.      REVOLVING LINE OF CREDIT

         Directrix  has a  revolving  line of  credit of $3.5  million  ("Credit
Facility")  pursuant  to the  terms  of a  March  15,  1999  Security  and  Loan
Agreement,  as amended by the Amended and Restated Loan and  Security  Agreement
(as amended, the "Amended Loan  Agreement")  dated February 15, 2000.  Under the
terms of the Amended Loan  Agreement,  the  Credit  Facility was  increased from
$1.5 million to  $3.5  million, the maturity date  of  the  Credit  Facility was
changed  from  March 15,  2004  to  March  15,  2002  and  the terms of the Loan
Agreement were modified to provide  that  Directrix  was  not  permitted to draw
down on the Credit  Facility after March 15, 2001.  The  providers of the Credit
Facility  include the Chief  Executive  Officer,  the  President,  a Director of
Directrix,  and two unrelated parties (collectively, the "Lenders").  The Credit
Facility  bears   interest  at  11%  per  annum,  payable   monthly, and matures
on March 15, 2002. In consideration of their  agreeing  to  provide  the  Credit
Facility,  Directrix  granted the Lenders  an  aggregate of 105,000 Common Stock
purchase  warrants,  exercisable   for  10  years  at  $0.01  per  share.    The
aggregate  fair  market  value of the  warrants  (determined  using  the  Black-
Scholes  pricing  model)  amounts to  approximately  $0.7  million  and is being
amortized  over  the  term  of  the  Credit  Facility.  All of the warrants were
exercised as of March 31, 2000.

         The Amended Loan Agreement,  among other things,  requires Directrix to
maintain  certain  minimum  levels of net worth and  earnings (as defined in the
agreement),  commencing with the year ended March 31, 2001 and the quarter ended
September 30, 2000, respectively. Substantially all of Directrix's  assets  have
been pledged as collateral for this obligation.

         As  of March 31,  2000,   Directrix has drawn down $1.9  million,  with
$1.6 million unused and available funds remaining under the Credit Facility.

11.      RELATED PARTY TRANSACTIONS

         Certain payments made by Spice  prior to Closing  resulted in a dispute
between Playboy and Directrix.  As a result, Playboy withheld approximately $0.5
million  of  severance  payments  payable  to the  Chief  Executive  Officer  of
Directrix.  Pending  resolution of the dispute,  Directrix loaned  approximately
$0.6  million  to the  Chief  Executive  Officer.  The  loan was  secured  by an
assignment of the withheld  severance  payments.  In September 1999, Playboy and
Directrix  settled the dispute,  at which time Playboy paid the severance to the
Chief  Executive  Officer,  and the Chief  Executive  Officer repaid the loan to
Directrix.

         As described in Note 10, Directrix has a revolving Credit Facility with
five  individuals,  including  two  of  Directrix's  executive  officers  and  a
director.

12.      SUBSEQUENT EVENTS

         Executive Compensation.  To assist Directrix in achieving its  business
objectives,  Messrs.  Faherty,  McDonald and Kirby,  Directrix's Chief Executive
Officer, President and Chief Operating Officer, respectively, voluntarily agreed
to a reduction in their annual salaries of $200,000 for Mr. Faherty, $24,750 for
Mr.  McDonald and $22,584 for Mr. Kirby.  The salary  reductions  took effect on
June 24, 2000 and will  continue  for the  remainder of the year ended March 31,
2001. In consideration

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<PAGE>

                                 DIRECTRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

of Mr. Faherty's agreement to the salary reduction, the  Compensation  Committee
of the Board of Directors  re-priced the 50,000  options previously  granted to
Mr.  Faherty  to  an  exercise  price of $4.00 per share, the closing  price  of
Directrix's stock on June 22, 2000, and provided for the immediate   vesting  of
the options.  The Compensation  Committee also granted each of  Messrs. McDonald
and Kirby 5,000 fully  vested  options exercisable at $4.00 in consideration  of
their agreement to the salary reduction.

         EMI Service and License Agreements Extension.  Effective April 1, 2000,
Directrix  and EMI agreed to extend the terms of their  existing  agreements  to
December 31, 2002.

         Change  in  Accounting Estimate.   As described  in Note  3,  Directrix
changed the estimated life of its Library of Movies to two years.

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