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Article by DailyStocks_admin    (08-01-08 05:08 AM)

Filed with the SEC from July 16 to July 23:

Access Integrated Technologies (AIXD)
Aquifer Capital Group believes AIXD must balance its "emerging satellite, advertising and content businesses with the current market's fiscal realities," and intends to express its views on how to return the stock to more appropriate valuation levels. Aquifer reported ownership of 1,687,828 shares (6.28%), after buying 1,161,497 from May 29 to July 15 at $1.70 to $2.40 a share.

BUSINESS OVERVIEW

OVERVIEW

AccessIT was incorporated in Delaware on March 31, 2000. We provide fully managed storage, electronic delivery and software services and technology solutions for owners and distributors of digital content to movie theatres and other venues. In the past, we have generated revenues from two primary businesses, media services (“Media Services”) and internet data center (“IDC” or “data center”) services (“Data Center Services”), a business we no longer operated after May 1, 2007. Beginning April 1, 2007, we made changes to our organizational structure which impacted our reportable segments, but did not impact our consolidated financial position, results of operations or cash flows. We realigned our focus to three primary businesses, media services (“Media Services”), media content and entertainment (“Content & Entertainment”) and other (“Other”). Our Media Services business provides software, services and technology solutions to the motion picture and television industries, primarily to facilitate the transition from analog (film) to digital cinema and has positioned us at what we believe to be the forefront of an emerging industry opportunity relating to the delivery and management of digital cinema and other content to entertainment and other remote venues worldwide. Our Content & Entertainment business provides motion picture exhibition to the general public and cinema advertising and film distribution services to movie exhibitors. Our Other business is attributable to the Data Center Services.

In February 2003, we organized AccessDM, for the worldwide delivery of digital data, including movies, advertisements and alternative content such as concerts, seminars and sporting events, to movie theaters and other venues having digital projection equipment.

In November 2003, we acquired all of the capital stock of AccessIT SW, a leading provider of proprietary transactional support software and consulting services for distributors and exhibitors of filmed entertainment in the United States and Canada (the “AccessIT SW Acquisition”).

In January 2004, we acquired Managed Services, a managed service provider of information technologies (the “Managed Services Acquisition”) which operates a 24x7 GNCC, capable of running the networks and systems of large corporate clients. The three largest customers of Managed Services accounted for approximately 60% of its revenues.

In November 2004, we acquired certain assets and liabilities of FiberSat Global Services, LLC (the “FiberSat Acquisition”).

In June 2005, we formed AccessIT DC, a wholly-owned subsidiary of AccessDM, to purchase Systems for our Phase I Deployment, under the framework agreement (the “Framework Agreement”) with Christie Digital Systems USA, Inc. (“Christie”). In September 2005, pursuant to a second amendment to the Framework Agreement, Christie and AccessIT DC agreed to extend the number of Systems which may be ordered to 4,000 Systems. In December 2007, AccessIT DC completed its Phase I Deployment with 3,723 Systems installed.

In June 2006, the Company, through its indirectly wholly-owned subsidiary, PLX Acquisition Corp. (“PLX Acquisition”), purchased substantially all the assets of PLX Systems Inc. (“PLX”) and Right Track Solutions Incorporated (“Right Track”). PLX Acquisition provides technology, expertise and core competencies in intellectual property (“IP”) rights and royalty management, expanding the Company’s ability to bring alternative forms of content, such as non-traditional feature films. PLX’s and Right Track’s assets have been integrated into the operations of AccessIT SW.

In October 2007, we formed Phase 2 Corporation, a wholly-owned subsidiary of AccessIT DC, to purchase up to 10,000 additional Systems for our expected Phase II Deployment.

In October 2007, AccessDM launched CineLive SM , a new hardware product that enables live 2-D and 3-D streaming broadcasts to be converted from satellite feeds into on-screen entertainment, which can then be delivered to and exhibited in digital cinema equipped theatres. CineLive SM was developed exclusively for AccessDM by International Datacasting Corporation (IDC) and SENSIO Technologies Inc.

The business of AccessIT DC consists of the ownership and licensing of digital systems to exhibitors and the collection of VPFs from motion picture studios and ACFs from exhibitors, when content is shown on exhibitors’ screens. We have licensed the necessary software and technology solutions to the exhibitor and have facilitated its transition from analog (film) to digital cinema. As part of AccessIT DC’s Phase I Deployment of digital systems, AccessIT DC has agreements with seven major motion picture studios, certain smaller independent studios and exhibitors allowing it to collect VPFs and ACFs when content is shown in theatres, in exchange for it having facilitated the deployment, and providing management services, of 3,723 Systems and the other digital cinema assets. AccessIT DC has agreements with sixteen domestic theatre circuits that license our Systems in order to show digital content distributed by the studios and other providers, including an AccessIT subsidiary, The Bigger Picture. Phase 2 Corporation has entered into agreements with four major motion picture studios which will allow it to collect VPFs and ACFs once Phase 2 Corporation enters into license agreements with exhibitors, arranges suitable financing for the purchase of Systems, enters into vendor supply agreements for the necessary equipment and once the Systems are installed and ready for content.

Products

AccessIT SW provides proprietary software applications and services to support customers of varying sizes, through software licenses, its ASP Service which it hosts the application through Managed Services and client access via the Internet and provides outsourced film distribution services, called IndieDirect.

Domestic Theatrical Distribution Management

AccessIT SW’s TDS product is currently licensed to several motion picture studios, including Overture Films, Summit Entertainment, 20th Century Fox, Universal Studios, MGM, Lionsgate and the Weinstein Company. These studios comprised approximately 41.9%, 12.4%, 11.8%, 5.3%, 4.6%, 3.0%, 2.4% and 2.3%, respectively, of AccessIT SW’s revenues for the fiscal year ended March 31, 2008. Several distributors utilize AccessIT SW’s products through its ASP Service, including Director’s Limited, Freestyle Releasing, IDP, IFC Films, IFS, Magnolia Pictures and Maple Pictures. In addition, AccessIT SW licenses to customers other distribution-related software, MPPS, which further automates and manages related aspects of movie distribution, including advertising, strategic theatre selection and competitive release planning.

AccessIT SW also provides outsourced movie distribution services, specifically for independent film distributors and producers, through IndieDirect. The IndieDirect staff uses the TDS distribution software to provide back office movie booking, tracking, reporting, settlement, and receivables management services.

International Theatrical Distribution Management

In 2004, AccessIT SW began developing TDSG, an international version of our successful TDS application, to support worldwide movie distribution and has the capability to run either from a single central location or multiple locations. In December 2004, AccessIT SW signed an agreement to license TDSG to 20th Century Fox, who has begun the implementation of the software, targeting fourteen overseas territories, encompassing eighteen foreign offices. As with our North American TDS solution, the TDSG system seamlessly integrates with AccessIT’s digital content delivery, significantly enhancing our international market opportunities.

Exhibition Management

We believe that our EMS™ system is one of the most powerful and comprehensive systems available to manage all key elements of motion picture exhibition. This fully supported solution can exchange information with every financial, ticketing, point-of-sale, distributor and data system to eliminate manual processes. Also, EMS™ is designed to create innovative revenue opportunities for motion picture exhibitors from the presentation of new and/or additional advertising and alternative entertainment in their movie theatres due to the expanding use of digital content delivery.

IP Rights and Royalty Management

AccessIT SW also provides software for the management of IP rights and royalties, called RTS, which was acquired in the acquisition of PLX.

Distributed Software

AccessIT SW also distributes Vista, a theatre ticketing solution, developed by Vista Entertainment Solutions Limited (“Vista Entertainment”) which is based in New Zealand. AccessIT SW is currently the only United States-based distributor of Vista to the United States theatre market. Under our distribution agreement with Vista Entertainment, AccessIT SW earns a percentage of license fees, maintenance fees and consulting fees generated from each Vista product we sell.

Research and Development

The Company’s research and development was approximately $300,000, $330,000 and $162,000 for the fiscal years ended March 31, 2006, 2007 and 2008, respectively, and was comprised mainly of personnel costs and third party contracted services attributable to research and development efforts at AccessIT SW related to the development of our digital software applications and various product enhancements to TDS and EMS™.

Market Opportunity

We believe that:

•

AccessIT SW’s products are becoming the industry standard method by which motion picture studios and exhibitors plan, manage and monitor operations and data regarding the presentation of theatrical entertainment. Based upon certain industry figures, distributors using AccessIT SW’s TDS software cumulatively managed over one-third of the United States theatre box office revenues each year since 1999;
•

by adapting this system to serve the expanding digital entertainment industry, AccessIT SW’s products and services will be accepted as an important component in the digital content delivery and management business;
•

the continued transition to digital content delivery will require a high degree of coordination among content providers, customers and intermediary service providers;
•

producing, buying and delivering media content through worldwide distribution channels is a highly fragmented and inefficient process; and
•

technologies created by AccessIT SW and the continuing development of and general transition to digital forms of media will help the digital content delivery and management business become increasingly streamlined, automated and enhanced.

Intellectual Property

AccessIT SW currently has intellectual property consisting of:

•

licensable software products, including TDS, TDSG, EMS™, MPPS and RTS;
•

domain names, including EPayTV.com, EpayTV.net, HollywoodSoftware.com, HollywoodSoftware.net, Indie-Coop.com, Indie-Coop.net, Indiedirect.com, IPayTV.com; PersonalEDI.com, RightsMart.com, RightsMart.net, TheatricalDistribution.com and Vistapos.com;
•

unregistered trademarks and service marks, including Coop Advertising V1.04, EMS ASP, Exhibitor Management System, Hollywood SW, Inc., HollywoodSoftware.com, Indie Co-op, Media Manager, On-Line Release Schedule, RightsMart, TDS and TheatricalDistribution.com; and
•

logos, including those in respect of Hollywood SW, TDS and EMS™.

Customers

Overture Films, Pacific Theatres and Summit Entertainment, each represented 10% or more of AccessIT SW’s revenues and together generated 38.1% of AccessIT SW’s revenues and Carmike Theatres generated 31.3% of DMS’ TCC revenues. Pacific Theatres and Summit Entertainment are also customers for Digital Media Delivery. We expect to continue to conduct business with each of these customers in fiscal year 2009.

Competition

Within the major motion picture studios and exhibition circuits, AccessIT SW’s principal competitors for its products are in-house development teams, which generally are assisted by outside contractors and other third-parties. Most motion picture studios that do not use the TDS software use their own in-house developed systems. Internationally, AccessIT SW is aware of one vendor based in the Netherlands providing similar software on a smaller scale. AccessIT SW’s movie exhibition product, EMS™, competes principally with customized solutions developed by the large exhibition circuits and at least one other competitor that has been targeting mid- to small-sized motion picture exhibitors. We believe that AccessIT SW, through its technology and management experience, may differentiate itself by providing a competitive alternative to their forms of digital content delivery and management business.

Our TCC system, provides in-theatre management for digitally–equipped movie theatres, enabling one to control all the screens in a movie theatre, manage content and version review, show building, program scheduling and encryption security key management from a central terminal, whether located in the projection booth, the theatre manager’s office or both.

The Digital Express e-Courier Services SM software makes interaction between the content originator (such as the motion picture studio) and the exhibitor easier:

•

Programming is viewed, booked, scheduled and electronically delivered through Digital Express e-Courier Services SM .
•

Once received, DCDMs are prepared for distribution employing wrapper technology, including the application of an additional layer of Advanced Encryption Standard encryption, for added security.
•

Designed to provide transparent control over the delivery process, Digital Express e-Courier Services SM provides comprehensive, real-time monitoring capabilities including a fully customizable, automatic event notification system, delivering important status information to customers through a variety of connected devices including cell phones, e-mail or pagers.

Current licensed software of AccessIT DC consists of the following:

In February 2006, AccessIT DC entered into an agreement with Philips Electronics Nederland B.V. (“Philips”) for a non-exclusive, worldwide right to use software license for Philips’ software Cinefence (the “Cinefence License”). The Cinefence License is for an initial period of twelve years and renews automatically each year unless terminated by either party upon written notice. Cinefence is a watermarking detector of audio and video watermarks in content distributed through digital cinema. Christie incorporates Cinefence into the Systems deployed with motion picture exhibitors participating in AccessIT DC’s Phase I Deployment.

Market Opportunity

According to the Motion Picture Association, on average, there were approximately 530 new movie releases for each of the past two years. The average major movie is released to approximately 4,000 screens in the United States and 8,000 screens worldwide. According to the National Association of Theatre Owners, there are approximately 107,000 screens worldwide that play major movie releases, with approximately 38,000 screens located in the United States.

We believe that:

•

the demand for digital content delivery will increase as the movie, advertising and entertainment industries continue to convert to a digital format in order to achieve cost savings, greater flexibility and/or improved image quality;
•

digital content delivery eventually will replace, or at least become more prevalent than, the current method used for film delivery since existing film delivery generally involves the time-consuming, somewhat expensive and cumbersome process of receiving bulk printed film, rebuilding the film into shipping reels, packaging the film reels into canisters and physically delivering the film reels by traditional ground modes of transportation to movie theatres;
•

the expanding use of digital content delivery will lead to an increasing need for digital content delivery, as the movie exhibition industry now has the capability to present advertisements, trailers and alternative entertainment in a digital format and in a commercially viable manner;
•

motion picture exhibitors may be able to profit from the presentation of new and/or additional advertising in their movie theatres and that alternative entertainment at movie theatres may both expand their hours of operation and increase their occupancy rates;
•

the demand for our digital content delivery is directly related to the number of digital movie releases each year, the number of movie screens those movies are shown on and the transition to digital presentations in those movie theatres;
•

the cost to deliver digital movies to movie theatres will be much less than the cost to print and deliver analog movie prints, and such lesser cost will provide the economic model to drive the conversion from analog to digital cinema (according to Nash Information Services, LLC., the average film print costs $2,000 per print); and
•

digital content delivery will help reduce the cost of illegal off-the-screen recording of movies with handheld camcorders due to the watermark technology being utilized in content distributed through digital cinema (according to the Motion Picture Association of America, this costs the worldwide movie exhibition industry an estimated $6.1 billion annually).

To date, in connection with our Phase I Deployment, we have entered into digital cinema deployment agreements with seven motion picture studios and a digital cinema agreement with one alternative content provider for the distribution of digital movie releases and alternative content to motion picture exhibitors equipped with Systems, and providing for payment of VPFs and ACFs to AccessIT DC. In December 2007, AccessIT DC completed its Phase I Deployment with 3,723 Systems installed.

Intellectual Property

AccessDM has received United States service mark registrations for the following: AccessDM® and The Courier For The Digital Era®. AccessIT has received United States service mark registration for Access Digital Media® and Digi-Central®.

DMS currently has intellectual property consisting of unregistered trademarks and service marks, including CineLive SM .

FiberSat Global Services, Inc. has received a United States trademark registration for the marks Theatre Command Center® and Theater Command Center®.

Customers

Digital Media Delivery customers are mainly the motion picture studios and in-theatre advertising customers. For the fiscal year ended March 31, 2008, AccessIT DC’s customers comprised 78.7% of Media Services’ revenues. Five customers, 20 th Century Fox, Disney Worldwide Services, Paramount Pictures, Sony Pictures Releasing Corporation and Warner Brothers, each represented 10% or more of AccessIT DC’s revenues and together generated 57.3% and 47.1% of AccessIT DC’s and Media Services’ revenues, respectively, and are also customers for Entertainment Software. We expect to continue to conduct business with these customers in fiscal year 2009.

Competition

Companies that have developed forms of digital content delivery to entertainment venues include:

•

Technicolor Digital Cinema, an affiliate of the Thomson Company, which has developed distribution technology and support services for the physical delivery of digital movies to motion picture exhibitors and is currently testing a rollout plan;
•

National CineMedia, LLC (NCM), a venture of AMC, Cinemark USA, Inc. and Regal, which have joined to work on the development of a digital cinema business plan, primarily concentrated on in-theatre advertising, business meetings and non-feature film content distribution; and
•

DELUXE Laboratories, a wholly owned subsidiary of the MacAndrews & Forbes Holdings, Inc., which has developed distribution technology and support services for the physical delivery of digital movies to motion picture exhibitors.

These competitors have significantly greater financial, marketing and managerial resources than we do, have generated greater revenue and are better known than we are. However, we believe that DMS, through its technology and management experience, its development of software capable of delivering digital content electronically worldwide, its development of the Theatre Command Center software, and the complement of AccessIT SW’s software, differentiate us from our competitors by providing a competitive alternative to their forms of digital content delivery.

We expect to co-market Digital Media Delivery to the current and prospective customers of AccessIT SW, using marketing and sales efforts and resources of both companies, which would enable owners of digital content to securely deliver such digital content to their customers and, thereafter, to manage and track data regarding the presentation of the digital content, including different forms of audio and/or visual entertainment. As the digital content industry continues to develop, we may engage in other marketing methods, such as advertising and service bundling, and may hire additional sales personnel.

Managed Services

We have developed two distinct Managed Services offerings, Network and Systems Management and Managed Storage Services.

Network and Systems Management

We offer our customers the economies of scale of the GNCC with an advanced engineering staff. Our network and systems management services include:

•

network architecture and design;
•

systems and network monitoring and management;
•

data and voice integration;
•

project management;
•

auditing and assessment;
•

on site support for hardware installation and repair, software installation and update and a 24x7 user help desk;
•

a 24x7 Citrix server farm (a collection of computer servers); and
•

fully managed hosting services.

Managed Storage Services

Our managed storage services, known as AccessStorage-on-Demand, include:

•

hardware and software from such industry leaders as EMC Symmetrix, StorageTek and Veritas;
•

pricing on a per-gigabyte of usage basis which provides customers with reliable primary data storage that is connected to their computers;
•

the latest storage area network (“SAN”) technology and SAN monitoring by our GNCC; and
•

a disaster recovery plan for customers that have their computers located within one of our IDCs by providing them with a tape back-up copy of their data that may then be sent to the customer’s computer if the customer’s data is lost, damaged or inaccessible.

All managed storage services are available separately or may be bundled together with other services. Monthly pricing is based on the type of storage (tape or disk), the capacity used and the level of accessibility required.

Market Opportunity

We believe that:

•

this low-cost and customizable alternative to designing, implementing, and maintaining a large scale network infrastructure enables our clients to focus on information technology business development, rather than the underlying communications infrastructure; and
•

our ability to offer clients the benefits of a SAN storage system at a fraction of the cost of building it themselves, allows our clients to focus on their core business.

Intellectual Property

AccessIT has received United States service mark registration for the following service marks: Access Integrated Technologies®, AccessSecure®; AccessSafe®; AccessBackup®; AccessBusinessContinuance ®; AccessVault®; AccessContent®; AccessColocenter®; AccessDataVault®; AccessColo®; AccessColo, Inc.®; and AccessStore®.

Customers

Our Managed Services customers mainly include major and mid-level networks and ISPs, various users of network services, traditional voice and data transmission providers, long distance carriers and commercial businesses and the motion picture studio customers of our Media Services. For the fiscal year ended March 31, 2008, four customers, the Boeing Company, Kelley Drye & Warren LLP (“KDW”), Rothschild, Inc. and the Weinstein Company, each represented 10% or more of Managed Service revenues and together generated 54% of Managed Service’s revenues. Other than KDW, who is also outside legal counsel for the Company, we do not have any other relationships with these customers. We expect to continue to conduct business with these customers in fiscal 2009, except for the Boeing Company with whom our contractual relationship is expected to terminate.

Competition

Many data center operators offer managed services to clients who co-locate servers in the operator owned data center. Our focus is on delivery of managed services inside the IDCs, now operated by FiberMedia AIT, LLC and Telesource Group, Inc. (together, “FiberMedia”), as a lead product for primary data center services and to also offer those services to clients who have servers outside the IDCs allowing us to offer remote server and network monitoring, server and network management and disaster recovery services.

Our competitors have greater financial, technical, marketing and managerial resources than we do. These competitors also generate greater revenue and are better known than we are. However, we believe that, by offering the IDCs now operated by FiberMedia along with related data center services, may differentiate us from our competition by providing a competitive bundled solution.

Seasonality

Media Services revenues derived from the collection of VPFs from motion picture studios are seasonal, coinciding with the timing of releases of movies by the motion picture studios. Generally, motion picture studios release the most marketable movies during the summer and the holiday season. The unexpected emergence of a hit movie during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. The seasonality of motion picture exhibition, however, has become less pronounced as the motion picture studios are releasing movies somewhat more evenly throughout the year.

Government Regulation

Except for the requirement of compliance with United States export controls relating to the export of high technology products, we are not subject to government approval procedures or other regulations for the licensing of our Entertainment Software products.

The distribution of movies is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. Motion picture studios offer and license movies to motion picture exhibitors, on a movie-by-movie and theatre-by-theatre basis. Consequently, motion picture exhibitors cannot assure themselves of a supply of movies by entering into long-term arrangements with motion picture studios, but must negotiate for licenses on a movie-by-movie basis. AccessIT Satellite maintains a Federal Communications Commission (“FCC”) broadcast license related to our satellite transmission of content and should we violate any FCC laws, we may be subject to fines and or forfeiture of our broadcast license.

Media Services is also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship and health and sanitation requirements. We believe that we are in substantial compliance with all of such laws.

CEO BACKGROUND

A. Dale Mayo, 66, is a co-founder of the Company and has been President, Chief Executive Officer (“CEO”) and Chairman of the Board of Directors (“Chairman”) since the Company’s inception in March 2000. From December 1998 to January 2000, he had been the President and CEO of Cablevision Cinemas, LLC (“Cablevision Cinemas”). In December 1994, Mr. Mayo co-founded Clearview Cinema Group, Inc. (“Clearview Cinema”), which was sold to Cablevision Cinemas in 1998. Mr. Mayo was also the founder, Chairman and CEO of Clearview Leasing Corporation, a lessor of computer peripherals and telecommunications equipment founded in 1976. Mr. Mayo began his career as a computer salesman with IBM in 1965.

Kevin J. Farrell, 46, is a co-founder of the Company and a member of the Board since the Company’s inception in March 2000 and the Company’s Senior Vice President (“SVP”) – Facilities since March 2006. From March 2000 to February 2006, he had been the Company’s SVP - Data Center Operations. From December 1998 to March 2000, he had served as Director of Operations of Gateway Colocation, LLC, of which he was also a co-founder, where he was responsible for the completion of 80,000 square feet of carrier neutral colocation space and supervised infrastructure build-out, tenant installations and daily operations. Prior to joining Gateway, Mr. Farrell had served, from 1993 to 1998, as Building Superintendent and Director of Facility Maintenance at the Newport Financial Center in Jersey City, NJ. He is a former officer of the International Union of Operating Engineers.

Gary S. Loffredo, 42, has been the Company’s SVP -- Business Affairs, General Counsel and Secretary, and a member of the Board since September 2000. From March 1999 to August 2000, he had been Vice President, General Counsel and Secretary of Cablevision Cinemas. At Cablevision Cinemas, Mr. Loffredo was responsible for all aspects of the legal function, including negotiating and drafting commercial agreements, with emphases on real estate, construction and lease contracts. He was also significantly involved in the business evaluation of Cablevision Cinemas’ transactional work, including site selection and analysis, negotiation and new theater construction oversight. Mr. Loffredo was an attorney at the law firm of Kelley Drye & Warren LLP from September 1992 to February 1999.

Wayne L. Clevenger, 64, has been a member of the Board since October 2001. He has more than 20 years of private equity investment experience. He has been a Managing Director of MidMark Equity Partners II, L.P. (“MidMark”), a private equity fund, since 1989. Mr. Clevenger was President of Lexington Investment Company from 1985 to 1989, and, previously, had been employed by DLJ Capital Corporation (Donaldson, Lufkin & Jenrette) and INCO Securities Corporation, the venture capital arm of INCO Limited. Mr. Clevenger served as a director of Clearview Cinema from May 1996 to December 1998.

Gerald C. Crotty, 55, has been a member of the Board since August 2002. Mr. Crotty co-founded and, since June 2001, has directed, Weichert Enterprise LLC, a private and public equity market investment firm, which oversees the holdings of Excelsior Ventures Management, a private equity and venture capital firm that Mr. Crotty co-founded in 1999. From 1991 to 1998, he held various executive positions with ITT Corporation, including President and Chief Operating Officer (“COO”) of ITT Consumer Financial Corp. and Chairman, President and CEO of ITT Information Services, Inc. Mr. Crotty also serves as a director of AXA Premier Funds Trust.

Robert Davidoff, 80, has been a member of the Board since July 2000. Since 1990, Mr. Davidoff has been a Managing Director of Carl Marks & Co., Inc. (“Carl Marks”) and, since 1989, the General Partner of CMNY Capital II, L.P. (“CMNY”), a venture capital affiliate of Carl Marks. Mr. Davidoff is a director of Rex Stores Corporation. Mr. Davidoff served as a director of Clearview Cinema from December 1994 to December 1998.

Matthew W. Finlay, 40, has been a member of the Board since October 2001. Since 1997, Mr. Finlay has been a director of MidMark. Previously, he had been a Vice President with the New York merchant banking firm Juno Partners and its investment banking affiliate, Mille Capital, from 1995 to 1997. Mr. Finlay began his career in 1990 as an analyst with the investment banking firm Southport Partners.

Brett E. Marks, 45, is a co-founder of the Company and has been a member of the Board since the Company’s inception in March 2000. Mr. Marks is a partner with PRM Realty Group, LLC, a developer group which specializes in adding value to high end residential, resort and commercial developments. Mr. Marks was the Company’s SVP -- Business Development from the Company’s inception until May 2006. From December 1998 to March 2000, Mr. Marks had been Vice President of Real Estate and Development of Cablevision Cinemas. From June 1998 until December 1998, he was Vice President of First New York Realty Co., Inc. In December 1994, Mr. Marks co-founded, with Mr. Mayo, Clearview Cinema.

Robert E. Mulholland, 55, has been a member of the Board since January 2006. Mr. Mulholland is currently the Chairman of Sound Securities LLC, an institutional broker dealer. Mr. Mulholland retired recently after a 25-year career at Merrill Lynch & Co. where he most recently served as Senior Vice President and Executive Committee member and also co-headed Merrill Lynch’s America’s Region, covering North and South America.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW

AccessIT was incorporated in Delaware on March 31, 2000. We provide fully managed storage, electronic delivery and software services and technology solutions for owners and distributors of digital content to movie theatres and other venues. In the past, we have generated revenues from two primary businesses, Media Services and Data Center Services, a business we no longer operated after May 1, 2007. Beginning April 1, 2007, we made changes to our organizational structure which impacted our reportable segments, but did not impact our consolidated financial position, results of operations or cash flows. We realigned our focus to three primary businesses, Media Services, Content & Entertainment and Other. Our Media Services business provides software, services and technology solutions to the motion picture and television industries, primarily to facilitate the transition from analog (film) to digital cinema and has positioned us at what we believe to be the forefront of an emerging industry opportunity relating to the delivery and management of digital cinema and other content to entertainment and other remote venues worldwide. Our Content & Entertainment business provides motion picture exhibition to the general public and cinema advertising and film distribution services to movie exhibitors. Our Other business is attributable to the Data Center Services.

Since May 1, 2007, our IDCs have been operated by FiberMedia pursuant to a master collocation agreement. Although we are still the lessee of the IDCs, substantially all of the revenues and expenses are being realized by FiberMedia and not the Company.

We have incurred net losses of $17.1 million, $26.0 million and $35.7 million in the fiscal years ended March 31, 2006, 2007 and 2008, respectively, and we have an accumulated deficit of $100.7 million as of March 31, 2008. We anticipate that, with our recent acquisitions and the operations of AccessIT DC and DMS, our results of operations will improve. As we grow, we expect our operating costs and general and administrative expenses will also increase for the foreseeable future, but as a much lower percentage of revenue. In order to achieve and sustain profitable operations, we will need to generate more revenues than we have in prior years and we may need to obtain additional financing.

Critical Accounting Policies

The following is a discussion of our critical accounting policies.

PROPERTY AND EQUIPMENT

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Internal Use Software

We account for these software development costs under Statement of Position (“SOP”) 98-1, “ Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (“SOP 98-1”). SOP 98-1 states that there are three distinct stages to the software development process for internal use software. The first stage, the preliminary project stage, includes the conceptual formulation, design and testing of alternatives. The second stage, or the program instruction phase, includes the development of the detailed functional specifications, coding and testing. The final stage, the implementation stage, includes the activities associated with placing a software project into service. All activities included within the preliminary project stage would be considered research and development and expensed as incurred. During the program instruction phase, all costs incurred until the software is substantially complete and ready for use, including all necessary testing, are capitalized and amortized on a straight-line basis over estimated lives ranging from three to five years. We have not sold, leased or licensed software developed for internal use to our customers and we have no intention of doing so in the future.

Software to be Sold, Licensed or Otherwise Marketed

We account for these software development costs under SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS No. 86”). SFAS No. 86 states that software development costs that are incurred subsequent to establishing technological feasibility are capitalized until the product is available for general release. Amounts capitalized as software development costs are amortized using the greater of revenues during the period compared to the total estimated revenues to be earned or on a straight-line basis over estimated lives ranging from three to five years. We review capitalized software costs for impairment on a periodic basis. To the extent that the carrying amount exceeds the estimated net realizable value of the capitalized software cost, an impairment charge is recorded. No impairment charge was recorded for the fiscal years ended March 31, 2006, 2007 and 2008, respectively. Amortization of capitalized software development costs, included in direct operating costs, for the fiscal years ended March 31, 2006, 2007 and 2008 amounted to $0.5 million, $0.8 million and $0.6 million, respectively. Revenues relating to customized software development contracts are recognized on a percentage-of-completion method of accounting using the cost to date to the total estimated cost approach. For the fiscal years ended March 31, 2006, 2007 and 2008, unbilled receivables under such customized software development contracts aggregated $1.5 million, $1.4 million and $1.2 million, respectively.

REVENUE RECOGNITION

Media Services

Software licensing revenue is recognized when the following criteria are met: (a) persuasive evidence of an arrangement exists, (b) delivery has occurred and no significant obligations remain, (c) the fee is fixed or determinable and (d) collection is determined to be probable. Significant upfront fees are received in addition to periodic amounts upon achievement of contractual events for licensing of our products. Such amounts are deferred until the revenue recognition criteria have been met, which typically occurs upon delivery and acceptance.

Revenues relating to customized software development contracts are recognized on a percentage-of-completion method of accounting.

Deferred revenue is recorded in cases where: (1) a portion or the entire contract amount cannot be recognized as revenue, due to non-delivery or acceptance of licensed software or custom programming, (2) incomplete implementation of ASP Service arrangements, or (3) unexpired pro-rata periods of maintenance, minimum ASP Service fees or website subscription fees. As license fees, maintenance fees, minimum ASP Service fees and website subscription fees are often paid in advance, a portion of this revenue is deferred until the contract ends. Such amounts are classified as deferred revenue and are recognized as revenue in accordance with our revenue recognition policies described above.

Cinema advertising service revenue, and the associated direct selling, production and support cost, is recognized on a straight-line basis over the period the related advertising is displayed in-theatre, pursuant to the specific terms of each advertising contract. We have the right to receive or bill the entire amount of the advertising contract upon execution, and therefore such amount is recorded as a receivable at the time of execution, and all related advertising revenue and all direct costs actually incurred are deferred until such time as the advertising is displayed in-theatre.

The right to sell and display such advertising, or other in-theatre programs, products and services, is based upon advertising contracts with exhibitors which stipulate payment terms to such exhibitors for this right. Payment terms generally consist of either fixed annual payments or annual minimum guarantee payments, plus a revenue share of the excess of a percentage of advertising revenue over the minimum guarantee, if any. We recognize the cost of fixed and minimum guarantee payments on a straight-line basis over each advertising contract year, and the revenue share cost, if any, as such obligations arise in accordance with the terms of the advertising contract.

Distribution fee revenue is recognized for the theatrical distribution of third party feature films and alternative content at the time of exhibition based on our participation in box office receipts. We have the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature films’ or alternative content’s theatrical release date.

Data Center Services


Results of Operations for the Fiscal Years Ended March 31, 2006 and 2007

Revenues

Revenues were $16.8 million and $47.1 million for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of $30.3 million or 181%. The increase was driven largely by the ACS Acquisition, VPF revenues, license fees earned for our TCC software and the Bigger Picture Acquisition offset by reduced revenues from our IDCs. We expect AccessIT DC’s VPF revenues, and DMS digital distribution related revenues to significantly increase as an increasing number of Systems are placed into service in support of AccessIT DC’s Phase I Deployment. We also expect ACS cinema on-screen advertising revenues and alternative content distribution related revenues of The Bigger Picture to increase significantly as both will have operations for a full year.

Direct Operating Costs

Total direct operating costs were $11.5 million and $22.2 million for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of $10.7 million or 93%. The increase was attributable to the ACS Acquisition, payroll and other operating costs. We expect an increase in direct operating costs, primarily in payroll and other costs related to the impact of the operations of ACS and The Bigger Picture for a full year, offset by reduced direct operating costs from our IDCs as those costs will be reimbursed by FiberMedia.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses were $8.9 million and $18.6 million for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of $9.7 million or 109%. The increase was primarily due to the ACS Acquisition and increased company-wide staffing costs. We expect an increase in selling, general and administrative expenses mainly in payroll and other expenses related to the impact of the operations of ACS and The Bigger Picture for a full year. As of March 31, 2006 and 2007 we had 140 and 348 employees, respectively, of which 54 and 52, respectively, were part-time employees and 0 and 115, respectively, were salespersons. We anticipate an increase in employees going forward as we expect to hire as employees some of the subcontracted technical staff we used during the fiscal year ended March 31, 2007.

Stock-based Compensation Expense

Total stock-based compensation expense was $0 and $2.9 million for the fiscal years ended March 31, 2006 and 2007, respectively. We anticipate that we will experience a decrease in our total stock-based compensation expense as $2.8 million for the fiscal year ended March 31, 2007 related to the Company’s adoption of SFAS 123(R) (see Note 2 in the consolidated financial statements).

Loss on Disposition of Assets

For the fiscal year ended March 31, 2007, we recognized a loss of $2.6 million on the disposition of assets related to our IDCs. Included in this loss was the write-off of all the IDC net assets as of March 31, 2007 and the estimated fiscal 2008 IDC net loss for those expenses not fully reimbursable by FiberMedia. The disposition of our Data Center Services represented a strategic realignment of our technical and financial resources, thus enabling us to focus on what we believe are more profitable business opportunities. It was determined that the agreement being negotiated with FiberMedia prevented us from continuing to classify the IDCs as discontinued operations as we retained significant involvement in the operations of the IDCs. We remain as the lessee of the relevant facilities until such time that landlord consents can be obtained to assign each facility lease to FiberMedia.

Depreciation Expense on Property and Equipment

Total depreciation expense was $3.7 million and $14.7 million for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of $11.0 million or 298%. The increase was primarily attributable to the depreciation for the assets to support AccessIT DC’s Phase I Deployment. We anticipate that we will experience an increase in our total depreciation expense consistent with the depreciation of an increasing number of Systems purchased by AccessIT DC in support of its Phase I Deployment.

Amortization Expense of Intangible Assets

Total amortization expense was $1.3 million and $2.8 million for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of $1.5 million or 112%. The increase was primarily attributable to the amortization of intangible assets due to the ACS Acquisition and the Bigger Picture Acquisition. We anticipate that we will experience a slight increase in our total amortization expense as the intangible assets associated with both the ACS Acquisition and the Bigger Picture Acquisition are expensed for a full fiscal year.

Interest Income

Total interest income was $0.3 million and $1.4 million for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of $1.1 million or 351%. The increase was directly attributable to the amount of cash, cash equivalents and investments on hand during the fiscal year ended March 31, 2007 compared to the fiscal year ended March 31, 2006, resulting from the funds received from the March 2006 Offering, the March 2006 Second Offering, the October 2006 Private Placement and borrowings from the GE Credit Facility. We anticipate that we will experience a decrease in our interest income as the above mentioned funds are used for operations and for additional Systems purchased by AccessIT DC in support of its Phase I Deployment.

Interest expense

Total interest expense was $3.6 million and $9.2 million for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of $5.6 million or 152%. Total interest expense included $2.2 million and $7.3 million of interest paid and accrued along with $1.4 million and $1.9 million of non-cash interest expense for the fiscal years ended March 31, 2006 and 2007, respectively. The increase in interest paid and accrued was primarily due to the interest expense, unused credit facility fees and the amortization of debt issuance costs incurred on the GE Credit Facility and interest associated with ACS’s Excel Credit Facility and Excel Term Note offset by the reduced interest expense associated with the $7.6 million of 7% Convertible Debentures and $1.7 million of 6% convertible notes issued in February 2005 (the “6% Convertible Notes”) converted to equity. Additionally, the fiscal year ended March 31, 2006 included $730 thousand of debt issuance costs which was charged to interest expense in connection with the conversion of all of our Convertible Debentures and 6% Convertible Notes. We anticipate that we will experience an increase in our total interest expense consistent with the increase in our obligations under the GE Credit Facility in support of AccessIT DC’s Phase I Deployment. We anticipate that we will experience an increase in our interest expense consistent with the borrowings from the GE Credit Facility by AccessIT DC in support of its Phase I Deployment. The increase in non-cash interest was primarily due to the value of the shares issued as payment of interest on the $22.0 million of Senior Notes during the fiscal year ended March 31, 2007 versus non-cash interest expense for the fiscal year ended March 31, 2006 resulting from the accretion of the value of warrants to purchase shares of our Class A Common Stock attached to the $7.6 million Convertible Debentures (which bore interest at 7% per year), the 5-Year Notes and $1.0 million that was expensed for the remaining accretion of the notes in connection with the conversion of the $7.6 million of the Convertible Debentures. We do not anticipate any significant increase in our non-cash interest expense.

Debt conversion expense

Total debt conversion expense was $6.3 million and $0 for the fiscal years ended March 31, 2006 and 2007, respectively. The prior year included the value of the New Shares (as defined in Note 6) and New Warrants (as defined in Note 6) issued as a result of the conversion of the $7.6 million Convertible Debentures in August 2005.

Other Income (Expense), Net

Total other income, net was $1.6 million for the fiscal year ended March 31, 2006 compared to other expense, net of $0.5 million for the fiscal year ended March 31, 2007, an increase in expense of $2.1 million or 128%. The increase in expense was directly attributable to other income resulting from the change in value of the July 2005 Private Placement Warrants (as defined in Note 6) and the New Warrants in the fiscal year ended March 31, 2006, while there was no such other income in the fiscal year ended March 31, 2007.

Results of Operations for the Fiscal Years Ended March 31, 2007 and 2008

Revenues

Revenues were $47.1 million and $81.0 million for the fiscal years ended March 31, 2007 and 2008, respectively, an increase of $33.9 million or 72%. The increase in revenue was primarily due to increased VPF revenues, in the Media Services segment, attributable to the increased number of Systems installed in movie theatres. There were 2,275 Systems installed at March 31, 2007 compared to 3,723 Systems installed at March 31, 2008. The increase in revenues also resulted from the acquisition of ACS, part of the Content & Entertainment segment, whose operations have been included in the consolidated financial statements since August 1, 2006. Revenues in the Other segment decreased due to the IDCs disposition at March 31, 2007. We expect revenues to remain at current levels until there is an increase in the number of Systems we have deployed from our anticipated Phase II Deployment, due to the resultant VPFs and other revenue sources, including, content delivery and distribution of alternative content, generated from digitally equipped movie theatres.

Direct Operating Costs

Total direct operating costs were $22.2 million and $26.6 million for the fiscal years ended March 31, 2007 and 2008, respectively, an increase of $4.4 million or 20%. The increase in direct operating costs was predominantly in the Content & Entertainment segment and was due to the acquisition of ACS, which operations have been included in the consolidated financial statements since August 1, 2006, mainly due to the minimum guaranteed obligations under theatre advertising agreements with exhibitors for displaying cinema advertising and due to the acquisition of The Bigger Picture, which operations have been included in the consolidated financial statements since February 1, 2007. Direct operating costs in the Other segment decreased due to the IDCs disposition at March 31, 2007.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses were $18.6 million and $23.2 million for the fiscal years ended March 31, 2007 and 2008, respectively, an increase of $4.6 million or 25%. The increase was primarily in the Content & Entertainment segment and was due to the acquisitions of ACS and The Bigger Picture, which operations have been included in the consolidated financial statements since August 1, 2006 and February 1, 2007, respectively. The increased expenses were partially offset by reduced staffing levels. As of March 31, 2007 and 2008 we had 348 and 295 employees, respectively, of which 52 and 45, respectively, were part-time employees and 115 and 74, respectively, were salespersons. Due to reduced headcount levels during the fiscal year ended March 31, 2008, primarily from the consolidation of sales territories in ACS resulting in a reduced sales and administrative work force within the Content & Entertainment segment, we expect selling, general and administrative expenses to decrease as compared to prior periods.

Stock-based Compensation Expense

Total stock-based compensation expense was $2.9 million and $0.5 million for the fiscal years ended March 31, 2007 and 2008, respectively. The decrease was a result of the one-time charge related to our adoption of SFAS 123(R) (see Note 2 to the consolidated financial statements) during the fiscal year ended March 31, 2007.

Loss on Disposition of Assets

For the fiscal year ended March 31, 2007, we recognized a loss of $2.6 million on the disposition of assets related to our IDCs. Included in this loss was the write-off of all the IDC net assets as of March 31, 2007 and the estimated fiscal 2008 IDC net loss for those expenses not fully reimbursable by FiberMedia. The disposition of our Data Center Services represented a strategic realignment of our technical and financial resources, thus enabling us to focus on what we believe are more profitable business opportunities. It was determined that the agreement being negotiated with FiberMedia prevented us from continuing to classify the IDCs as discontinued operations as we retained significant involvement in the operations of the IDCs. We remain as the lessee of the relevant facilities until such time that landlord consents can be obtained to assign each facility lease to FiberMedia.

Impairment of intangible asset

During fiscal year ended March 31, 2008, we recorded an expense for the impairment of intangible asset of $1.6 million. In connection with The Bigger Picture Acquisition, approximately $2.1 million of the purchase price was allocated to a certain customer contract. During the fiscal year ended March 31, 2008, the customer decided not to continue its contract with The Bigger Picture. As a result, the unamortized balance of $1.6 million was charged to expense and recorded as an impairment of intangible asset in the consolidated financial statements.

Depreciation Expense on Property and Equipment

Total depreciation expense was $14.7 million and $29.3 million for the fiscal years ended March 31, 2007 and 2008, respectively, an increase of $14.6 million or 99%. The increase was primarily attributable to the depreciation for the increased amount of assets to support AccessIT DC’s Phase I Deployment. The value of digital cinema projection systems has increased by $96.5 million since the period ended March 31, 2007.

Amortization Expense of Intangible Assets

Total amortization expense was $2.8 million and $4.3 million for the fiscal years ended March 31, 2007 and 2008, respectively, an increase of $1.5 million or 55%. The increase was primarily attributable to the amortization of intangible assets due to the acquisitions of ACS and The Bigger Picture, whose operations have been included in the consolidated financial statements since August 1, 2006 and February 1, 2007, respectively.

Interest expense

Total interest expense was $9.2 million and $29.3 million for the fiscal years ended March 31, 2007 and 2008, respectively, an increase of $20.1 million or 220%. Total interest expense included $7.3 million and $22.3 million of interest paid and accrued along with $1.9 million and $7.0 million of non-cash interest expense for the fiscal years ended March 31, 2007 and 2008, respectively. The increase in interest paid and accrued was primarily due to the interest, unused credit facility fees and the amortization of debt issuance costs incurred on the GE Credit Facility and the amortization of debt issuance costs incurred on the One Year Senior Notes and the 2007 Senior Notes. With the completion of our Phase I Deployment, we do not expect any significant further borrowings under the GE Credit Facility, and therefore, pending any Phase II Deployment related borrowings, we expect our interest expense to stabilize. If management elects to pay the interest on the 2007 Senior Notes with shares of Class A Common Stock, the payments would result in non-cash interest expense. The increase in non-cash interest was due to the value of the shares issued as payment of interest on the One Year Senior Notes and the 2007 Senior Notes, the amortization of the value of shares issued in advance as Additional Interest on the 2007 Senior Notes, and a pro-rata portion of the value of the minimum shares to be issued as quarterly payment of Additional Interest on the 2007 Senior Notes for the eight quarters from December 2008 through August 2010. The One Year Senior Notes were repaid with the proceeds from the 2007 Senior Notes in August 2007. Non-cash interest could continue to increase depending on management’s future decisions to pay interest payments on the 2007 Senior Notes in cash or shares of Class A Common Stock.

Debt refinancing expense

During the fiscal year ended March 31, 2008, we recorded debt refinancing expense of $1.1 million, of which $0.4 million related to the unamortized debt issuance costs of the One Year Senior Notes and $0.7 million for shares of Class A Common Stock issued to certain holders of the One Year Senior Notes as an inducement for them to enter into a securities purchase agreement with us in August 2007.

Liquidity and Capital Resources

We have incurred operating losses in each year since we commenced our operations. Since our inception, we have financed our operations substantially through the private placement of shares of our common and preferred stock, the issuance of promissory notes, our initial public offering and subsequent private and public offerings, notes payable and Common Stock used to fund various acquisitions.

Our management believes that the net proceeds generated by our recent financing transactions, combined with our cash on hand and cash receipts from existing operations, will be sufficient to permit us to meet our obligations through June 30, 2009.

In August 2006, AccessIT DC entered into a credit agreement (the “Credit Agreement”) with General Electric Capital Corporation (“GECC”), as administrative agent and collateral agent for the lenders party thereto, and one or more lenders party thereto. Pursuant to the Credit Agreement, at any time prior to August 1, 2008, AccessIT DC may draw up to $217.0 million under the GE Credit Facility. As of March 31, 2008, $201.3 million was borrowed under the GE Credit Facility at a weighted average interest rate of 8.58%. The Credit Agreement contains certain restrictive covenants that restrict AccessIT DC and its subsidiaries from making certain capital expenditures, incurring other indebtedness, engaging in a new line of business, selling certain assets, acquiring, consolidating with, or merging with or into other companies and entering into transactions with affiliates and is non-recourse to the Company and its other subsidiaries.

In October 2006, we entered into a securities purchase agreement (the “Purchase Agreement”) with the purchasers party thereto (the “Purchasers”) pursuant to which we issued 8.5% Senior Notes (the “One Year Senior Notes”) in the aggregate principal amount of $22 million (the “October 2006 Private Placement”) and received net proceeds of approximately $21.0 million. In August 2007, the One Year Senior Notes were repaid in full with a portion of the proceeds received in connection with the August 2007 Private Placement, as discussed below.

In May 2007, we received $5.0 million of vendor financing (the “Vendor Note A”) for equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note A bore interest at 15% and was permitted to be prepaid without penalty. A mandatory principal amount of $0.6 million plus all accrued and unpaid interest was paid in December 2007. The Vendor Note A and all accrued interest was due and payable in July 2008. If the Vendor Note A was repaid in full by March 31, 2008, the interest rate would become 8%, retroactive to the beginning of the note term. In February 2008, the outstanding principal balance of the Vendor Note A of $4.4 million was repaid in full.

In August 2007, AccessIT DC received $9.6 million of vendor financing (the “Vendor Note B”) for equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note B bears interest at 11% and may be prepaid without penalty. Interest is due semi-annually commencing February 2008. The balance of the Vendor Note B, together with all unpaid interest is due on the maturity date of August 1, 2016. As of March 31, 2008, the outstanding balance of the Vendor Note B was $9.6 million.

In August 2007, we entered into a securities purchase agreement (the “Purchase Agreement”) with the purchasers party thereto (the “Purchasers”) pursuant to which we issued 10% Senior Notes (the “2007 Senior Notes”) in the aggregate principal amount of $55.0 million (the “August 2007 Private Placement”) and received net proceeds of approximately $53.0 million. The term of the 2007 Senior Notes is three years which may be extended for one 6 month period at our discretion if certain conditions are met. Interest on the 2007 Senior Notes will be paid on a quarterly basis in cash or, at our option and subject to certain conditions, in shares of its Class A Common Stock (“Interest Shares”). In addition, each quarter, we will issue shares of Class A Common Stock to the Purchasers as payment of additional interest owed under the 2007 Senior Notes based on a formula (“Additional Interest”). We may prepay the 2007 Senior Notes in whole or in part following the first anniversary of issuance of the 2007 Senior Notes, subject to a penalty of 2% of the principal if the 2007 Senior Notes are prepaid prior to the two year anniversary of the issuance and a penalty of 1% of the principal if the 2007 Senior Notes are prepaid thereafter, and subject to paying the number of shares as Additional Interest that would be due through the end of the term of the 2007 Senior Notes. The Purchase Agreement also requires the 2007 Senior Notes to be guaranteed by each of our existing and, subject to certain exceptions, future subsidiaries (the “Guarantors”), other than AccessIT DC and its respective subsidiaries. Accordingly, each of the Guarantors entered into a subsidiary guaranty (the “Subsidiary Guaranty”) with the Purchasers pursuant to which it guaranteed our obligations under the 2007 Senior Notes. We also entered into a Registration Rights Agreement with the Purchasers pursuant to which we agreed to register the resale of any shares of its Class A Common Stock issued pursuant to the 2007 Senior Notes at any time and from time to time. As of March 31, 2008, all shares issued to the holders of the 2007 Senior Notes have been registered for resale. Under the 2007 Senior Notes we agreed (i) to limit its and its subsidiaries' indebtedness to an aggregate of $315.0 million and (ii) not to, and not to cause its subsidiaries (except for AccessIT DC and its subsidiaries) to, incur indebtedness, with certain exceptions, including an exception for $10.0 million; provided that no more than $5.0 million of such indebtedness is incurred by AccessDM or AccessIT Satellite or any of their respective subsidiaries except as incurred by AccessDM pursuant to a guaranty entered into in accordance with the GE Credit Facility (see below). Additionally, the Company and our subsidiaries may incur additional indebtedness in connection with the deployment of Systems beyond our initial rollout of up to 4,000 Systems, if certain conditions are met. As of March 31, 2008, the outstanding principal balance of the 2007 Senior Notes was $55.0 million.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations for the Three Months Ended December 31, 2006 and 2007



Revenues



Revenues increased $7.3 million or 51%. The increase in revenue was primarily due to increased VPF revenues, in the Media Service segment, attributable to the increased number of Systems installed in movie theatres. There were 1,693 Systems installed at December 31, 2006 compared to 3,723 Systems installed at December 31, 2007. Revenues in the Other segment decreased due to the IDCs disposition at March 31, 2007. We expect an increase in revenues consistent with the increase in the number of Systems we have deployed at the end of our Phase I Roll-Out, due to the resultant VPFs and other revenue sources, including, content delivery and distribution of alternative content, generated from digitally equipped movie theaters.



Selling, General and Administrative Expenses



Selling, general and administrative expenses increased $0.5 million or 10%. The increase was primarily related to professional fees incurred in connection with efforts to comply with the Sarbanes-Oxley Act of 2002, and in the Content & Entertainment segment due to the acquisition of The Bigger Picture, which operations have been included in the condensed consolidated financial statements since February 1, 2007. We expect professional fees to decrease after the fiscal year ended March 31, 2008. The increased expenses were partially offset by reduced staffing levels. As of December 31, 2006 and 2007 we had 335 and 309 employees, respectively, of which 54 and 38, respectively, were part-time employees and 101 and 64, respectively, were salespersons.



Depreciation Expense on Property and Equipment



Depreciation expense increased $3.3 million or 71%. The increase was primarily attributable to the depreciation for the increased amount of assets to support AccessIT DC’s Phase I Roll-Out. The value of gross property and equipment increased by $138.5 million between December 31, 2006 and December 31, 2007. This increase was also primarily attributable to the increased amount of assets to support AccessIT DC’s Phase I Roll-Out.



Amortization Expense of Intangible Assets



Amortization expense increased $0.9 million or 461%. The increase was primarily attributable to the amortization of intangible assets due to the acquisitions of ACS and The Bigger Picture. There was no amortization expense recorded for the three months ended December 31, 2006 for the acquisition of ACS since the respective purchase price allocation was not finalized until March 31, 2007.



Interest expense



Interest expense increased $4.4 million or 135%. Total interest expense included $2.4 million and $6.0 million of interest paid and accrued along with non-cash interest expense of $0.9 million and $1.7 million for the three months ended December 31, 2006 and 2007, respectively. The increase in interest paid and accrued was primarily due to the interest, unused credit facility fees and the amortization of debt issuance costs incurred on the GE Credit Facility and the amortization of debt issuance costs incurred on the Three Year Senior Notes (see Note 6 in the condensed consolidated financial statements). With the completion of our Phase I Roll-Out, we do not expect any significant further borrowings under the GE Credit Facility, and therefore, pending any Phase II Deployment related borrowings, we expect our interest expense to stabilize. In the quarter ended December 31, 2007, we paid interest on our Three Year Senior Notes with Shares of Class A Common Stock, which resulted in non-cash interest expense. We may also choose to pay quarterly interest on our Three Year Senior Notes in cash, in which case we would experience an increase in our interest expense. The company has not yet decided whether future interest payments under the Three Year Senior Notes will be paid in cash or shares of Class A Common Stock. The increase in non-cash interest was due to the value of the shares issued as payment of interest on the Three Year Senior Notes. Non-cash interest could continue to increase depending on management’s future decisions to pay interest payments on the Three Year Senior Notes in cash or shares of Class A Common Stock.

CONF CALL

A. Dale Mayo

Thank you, operator. Good morning everyone and thanks for joining us today for AccessIT’s fourth quarter and fiscal year end 2008 Investor Conference Call. With me on today’s call are Brian Pflug, our SVP of Accounting and Finance, and Andy Vitell, our VP and Treasurer.

Fiscal 2008 was a year of great progress and milestones for AccessIT. We completed the world’s first, and by far the largest, studio-backed digital cinema deployment plan and announced our second even larger plan. We signed our first international agreement to distribute our technology. We delivered our first live sports event by satellite and we announced our first major alternative content programming channel, all of which I will discuss in more detail in a few minutes.

Also significant is that fiscal 2008 is the first year in which we grew the company internally and not by acquisitions. What was not new for AccessIT this year was the continued acknowledgement in the industry and the banking community that we are the global leaders in digital cinema.

Our signing of four major studios to our Phase 2 distribution plan was a validation of the tremendous job our personnel have done and intend to continue. We received considerable press coverage that at ShoWest, the major industry trade show in March, and requests for us to participate on digital cinema and alternative content focus panels have been plentiful throughout the world.

Now I would like to focus on the financial results for the fourth quarter and for the year and then I’ll discuss some of the significant achievements for this year, after which I will pass the call on to Brian Pflug to discuss the financial results in more depth.

As I suggested in our last conference call, meeting our previous guidance was going to be a difficult task, and we barely missed those numbers with $81 million in revenues versus a targeted $83 million, and adjusted EBITDA of a bit more than $30 million versus a targeted $32 million, primarily due to less than expected revenues in our content and entertainment segments for the fourth quarter, and some extraordinary Sarbanes-Oxley expenses, also in the fourth quarter.

Although I will not provide guidance for fiscal 2009 on this call, I will point to the annualized fourth quarter results at $22 million and $9 million for revenues and adjusted EBITDA respectively, as a good starting point, before further internal growth, and before we begin Phase 2 or recognize any revenues from international initiatives.

Revenue, which has been growing consistently, continued to do so, showing a 72% growth for the full year and 26% for the fourth quarter when compared with the year-ago periods. These increases are largely driven by virtual print fees and media delivery fees in our satellite division, as well as a full year of operation of our advertising and creative services unit, Unique Screen Media.

Gross margins also increased in the quarter from 60% in fiscal 2007 to 69% in 2008 and from 53% in fiscal 2007 to 67% for the full year 2008.

Adjusted EBITDA grew 164% for the three months ended March 31, 2008, and 406% for the year as compared to the year-ago periods. This was due to the above mentioned revenue growth while expenses have grown far less.

EBITDA margins increased for both year-over-year and the comparable quarter-over-quarter. In fiscal 2008 they were 37% versus 13% in 2007 and in the fourth quarter of fiscal 2008 they were 41% versus 20% in 2007.

Loss from operations was considerably reduced for both the year and the quarter as compared to the year ago periods. Falling from 38% of revenues in fiscal 2007 to 7% in 2008 and from 40% of revenues in Q4 2007 to 11% in Q4 2008. This was due to increased revenues while our direct operating and SG&A expenses grew at a much slower rate than the year-over-year period and actually decreased by combined 6% in the fourth quarter as compared to the year ago period.

And most notably, for the fifth consecutive quarter the non-cash components of our expenses have exceeded our losses.

At this point I would like to highlight just a few of the more notable events of the quarter and the year.

First, our Media Services segment, which consists of our digital cinema plans, digital media delivery services, and software. Obviously it was a big year for digital cinema installations. We completed our first digital cinema deployment last fall with more than 3,700 screens installed.

I am pleased to be able to remind you, those of you who have been following digital cinema, that this is the first, and by far the largest, deployment anywhere in the world and the only one backed by all of the major studios.

Part of our success in that deployment is the result of leveraging our relationships with our advertising customers. More than 20% of the 3,700+ screens were cross-over customers from that business unit. In fact, 800 of the last 900 digital cinema conversions were advertising customers following our acquisition of Unique Screen Media in July of 2006.

This not only helped us to accelerate our screen conversions but also enable pre-show and feature content to play on the same projectors, many of which are now also equipped with 3-D technology and are scheduled for our CineLive installations this year.

Perhaps most notable our Christie/AIX subsidiary VPF revenues for the quarter exceeded last quarters, which was more than $12 million, and adjusted EBITDA reached more than $11 million for that business unit in the quarter, and more than $39 million for the full year.

Clearly, our Phase 1 deployment plan has been a complete success. We see only upside from here as more and more independent movies are released in digital every year and alternative content programs gain traction.

Following on the heels of this success, in December we announced plans for our second, or Phase 2, deployment plan for an additional 10,000 screens in the U. S. and Canada. In March we were pleased to announce that four of the major studios have signed virtual print fee agreements for Phase 2, including Disney, Foxx, Paramount, and Universal. We’re still in active discussions with two other major studios as well as the major independents, including Lionsgate, who we recently signed to a long term Phase 1 VPF agreement.

In April our subsidiary, Christie/AIX, executed an interest rate swap to lock in rates of 7.3% effective August 1 on $200 million of GE debt, a reduction of more than 2.5% versus last year, thereby saving our company millions of dollars per year in interest expense.

On that note, we continue to work on refinancing Phase 1, while concurrently creating the template for Phase 2 financing and are gratified with the reception so far among our existing and prospective throughout the world, and their recognition of our leadership and success.

Let me emphasize that these Phase 1 and Phase 2 financings have no new AccessIT equity components. We hope to provide you with more specifics with respect to our financing plans in the near future.

In our Digital Media Services division we had a very successful year, increasing our satellite network to 254 sites in 109 markets installed with an increase from the 133 at the start of the fiscal year and deliveries went up 106%, partly due to more digital product and partly due to working with an expanding list of customers.

Efficiencies were also created by software improvements in that division enabling the business unit to reduce its reliance on temporary employees, resulting in a reduction of directs costs.

In October our Satellite Delivery division announced a launch of a new product that will greatly leverage and increase the exposure of our satellite delivery services, CineLive, developed in conjunction with Sensio Technologies, an international data casting corporation for the exclusive use by AccessIT in the United States. Added to our existing satellite network, CineLive enables live 2-D and 3-D events streaming into digital cinema-equipped theaters.

Throughout the year 3-D movies and concerts have proven themselves to be box office draws. We anticipate that live 3-D will be even more appealing to audiences and are prepared to invest in its future. Last week we announced that we have begun outfitting 50 locations with CineLive equipment in major designated market areas around the country and we plan an additional 100 locations this year, including some of our new Phase 2 partner sites.

This entire deployment will be funded with an 8.25% term loan with no equity components. I will discuss this further in my remarks later.

Also in December, we announced our first international distribution agreement with Doremi Labs, the supplier of all of the media service we used in our Phase 1 deployment plan. Doremi is now our partner in brining our Theatre Command Center and Library Management Server to theaters outside of the United States.

This non-exclusive agreement is the first of its type that we’ve entered into and will enable us to expand the reach of our technology without requiring international offices or personnel. In fact, we are preparing documents for our first license for an international exhibitor as we speak.

In February AccessIT worked with Disney ESPN to bring a live broadcast of a University of Texas and Texas A&M basketball game into 15 digital-cinema-equipped theaters in Texas. This was our first live event and thanks to a great collaboration between our satellite team and Disney ESPN it went off seamlessly. We learned a lot from the experience, which will assist us with all future live events, both 2-D and 3-D.

Our Content and Entertainment segment also made progress despite a disappointing year. Most significant was The Bigger Picture’s agreement with the San Francisco Opera to begin showing select operas in digital-cinema-equipped theaters around the country. The series began with four operas this spring, each of which played on more than 125 screens. The Bigger Picture has exclusive rights to distribute the operas internationally and it has already begun doing so in the U. K. and Australia. We anticipate additional opportunities abroad.

Although the box office from the Opera series was less than originally expected, each performance exceeded the prior one by an average of 24% and routinely out-grossed any feature playing on week day evenings. This reaffirms our belief that audiences can be built using the programmatic approach to each genre of content rather than using one-offs.

The Bigger Picture has also increased the number of concert events in Kidtoon programs it has been distributing, preparing for what we expect will be a significantly improved fiscal 2009 performance. Theaters in the AccessIT network are beginning to have a regular flow of Kidtoon’s content on weekend and one-night only concerts on Monday and Tuesday nights throughout the year. These have already included Bon Jovi, Beance, Tom Petty, Queen, and Deep Purple, and most recently Toby Mack. The John Mayer concert is coming up on June 30, all in collaboration with A&G Live.

We expect many more major artists and new channels to appear on digital screens throughout the balance of this year, accompanied by significant sponsorship revenues.

Although The Bigger Picture is distributing an increasing amount of alternative content, others are bringing events to the theater as well. Most significant this year was Disney’s record-setting Hannah Montana concert. This played in 3-D on 387 AccessIT network screens, representing more than 55% of all the screens it played on in the U. S., which is about the same percentage of 3-D screens enabled by AccessIT in the U. S.

That was shortly followed by National Geographic Cinema’s releasing U2 in 3-D, which also played on 268 AccessIT venues.

As I’ve mentioned before, we’ve made significant changes in our management team at the Unique Screen Media, our advertising and creative services unit. In doing so we lost some focus and momentum in the third and fourth quarters. After an exhaustive review of each exhibitor contract and a revamping of sales territories and plans, under the leadership of Unique’s new president, Bill McGlamery, we appear to be getting back on course.

At this point I will turn the call over to Brian who will comment on our latest financial results in more depth. After Brian’s presentation, I will discuss a few more of the recent developments in my concluding remarks and then open the call to questions. Brian.

Brian D. Pflug

Thanks, Bud. I will begin by reviewing quarterly operating results.

Our consolidated revenues for the fourth quarter ending March 31, 2008, were $21.9 million, which is an increase of $4.5 million, or 26%, from the comparable prior year’s quarter and a slight increase over our fiscal third quarter’s revenue. Included in the 2007 fourth quarter is approximately $550,000 of revenues related to components of our former Data Center segment, which we no longer operate.

We finished the year at $81 million of revenue, which is a $34 million increase over the prior year. The year-to-date and quarterly revenue gains were evident in nearly all components of our Media Services segment which saw a year-over-year quarterly growth of 92%, or $15.6 million, led, of course, by virtual print fees in the digital center business from our fully-deployed Phase 1 rollout.

Media Services segment year-to-date adjusted EBITDA far outpaced the revenue gains, quadrupling from last year $9.5 million for $38.8 million a year-over-year quarterly EBITDA growth of over 200%. This performance is also due to the digital center of business which as high EBITDA margins and ongoing cost containment in the other units as well.

Our Content and Entertainment segment also experienced a year-over-year revenue increase of approximately 28%, however showed a year-over-year quarterly decrease from approximately $8 million to $6 million. However, the cost containment initiatives, as we’ve discussed previously, are minimizing the impact of the revenue decline.

On a consolidated basis our direct operating costs decreased by 3% for the quarter versus the prior year, or as a percentage of revenues decreased to 31% from 40% in the prior year.

Our fourth quarter operating expenses remained in line with the third quarter, as a percentage of revenues. We continue to see our direct operating expenses level off following period of rapid growth for the company.

Our overall SG&A expenses decreased by 8% for the quarter versus the prior year, or as a percentage of revenues decreased to 28% from 38% in the prior year, primarily related to a consolidation of sales personnel in the advertising business, ongoing cost containment efforts elsewhere, and as we said previously, our expense growth has rolled off.

This was partially offset by professional fees incurred for Sarbanes-Oxley compliance efforts in the current year. These costs exceeded $600,000 this year but now that our year one compliance efforts are completed, ongoing costs will be much less.

Our fourth quarter’s SG&A remained in line with our third quarter and our total company headcount is now just under 300 employees as of March 31, 2008.

As a result our adjusted EBITDA improved to $8.9 million for this quarter compared to adjusted EBITDA of $3.4 million in the prior year and $8.4 million in our third quarter. At year end date, adjusted EBITDA exceeds $30 million versus $6 million last year. It should also be noted that adjusted EBITDA has exceeded all of our interest expense in the last four quarters, a trend we expect to continue.

Regarding interest, I should note that we are now presenting non-cash interest expense, together with cash-based interest expense, however we will be disclosing the components in our 10-K filing shortly.

This quarter includes a non-recurring $1.6 million impairment charge resulting from the write off of certain customer contracts which were characterized as an intangible asset in The Bigger Picture acquisition in 2007. The Bigger Picture is well on its way to generating new business relationships to offset the loss of these contracts.

A net loss of $11.2 million for this quarter versus $11.1 million in the prior year’s fourth quarter, although the current quarter’s loss includes $14.5 of non-cash charges, which as in prior periods is more than our reported net loss. The March 2008 quarterly loss includes $5.6 million of interest, primarily associated with the GE credit facility in our digital cinema unit, a $3.2 million of non-cash interest related to our other loans payable.

Our net loss for the quarter also reflects higher depreciation expense, which increased from the prior year due to our Phase 1 deployment-related assets and to the full year due to the two businesses we acquired in fiscal 2007. As we move forward with our acquired assets and into these, expense comparison will become much simpler.

Turning to the balance sheet, at the end of the fourth quarter we held cash of nearly $30 million and working capital exceeding $10 million, following the Phase 1 completion and pending any Phase 2 activity. Our asset base has substantially peaked and receivables have declined for the first time, which leaves us a positive operating cash flow in the quarter.

With that, I will turn the call back to Bud.

A. Dale Mayo

Thanks, Brian. Before I move on to questions, I want to spend some time regarding our CineLive deployment, which I am particularly enthusiastic about.

As I mentioned earlier, in October we announced our exclusive CineLive product, a technology which will enable live 2-D and 3-D events to be streamed to U. S. theaters. Our planned investment in fiscal 2009 to provide this to equipment to 150 locations in top DMAs is an effort to encourage more live 3-D programs, developed by confident owners and producers, many of whom we are in serious discussions with.

By expanding this network on which the 2-D and 3-D content can play, we hope to increase the available content and thus give our new exhibitor partners still another reason to convert to digital cinema systems and to reward those visionaries like Carmike and Ray, who already have.

In addition to our plan to refinance Phase 1 and to recycle some of the already invested equity back into Phase 2, we are also in active discussions with lenders with a strong interest to provide a warehouse facility for Phase 2 and we continue to anticipate the start of installation late in the September quarter.

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