SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
Commission file number 000-25111
Directrix, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-4015248
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
236 West 26th Street, New York, NY 10001
(Address of principal executive offices)
(212) 741-6511
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of Registrant's Common Stock as of October 31, 1999
was 2,119,785.
PART I
ITEM 1: FINANCIAL STATEMENTS
DIRECTRIX, INC.
BALANCE SHEETS (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, March 31,
1999 1999
------------ ------------
ASSETS:
Current assets:
Cash .......................................................................................... $ 126,000 $ 1,450,000
Marketable securities (notes 4 and 8) ......................................................... 2,650,000 4,475,000
Accounts receivable, net ...................................................................... 892,000 720,000
Prepaid expenses and other current assets ..................................................... 357,000 253,000
------------ ------------
Total current assets ........................................................... 4,025,000 6,898,000
Property and equipment, net ........................................................................ 4,683,000 2,669,000
Library of movies, net ............................................................................. 1,384,000 833,000
Deferred financing costs ........................................................................... 128,000 173,000
Other assets ....................................................................................... 93,000 66,000
------------ ------------
$ 10,313,000 $ 10,639,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of obligations under capital leases ............................................ $ 141,000 $ 370,000
Accounts payable ............................................................................... 2,194,000 664,000
Loan payable (note 8) .......................................................................... 700,000 --
Accrued expenses and other current liabilities ................................................. 510,000 469,000
------------ ------------
Total current liabilities ...................................................... 3,545,000 1,503,000
Obligations under capital leases, less current portion ............................................. -- 163,000
------------ ------------
Total liabilities .............................................................. 3,545,000 1,666,000
------------ ------------
Commitments and contingencies:
Stockholders' equity
Common stock, $.01 par value; authorized 25,000,000 shares;
2,119,785 and 2,074,785 shares issued and outstanding at
September 30, 1999 and March 31, 1999, respectively .......................................... 21,000 21,000
Additional paid-in capital ..................................................................... 20,361,000 20,361,000
Accumulated other comprehensive income (note 8) ................................................ 75,000 --
Accumulated deficit ............................................................................ (13,689,000) (11,409,000)
------------ ------------
Total stockholders' equity ..................................................... 6,768,000 8,973,000
------------ ------------
$ 10,313,000 $ 10,639,000
============ ============
The accompanying notes are an integral part of these financial statements.
DIRECTRIX, INC.
STATEMENTS of OPERATIONS (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues: .................................................. $ 2,421,000 $ 2,514,000 $ 4,836,000 $ 4,966,000
----------- ----------- ----------- -----------
Operating expenses:
Salaries, wages and benefits ........................... 764,000 604,000 1,447,000 1,277,000
Library amortization ................................... 90,000 89,000 184,000 152,000
Satellite costs ........................................ 1,642,000 1,641,000 3,214,000 3,289,000
Selling, general and administrative expenses ........... 1,026,000 608,000 2,094,000 1,165,000
Depreciation of fixed assets ........................... 327,000 196,000 597,000 486,000
----------- ----------- ----------- -----------
Total operating expenses ........................ 3,849,000 3,138,000 7,536,000 6,369,000
----------- ----------- ----------- -----------
Loss from operations ............................ (1,428,000) (624,000) (2,700,000) (1,403,000)
Interest expense ........................................... 33,000 26,000 68,000 63,000
Gain on disposal of marketable securities .................. -- -- (488,000) --
----------- ----------- ----------- -----------
Net loss ........................................ $(1,461,000) $ (650,000) $(2,280,000) $(1,466,000)
=========== =========== =========== ===========
Net loss per common share:
Basic and Diluted .................................... $ (0.69) $ (0.31) $ (1.08) $ (0.71)
=========== =========== =========== ===========
Weighted average number of shares outstanding:
Basic and Diluted (note 5) ........................... 2,119,785 2,074,785 2,111,916 2,074,785
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
DIRECTRIX, INC.
STATEMENT of STOCKHOLDERS' EQUITY (unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Accum. Other
Common Paid-in Comprehensive Accumulated
Stock Capital Income Deficit Total
------------- ---------------- ---------------- --------------- ----------------
Balance at April 1, 1999 $21,000 $20,361,000 $ - $(11,409,000) $8,973,000
Options issued to the Board of Directors - 175,000 - - 175,000
Reversal of options issued to the Board
of Directors (note 9) - (175,000) - - (175,000)
Comprehensive Income due to change in market
value of Playboy Stock (note 8) - - 75,000 - 75,000
Net loss - - - (2,280,000) (2,280,000)
------------- ---------------- ---------------- --------------- ----------------
Balance at September 30, 1999 $21,000 $20,361,000 $75,000 $(13,689,000) $6,768,000
============= ================ ================ =============== ================
The accompanying notes are an integral part of this financial statement.
DIRECTRIX INC
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Six months ended September 30,
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss ............................................................................ $(2,280,000) $(1,466,000)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation of fixed assets ......................................................... 597,000 486,000
Amortization of library of movies .................................................... 184,000 152,000
Amortization of deferred financing costs ............................................. 45,000 --
Gain on disposal of marketable securities ............................................ (488,000) --
Provision for bad debts .............................................................. 581,000 --
Consulting expense satisfied through the issuance of warrants ........................ -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ...................................... (1,488,000) 18,000
Increase in prepaid expenses and other current assets ........................... (104,000) (504,000)
Increase in other assets ........................................................ (27,000) --
Increase in loan payable ........................................................ 700,000 --
Increase in accounts payable and accrued expenses ............................... 1,381,000 74,000
----------- -----------
Total adjustments ..................................................... 1,381,000 226,000
----------- -----------
Net cash used in operating activities ................................. (899,000) (1,240,000)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of Playboy Stock ............................................. 2,388,000 --
Purchase of property and equipment .............................................. (2,611,000) (123,000)
Purchase of rights to libraries of movies ....................................... -- (176,000)
----------- -----------
Net cash used in investing activities ................................. (223,000) (299,000)
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt and capital leases obligations ...................... (202,000) (279,000)
Net transfers from Spice ........................................................ -- 1,818,000
----------- -----------
Net cash provided by (used in) financing activities ................... (202,000) 1,539,000
----------- -----------
Net decrease in cash and cash equivalents ............................. (1,324,000) --
Cash and cash equivalents, beginning of the period ....................................... 1,450,000 --
----------- -----------
Cash and cash equivalents, end of the period .......................... $ 126,000 $ --
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .............................................................. $ 21,000 $ 58,000
=========== ===========
Income taxes .......................................................... $ -- $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
DIRECTRIX, INC.
NOTES to FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)
_______________________________________________________________________________
1. In the opinion of Directrix, Inc. ("Directrix"), the accompanying unaudited
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1999, and the results of operations and cash flows for the three
and six months ended September 30, 1998 and 1999, respectively.
2. The results of operations for the six and three months ended September 30,
1998 and 1999 are not necessarily indicative of the results to be expected for
the full year.
3. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
("GAAP") have been condensed or omitted. These consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in Directrix' Annual Report on Form 10-KSB for the year ended December
31, 1998.
4. On March 15, 1999, as a condition to the merger (the "Merger") between Spice
Entertainment Companies, Inc. ("Spice") and Playboy Enterprises, Inc.
("Playboy"), Spice and Directrix entered into a Transfer and Redemption
Agreement (the "Transfer 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 Directrix' common
stock (the "Common Stock"). In connection with the Merger, Spice distributed the
Common Stock to the stockholders of Spice as part of the consideration for the
Merger.
Pursuant to the terms of the Transfer Agreement, immediately prior to
the Merger, Spice contributed certain assets to Directrix, including (a) all of
the equipment and facilities relating to Spice's master control and digital
playback center (the "Operations Facility"), (b) an option ("EMI Option") to
purchase the assets and liabilities of Emerald Media, Inc. ("EMI"), (c) certain
rights to Spice's library of adult films acquired before and after the closing
of the Merger (the "Closing"), (d) approximately $0.8 million in cash, (e)
173,784 shares of Playboy stock with a market value of approximately $4.5
million, and (f) accounts receivable and other current assets, totaling
approximately $1.2 million.
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.
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. ("Califa") entered into
a Satellite Services Agreement, pursuant to which Directrix will provide
playback, uplink and compressed transponder services for one network.
5. For all periods ending before April 1, 1999, Directrix presented calculated
pro forma net loss per share because historical earnings (loss) per share would
not be meaningful. Pro forma net loss per share is calculated after giving
effect to the distribution of Directrix' Common Stock (2,119,785 and 2,074,785
shares issued and outstanding at September 30, 1999 and March 31, 1999,
respectively). Pro forma net loss per share is calculated in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." For the six and three months ended September 30, 1999, since Directrix
reported a net loss in each period, Basic and Diluted 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.
DIRECTRIX, INC.
NOTES to FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (unaudited) CONTINUED
_______________________________________________________________________________
6. Playboy disputed certain payments made on behalf of Directrix prior to the
Closing of the Merger. Playboy withheld severance payments due J. Roger Faherty,
the Chief Executive Officer of Directrix, under his Spice employment agreement
as a result of this dispute. Pending resolution of this dispute, Directrix
loaned Mr. Faherty the amount withheld by Playboy. The loan was secured by an
assignment of the severance payments due Mr. Faherty under his employment
agreement with Spice. On September 15, 1999 Directrix and Playboy settled the
dispute. In accordance with the settlement, Playboy paid Mr. Faherty the
remaining severance payments due under his Spice employment agreement and
Directrix paid Playboy a portion of the disputed payments made on behalf of
Directrix prior to the Closing of the Merger. On September 27, 1999, Mr. Faherty
repaid the loaned amount to Directrix.
7. On May 4, 1999, the Board of Directors of Directrix approved a change in
Directrix' fiscal year from December 31 to March 31. This will enable Directrix
to more timely report a full year's worth of operations as a stand-alone entity
and more meaningfully reflect its operational results. The three month
transition period from January 1, 1999 to March 31, 1999 preceded the start of
the new fiscal year and was represented in the Form 10-QSB Transition Report for
the three months ended March 31, 1999.
8. During the three months ended June 30, 1999, Directrix sold 73,784 shares of
Playboy stock contributed by Spice at Closing for net cash proceeds of
approximately $2.4 million, resulting in a gain of approximately $0.5 million.
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," on September 30, 1999, Directrix classified the 100,000
shares of Playboy stock as "available for sale" and recorded the 100,000 shares
of Playboy stock at a value of $26.50, which was the per share market value on
September 30, 1999. In accordance with SFAS No. 130, "Reporting Comprehensive
Income," the gain associated with the increase in per share market value is
recorded as equity under "Accumulated other comprehensive income." During the
three months ended September 30, 1999, Directrix deposited the 100,000 shares of
Playboy stock in a margin account. As of September 30, 1999, Directrix has
borrowed $0.7 million from the margin account.
9. On April 21, 1999, Directrix granted employees options to acquire 143,894
shares of the common stock of Directrix ("Options") exercisable at $3.94 per
share, of which options to acquire 75,000 shares were to officers. Directrix
also granted options to acquire 75,000 shares to all non-employee directors
exercisable at $3.94, resulting in an expense of $175,000. No compensation
expense was recognized in connection with the employee grant because the
exercise price was equal to the market value of the stock on the grant date. On
September 30, 1999, Directrix reversed the $175,000 of expense associated with
the options granted to all non-employee directors in accordance with revised
interpretations of APB No. 25, "Accounting for Stock Issued to Employees."
The April 21, 1999, employee grant did not include options for the
Chief Executive Officer ("CEO") because the Compensation Committee had not yet
completed its evaluation concerning the granting of options commensurate with
the CEO's duties and responsibilities. On July 15, 1999 the Compensation
Committee approved and Directrix granted options to acquire 50,000 shares to the
CEO, exercisable at $6.4375 per share, the market price on the grant date.
10. On March 31, 1999, Directrix and EMI amended their agreements whereby
Directrix agreed to provide expanded services to EMI. Under the new agreement,
Directrix agreed to provide transponder, playback and production services for
four of EMI's networks. The amendment also extended the contract term from
December 31, 1999 to December 31, 2000. In consideration for providing expanded
services as well as the extension, Directrix forgave EMI's accounts receivable
balance in excess of $755,000, which is the exercise price of the EMI option.
11. On September 30, 1999, Directrix and EMI reached an agreement whereby
Directrix acquired all broadcast and Internet worldwide rights to EMI's library
of movies. In consideration for these rights, Directrix paid EMI $735,000, the
fair market value of the acquired rights on the agreement date. Directrix paid
for these rights by reducing EMI's accounts receivable balance to Directrix.
DIRECTRIX, INC.
ITEM 2: MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
_______________________________________________________________________________
This report contains forward-looking statements that involve a number of risks
and uncertainties. In addition to the factors discussed elsewhere in this
report, among the other factors that could cause actual results 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. On March 15, 1999, prior to the Closing, Spice contributed to
Directrix, among other things, all of the assets and liabilities associated with
the Operations Facility, the EMI Option and the rights to distribute the
explicit version of Spice's adult films in the c-band direct-to-home ("DTH")
market and over the Internet. Spice also contributed approximately $0.8 million
in cash, accounts receivable and other current assets totaling approximately
$1.2 million and 173,784 shares of Playboy stock valued at approximately $4.5
million, which were purchased by Spice prior to the Closing.
On September 1, 1999, Directrix relocated its Operations Center to a
new facility located in Northvale, New Jersey. When complete, this facility will
include a state of the art master control and digital playback center, which
will enable Directrix to improve the scope, nature and quality of service
provided to its customers and implement management's plans.
On September 30, 1999, John Sharpe resigned from his position as
Vice-President, Chief Financial Officer and Treasurer of Directrix. Donald J.
McDonald, Jr., currently the President and a Director of Directrix, has assumed
the additional responsibilities of Chief Financial Officer and Treasurer of
Directrix.
On May 4, 1999, the Board of Directors of Directrix approved a change
in Directrix' fiscal year from December 31 to March 31. The change in Directrix'
fiscal year will enable Directrix to more timely report a full years' worth of
operations as a stand-alone entity and more meaningfully reflect its operational
results. The three month transition period from January 1, 1999 to March 31,
1999 preceded the start of the new fiscal year and was represented in the Form
10-QSB Transition Report for the three months ended March 31, 1999.
Results of Operations
The financial statements of Directrix reflect the results of
operations, financial position and cash flow of the business 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. Directrix believes the
assumptions underlying its financial statements prior to the Closing to be
reasonable.
The financial information included herein for the periods prior to
Closing, however, may not necessarily reflect the results of operations,
financial position and cash flow of Directrix had Directrix been a separate,
stand-alone entity during the periods presented prior to Closing. The financial
information prior to Closing included herein does not reflect the many changes
that have occurred in the funding and operations of Directrix as a result of the
transactions involving Spice, Playboy and Directrix.
DIRECTRIX, INC.
ITEM 2: MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS (CONTINUED)
_______________________________________________________________________________
Prior to Closing, revenues were earned principally from services
provided to two customers, EMI and Playboy. For the year ended December 31,
1998, and the transition period ended March 31, 1999, due to the ongoing
uncertainty surrounding EMI's ability to pay for all services provided,
Directrix reserved all revenues from EMI that were not collected. For the three
months ended June 30, 1999, as a result of a significant improvement in cash
received from EMI, Directrix resumed recording revenues from EMI based on
contractual amounts. For the six months ended September 30, 1999, due to cash
received from EMI and the acquisition of all broadcast and Internet worldwide
rights to EMI's library of movies, Directrix continued recording revenues from
EMI based on contractual amounts. Prior to Closing, 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.
Net Loss. For the six and three months ended September 30, 1999,
Directrix reported a net loss of $2.3 million and $1.5 million, respectively, as
compared to a net loss of $1.5 million and $0.7 million for the same periods in
1998. Although Directrix reported a similar increase in net loss for the six and
three months ended September 30, 1999, there were two major differences. In the
six months ended September 30, 1999, Directrix reported a gain on the sale of
Playboy stock of approximately $0.5 million. In the three months ended September
30, 1999, Directrix reversed expense associated with the options granted to all
non-employee directors of approximately $0.2 million. The increase in net loss
for the six and three months ended September 30, 1999 was primarily attributable
to increases in selling, general and administrative expenses of approximately
$0.9 million and 0.4 million respectively, as compared to the corresponding
periods in 1998.
Revenues. Total revenues for the six and three months ended September
30, 1999 decreased by $0.1 million for each period as compared to the same
periods in 1998. The decrease in revenues for the six and three months ended
September 30, 1999, were primarily attributable to a decline in revenue relating
to Playboy and Califa, networks previously owned by Spice, of $2.0 million and
$1.0 million, respectively, offset by an increase in revenue associated with EMI
of $1.8 million and $0.8 million, respectively.
The increase in revenues from EMI for the six and three months ended
September 30, 1999 was attributable to cash received from EMI and the
acquisition of all broadcast and Internet worldwide rights to EMI's library of
movies. Directrix continues to monitor the progress of EMI regarding the
continued development, implementation and execution of its business plan.
Directrix also continues to assess various strategies with respect to the EMI
Option.
The decrease in revenue from Playboy and Califa was attributable to two
factors: (i) at Closing, Playboy assumed the lease for one of the Loral
transponders which had generated revenues from Spice for Directrix, and (ii)
Playboy's and Califa's decision to handle the production services function
themselves, which had been provided by Directrix prior to Closing.
Salaries, Wages and Benefits. Salaries, wages and benefits for the six
and three months ended September 30, 1999 increased by $0.2 million for each
period, respectively, as compared to the same periods in 1998. The increase in
salaries, wages and benefits was attributable to the allocation of all of the
salary expense for employees to Directrix in the six and three months ended
September 30, 1999, as compared to the corresponding periods in 1998, where,
prior to Closing, a portion of the salary expense for certain employees was
allocated among Spice subsidiaries.
Library Amortization. Library amortization for the six and three
months ended September 30, 1999 was substantially the same as the corresponding
periods in 1998.
Satellite Costs. Satellite costs for the six and three months ended
September 30, 1999 were substantially the same as the corresponding period in
1998. The assignment of one transponder to Playboy at Closing was offset by the
addition of a transponder, which was required under the expanded service
agreement with EMI.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six and three months ended September 30, 1999
increased by $0.9 million and $0.4 million as compared to the corresponding
period in 1998. The increase in selling, general and administrative expenses for
the six and three months ended September 30, 1999 was primarily attributable to
an increase in uncollectable accounts as compared to the corresponding periods
in 1998 and one-time expenses relating to the relocation of the Operation
Facility of approximately $0.1 million.
DIRECTRIX, INC.
ITEM 2: MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS (CONTINUED)
_______________________________________________________________________________
Depreciation of Fixed Assets. Depreciation of fixed assets for the six
and three months ended September 30, 1999 increased by $0.1 million for each
period as compared to the corresponding periods in 1998. The increase in
depreciation of fixed assets was primarily attributable to the buildout of the
Operations Center in Northvale facility.
Liquidity and Capital Resources
Prior to the Merger, Spice used a centralized approach to cash
management and the financing of its operations. As a result, prior to the
Merger, Spice funded all of the activities of Directrix. Spice provided funding
of $3.9 million to Directrix for 1998 and $1.7 million in the first quarter of
1999.
On March 31, 1999 and September 30, 1999, Directrix had working capital
of approximately $5.4 million and $0.5 million, respectively. The decline in
working capital during the six months ended September 30, 1999, was primarily
attributable to purchases of property and equipment associated with the buildout
of the Northvale facility of $2.6 million and operating loss of $2.3 million.
Directrix projects to spend an additional $1.5 million on the upgrade and
buildout of the Northvale facility which includes a state of the art master
control and digital playback center. When complete, the Northvale facility will
enable Directrix to improve the scope, nature and quality of service provided to
its customers and implement management's plans.
Directrix also has a revolving line of credit ("Credit facility") of
$1.5 million, provided by two senior officers and one director of Directrix. The
Credit Facility bears interest at 11% per annum and matures on March 15, 2001.
As additional consideration, Directrix issued an aggregate of 45,000 warrants,
exercisable at $0.01, to the lenders of the Credit Facility. As of September 30,
1999, there were no borrowings under the Credit Facility. In order to provide
for the continued upgrade and buildout of the Northvale facility, Directrix is
involved in preliminary negotiations to increase the funds available under the
Credit Facility from $1.5 million to $5.0 million. However, there can be no
assurances that Directrix will be able to secure an increase in the funds
available under the Credit Facility.
During the three months ended June 30, 1999, Directrix sold 73,784
shares of Playboy stock contributed by Spice at Closing for net cash proceeds of
approximately $2.4 million, resulting in a gain of approximately $0.5 million.
During the three months ended September 30, 1999, Directrix deposited the
100,000 shares of Playboy stock in a margin account. As of September 30, 1999,
Directrix has borrowed $0.7 million from the margin account.
Management believes that working capital, cash generated from
operations, funding available under the credit facility and the contributed
Playboy stock will provide sufficient funding to implement management's plans.
Year 2000 Compliance
Directrix recognizes the importance of this issue and is actively
managing an appropriate transition into the year 2000. Directrix has identified
and has implemented changes to its existing computerized business systems. By
modifying existing programs and making conversions to Y2K compliant software,
Directrix has addressed this issue. Directrix has also established
communications with it's vendors and other service providers to ensure that
their products and business systems are or will be Y2K compliant. Directrix is
not aware of any anticipated Year 2000 non-compliance by its vendors, other
service providers or customers that could materially affect Directrix' business
operations. However, Directrix does not control the systems of other companies
and cannot assure that such systems will be converted in a timely fashion and,
if not converted, would not have an adverse effect on Directrix' business
operations.
By taking a pro-active stance regarding modification and conversion
of systems towards complying with the potential Y2K problem, Directrix is taking
measures so no adverse effects will be felt on their business or operations
systems. Virtually all of Directrix' major systems have either been identified
as Y2K compliant or consideration has been completed to ensure Y2K compliance,
including financial applications and operating systems. At this time Directrix
is completing its final evaluation of less critical systems such as desktop
applications with an intended goal of having all systems being completely Y2K
compliant by December 1, 1999.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
None.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 27.00 - Financial Data Schedule.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
DIRECTRIX, INC.
Dated: November 15, 1999
By:/s/ Donald J. McDonald, Jr.
_______________________________________
Donald J. McDonald, Jr.
President, Director, Chief Financial
Officer and Principal Accounting Officer