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 December 31, 1998

                                 DIRECTRIX, INC.

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

Current Address:                 Address Commencing Approximately June 15, 1999:
536 Broadway                     226 West 26th Street, Suite 12W
New York, New York 10012         New York, New York 10001
212) 941-1434                    (212) 741-6511


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

Securities 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: $9,581,000.

Directrix had 2,074,785 shares of Common Stock outstanding at March 15, 1999.



<PAGE>

INTRODUCTION

         Directrix,  Inc.  ("Directrix"),  a  Delaware  corporation,  is a  full
service provider of all of the technical services  necessary to create,  support
and  deliver  network   television,   video  programming  and  data  services  -
network-in-a  box(R)  services.   Directrix  edits  and  assembles   video/audio
programming,  Internet  programming  and other  data into  various  formats  and
creates interstitial and promotional  graphics,  animation and other material to
support the brand  identity of customers'  programming.  Directrix also provides
automated playback services for video/audio programming and Internet programming
from  its  master  control  and  digital  playback  facilities.   Directrix  can
distribute its  customers'  programming  and data to cable head ends,  direct to
consumers and other locales via satellite,  the Internet,  fiber optic networks,
regionally  deployed  video file servers and over other  delivery  modalities as
they are developed and deployed.

FORMATION

         Spice Entertainment Companies,  Inc. ("Spice") formed Directrix in 1998
as  part  of  the  transactions  ("Playboy  Transaction")  relating  to  Spice's
acquisition  by Playboy  Enterprises,  Inc.  ("Playboy").  On the March 15, 1999
closing of the Playboy  Transaction (the "Closing Date"),  Spice  transferred to
Directrix  certain  assets  and  agreements  that  were not part of the  Playboy
acquisition  including  Spice's  master  control and digital  playback  facility
("Operations  Facility"),   service  agreements  to  provide  network  creation,
playback and other  technical  services,  certain  rights to Spice's  library of
adult films,  $750,000 in cash, certain prepaid assets and accounts  receivables
and  Spice's  option  ("EMI  Option")  to acquire the stock or assets of Emerald
Media, Inc.("EMI").

         EMI is a leading provider of adult television programming to the C-Band
direct to home ("DTH")  market and operates an adult  Internet  site.  Directrix
currently  provides  creative,  playback  and  transponder  services  to EMI and
licenses its adult film  library to EMI.  Directrix  currently  has no intent to
exercise the EMI Option.

         As part of the Playboy  Transaction,  Spice acquired  173,784 shares of
Playboy Class B Common Stock which it contributed to Directrix.  Directrix plans
to hold the Playboy stock for future financing needs.

MARKET FOR NETWORK-IN-A BOX SERVICES(R)

         In North  America,  television  programming  is delivered to the viewer
principally via over-the-air broadcast,  cable television and satellite delivery
systems.  The demand for entertainment  content has increased as a result of the
introduction of new broadcast networks,  direct broadcast satellite systems, pay
television,  increased  cable  penetration,  the  growth  of home  video and the
streaming of video content over the internet.  The number of television networks
also continues to increase  primarily as a result of the increase in the channel
capacity of cable television and direct broadcast  satellite  systems due to the
ability to deliver digitally compressed television channels to the home.

         Digital   compression  expands  a  cable  television  system's  channel
capacity by a factor of 10 to 16 times that achievable in an uncompressed analog
environment.   In  addition,   digital  compression  has  dramatically   reduced
transponder costs, the largest cost component of operating a satellite-delivered
television  network,  since a single transponder can transmit up to 16 digitally
compressed television channels.  The new television networks have created a need
for more  hours  of  programming,  which  should  increase  demand  for  network
services, such as those provided by Directrix.  Directrix's services support the
delivery of television  programming  through various  channels of  distribution,
including  cable,  fiber,  satellite  delivery  and file server  systems and the
Internet.

         Directrix is also positioned to nurture  emerging  networks which begin
distribution  by streaming  video  programming  over the  Internet.  While video
programming  streamed over the Internet using  telephone line modems is of lower
quality than video programming delivered via broadcast or cable television, with
the advent of broad  band high speed  modems  such as cable  modems and  digital
subscriber line modems, the video quality of Internet delivered programming will
approach that of video  delivered via  broadcast,  cable or satellite.  Internet
delivery  is  typically  the first step  towards  satellite  delivery on digital
platforms  - both  cable  television  and  direct  broadcast  satellite  digital
platforms.  Directrix  can  handle all steps  necessary  for the  transition  to
satellite delivery.

         Additional  prospective  Directrix clients include private networks and
remote learning networks.  Directrix can also provide data transmission services
and video/data  backhaul services moving video/data  information from its origin
to a source of multi-point  distribution.  The demand for backhaul services will
continue to grow with the increased demand for video and data information.

         Spice  began  construction  of the  Operations  Facility  in the second
quarter  of 1995 and it went into  service  in the first  quarter  of 1997.  The
Operations  Facility integrates both analog (videotape) and digital (data files)
technologies to meet its customers' needs though  Directrix  primarily relies on
its digital  infrastructure.  Digital  information is easier to store, easier to
manipulate and provides higher quality transmissions. In addition, videotape can
wear out, in contrast to  digitized  information.  Directrix  believes  that the
television  programming  industry is moving toward an entirely  digital platform
and that,  due to its  advanced  digital  equipment,  it is well  positioned  to
provide efficient and effective playback services.

         Because of Directrix's  capital  investment in the Operations  Facility
and  other  equipment  which is  described  below,  Directrix  can  scale up its
capacity to meet this demand.  In  addition,  Directrix  has,  over the past few
years,  developed an  operational  team with over eight years of  experience  in
providing full network  operations for seven networks.  This team added networks
with minimal lead-time, incremental cost and capital investment.

PLAYBACK SERVICES

         Directrix  can provide all or a portion of the  technical  and creative
services necessary to create and distribute a television network over any of the
available  delivery methods  including  cable,  DBS, the Internet and regionally
deployed  video  file  servers.   The  menu  of  available   services   includes
post-production,   creative  and  facilities   services,   network   operations,
transponder capacity, dedicated Internet backbone, and engineering services.

         Directrix also 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 and 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  and
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 automated robotics systems for broadcast
playback.   Playback  systems  are  both  videotape   (analog)  and  video  file
server-based   (digital),   and   subtitling   and  "local  avail"   (commercial
advertisement insertion) are supported.

         Directrix  currently provides a full range of playback services for the
four networks operated by EMI.  Directrix is also providing  playback and uplink
services  for the two  Spice  networks  acquired  by  Playboy  and the Spice Hot
network  which was  acquired by Califa  Entertainment  Group,  Inc.  ("Califa").
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 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.  Systems also
include  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 Federal  Communications  Commission now requires closed  captioning
for most television  programming.  Directrix can provide this closed  captioning
services and has agreed to provide these services for Playboy and Califa.

         Directrix  utilizes two MPEG-2 encoders for conversion of analog source
materials to a variety of digitized  formats.  At the same time,  Directrix  can
generate  such material in RealVideo  and  Microsoft  NetShow  formats (the most
popular  methods of encoding  Internet video streams) for  transmission  via the
Internet.  Directrix can also  digitize  materials in  digital-video-disc  (DVD)
format and in alternative  formats such as AVI, MPEG-1 and QuickTime.  Directrix
also maintains both analog and digital tape duplication facilities.

         Directrix  also  maintains  duplication  facilities for both analog and
digital  tape.  An  average  of  110  75-minute  features  and  120  minutes  of
interstitial  material is digitized  monthly.  Directrix  utilizes primarily two
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 generate such material in RealVideo and Microsoft NetShow formats (currently
the most popular  methods of encoding  Internet video  streams) for  full-motion
video transmission via the Internet.  The duplication facilities are equipped to
digitize materials in digital-video-disc  format and in alternative formats such
as  AVI,  MPEG-1  and  QuickTime.  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.

         Directrix  offers library services for storage and traffic of broadcast
master tapes.  Directrix's  high-density  fire-resistant  tape storage  facility
currently  holds  15,000   videotapes  and  can  accommodate,   in  its  current
configuration,  additional  21,700  videotapes.  Videotapes  are bar  coded  and
tracked using Directrix's  distributed  database which can be customized to meet
its customers' needs.

         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-hour a day by 7
day a week basis to television networks from its operations facility.  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 Operations Facility
as a hub for the  distribution of digitized video content,  Directrix  pioneered
the use of regionally  deployed video file servers to deliver video  programming
through  its  participation  in near  video-on-demand  initiatives.  Video  file
servers  are  computers   which  store  and  distribute   compressed   digitized
programming.  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-video-on-demand and video-on-demand 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, UPLINK, COMPRESSION AND ENCRYPTION SERVICES

         Directrix  uplinks  networks  originated  from the Operations  Facility
through the Northvale,  New Jersey uplink  facility owned by Atlantic  Satellite
Communications,  Inc.  ("Atlantic").  (Uplinking refers to the transmission of a
television  programming  or  data  to  a  communications  satellite.)  Directrix
transmits  programming and data signals from the Operations  Facility over fiber
optic lines to the Northvale  facility.  Directrix  secures these  services from
Atlantic   and  other   facilities   for  its  network   operations   customers.
Alternatively,  customers may arrange to have their signal delivered directly to
Atlantic's  uplink  facility for uplink to Directrix's  transponders,  affording
customers greater flexibility.

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

         Directrix  will  offer  industry-standard  encryption  and  compression
systems as needed for  distribution of its customers'  networks.  Directrix owns
one Digicipher II digital system and three  VideoCipher II analog  systems,  and
leases  additional  three  VideoCipher  II systems as a back up.  Directrix also
utilizes two fully redundant  Scientific Atlanta PowerVu encoder systems.  These
systems  enable  digitally  compressed  video/audio  programming  to be added to
transponders carrying analog television signals.

TRANSPONDER SERVICES

         Loral SpaceCom  Communications,  Inc.  ("Loral")  provides  transponder
services to Directrix on one non-pre-emptible and two pre-emptible transponders.
Directrix  provides  transponder  services  to  EMI  for  its  analog  networks.
Directrix is able to add up to two digitally  compressed networks to each of its
transponders  and pursuant to  arrangements  with EMI, the  transponders  leased
directly  by EMI.  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 General  Instruments,  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  for  approximately  $750,000.  There may be other uses for
Directrix's  transponders  including transmission of audio, video or other data.
Directrix plans to constantly  monitor the marketplace for transponder  services
with a view to putting its transponder capacity to its highest and best use.

INTERNET HOSTING AND CONTENT STREAMING

         Directrix will offer 24 hour a day by 7 day a week Internet hosting and
video  streaming  services.  InterVU Inc.  ("InterVU")  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 is Internet
connectivity  is used to provide a simultaneous  webcast of the EMI networks and
related programming on demand over the Internet.

         Directrix currently is capable of hosting a website averaging access by
650,000  subscribers  daily and can provide web  authoring,  web-based  database
publishing, electronic commerce, creation of graphics and animation services.

         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  customers are currently EMI, Playboy,  Califa,  Bloomberg,
L.P.  ("Bloomberg")  and Mobile Satellite.  Directrix  provides complete network
operational  services,   including  services  on  three  transponders  for  EMI.
Directrix  also  provides  web  hosting  and video  streaming  services  to EMI.
Pursuant to  agreements  with Playboy and Califa,  Directrix  provides  playback
network operations and engineering  services for three networks for at least two
years and provides post  production and other  technical  services on a month by
month  basis.   Directrix  also  provides  compressed  transponder  services  to
Bloomberg and Mobile Satellite.

SALES AND MARKETING

         Directrix has positioned  itself as 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.

         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.  Were  Directrix  to  exercise  the EMI  Option,  it would  become a
provider of explicit adult programming  distributed in the C-band DTH market and
operate an Internet site providing adult content. 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. Directrix could be subjected to such adverse legislation.

CURRENCY RATES AND REGULATIONS

         Directrix does not currently have foreign  operations.  Were it to have
foreign operations, these operations would be subject to the risk of fluctuation
in currency  exchange rates and to exchange  controls.  Directrix cannot predict
the extent to which such controls and  fluctuations in currency rates may affect
its operations in the future or its ability to remit dollars abroad.

EMPLOYEES

         At March 15, 1999,  Directrix  had a total of 34  employees.  Directrix
believes that its relationship with its employees is satisfactory.

Item 2.  Properties.

         Directrix  currently  occupies the 10th floor and a portion of the roof
and the 7th floor at 536 Broadway,  New York, New York, space that was leased by
Spice from  Schack & Schack Real  Estate Co.  ("Landlord")  prior to the Playboy
Transaction.  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, the 10th floor lease
(including  use of a portion of the roof) was assigned to Directrix  and the 7th
floor lease was  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. The Landlord may terminate
the 10th floor lease on 30 days prior  written  notice but not before August 31,
1999 and Directrix assumed  responsibility for restoring the 10th floor and roof
to its former condition. The 10th floor lease expires on May 31, 2003.

         Directrix has executed a lease for  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 Directrix plans to relocate
the Operations  Facility to a 22,000 square foot building  located in Northvale,
New  Jersey  which  is in  close  proximity  to the  Atlantic  uplink  facility.
Directrix plans to execute an  approximately 4 year sublease with the building's
existing tenant and an  approximately 6 year lease with the building owner.  The
monthly  rent will range from  $14,427 to $16,230  over the life of the  leases,
with eight months free rent following lease inception.

         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. From time
to time,  Directrix  may become a party to legal actions in the normal course of
its business.

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 fiscal year ended December 31, 1998.

                                     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."

         Directrix has never paid cash dividends on its common stock and 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.

         The  following  discussion  of the  financial  condition and results of
operations of Directrix should be read in conjunction with Directrix's Financial
Statements  and notes  thereto,  and the other  financial  information  included
elsewhere  in this report.  Directrix's  actual  results or future  events could
differ  materially  from  those  discussed  in  the  forward-looking  statements
contained  in this  report.  In addition to those  discussed  elsewhere  in this
report,  among  other  factors  that could  cause the actual  resulted to differ
materially  are the  following:  business  condition  and the  general  economy,
reliance on a limited  number of customers  and limited  operating  history with
absence of history as a stand-alone company.

OVERVIEW

         Directrix is a Delaware corporation formed by Spice in contemplation of
the merger of Spice and Playboy (the "Merger").  On March 15, 1999, prior to the
closing of the Merger,  Spice contributed to Directrix,  among other things, all
of the assets and liabilities associated the Operations Facility, the EMI Option
and the rights to distribute the explicit  version of Spice's adult films in the
DTH market and over the  Internet.  Spice also  contributed  approximately  $0.8
million  in  cash,   accounts  receivable  and  other  current  assets  totaling
approximately  $1.7  million  and  173,784  shares of  Playboy  stock  valued at
approximately $4.5 million, which were purchased by Spice prior to the closing.

         Directrix is using the Operations Facility and its transponder capacity
to provide a complete  range of  technical  and  creative  services  required to
create and  distribute a television  network over a variety of delivery  methods
including  cable,  direct  broadcast  satellite system ("DBS") and the Internet.
Directrix offers uplink services through a third party vendor, playback services
through  its  Operations  Facility  and  transponder  services,  both analog and
digitally compressed,  through its agreement with Loral. Directrix also plans to
offer   post-production   services,   including  creation  of  interstitial  and
promotional segments,  animation and graphics, quality control, library services
for masters tapes and facilities,  network operations and engineering  services.
There can be no assurances  that  Directrix will be successful in marketing some
or all of these services.

         Directrix's  customers are initially EMI, PEGI,  Califa,  Bloomberg and
Mobile  Satellite.  Directrix's  ability to achieve and  maintain  profitability
depends on its  ability  to retain its  existing  customers  and to attract  and
maintain new customers for its services.  There can be no assurance that it will
be able to do so. Directrix  currently  intends to rely on the business contacts
and  experience  of its  management  to develop  new  business.  There can be no
assurance that management will be successful in developing new business.

         On March 15, 1999,  after the  contribution  from Spice,  Directrix had
working capital of approximately $5.8 million. Directrix has also secured a $1.5
million credit facility provided by certain officers and directors of Directrix.
Management  believes the transferred  working  capital,  the credit facility and
cash  generated  by  operations  will  provide  sufficient  funding to implement
management's plans.

         Directrix  utilizes  satellite   transponder  services  pursuant  to  a
Transponder  Services Agreement (the "Transponder  Agreement") dated February 7,
1995 between Spice and AT&T Corp.  ("AT&T").  On March 31, 1997, Spice and Loral
SpaceCom Corporation d/b/a Loral Skynet ("Loral"), as successor to AT&T, amended
the  Transponder  Agreement by changing the expiration date to October 31, 2004,
reducing the term by  approximately  four years.  As a result of this amendment,
the  Transponder   Agreement  was  reclassified  for  accounting  purposes  (the
"Reclassification") as an operating lease rather than a capital lease commencing
on March 31, 1997.  As a result of the  Reclassification,  Directrix  recorded a
one-time  gain of  approximately  $2.3 million in the first  quarter of 1997. On
March 15, 1999,  the  Transponder  Agreement was replaced with an agreement with
Loral for services on three  transponders,  one protected and two  pre-emptible,
with monthly  payments of $375,000.  The new Loral agreement  expires on October
31, 2004,  with Directrix  having an option to extend the agreement  through the
useful life of the transponders, which is estimated to be November 30, 2007.

RESULTS OF OPERATIONS

         The  financial   statements   of  Directrix   reflect  the  results  of
operations,  financial  position  and  cash  flows  of the  business  that  were
contributed to Directrix by Spice on March 15, 1999. As a result,  the financial
statements  of  Directrix  prior to the  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.

         Additionally,  the financial  statements of Directrix  include  certain
assets, liabilities,  revenues and expenses which were not historically recorded
at the level of, but are primarily  associated  with,  such business.  Directrix
believes the assumptions underlying its financial statements to be reasonable.

         The financial information included herein, however, may not necessarily
reflect  the  results  of  operations,  financial  position  and  cash  flows of
Directrix in the future or what the results of  operations,  financial  position
and cash flows would have been had Directrix been a separate  stand-alone entity
during the periods presented. The financial information included herein does not
reflect the many  changes that will now occur in the funding and  operations  of
Directrix  as  a  result  of  the  transactions  involving  Spice,  Playboy  and
Directrix.

         Revenues  were  earned   principally  from  services  provided  to  two
customers, EMI and Spice. Through December 31, 1997 revenues attributable to EMI
were  recorded  based upon  contractual  amounts for  playback  and  transponder
services.  In 1998,  as a result of the ongoing  uncertainty  surrounding  EMI's
ability to pay for all services  provided,  Directrix started recording revenues
from  EMI  upon  receipt.  Revenues  attributable  to Spice  relate  to  network
operations,  post-production and technical services provided  internally.  These
revenues have been recorded  based on either (i) services  provided to unrelated
third party customers or (ii) costs  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 are reasonable.

         The Emerald Media Receivable.  Directrix  established a reserve against
the receivable  from EMI (the "EMI  Receivable")  in the fourth quarter of 1996,
the first quarter in which Directrix  provided  services to EMI,  because of the
uncertainty  of EMI's ability to meet its  obligations  to Directrix on a timely
basis.  During the year ended December 31, 1997,  Directrix adjusted the reserve
on a  quarterly  basis so that the net  realizable  value of the EMI  Receivable
equaled the exercise price of the Emerald Media Option because  Directrix  could
exercise  the  Emerald  Media  Option  and  acquire  EMI by  forgiving  the  EMI
Receivable.

         The  aggregate  amount of the EMI  Receivable  at December 31, 1998 was
approximately  $4.0 million;  Directrix has reserved  approximately $3.2 million
against the EMI Receivable.

         Directrix  carefully  monitors  EMI's  financial  position to determine
EMI's  ability to pay its current  obligations  to Directrix and to pay down the
EMI Receivable. EMI instituted a series of operating adjustments during the year
ended  December  31,  1998 to  improve  its  results,  including  changes in the
programming, promotion and branding of its networks and improvements in the call
center which processes  orders for the EMI networks.  Cash received from EMI for
the year ended  December 31, 1998  increased from the cash received from EMI for
the year ended December 31, 1997.  Based on discussions  with EMI's  management,
Directrix  believes  that these  operating  improvements  will  provide EMI with
sufficient  liquidity  and  capital  resources  to meet EMI's  anticipated  cash
obligations to Directrix on a going forward basis.

1998 COMPARED TO 1997

         Net Loss.  Directrix  reported a net loss of $4.2  million for the year
ended  December  31, 1998 as compared to a net loss of $0.9 million for the year
ended December 31, 1997. The increase in net loss was primarily  attributable to
the  Reclassification  in the first quarter of 1997.  Also  contributing  to the
increase  in net loss were the  following:  (a)  losses  attributable  to unused
transponder capacity totaling $0.6 million, (b) increases in salaries, wages and
benefits  totaling  $0.5  million  and (c)  increases  in  selling,  general and
administrative  expenses attributable to the expansion of the Operation Facility
and the allocation of general corporate overhead totaling $0.2 million.

         Revenues. Directrix reported total revenue of $9.6 million for the year
ended  December 31, 1998 as compared to total  revenue of $10.7  million for the
year ended  December  31,  1997.  The  decline in total  revenue  was  primarily
attributable  to a decrease in revenue  associated  with the sale of transponder
capacity.

         Salaries,  Wages And Benefits.  Directrix reported salaries,  wages and
benefits  of $2.7  million for the year ended  December  31, 1998 as compared to
$2.2 million for the year ended December 31, 1997. Approximately $0.2 million of
this increase was attributable to the commencement of playback services from the
Operations  Facility and  expansions  in the  post-production  department.  Also
contributing  to the increase was the allocation of general  corporate  overhead
relating  to Spice's  corporate  headquarters  and other  common  support  units
totaling  $0.2  million.  This  allocation  was based upon direct  salaries  and
related cost of both Spice and Directrix.

         Library  Amortization.  Directrix reported library amortization for the
year  ended  December  31,  1998  of  approximately  $0.4  million,   which  was
substantially the same for the year ended December 31, 1997.

         Satellite,  Playback And Uplink Expenses. Directrix reported satellite,
playback  and uplink  expenses of $6.6  million for the year ended  December 31,
1998 as  compared  to $4.8  million  for  the  year  ended  December  31,  1997.
Substantially all of the increase was attributable to the  Reclassification.  In
the year ended December 31, 1997,  Directrix treated $1.6 million of transponder
lease  payments  as  principal  and  interest  payments  under a  capital  lease
obligation.  Had the Transponder Agreement been classified as an operating lease
for all of 1997 Directrix would have reported  additional  satellite  expense of
$1.6 million and a decrease in depreciation and interest expense of $1.0 million
and $0.9 million, respectively.

         Selling,  General  And  Administrative  Expenses.   Directrix  reported
selling,  general and administrative expenses of $2.2 million for the year ended
December  31, 1998 as compared to $3.5  million for the year ended  December 31,
1997.  The decrease was primarily  attributable  to a decline of $1.5 million in
bad debt expense associated with the EMI Receivable. Offsetting this decline was
an increase of $0.3  million  primarily  attributable  to the  expansion  of the
operation  facility and the allocation of general corporate overhead relating to
Spice's  corporate  headquarters and other common support units. This allocation
was based upon direct salaries and related cost of both Directrix and Spice.

         Depreciation Of Fixed Assets.  Directrix reported depreciation of fixed
assets of $1.2 million for the year ended  December 31, 1998 as compared to $1.9
million  for the year ended  December  31,  1997.  The  decline in  depreciation
expense was primarily attributable to the Reclassification.

         Interest Expense.  Directrix  reported interest expense of $0.1 million
for the year ended  December  31, 1998 as compared to $1.1  million for the year
ended  December 31, 1997.  The decline in interest  expense was primarily due to
the Reclassification.

LIQUIDITY AND CAPITAL RESOURCES

         Spice uses a centralized  approach to cash management and the financing
of its operations. As a result, Spice funded all of Directrix's activities.  For
the years ended  December  31,  1997 and 1998,  Spice  provided  funding of $5.6
million and $3.9 million,  respectively,  to Directrix.  The decrease in funding
provided  by Spice was  primarily  attributable  to the  payment in 1997 of $1.9
million  relating to certain  transponder  lease  payments  that had been due in
1996.  Also  contributing  to Directrix's  cash  requirements in the years ended
December  31,  1997 and 1998 were net losses of $0.9  million  and $0.2  million
adjusted for the non-cash  gain  associated  with the  Reclassification  of $2.9
million and $4.2  million,  respectively,  investments  of $0.5 million and $0.4
million,  respectively,  in a film library,  and investments of $0.8 million and
$0.5 million, respectively, in property and equipment.

         On March 15, 1999,  after the  contribution  from Spice,  Directrix had
working  capital of  approximately  $5.8  million.  Directrix has a $1.5 million
revolving line of credit facility ("Credit Facility"), which was provided by two
officers and one director of Directrix  pursuant to a loan commitment dated July
31, 1998.  The Credit  Facility  bears  interest at 11% per annum and matures on
March 15, 2001. In consideration  of the Lenders  providing the Credit Facility,
Directrix  will grant the Lenders an  aggregate  of 45,000  warrants.  Directrix
anticipates  other sources of liquidity from  increased  payments from EMI under
its service  agreements with Directrix as a result of EMI's  modification of its
agreements with one of its major service  providers and other  reductions in its
cost structure.  Directrix also anticipates  additional cash from the collection
of revenues  from the  marketing of network  operations,  technical and creative
services and sales of its excess transponder capacity.

         Directrix also hopes to realize  revenues from the marketing of network
operations,  technical and creative services and sales of its excess transponder
capacity.  Directrix  believes  it can  provide  the  playback  and  transponder
services  with  minimal  incremental  costs.  There  can  be no  assurance  that
Directrix will be successful in marketing these services or that, if successful,
it can do so at a profit.  Directrix  believes that cash generated by operations
for fiscal 1999 will be in excess of $1.0 million.  Directrix  believes that the
increase in cash  generated by operations  will result from the  following:  (i)
improvements in EMI's operations which would enable EMI to pay fees when due for
transponder,  playback and other services on a timely basis and (ii) the sale of
playback and  transponder  services by Directrix to new customers.  If Directrix
requires  additional  cash to fund its  operations,  the Credit Facility will be
available.  Directrix  believes  that  the  combination  of  cash  generated  by
operations,  the Credit Facility,  and the working capital  contributed by Spice
will be sufficient funding to implement management's plans.

Year 2000 Compliance

         Directrix  is   implementing   a  Year  2000  program  to  ensure  that
Directrix's  computer  systems and  applications  will function  properly beyond
1999.  Directrix  believes that adequate  resources have been allocated for this
purpose and expects its Year 2000 date  conversion  program to be completed on a
timely basis.  Directrix does not believe that the cost of implementing its Year
2000 program will have a material effect on Directrix's  financial  condition or
results of  operations.  However,  there can be no assurance that Directrix will
identify  all Year 2000  problems  in its  computer  systems in advance of their
occurrence or that  Directrix will be able to  successfully  remedy any problems
that are  discovered.  The  expenses  of  Directrix's  efforts to  address  such
problems,  or the expenses or liabilities to which  Directrix may become subject
as a  result  of  such  problems,  could  have  a  material  adverse  effect  on
Directrix's  results of operations  and financial  condition.  In addition,  the
revenue stream and financial ability of existing suppliers, service providers or
customers  may be adversely  impacted by Year 2000  problems,  which could cause
fluctuations in Directrix's revenues and operating profitability.

         Directrix  has  investigated  Year  2000  compatibility  with its major
customers and service  providers.  Logix Development  Corp.,  which operates the
call center for EMI's networks,  has analyzed its software and believes that its
systems  are Year 2000  compliant.  Playboy is  addressing  its Year 2000 issues
through a combination of modifications  to existing  programs and conversions to
Year 2000 compliant  software.  Directrix has not been able to adequately assess
Califa's  compliance with Year 2000 issues because Califa has only recently been
organized  and is in the  process  of  establishing  its  computer  systems  and
applications; however, Directrix intends to work with Califa to address any Year
2000 issues that may arise.

         Except as described  above,  Directrix  has not developed a contingency
plan for the reasonably likely worst case scenario  concerning the Year 2000. If
a Year 2000 problem were to occur that Directrix could not successfully resolve,
it could  have a  material  adverse  effect on the  results  of  operations  and
financial condition of Directrix.

Item 7. Financial Statements.

        See the Financial Statements at pages F-1 through F-15.

Item 8. Changes in and Disagreements with Accountants on Account 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          60         Chairman of the Board of Directors and
                                        Chief Executive Officer

Donald J. McDonald        46         President and Director

Richard Kirby             38         Chief Operating Officer, Executive Vice
                                        President and Secretary

John R. Sharpe            34         Chief Financial Officer, Vice President
                                        and Treasurer

Richard M. Cohen          47         Director

Rudy R. Miller            51         Director

Leland H. Nolan           52         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 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  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. .

         JOHN R. SHARPE has been Chief  Financial  Officer,  Vice  President and
Treasurer of Directrix since its incorporation.  Mr. Sharpe joined Spice in 1995
and in 1997 was appointed its Vice  President,  Controller and Chief  Accounting
Officer,  serving in that capacity until March 15, 1999. From 1991 through 1994,
Mr.  Sharpe was a  Divisional  Controller  for U.S.  Services,  Inc., a publicly
traded software development company.

         RICHARD M. COHEN has been a director of Directrix since its
incorporation. 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
incorporation.  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.  Mr.  Miller was also a member of the board of  directors  of
America West  Airlines  from 1982 to 1986 and a member of the board of directors
of Jacor  Communications  Inc., one of the largest radio broadcasting  groups in
the United States,  from 1979 to 1989. On the Closing Date, Mr. Miller  resigned
from the Spice board of directors.

         LELAND  H.  NOLAN  has  been  a  director   of   Directrix   since  its
incorporation.  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
pursuing  international  opportunities  in  businesses  which provide high speed
Internet access and interactive services.

         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 will 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.

         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

         Recently, the National Adjudicatory Council of the National Association
of Securities Dealers,  Inc. (the "NASD") (the self-regulatory  organization for
broker-dealers)  reversed  in part and  affirmed  in part a 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., by
dismissing  two of three  remaining  causes of action  against  Mr.  Faherty and
rejecting  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.  These activities occurred prior to Mr. Faherty's becoming the Chief
Executive Officer and Chairman of Spice in 1991 and were unrelated to Spice. The
decision of the National  Adjudicatory  Council (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.  Mr. Faherty
has appealed the Decision to the Securities and Exchange Commission. As a result
of the appeal, enforcement of the sanctions has been stayed.

Item 10.  Executive Compensation.

COMPENSATION AND OPTION/SAR GRANTS DURING MOST RECENT FISCAL YEARS

         Directrix did not pay executive  officer any compensation nor grant any
executive  officer any options or SAR's during 1997 or 1998.  The annual  salary
for the executive officers is described below under  "--Employment  Agreements."
The Directrix option plan is described below under "1998 Stock Incentive Plan."

COMPENSATION OF DIRECTORS

         Directrix pays $1,000 per meeting, plus expenses and $250 per telephone
conference to non-officer directors serving on its Board of Directors.
         .........
EMPLOYMENT AGREEMENTS

         On the Closing Date,  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 as  determined  by  Directrix.  In
addition,  pursuant to the  agreement,  Directrix will reimburse Mr. Faherty for
automobile costs.

         On the Closing Date, 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 as  determined  by Directrix  in its sole  discretion.  The  agreements
provide that in the event that  employment is  terminated  by Directrix  without
cause (as  defined  therein)  or by the  executive  for good  reason (as defined
therein),  the  executive is entitled to receive an amount equal to base salary,
payable  in  monthly  installments  through  the  longer  of (i) the  applicable
termination date or (ii) twelve months.  In the event of the disability or death
of the executive,  Directrix  will continue to make base salary  payments to the
executive or his estate for twelve months following such 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 COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Directrix's 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,  $10,000  in 1998) 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. The 401(k) Plan trustees, Messrs. Faherty and Sharpe, will invest
401(k) Plan contributions. The trustees have retained Morgan Stanley Dean Witter
Discover to invest and administer the 401(k) Plan.

1998 STOCK INCENTIVE PLAN.

         On July 25, 1998, the Board of Directors  adopted the  Directrix,  Inc.
Stock Incentive Plan (the "Plan"). The 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 in the employ
of 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 300,000
authorized and unissued shares or treasury shares of Directrix  Common Stock, at
the  discretion  of  the  Compensation  Committee  or  another  Board  committee
appointed by the Board of Directors to administer the Plan.

         The Plan specifically provides for the grant of (i) non-qualified stock
options, (ii) incentive stock options ("ISOs"), (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 ten
percent 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  ISOs 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,  will be eligible to receive  grants of Incentive  Awards.  The
Compensation  Committee  will  determine  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 will  determine 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 shares
during any one year. No Incentive Award may be granted under the Plan after July
25, 2008.  The  Compensation  Committee is evaluating the granting of options to
key executives and other employees.

         Administration. The Compensation Committee will administer 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
ISOs),   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  will be  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 or treasury  shares of Common Stock,  at the
discretion of the Compensation Committee or another Board committee appointed 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").

         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  Board members will
be eligible to receive grants of Directors Incentive Awards. There are currently
three non-employee directors of Directrix.  Directors Incentive Awards under the
Directors Plan are 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.  The Directors  Incentive  Awards will be 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.  Subject to the terms of the Directors Plan, the Compensation  Committee
will  determine 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.

         Administration.   The   Compensation   Committee  will  administer  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  ("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 will be 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.

OTHER PLANS

         Directrix is currently considering the implementation of cash incentive
plan for executive  officers and key employees pursuant to which bonuses will be
granted based upon Directrix's performance.

         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.  No
filings were required in 1998.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         The  following  table sets forth as of March 16,  1999,  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 5% of the  outstanding  shares of Company Common Stock,  (ii) each director
and  executive  officer  of  Directrix  and (iii) all  directors  and  executive
officers of Directrix as a group.
<TABLE>
<CAPTION>

Name and Address                    Shares Beneficially Owned(1)   Percentage of Shares Outstanding(2)
----------------                    ----------------------------   ----------------------------------
<S>                                            <C>                               <C>  
J. Roger Faherty (3) (4)                       192,365                           9.16%
536 Broadway, 7th Floor
New York, New York  10012

Donald J. McDonald, Jr. (4)                     17,250                           0.83%
536 Broadway, 7th Floor
New York, New York  10012

Richard Kirby                                   22,125                           1.07%
536 Broadway, 7th Floor
New York, New York  10012

John Sharpe                                      2,225                           0.11%
536 Broadway, 7th Floor
New York, New York  10012

Richard M. Cohen                                11,250                           0.54%
630 Fifth Avenue, Suite 601
New York, New York  10111

Rudy R. Miller                                   8,750                           0.42%
4909 East McDowell Road
Phoenix, Arizona  85008

Leland H. Nolan (4)                            138,899                           6.66%
17 Thompson Street
New York, New York  10012

Lindemann Capital Advisors LLC (5)             209,752                          10.12%
767 Fifth Avenue
New York, New York  10153

All directors and executive officers
  as a group                                   392,864                          18.54%(7 persons)
</TABLE>

-------------------------------

(1)      Assumes exercise of all Spice options and warrants held by such persons
         immediately  prior to the Merger and the  distribution of the Directrix
         Common  Stock  issuable  upon  exercise of such options and warrants as
         part of the Merger Consideration.

(2)      Assumes exercise of all outstanding Spice options and warrants.

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

(4)      Includes the shares of Common Stock issuable upon exercise of the
         Lenders Warrants.

(5)      The information  concerning  beneficial ownership of Spice Common Stock
         by Lindemann Capital Advisors, LLC was obtained from a Schedule 13G and
         a Form 3 and Form 4 filed  with  the  Commission  by such  stockholder.
         Pursuant to such Form 3 and Form 4, the  stockholder  reported that the
         securities are held in accounts managed by Lindemann  Capital Advisors,
         LLC. Adam M.  Lindemann,  as Managing  Member of the Lindemann  Capital
         Advisors,  LLC,  may be deemed to have a  pecuniary  interest in all or
         portion of such securities.


Item 12.  Certain Relationships and Related Transactions.

         J. Roger Faherty, Leland H. Nolan and Donald J. McDonald agreed to
provide Directrix a revolving line of credit of up to an aggregate of $1.5
million at the Closing Date (the "Credit Facility") pursuant to a commitment
letter agreement dated July 31, 1998.

          Under a Loan and  Security  Agreement  dated March 15, 1999 (the "Loan
Agreement"), Messrs. Faherty, Nolan and McDonald agreed to provide 60.0%, 26.67%
and 13.33%,  respectively,  of each credit  extension under the Credit Facility.
Interest  will be payable  monthly in arrears at a rate of 11% per annum.  Total
borrowings  under the Credit  Facility have a final  maturity date of the second
anniversary  of the  Closing  Date.  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 and McDonald 27,000, 12,000 and 6,000 warrants to
purchase   Company  Common  Stock   (collectively,   the  "Lenders   Warrants"),
respectively.  Directrix  reserved the right to replace the Credit Facility with
financing from an alternative  source. If Directrix replaces the Credit Facility
with  alternative  financing  prior to  borrowing  any  amount  under the Credit
Facility,  Messrs.  Faherty,  Nolan and  McDonald  will receive only half of the
number of Lenders  Warrants  they would have  otherwise  received.  Each Lenders
Warrant  entitle  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. In addition,  Messrs.  Faherty,  Nolan and McDonald 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.

         Directrix  believes  that the terms of the Credit  Facility are no less
favorable than those that could be negotiated with an independent third party on
an arm's length basis.


Item 13. Exhibits, List and Reports of Form 8-k.

         (a) Exhbits

  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.

      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.

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

     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 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.

     10.8            --       Employment Agreement dated March 15, 1999 between
                              Directrix and Donald J. McDonald.

     10.9            --       Employment Agreement dated March 15, 1999 between
                              Directrix John R. Sharpe.

     10.10           --       Employment Agreement dated March 15, 1999 between
                              Directrix and Richard Kirby.

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

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

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

     10.14            -       Loan and Security Agreement dated as of March 15,
                              1999 between Directrix and J. Roger Faherty,
                              Leland H. Nolan and Donald J. McDonald, Jr.

     27.1            --       Financial Data Schedule.

         (b) Reports on Form 8-K.

         Directrix  did not file any  reports  on Form 8-K for the  fiscal  year
ended December 31, 1998.

<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:   April 15, 1999

                                            DIRECTRIX, INC.

                                            By:      /s/ J. Roger Faherty
                                                     --------------------
                                                     J. Roger Faherty
                                                     Chairman, Chief Executive
                                                     Officer, President and 
                                                     Director

     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         Director                 Date:  April 15, 1999
---------------------------                                    --------------
Donald J. McDonald

/s/ Rudy R. Miller             Director                 Date:  April 15, 1999
--------------------------                                     --------------
Rudy R. Miller


/s/ Richard Cohen              Director                 Date:  April 15, 1999
---------------------------                                    --------------
Richard Cohen

/s/ Leland H. Nolan            Director                 Date:  April 15, 1999
---------------------------                                    --------------
Leland H. Nolan


PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:


/s/ John R. Sharpe            Chief Financial Officer     Date:  April 15, 1999
---------------------------    & Principal Accounting            --------------
John R. Sharpe                 Officer

<PAGE>

                          
                                 DIRECTRIX, INC.
                               For the years ended
                           December 31, 1997 and 1998







<PAGE>

                                 DIRECTRIX, INC.
                          INDEX TO FINANCIAL STATEMENTS

                                                                      PAGE

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

Balance Sheet as of December 31, 1998.............................     F-3

Statements of Operations for the years ended December 31, 1998 
     and 1997 ....................................................     F-4

Statement of Stockholder's Equity for the years ended December 31,
     1998 and 1997................................................     F-5

Statements of Cash Flows for the years ended December 31, 1998
     and 1997.....................................................     F-6

Notes to Financial Statements.....................................     F-7 -
                                                                       F-15


<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 December 31, 1998,  and the related  statements of
operations, stockholder's equity and cash flows for the years ended December 31,
1997 and 1998. These financial  statements are the responsibility of Directrix's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  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 December 31, 1998,  and the results of its  operations and cash flows for the
years ended December 31, 1997 and 1998, in conformity  with  generally  accepted
accounting principles.


Grant Thornton LLP

New York, New York
March 15, 1999




<PAGE>


                                 DIRECTRIX, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1998
<TABLE>
<CAPTION>


          ASSETS:

<S>                                                                             <C>
Current assets:
    Accounts receivable, less allowance for doubtful accounts of       
          $1,789,000                                                            $    755,000
    Prepaid expenses and other current assets                                        650,000
                                                                            -----------------
                  Total current assets                                             1,405,000
Property and equipment, net                                                        2,539,000
Library of movies, net                                                               839,000
Other assets                                                                          51,000
                                                                           ------------------
                                                                                $  4,834,000
                                                                            =================

               LIABILITIES AND STOCKHOLDER'S EQUITY:

Current liabilities:
    Current portion of obligations under capital leases                         $    572,000
    Accounts payable                                                                  73,000
    Accrued expenses and other current liabilities                                   103,000
                                                                            -----------------
                  Total current liabilities                                          748,000
                                                                            -----------------

Obligations under capital leases, less current portion                                36,000
                                                                            -----------------
Commitments and contingencies

Stockholder's equity
    Contributed equity                                                            13,765,000
    Accumulated deficit                                                           (9,715,000)
                                                                            -----------------
                  Total stockholder's equity                                       4,050,000
                                                                            -----------------
                                                                                $  4,834,000
                                                                            =================





                      The  accompanying  notes  are an  integral  part  of  this financial statement.

</TABLE>
<PAGE>


                                 DIRECTRIX, INC.
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                     Year Ended December 31,
                                                             -----------------------------------------
                                                                   1998                    1997
                                                                   ----                    ----


<S>                                                          <C>                      <C>             
Revenues                                                     $      9,581,000         $     10,658,000
                                                             ------------------       -----------------

Operating expenses:
    Salaries, wages and benefits                                    2,688,000                2,198,000
    Library amortization                                              350,000                  378,000
    Satellite costs                                                 6,579,000                4,834,000
    Selling, general and administrative expenses                    2,199,000                3,459,000
    Depreciation of fixed assets                                    1,174,000                1,906,000
     Writedown of Operations Facility                                 632,000                    -
                                                             ------------------       -----------------
                   Total operating expenses                        13,622,000               12,775,000
                                                             ------------------       -----------------

              Loss from operations                                 (4,041,000)              (2,117,000)

Interest expense                                                      139,000                1,090,000
Gain from transponder lease amendment                                    -                  (2,348,000)
                                                             ------------------       -----------------
              Net loss                                        $    (4,180,000)        $       (859,000)
                                                             ==================       =================

  NET LOSS PER COMMON
     SHARE BASIC AND DILUTED                                  $         (2.01)        $          (0.41)
                                                              =================       =================




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

</TABLE>
<PAGE>


                                 DIRECTRIX, INC.
                        STATEMENT OF STOCKHOLDER'S EQUITY


<TABLE>
<CAPTION>
                                      Contributed           Accumulated
                                          Equity              Deficit                Total
                                    ----------------      ----------------      ----------------

<S>                <C>              <C>                   <C>                   <C>             
Balance at January 1, 1997          $     4,273,000       $   (4,676,000)       $      (403,000)

   Net loss                                    -                (859,000)              (859,000)

   Net transfers from Spice               5,586,000                 -                 5,586,000
                                    ----------------      ----------------      ----------------
Balance at December 31, 1997              9,859,000           (5,535,000)             4,324,000

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

   Net transfers from Spice               3,906,000                 -                 3,906,000
                                    ----------------      ----------------      ----------------
Balance at December 31, 1998        $    13,765,000       $   (9,715,000)       $     4,050,000
                                    ================      ================      ================



                      The  accompanying  notes  are an  integral  part  of  this financial statement.

</TABLE>
<PAGE>


                                 DIRECTRIX, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                       Year ended December 31,
                                                                              ------------------------------------------
                                                                                       1998                     1997
                                                                                       ----                     ----
<S>                                                                           <C>                       <C>
Cash flows from operating activities:
    Net loss                                                                  $     (4,180,000)         $      (859,000)
                                                                              -----------------         ----------------
   Adjustments to reconcile net loss to net cash used in operating
     activities:
          Depreciation and amortization of fixed assets                              2,071,000                1,906,000
          Gain on transponder lease amendment                                             -                  (2,348,000)
          Amortization of library of movies                                            350,000                  378,000
          Provision for bad debts                                                         -                   1,453,000
          Changes in assets and liabilities:
                Increase (decrease) in accounts receivable                              17,000               (1,949,000)
                Increase in prepaid expenses and other current assets                 (577,000)                 (52,000)
                Increase in other assets                                                  -                      (3,000)
                Decrease in accounts payable and accrued expenses                     (156,000)              (1,011,000)
                (Decrease) increase in deferred income                                 109,000                 (109,000)
                                                                              -----------------         ----------------
                        Total adjustments                                            1,596,000               (1,517,000)
                                                                              -----------------         ----------------
                        Net cash used in operating activities                       (2,584,000)              (2,376,000)
                                                                              -----------------         ----------------

Cash flows from investing activities:
    Purchase of property and equipment                                                (476,000)                (750,000)
    Purchase of rights to movies                                                      (380,000)                (549,000)
                                                                                                        ----------------
                                                                              -----------------
          Net cash used in investing activities                                       (856,000)              (1,299,000)
                                                                              -----------------         ----------------

Cash flows from financing activities:
    Repayment of long-term debt and capital lease obligations                         (466,000)              (1,911,000)
    Net transfers from Spice                                                         3,906,000                5,586,000
                                                                              -----------------         ----------------
          Net cash provided by financing activities                                  3,440,000                3,675,000
                                                                              -----------------         ----------------
          Net change in cash and cash equivalents                                         -                        -
Cash and cash equivalents, beginning of the year                                          -                        -
                                                                              -----------------         -----------------
             Cash and cash equivalents, end of the year                       $           -             $          -
                                                                              =================         =================

Supplemental  disclosures  of cash flow  information:  
   Cash paid during the year for:
          Interest                                                            $        119,000          $     2,216,000
                                                                              =================         =================
          Income taxes                                                        $           -             $          -
                                                                              =================         =================
Supplemental schedule of non-cash investing and financing activities:
    Capital lease obligations                                                 $           -             $    (52,342,000)


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

</TABLE>
<PAGE>


                                 DIRECTRIX, INC.
                          NOTES TO FINANCIAL STATEMENTS



1.     BACKGROUND AND BASIS OF PRESENTATION.

       BACKGROUND.  Directrix,  Inc.  ("Directrix")  is a  Delaware  corporation
formed by Spice Entertainment Companies,  Inc. ("Spice") in contemplation of the
merger   ("Merger")  of  Spice  with  a   wholly-owned   subsidiary  of  Playboy
Enterprises,   Inc.  ("Playboy").  On  March  15,  1999  prior  to  the  closing
("Closing")  of the Merger,  Spice and  Directrix  entered  into a Transfer  and
Redemption  Agreement  (the  "Transfer   Agreement")  pursuant  to  which  Spice
contributed to Directrix,  among other things, all of the assets and liabilities
associated  with  Spice's  master  control  and  digital  playback  center  (the
"Operations  Facility"),  an option  (the "EMI  Option")  to acquire  all of the
assets or  capital  stock of  Emerald  Media,  Inc.  ("EMI")  and the  rights to
distribute  the explicit  version of Spice's adult films in the domestic  C-Band
direct to home market ("DTH") and the Internet  ("Library  Rights").  Spice also
contributed  approximately $0.8 million in cash,  accounts  receivable and other
current assets totaling approximately $1.7 million and 173,784 shares of Playboy
stock valued at approximately $4.5 million,  which were purchased by Spice prior
to the Closing.

       Spice also assigned other  agreements and assets to Directrix.  (See Note
11.)  Pursuant to the  Transfer  Agreement,  Directrix  entered  into a separate
transponder  services  agreement with Loral SpaceCom  Corporation  ("Loral") for
services on three transponders which will replace a portion of Spice's agreement
with Loral. (See Note 7.)

       BUSINESS.  Management  plans  to use  the  Operations  Facility  and  its
transponder  capacity  to provide a complete  range of  technical  and  creative
services  required to create and distribute a television  network over a variety
of delivery methods including cable,  direct broadcast  satellite system ("DBS")
and the Internet. Directrix plans to offer uplink services through a third party
vendor,  playback  services  through its  Operations  Facility  and  transponder
services,  both analog and  digitally  compressed,  through its  agreement  with
Loral.  Directrix  also  plans  to  offer  post-production  services,  including
creation of  interstitial  and  promotional  segments,  animation  and graphics,
quality  control,  library  services for masters tapes and  facilities,  network
operations and engineering  services.  There can be no assurances that Directrix
will be successful in marketing some or all of these services.

       Under the Transfer Agreement,  Spice assigned to Directrix its agreements
with EMI. Directrix provides  programming,  playback and transponder services to
EMI. EMI provides  subscriber based and pay-per-view  explicit adult programming
distributed in the DTH market, operating four explicit DTH television networks.

       Directrix has no operating history on a stand-alone basis.  Directrix has
incurred  significant  losses for the years ended  December 31, 1997 and 1998 on
the basis of the presentation  described below.  Directrix's  ability to achieve
and  maintain  profitability  depends on its  ability to  attract  and  maintain
customers for its services.  Directrix currently intends to rely on the business
contacts and expertise of its management to develop new business.

       On March 15,  1999,  after the  contribution  from Spice,  Directrix  had
working  capital of  approximately  $5.8  million.  Directrix has a $1.5 million
revolving line of credit facility ("Credit Facility"),  which was established on
July 31, 1998, provided by three directors of Directrix. Management believes the
transferred  working  capital,  Credit Facility and cash generated by operations
will provide sufficient funding to implement management's plans. (See Note 11.)

BASIS OF PRESENTATION.

       The financial  statements  reflect the results of  operations,  financial
position,  changes in  stockholder's  equity  and cash flows that were  directly
related to the  Operations  Facility,  to the EMI Option and the Library  Rights
that were  contributed  to Directrix  by Spice as if  Directrix  were a separate
entity for all periods  presented.  The financial  statements have been prepared
using the historical basis in the assets and liabilities and historical  results
of operations related to Directrix's  business.  Changes in stockholder's equity
represent the net losses of Directrix plus net cash transfers from Spice.

       The financial  statements include  allocations of certain Spice corporate
headquarters assets, liabilities, revenues and expenses relating to the business
that Spice transferred to Directrix. In addition,  Spice transferred the Library
Rights to Directrix, the value of which has been 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.

       Revenues were earned principally from services provided to two customers,
EMI and Spice.  (See Note 8.) EMI revenues were recorded based upon  contractual
amounts for  playback  and  transponder  services.  In 1998,  as a result of the
ongoing uncertainty  surrounding EMI's ability to pay for all services provided,
Directrix  started  recording  revenues  from EMI upon receipt.  Spice  revenues
related to network operations,  post-production services and technical services.
These revenues have been recorded based on either (i) services provided to other
non-related  customers  or (ii) the costs  associated  with the service  plus an
appropriate  markup based on a reasonable  assessment of a market-based  charge.
Management believes that the methods used to record revenues are reasonable.

       The liabilities of Directrix  include  capital lease  obligations and the
amounts of debt and related interest expense  associated with these  liabilities
assumed by Directrix pursuant to the Merger Agreement.

       General corporate overhead related to Spice's corporate  headquarters and
common support  divisions have been 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.  Subsequent  to the Closing,
Directrix is  performing  these  functions  using its own resources or purchased
services  and is  responsible  for the costs and  expenses  associated  with the
management of a public corporation.

       The financial information included herein may not necessarily reflect the
results of operations,  financial position,  changes in stockholder's equity and
cash flows of Directrix in the future or what they would have been had it been a
separate, stand-alone entity during the periods presented.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

       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 accounts
receivable,  accounts  payable,  accrued expenses and capital lease  obligations
reflected in the  financial  statements  approximate  fair value  because of the
short maturity of these items.

       CONCENTRATION  OF  CREDIT  RISK.  Financial   instruments  which  subject
Directrix  to  concentrations  of  risk  consist  primarily  of  trade  accounts
receivable.  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
December 31, 1998.

       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 charged
against results of operations using the straight-line  method over the estimated
useful lives of the related  assets.  Equipment  leased under capital leases and
leasehold  improvements  are amortized over the shorter of the estimated  useful
life or the lease  term.  Sales and  retirements  of  depreciable  property  and
equipment are recorded by removing the related cost and accumulated depreciation
from the  accounts.  Gains or losses on sales and  retirements  of property  and
equipment are reflected in results of operations.

       REVENUE RECOGNITION.  Revenues from the sale of transponder, playback and
other related services are recognized in the period the service is performed. In
1998, as a result of the ongoing  uncertainty  surrounding  EMI's ability to pay
for all services  provided,  Directrix started recording  revenues from EMI upon
receipt.

       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.  Amortization  of library of
movies was allocated to Directrix using the same ratio used to allocate  library
of movies, as described in Note 1.

       UNAUDITED  PRO FORMA NET LOSS PER COMMON SHARE.  Historical  earnings per
share have not been presented  because they would not be  meaningful.  Pro forma
net loss per share is  calculated  after giving  effect to the  distribution  of
Directrix's Common Stock as described in Note 5. Pro forma net loss per share is
calculated  in  accordance  with  Statement  of Financial  Accounting  Standards
("SFAS")  No.  128,  "Earnings  Per Share."  Basic  earnings  per share  exclude
dilution and are computed by dividing income attributable to common shareholders
by the  weighted-average  common  shares  outstanding  for the  period.  Diluted
earnings per share reflects the weighted-average  common shares outstanding plus
the potential  dilutive  effect of securities or contracts which are convertible
to common shares, such as options and warrants.  The warrants described in Notes
5 and 10 were  excluded  from the  calculation  of  diluted  earnings  per share
because their effect was anti-dilutive.

       INCOME TAXES.  Since  Directrix was a division of Spice,  it did not file
separate income tax returns.  Directrix's operations were included in the income
tax returns filed by Spice and its  subsidiaries.  For purposes of the financial
statements,  Directrix  was not  allocated  any income tax  provision or benefit
associated  with the net losses based on Directrix's  past earnings  history and
use of NOL carryforwards.

       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.

         COMPREHENSIVE   INCOME.  In  1998,  Directrix  adopted  SFAS  No.  130,
"Reporting  Comprehensive  Income."  SFAS  No.  130  establishes  standards  for
reporting  comprehensive  income and its  components  in a financial  statement.
Comprehensive  income as defined  includes  all changes in equity  (net  assets)
during a period from non-owner sources.  An example of an item to be included in
comprehensive  income,  which is  excluded  from net  income,  includes  foreign
currency  translation  adjustment.  Directrix  did not report any  comprehensive
income for the years  ended  December  31,  1997 and 1998,  as such there was no
impact on Directrix's results of operations for the periods presented.

         NEW ACCOUNTING  PRONOUNCEMENT.  In June 1998, the Financial  Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative  Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative  instruments and for hedging  activities and is effective for all
fiscal quarters of fiscal years  beginning  after June 15, 1999.  Directrix does
not expect that the adoption of SFAS No.133 will have any impact on  Directrix's
results of operations.

3.     PROPERTY AND EQUIPMENT.

       Property and equipment at December 31, 1998 consist of the following:

                                          Useful Lives         December 31,
                                            in Years               1998
                                         ----------------     ----------------

Equipment                                       5                  $6,983,000
Furniture and Fixtures                          7                     165,000
Leasehold Improvements                    Life of lease
                                           or shorter               1,124,000
                                                              ----------------
                                                                    8,272,000
Less Accumulated Depreciation and
Amortization                                                        5,733,000
                                                              ----------------
                                                                   $2,539,000
                                                              ================

       During the fourth quarter of 1998,  Directrix  enacted a plan to relocate
its Operations Facility, in the third quarter of 1999, to Northvale, New Jersey.
As a result of the  decision to  relocate,  Directrix  recorded a  non-recurring
charge of $632,000  relating to writedown of leasehold  improvements and accrued
rent associated with the Operations Facility.

       A portion of the aforementioned equipment having a net book value of $0.6
million is collateral for the equipment loans and capital leases at December 31,
1998.

4.     OBLIGATION UNDER CAPITAL LEASES.

       Minimum  annual rentals under capital leases at December 31, 1998, are as
follows:
<TABLE>
<CAPTION>


            <S>                                                             <C>
           1999                                                             $627,000
           2000                                                               37,000
                                                                 --------------------
           Net minimum lease payments                                        664,000
           Less amount representing interest                                  56,000
                                                                 --------------------
           Present value of minimum lease obligations                        608,000
           Current portion of lease obligations                              572,000
                                                                 ====================
           Long-term portion of lease obligations                            $36,000
                                                                 ====================
</TABLE>

                  a. In 1995,  Spice  entered into a equipment  lease  agreement
       with IBM Credit Corporation ("ICC") which provided financing of $2,078,00
       which Directrix used to construct the Operations Facility.  The equipment
       lease was  accounted  for as a  capital  lease.  As a result  of  certain
       delays, changes in equipment requirements and other factors, the original
       lease  agreement was  superseded  in the fourth  quarter of 1996 by a new
       lease which requires 36 payments of approximately $37,000,  commencing on
       February 1, 1997. The lease obligation at December 31, 1998 was $438,000.
       On March  15,  1999,  Directrix  assumed  Spice's  obligations  under the
       equipment lease agreement and is operating the Operations Facility.

                  b. On August 14, 1996,  Spice entered into an equipment  lease
agreement with Vendor Capital Group ("VCG") for encoding and decoding equipment,
which  enabled  Directrix  to digitally  compress  Spice's  domestic  television
networks  onto one  transponder.  The lease was accounted for as a capital lease
with an approximate value of $1.8 million,  allocated as follows:  approximately
$0.5 million was  attributable  to encoding  equipment  and  approximately  $1.3
million  was  attributable  to  1,300  decoders.   The  encoding  equipment  was
contributed  to  Directrix  at  Closing  and as such the  portion  of the  lease
obligation associated with the encoder was charged to Directrix.  The balance of
the lease  obligation  attributable  to the  encoder at  December  31,  1998 was
$170,000.  In February of 1999,  Directrix paid $155,000 to satisfy the lease in
full and exercised its right under the lease to purchase the leased  equipment .
5. CAPITAL STRUCTURE.

       Directrix was incorporated on July 20, 1998 and has authorized capital of
25  million  shares of common  stock,  $.01 par  value  per share  (the  "Common
Stock"),  and 2 million  shares of  preferred  stock,  $.01 par value per share.
Spice was Directrix's sole stockholder prior to the Closing.

       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 0.125 of one share of Common  Stock in partial  exchange for each share
of Spice  common  stock owned prior to the  Merger.  Fractional  shares were not
issued; any fractional share of Common Stock was rounded up to one whole share.

       All Spice employee stock options  outstanding  with exercise prices below
the closing price of Spice,  on the Closing were deemed to be exercised on March
15, 1999.  Holders of Spice employee stock options  received (in addition to the
other  consideration for the Merger less the exercise price) Common Stock on the
basis of 0.125 of one share of Common Stock for each share of Spice common stock
into which the Spice employee stock options were exercised on the Closing.

       Spice no longer owns any interest in Directrix. The stockholders of Spice
own all of the capital stock and other ownership interests of Directrix.

6.     EMPLOYEE STOCK OPTION PLAN.

       Directrix  adopted an employee stock option plan covering  300,000 shares
of Common Stock.  Directrix's Board of Directors has instructed the Compensation
Committee to evaluate the granting of options of Common Stock to key  executives
and other  employees  of  Directrix.  Options  granted  under the plan which are
incentive  stock  options  will have an  exercise  price per share  equal to the
market  price  on  the  date  of  grant;  the  Board  of  Directors  and/or  the
Compensation  Committee  will  set the  exercise  price of  non-incentive  stock
options.  The Board of Directors  and/or the  Compensation  Committee  will also
determine  the other terms and  conditions  of options  granted  under the plan.
Directrix  will be  required  to  disclose  in the  footnotes  of the  financial
statements the impact of the compensation expenses associated with options to be
granted on a pro forma basis in accordance  with SFAS No. 123,  "Accounting  for
Stock-Based Compensation."

       Prior to Closing,  certain employees of Directrix participated in Spice's
Employee Stock Option Plans.  Spice granted 886,500 options to Company employees
under the various plans during fiscal 1997. Spice accounted for these options in
accordance with APB Opinion No. 25. Accordingly,  because the exercise prices of
the  options  equaled  the market  price on the date of grant,  no  compensation
expense was recognized for the options granted.  Had  compensation  expense been
recognized  by Spice based upon the fair value of the stock options on the grant
date  under  the  methodology  prescribed  by SFAS No.  123,  and  allocated  to
Directrix based on its proportionate  share of total  compensation,  Directrix's
net loss for the year ended December 31, 1997 and 1998 would have been increased
by $0.3 million and $0.1 million,  respectively.  See Note 5 for a discussion of
the exercise of Spice employee stock options outstanding on the Closing.

7.     COMMITMENTS AND CONTINGENCIES.

       LITIGATION.  Spice was, from time to time, a party to litigation  arising
in the normal  course of its  business.  Directrix has not assumed any liability
for litigation to which Spice is currently a party.  Directrix may be, from time
to time, a party to litigation arising in the normal course of business.

        EMPLOYMENT  AGREEMENTS.  Directrix will enter into employment agreements
with its Chief Executive Officer,  President,  Chief Operating Officer and Chief
Financial Officer providing for annual base salaries  aggregating  approximately
$900,000.

       LEASES AND SERVICE  CONTRACTS.  Directrix  leases its office  facilities,
satellite  transponders and uplink,  and certain  equipment.  As of December 31,
1998, the aggregate minimum rental  commitments under  non-cancelable  operating
leases were approximately as follows:
<TABLE>
<CAPTION>

                                                                                     Satellite Transponder
                Years Ending                                 Office Facilities            and Uplink
                December 31,                 Total             and Equipment
           -----------------------     ------------------    -------------------    ------------------------
           <S>                                <C>                       <C>                       <C>
           1999                               $4,983,000                $45,000                  $4,938,000
           2000                                4,535,000                 35,000                   4,500,000
           2001                                4,520,000                 20,000                   4,500,000
           2002                                4,505,000                  5,000                   4,500,000
           2003                                4,500,000                    -                     4,500,000
           Thereafter                          3,750,000                    -                     3,750,000
                                       ==================    ===================    ========================
           Total                             $26,793,000               $105,000                 $26,688,000
                                       ==================    ===================    ========================
</TABLE>

         Total  expense  under  operating  leases  amounted  to  $6,658,000  and
$5,108,000 for the years ended December 31, 1998 and 1997, respectively.

         Effective  December  1995,  Spice  entered  into a  Skynet  Transponder
Services Agreement (the "Transponder  Agreement") with AT&T Corp. ("AT&T").  The
Transponder  Agreement  provides for services on five  transponders  on the AT&T
satellite  Telstar  402R  for  a  monthly  payment  of  $635,000.   Two  of  the
transponders were protected and three were pre-emptible.  (Transponder  services
on a protected transponder will not be interrupted if a transponder or satellite
fails.) The original term of the  Transponder  Agreement was for the useful life
of the satellite's geo-stationary orbit, estimated to be twelve years.

         On  January  11,  1997,  as a result of AT&T  losing  contact  with and
declaring Telstar 401 permanently out of service, AT&T pre-empted one of Spice's
pre-emptible  transponders and transferred it to another AT&T customer. On March
31, 1997, Spice and Loral (which acquired AT&T's satellite business) amended the
Transponder  Agreement and shortened the term by  approximately  four years.  In
consideration of the amendment, Spice granted Loral the right to pre-empt one of
Directrix's  transponders after September 1, 1997. As a result of the amendment,
the Transponder  Agreement has been classified as an operating lease  commencing
on  March  31,  1997.  As  a  result  of  the  two  events  described  above,  a
non-recurring gain of approximately $2.3 million was realized in 1997.

         As a result of the Transponder  Agreement being classified as a capital
lease until March 31, 1997, the transponder payments totaling approximately $1.6
million for 1997 were reported as a reduction of capital lease obligations.  Had
the Transponder Agreement been classified as an operating lease for all of 1997,
Directrix would have reported  additional  satellite  expenses of  approximately
$1.6 million in 1997. In addition,  Directrix  would have reported a decrease in
depreciation of $1.0 million and a decrease in interest  expense of $0.9 million
for the year ended December 31, 1997.

         From the  pre-emption  on January  11, 1997 to the Closing on March 15,
1999  the  Loral  Agreement  provided  for  service  on four  transponders,  two
protected  and two  pre-emptible  by Loral,  with monthly  payments of $520,000.
Immediately  after the Closing on March 15, 1999, the Transponder  Agreement was
replaced  with an agreement  between  Loral and  Directrix for services on three
transponders,  one  protected  and two  pre-emptible,  with monthly  payments of
$375,000.  The Loral  Agreement  expires on October 31, 2004;  Directrix  has an
option to extend the agreement through the useful life of the transponder, which
is estimated to be November 30, 2007.

8.       SIGNIFICANT CUSTOMERS.

         EMI. On September 1, 1996, pursuant to short-term agreements, Directrix
began  providing  transponder  services  bundled with playback,  programming and
other  related  services to EMI. EMI  currently  owns and operates  four premium
television   networks   featuring   explicit  version  adult  movies  which  are
distributed to the domestic DTH market.  EMI also granted Directrix an option to
acquire its stock or business for $755,000 ("EMI Option").  Directrix  currently
provides transponder services for three of EMI's networks and playback and other
services for four of EMI's networks from the Operations Facility. The agreements
with EMI were scheduled to expire on December 31, 1998. However, on December 31,
1998,  both  parties  mutually  agreed  to  extend  the  expiration  date of the
agreements to December 31, 1999.  Under the terms of the agreement with EMI,
either party may request a one year renewal subject to the other party's right
to  require termination at the end of the then current term.

         In 1998,  as a result  of the  ongoing  uncertainty  surrounding  EMI's
ability to pay for all services  provided,  Directrix started recording revenues
from EMI upon receipt.  Directrix  recognized revenues from EMI of approximately
$4.7  million and $3.7  million for the years ended  December 31, 1997 and 1998,
respectively.  At  December  31,  1997  and  1998,  Directrix  has a  net  trade
receivable from EMI of $755,000.

         SPICE.  Directrix  recognized  revenue from Spice of approximately $5.4
million  and $5.2  million  for the  years  ended  December  31,  1997 and 1998,
respectively.  Revenues were related to the playback of the Spice  networks from
Directrix's  Operations  Facility  commencing  in  February  1997 as well as the
transmission to and use of Directrix's transponders.

         As a result of the merger, Directrix will only provide certain services
previously  provided to Spice.  These services will be provided under  contracts
for a two-year  period  subsequent to the Closing (See Note 12). Annual revenues
from these contracts are expected to be approximately $0.6 million.

         Directrix  expects that a  significant  portion of its future  revenues
will continue to be generated by a limited number of customers.  The loss of any
of these  customers  or any  substantial  reduction  in  orders  by any of these
customers could materially adversely affect Directrix's operating results.

9.       RETIREMENT PLAN.

         Prior to the Closing,  certain of Directrix's employees participated in
Spice's 401(k) retirement plan. Directrix adopted a 401(k) retirement plan which
was  substantially  the same as the 401(k) plan maintained by Spice prior to the
Merger. The plan allows employee contributions in accordance with Section 401(k)
of the Internal  Revenue Code. The plan provides for  discretionary  matching of
employee  contributions by Directrix.  Directrix employees who were participants
in the Spice  401(k)  retirement  plan were  granted the option of rolling  over
their account balances to Directrix's 401(k) retirement plan.

10.      REVOLVING LOAN COMMITMENT.

         On July 21,  1998,  the  Chairman  of the  Board  and  Chief  Executive
Officer,  the President and a Director of Directrix  (the  "Lenders")  agreed to
provide  Directrix a revolving credit facility  totaling $1.5 million.  ("Credit
Facility")  to be used for  general  corporate  purposes.  The  Credit  Facility
terminates  on March 15, 2001.  Advances  under the Credit  Facility will accrue
interest  daily  at the  rate of 11% per  annum  and  interest  will be  payable
monthly.  In  consideration  of  the  Lenders  providing  the  Credit  Facility,
Directrix  granted the Lenders an  aggregate  of 45,000  warrants  which have an
exercise  price of $.01 per share  and are  exercisable  for 10 years.  The fair
value of the warrants  will be treated as additional  interest  expense over the
term of the Credit Facility.

11.       SEGMENT INFORMATION.

          The Company operates in one business segment - as a provider of
technical services  necessary  to create support and deliver network television
video programming and data services.  The Company's revenues are derived from
the sale of these services to network providers in the United States.

12.      SUBSEQUENT EVENTS.

         TRANSFER AND REDEMPTION AGREEMENT.  On March 15, 1999 as a condition to
the Merger, Spice and Directrix entered into a Transfer and Redemption Agreement
and certain  related  agreements,  pursuant to which Spice  contributed  certain
assets  to  Directrix  in  exchange  for  the  assumption  of  certain   related
liabilities  and the issuance of Common Stock.  In  connection  with the Merger,
Spice  transferred the Common Stock of Directrix to the stockholders of Spice as
part of the  consideration  for the  Merger.  The  Transfer  Agreement,  certain
agreements  related to or  contemplated  by the  Transfer  Agreement,  and other
agreements  to be entered  into in  connection  with the  Merger are  summarized
below.

         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 acquired before and
after  the  Closing  to be  granted  to  Directrix  under  the  Explicit  Rights
Agreements and the Owned Rights  Agreement,  (d)  approximately  $0.8 million in
cash, (e) 173,784 shares of Playboy stock valued at approximately  $4.5 million,
and (f) accounts  receivable and other current  assets,  totaling  approximately
$1.7 million, Directrix currently has no intent to exercise the EMI Option.

         In  connection  with the  contribution,  Directrix  issued to Spice the
Common  Stock and  assumed  certain  liabilities  (the  "Assumed  Liabilities"),
subject to the indemnification obligations of Spice described below. The Assumed
Liabilities  include (a) all of the liabilities  relating to EMI, (b) all of the
liabilities relating to or arising from the Operations Facility, but only to the
extent  they  arise  after  March  15,  1999,  and  (c)  those  liabilities  and
obligations  arising  out of the assets  being  transferred  to  Directrix.  The
Transfer Agreement  provides,  among other things, that Directrix will indemnify
Spice for the Assumed Liabilities.

         On March 15, 1999,  Directrix and Spice entered into an Explicit Rights
Agreement  under  which  Spice  assigned  to  Directrix  certain  broadcast  and
transmission  rights in and to the films  licensed  by  Spice,  excluding  films
licensed by Spice's  international  subsidiaries.  Spice will remain responsible
for the payment of license fees.  In addition,  Directrix and Spice entered into
the Owned Rights Agreement pursuant to which Spice assigned to Directrix certain
broadcast and  transmission  rights in and to Spice's  existing library of owned
adult films.

         In connection  with the Merger,  Playboy and  Directrix  entered into a
Satellite Services Agreement, pursuant to which Directrix will provide playback,
uplink  and  compressed  transponder  services  for at least  two  networks.  In
addition,  Directrix  and  Califa  Entertainment  Group,  Inc.  entered  into  a
Satellite Services Agreement, pursuant to which Directrix will provide playback,
uplink and compressed transponder services for one network.


<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:   April 15, 1999

                                    DIRECTRIX, INC.

                                    By: /s/ J. Roger Faherty
                                        --------------------
                                        J. Roger Faherty
                                        Chairman, Chief Executive
                                        Officer, President and Director

     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         Director      Date:  April 15, 1999
---------------------------                         --------------
Donald J. McDonald


/s/ Rudy R. Miller             Director      Date:  April 15, 1999
--------------------------                          --------------
Rudy R. Miller


/s/ Richard Cohen              Director      Date:  April 15, 1999
---------------------------                         --------------
Richard Cohen


/s/ Leland H. Nolan            Director      Date:  April 15, 1999
---------------------------                         --------------
Leland H. Nolan

PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:

                            
/s/ John R. Sharpe             Chief          Date:  April 15, 1999
---------------------------    Financial             --------------
John R. Sharpe                 Officer & 
                               Accounting 
                               Officer