UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
DC 20549
 
 FORM
10-K
  (Mark
One)
 x ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
the fiscal year ended: March 31, 2009
 
 o TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the
transition period from --- to ---
  Commission
File Number: 000-51910
 ___________________________________
 Access
Integrated Technologies, Inc.
 (Exact
name of registrant as specified in its charter)
 ___________________________________
  
 Delaware
              22-3720962(State
      or Other Jurisdiction of Incorporation or Organization)
              (I.R.S.
      Employer Identification No.)
 
 55
      Madison Avenue, Suite 300, Morristown, New Jersey
              07960(Address
      of principal executive offices)
              (Zip
      Code)
 
 (973)
290-0080
 (Registrant’s
telephone number, including area code)
    Securities
      registered pursuant to Section 12(b) of the Act:Title of each
      class
                  Name of each
      exchange on which registeredCLASS A COMMON STOCK, PAR VALUE
      $0.001 PER SHARE
                  NASDAQ GLOBAL
      MARKETSecurities
      registered pursuant to Section 12(g) of the Act:
                  NONE
 
 
 Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.
                Yes
       ̈ No xIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or 15(d) of the Exchange Act.
                Yes
       ̈ No xIndicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of
      1934 during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has
      been subject to such filing requirements for the past 90
      days.
                Yes
      x No  ̈Indicate
      by check mark whether the registrant has submitted electronically and
      posted on its corporate Web site, if any, every Interactive Data File
      required to be submitted and posted pursuant to Rule 405 of Regulation S-T
      (§232.405 of this chapter) during the preceding 12 months (or for such
      shorter period that the registrant was required to submit and post such
      files).
                Yes
       ̈ No  ̈Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§ 229.405 of this chapter) is not contained herein,
      and will not be contained, to the best of registrant’s knowledge, in
      definitive proxy or information statements incorporated by
      reference in Part III of this Form 10-K or any amendment to this Form
      10-K.
                 ̈
  
  
 Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller
      reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2
      of the Exchange Act.Large
      accelerated filer   ̈
              Accelerated
      filer   ̈
              Non-accelerated
      filer   ̈
                (Do
      not check if a smaller reporting company)
              Smaller
      reporting company  xIndicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act).
              Yes
       ̈ No x
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer based on a price of $1.09 per share, the closing
price of such common equity on the Nasdaq Global Market, as of June 8, 2009, was
approximately $23,171,000.  For purposes of the foregoing calculation,
all directors, officers and shareholders who beneficially own 10% of the shares
of such common equity have been deemed to be affiliates, but the Company
disclaims that any of such persons are affiliates.
 
 As of
June 8, 2009, 27,600,060 shares of Class A Common Stock, $0.001 par value and
733,811 shares of Class B Common Stock, $0.001 par value, were
outstanding.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 Certain
information required by Items 10, 11, 12, 13 and 14 of Form 10-K is incorporated
by reference into Part III hereof from the registrant’s Proxy Statement for the
2009 Annual Meeting of Stockholders to be held on or about September 10,
2009.
 
  
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 TABLE
OF CONTENTS
 
 
 
 PageFORWARD-LOOKING
      STATEMENTS
                1PART
      IITEM
      1.
                Business
                1ITEM
      1A.
                Risk
      Factors
                11ITEM
      2.
                Property
                20ITEM
      3.
                Legal
      Proceedings
                21ITEM
      4.
                Submission
      of Matters to A Vote of Shareholders
                21PART
      IIITEM
      5.
                Market
      for Common Equity, Related Shareholder Matters and Issuer Purchases of
      Equity Securities
                22ITEM
      6.
                Selected
      Financial Data
                23ITEM
      7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                24ITEM
      8.
                Financial
      Statements and Supplementary Data
                38ITEM
      9.
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                39ITEM
      9A.
                Controls
      and Procedures
                39ITEM
      9B.
                Other
      Information
                39PART
      IIIITEM
      10.
                Directors,
      Executive Officers and Corporate Governance
                40ITEM
      11.
                Executive
      Compensation
                40ITEM
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                40ITEM
      13.
                Certain
      Relationships and Related Transactions
                40ITEM
      14.
                Principal
      Accountant Fees and Services
                40PART
      IVITEM
      15.
                Exhibits,
      Financial Statement Schedules
                40SIGNATURES
                41
 
 
  
  FORWARD-LOOKING
STATEMENTS
 
 Various
statements contained in this report or incorporated by reference into this
report constitute “forward-looking statements” within the meaning of the federal
securities laws. Forward-looking statements are based on current expectations
and are indicated by words or phrases such as “believe,” “expect,” “may,”
“will,” “should,” “seek,” “plan,” “intend” or “anticipate” or the negative
thereof or comparable terminology, or by discussion of strategy. Forward-looking
statements represent as of the date of this report our judgment relating to,
among other things, future results of operations, growth plans, sales, capital
requirements and general industry and business conditions applicable to us. Such
forward-looking statements are based largely on our current expectations and are
inherently subject to risks and uncertainties. Our actual results could differ
materially from those that are anticipated or projected as a result of certain
risks and uncertainties, including, but not limited to, a number of factors,
such as:
 
 ·
              successful
      execution of our business strategy, particularly for new
      endeavors;
 ·
              the
      performance of our targeted
markets;
 ·
              competitive
      product and pricing pressures;
 ·
              changes
      in business relationships with our major
  customers;
 ·
              successful
      integration of acquired businesses;
 ·
              economic
      and market conditions;
 ·
              the
      effect of our indebtedness on our financial condition and financial
      flexibility, including, but not limited to, the ability to obtain
      necessary financing for our business;
and
 ·
              the
      other risks and uncertainties that are set forth in Item 1, “Business” and
      Item 7, “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations”.
 
 Except as
otherwise required to be disclosed in periodic reports required to be filed by
public companies with the Securities and Exchange Commission (“SEC”) pursuant to
the SEC's rules, we have no duty to update these statements, and we undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks and uncertainties, we cannot assure you that the forward-looking
information contained in this report will in fact transpire.
 
 In this
report, “Cinedigm,” “we,” “us,” “our” and the “Company” refers to Access
Integrated Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp. and its
subsidiaries unless the context otherwise requires.
 
 PART
I
 
 ITEM
1. BUSINESS
 
 OVERVIEW
 
 Access
Integrated Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp. was
incorporated in Delaware on March 31, 2000 and began doing business as Cinedigm
Digital Cinema Corp. on November 25, 2008 (“Cinedigm”, and collectively with its
subsidiaries, the “Company”).  The Company provides technology
solutions, software services, electronic delivery and content distribution
services to owners and distributors of digital content to movie theatres and
other venues.  The Company has three segments, media services (“Media
Services”), media content and entertainment (“Content & Entertainment”) and
other (“Other”). The Company’s Media Services segment provides technology
solutions, software services and digital content delivery services via satellite
and hard drive to the motion picture and television industries, primarily to
facilitate the conversion from analog (film) to digital cinema and has
positioned the Company at what it believes to be the forefront of an industry
relating to the delivery and management of digital cinema and other content to
theatres and other remote venues worldwide.  The Company’s Content
& Entertainment segment provides content distribution services to theatrical
exhibitors, in-theatre advertising and motion picture exhibition to the general
public.  The Company’s Other segment provides hosting services and
network access for other web hosting services (“Access Digital Server
Assets”).  Overall, the Company’s goal is to aid in the transformation
of movie theatres to entertainment centers by providing a platform of hardware,
software and content choices.  Additional information related to the
Company’s reporting segments can be found in Note 9 to the Company’s
Consolidated Financial Statements.
  1
  MEDIA
SERVICES
 
 The Media
Services segment consists of the following:
 
 Operations
      of:
                                
                                Products
      and services provided:Christie/AIX,
      Inc. d/b/a AccessIT Digital Cinema (“AccessIT DC”) and Access Digital
      Cinema Phase 2 Corp. (“Phase 2 DC”)
                                ·
                                Financing
      vehicles and administrators for our 3,724 digital cinema projection
      systems (the “Systems”) installed nationwide (our “Phase I Deployment”)
      and our second digital cinema deployment, through Phase 2 DC (our “Phase
      II Deployment”) to theatrical exhibitors·
                                Collect
      virtual print fees (“VPFs”) from motion picture studios and distributors
      and alternative content fees (“ACFs”)  from alternative content
      providers and theatrical exhibitorsHollywood
      Software, Inc. d/b/a AccessIT Software (“AccessIT SW”)
                                ·
                                Develops
      and licenses software to the theatrical distribution and exhibition
      industries as well as intellectual property rights and royalty
      management·
                                Provides
      services as an Application Service Provider·
                                Provides
      software enhancements and consulting servicesAccess
      Digital Media, Inc. (“AccessDM”) and FiberSat Global Services, Inc. d/b/a
      AccessIT Satellite and Support Services, (“AccessIT Satellite” and,
      together with AccessDM, “DMS”)
                                ·
                                Distributes
      digital content to movie theatres and other venues having digital
      projection equipment and provides satellite-based broadband video, data
      and Internet transmission, encryption management services, key management,
      video network origination and management services·
                                Provides
      a virtual booking center to outsource the booking and scheduling of
      satellite and fiber networks·
                                Provides
      forensic watermark detection services for motion picture studios and
      forensic recovery services for content ownersCore
      Technology Services, Inc. (“Managed Services”)
                                ·
                                Provides
      information technology consulting services and managed network monitoring
      services through its global network command center
  (“GNCC”)
 
 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 all of the capital stock of 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
up to 4,000 Systems for our Phase I Deployment, under an amended framework
agreement (the “Framework Agreement”) with Christie Digital Systems USA, Inc.
(“Christie”).  In December 2007, AccessIT DC completed its Phase I
Deployment with 3,724 Systems installed.
 
 In June
2006, we, through an indirectly wholly-owned subsidiary, PLX Acquisition Corp.
(“PLX”), purchased substantially all the assets of PLX Systems Inc. (“PLX
Acquisition”) and Right Track Solutions Incorporated (“Right
Track”).  PLX 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.
 
  2
  In
October 2007, we formed Phase 2 DC to purchase up to 10,000
additional Systems for our Phase II Deployment, of which a portion of such
Systems will be purchased through an indirectly wholly-owned subsidiary, Access
Digital Cinema Phase 2 B/AIX Corp. (“Phase 2 B/AIX”).
 
 In
October 2007, AccessDM launched CineLiveSM,
a 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.  CineLiveSM was
developed exclusively for AccessDM by International Datacasting Corporation and
SENSIO Technologies Inc.
 
 Digital
Cinema
 
 The
business of AccessIT DC and Phase 2 DC consists of the ownership and licensing
of digital systems to theatrical exhibitors and the collection of VPFs from
motion picture studios and distributors and ACFs from alternative content
providers and theatrical exhibitors, when content is shown on exhibitors’
screens.  We have licensed the necessary software and technology solutions
to the exhibitor and have facilitated the industry’s transition from analog
(film) to digital cinema.  As part of AccessIT DC’s Phase I Deployment of
digital systems, AccessIT DC has agreements with nine motion picture studios,
certain smaller independent studios and exhibitors, allowing AccessIT DC to
collect VPFs and ACFs when content is shown in theatres, in exchange for having
facilitated the deployment, and providing management services, on 3,724
Systems.  AccessIT DC has agreements with sixteen theatrical exhibitors
that license our Systems in order to show digital content distributed by the
motion picture studios and other providers, including a Cinedigm subsidiary,
Cinedigm Content and Entertainment Group (see Content and Entertainment section
below).   Phase 2 DC also entered into master license agreements with
three exhibitors covering a total of 493 screens which will allow Phase 2 DC to
collect VPFs and ACFs once Phase 2 DC arranges suitable financing for the
purchase of Systems and once the Systems are installed and ready for
content.  As of March 31, 2009, Phase 2 DC has supply agreements with
three equipment vendors.  As of March 31, 2009, Phase 2 DC had 54
Systems deployed.
 
 VPFs are
earned pursuant to the contracts with movie studios and distributors, whereby
amounts are payable to AccessIT DC and to Phase 2 DC according to fixed fee
schedules, when movies distributed by the studio are displayed on screens
utilizing our Systems installed in movie theatres.  One VPF is payable
for every movie title displayed per System. The amount of VPF revenue is
therefore dependent on the number of movie titles released and displayed on the
Systems.  For the fiscal year ended March 31, 2009, VPF revenues
earned by AccessIT DC and Phase 2 DC was $48.2 million and $0.1 million,
respectively.
 
 Phase 2
DC’s agreements with distributors require the payment of VPF’s for 10 years from
the date each system is installed, however, Phase 2 DC may no longer collect
VPF’s once “cost recoupment”, as defined in the agreements, is achieved. 
Cost recoupment will occur once the cumulative VPF’s and other cash receipts
collected by Phase 2 DC have equaled the total of all cash outflows, including
the purchase price of all Systems, all financing costs, all “overhead and
ongoing costs”, as defined, subject to maximum agreed upon amounts during
the three-year rollout period and thereafter, plus a compounded return on any
billed but unpaid overhead and ongoing costs, of 15% per year.  Further, if
cost recoupment occurs before the end of the 8th
contract year, a one-time “cost recoupment bonus” is payable by the studios to
Phase 2 DC.  Any other cash flows, net of expenses, received by Phase 2 DC
following the achievement of cost recoupment are required to be returned to the
distributors on a pro-rata basis. At this time, the Company cannot estimate the
timing or probability of the achievement of cost recoupment.
 
 Current
licensed software of AccessIT DC consists of the following:
 
 Licensed
      Product:
                    Purpose:Cinefence
                    Detection
      of audio and video watermarks in content distributed through digital
      cinema.
 
 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 theatrical exhibitors participating in AccessIT DC’s Phase I Deployment,
and Systems deployed in Phase 2 DC’s Phase II Deployment will also contain this
technology.
 
 Current
proprietary software of DMS for digital media delivery consists of the
following:
  3
  
 Proprietary
      Software Product:
                    Purpose:Digital
      Express e-Courier ServicesSM
                    Provides
      worldwide delivery of digital content, including movies, advertisements
      and alternative content such as concerts, seminars and sporting events to
      movie theatres and other venues having digital projection
      equipment.
 
 The
Digital Express e-Courier ServicesSM
software makes interaction between the content originator (such as the motion
picture studio) and the theatrical exhibitor easier:
 
 ·
              Programming
      is viewed, booked, scheduled and electronically delivered through Digital
      Express e-Courier ServicesSM.
 ·
              Once
      received, digital cinema distribution masters 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 ServicesSM
      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.
 
 Market
Opportunity
 
 According
to the Motion Picture Association of America (the “MPAA”), on average, there
were approximately 600 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;
 ·
              theatrical
      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 MPAA, this costs the worldwide movie exhibition industry
      an estimated $6.1 billion
annually).
 
 Intellectual
Property
 
 AccessDM
has received United States service mark registrations for the following:
AccessDM® and The Courier For The Digital Era®. Cinedigm has received United
States service mark registration for Access Digital Media® and
Digi-Central®.
  4
  DMS
currently has intellectual property consisting of unregistered trademarks and
service marks, including Digital Express e-Courier ServicesSM,
e-Courier ServicesSM
and CineLiveSM.
 
 Customers
 
 Digital
Cinema customers are mainly motion picture studios and theatrical
exhibitors. For the fiscal year ended March 31, 2009, AccessIT
DC’s customers comprised 83% of Media Services’ revenues. Six
customers, 20th Century
Fox, Disney Worldwide Services, Paramount Pictures, Sony Pictures Releasing
Corporation, Universal Pictures and Warner Brothers, each represented 10%
or more of AccessIT DC’s revenues and together generated 78%, 69% and
49% of AccessIT DC’s, Media Services’ and consolidated revenues,
respectively, and are also customers for digital content delivery and
entertainment software.  For the fiscal year ended March 31, 2009,
DMS’s customers comprised 9% of Media Services’ revenues. Two customers,
Universal Pictures and Ideacast, Inc. each represented 10% or more of DMS’s
revenues and together generated 37% and 4% of DMS’s and Media
Services’ revenues, respectively, and Universal Pictures is also a
customer for entertainment software.  We expect to continue to conduct
business with each of these customers in fiscal 2010.
 
 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 theatrical exhibitors and is currently testing a rollout
      plan; 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 theatrical
      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, and the complement of AccessIT SW’s software including
the Theatre Command Center® software, differentiate us from our competitors by
providing a competitive alternative to their forms of digital content
delivery.
 
 We
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.
 
 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.   Current proprietary software of AccessIT SW
consists of the following:
 
 Proprietary
      Software Product:
                            Purpose:Theatre
      Command Center® (“TCC”)
                            Provides
      in-theatre management for use by digitally–equipped movie theatres and
      interfaces with DMS’ Digital Express e-Courier ServicesSMsoftware.Theatrical
      Distribution System® (“TDS”)
                            Enables
      domestic motion picture studios to plan, book and account for movie
      releases and to collect and analyze related financial operations data and
      interfaces with DMS’ Digital Express e-Courier ServicesSM software.Theatrical
      Distribution System (Global) (“TDSG
      “)
                            Enables
      international motion picture studios to plan, book and account for movie
      releases and to collect and analyze related financial operations data and
      interfaces with DMS’ Digital Express e-Courier ServicesSM software.Exhibition
      Management SystemTM (“EMSTM”)
                            Manages
      all key aspects of the theatrical exhibitor for film planning, scheduling,
      booking and the payment to the motion picture studios.Royalty
      Transaction Solution (“RTS”)
                            An
      enterprise royalty accounting and licensing system built specifically for
      theentertainment
      industry.
  5
  
 Distributed
      Software Product:
                      Purpose:Vista
      Cinema Software (“Vista”)
                      Theatre
      ticketing
software.
 
 Our TCC
system provides in-theatre management for digitally–equipped movie theatres,
enabling an exhibitor 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.
 
 Domestic
Theatrical Distribution Management
 
 AccessIT
SW’s TDS product is currently licensed to several motion picture studios and the
TDS product comprised 54% and 65% of AccessIT SW’s revenues for the fiscal year
ended March 31, 2008 and 2009, respectively. 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 Cinedigm’s digital content delivery, significantly
enhancing our international market opportunities.  In December 2008,
AccessIT SW reached an agreement with 20th Century Fox regarding TDSG whereby
AccessIT SW will cease development efforts on the TDSG product and 20th Century
Fox will complete the development of the product going forward at their sole
expense and deliver the completed TDSG product back to AccessIT
SW.  AccessIT SW will continue to own the product at all times and
retains the rights to market the finished product to others.
 
 Exhibition
Management
 
 We
believe that our EMSTM system is one of the most powerful and comprehensive
systems available to manage all key elements of theatrical exhibition. This
fully supported solution can exchange information with financial, ticketing,
point-of-sale, distributor and data systems to eliminate manual processes. Also,
EMSTM is designed to create innovative revenue opportunities for theatrical
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 part of the PLX Acquisition.
 
 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 $0.3 million, $0.2 million
and $0.2 million for the fiscal years ended March 31, 2007, 2008 and 2009,
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 EMSTM.
 
 Market
Opportunity
 
 We
believe that:
  6
  
 ·
              AccessIT
      SW’s products are becoming the industry standard method by which motion
      picture studios and theatrical 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 TCC, TDS, TDSG, EMSTM, and
  RTS;
 ·
              registered
      trademarks for the Theatre Command Center®, Theater Command Center®, and
      Theatrical Distribution System®;
 ·
              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, and
      TheatricalDistribution.com; and
 ·
              logos,
      including those in respect of Hollywood SW, TDS and
  EMSTM.
 
 Customers
 
 20th Century
Fox and Universal Studios, each represented 10% or more of AccessIT SW’s
revenues and together generated 32% of AccessIT SW’s revenues. 20th Century
Fox and Universal Studios are also customers for Digital Cinema. We expect to
continue to conduct business with each of these customers in fiscal
2010.
 
 Competition
 
 Within
the major domestic 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 domestic 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.  AccessIT SW’s movie
exhibition product, EMSTM, competes principally with at least one other
competitor offering a similar stand-alone application, customized solutions
developed by the large exhibition circuits and point of sale system modules
attempting to provide comparable functionality.  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.
 
 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;
  7
  ·
              project
      management;
 ·
              auditing
      and assessment;
 ·
              on
      site support for hardware installation and repair, software installation
      and update, 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 an internet data center (“IDC”) 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
 
 Cinedigm
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, 2009, three customers, Kelley Drye & Warren LLP
(“KDW”), Rothschild, Inc. and the Weinstein Company, each represented 10% or
more of Managed Service revenues and together generated 62% of Managed Service’s
revenues.  Other than KDW, who is also outside legal counsel for the
Company and the Weinstein Company, who is also a customer of Digital Cinema and
AccessIT SW, we do not have any other relationships with these
customers.  We expect to continue to conduct business with these
customers in fiscal 2010.
 
 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”), unrelated third parties, 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, offering managed
services inside the IDCs, now operated by FiberMedia, along with related data
center services, may differentiate us from our competition by providing a
competitive bundled solution.
  8
  
 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 theatrical exhibitors, on a movie-by-movie
and theatre-by-theatre basis. Consequently, theatrical 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 Federal Communications Commission
(“FCC”) broadcast licenses 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 licenses.
 
 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.
 
 The
nature of Media Services does not subject us to environmental laws in any
material manner.
 
 CONTENT
& ENTERTAINMENT
 
 The
Content & Entertainment segment consists of the following:
 
 Operations
      of:
                                
                                
                                Products
      and services provided:ADM
      Cinema Corporation (“ADM Cinema”) d/b/a the Pavilion Theatre (the
      “Pavilion Theatre”)
                                
                                ·
                                A
      nine-screen digital movie theatre and showcase to demonstrate our
      integrated digital cinema solutionsUniqueScreen
      Media, Inc. (“USM”)
                                
                                ·
                                Provides
      cinema advertising services and entertainmentVistachiara
      Productions, Inc., f/k/a The Bigger Picture currently d/b/a Cinedigm
      Content and Entertainment Group  (“CEG”)
                                
                                ·
                                Acquires,
      distributes and provides the marketing for programs of alternative content
      to theatrical
exhibitors
 
 In
February 2005, through ADM Cinema, we acquired substantially all of the assets
of the Pavilion Theatre located in the Park Slope section of Brooklyn, New York
from Pritchard Square Cinema, LLC (the “Pavilion Theatre
Acquisition”).
 
 In July
2006, we purchased all of the outstanding capital stock of USM from USM’s
stockholders (the “USM Acquisition”).
 
 In
January 2007, through our wholly owned subsidiary, Vistachiara Productions,
Inc., we purchased substantially all of the assets of BP/KTF, LLC (the “CEG
Acquisition”).
 
 Market
Opportunity
 
 We
believe that:
 
 ·
              recent
      surveys have shown that movie goers are becoming more accepting of theatre
      advertising, and that of the 38,000 screens located in the United States,
      24,000 of them show some form of
advertising.
  9
  Intellectual
Property
 
 There is
no intellectual property related to our Content & Entertainment
segment.
 
 Customers
 
 For the
fiscal year ended March 31, 2009, USM and our Pavilion Theatre comprised 71% and
24% of Content & Entertainment revenues, respectively.  Our
advertising business consists mainly of local advertisers, with no one customer
representing 10% of in-theatre advertising revenues and all the customers of our
Pavilion Theatre are the general public. A growing percentage of our advertising
business are derived from a subcontracting agreement with Screenvision
Exhibition, Inc. (“Screenvision”), whereby Screenvision sells national
advertising on USM’s screen base.  For the fiscal year ended March 31,
2009, the revenues from this agreement comprised 13% and 9% of USM revenues and
Content & Entertainment revenues, respectively.  The CEG business
consists of owners of alternative content such as sporting events, concerts,
children’s programming and other content.  We expect CEG to contribute
a larger percentage of our overall revenues in the future.
 
 Competition
 
 Numerous
companies are engaged in various forms of producing and distributing
entertainment and alternative content, as well as the sales, production and
distribution of commercial advertising.  Such forms of competition
have historically extended into motion picture exhibition only to a limited
degree, except for cinema advertising.
 
 The
Company views the following as its principal competition in its content and
entertainment segment:
 
 ·
              The
      Walt Disney Company and Sony Pictures Entertainment, Inc., a subsidiary of
      Sony Corporation of America, have both demonstrated their intent to
      continue expanding digital distribution of non-film content into cinema
      venues;
 ·
              Screenvision
      US, a joint venture of Thomson and ITV, PLC, which sells and displays
      national, regional and local cinema advertising in approximately 14,000
      screens in more than 1,900 theatre locations, as well as having
      distributed certain alternative content in select theatres;
      and
 ·
              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.
 
 These
competitors have significantly greater financial, marketing and managerial
resources than we do and have generated greater revenue and are better known
than we are.  However, we believe this is somewhat mitigated by the
exclusive, and to a lesser degree non-exclusive, long and short-term contractual
rights we have with our theatrical exhibitor partners, the proprietary nature of
certain alternative programming, and the ability to provide cost effective
turn-key solutions for intellectual property holders through digital
preparation, digital delivery services through DMS, and advertising and
marketing services in contracted theatrical exhibitor’s theatres.
 
 Seasonality
 
 Revenues
derived from our Pavilion Theatre 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
 
 Our
Pavilion Theatre must comply with Title III of the Americans with
Disabilities Act of 1990 (the “ADA”) to the extent that such property is “public
accommodations” and/or “commercial facilities” as defined by the ADA. Compliance
with the ADA requires that public accommodations “reasonably accommodate”
individuals with disabilities and that new construction or alterations made to
“commercial facilities” conform to accessibility guidelines unless “structurally
impracticable” for new construction or technically infeasible for alterations.
Non-compliance with the ADA could result in the imposition of injunctive relief,
fines, award of damages to private litigants and additional capital expenditures
to remedy such non-compliance.  We believe that we are in substantial
compliance with all current applicable regulations relating to accommodations
for the disabled and we intend to comply with future regulations in that
regard.
  10
  Our
Content & Entertainment segment 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.
 
 The
nature of our Content & Entertainment segment does not subject us to
environmental laws in any material manner.
 
 OTHER
 
 The Other
segment consists of the following:
 
 Operations
      of:
                        
                        
                        Products
      and services provided:Data
      Centers
                        
                        ·
                        Provides
      services through its three IDCs (see below)Access
      Digital Server Assets
                        
                        ·
                        Provides
      hosting services and provides network access for other web hosting
      services
 
 In
January 2006, the Company purchased the domain name, website, customer list and
the IP address space for Ezzi.net and certain data center related computer
equipment of R & S International, Inc. (together the “Access Digital Server
Assets”) and the acquired assets are used for web-hosting.
 
 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 and since May 1, 2008, 100% of the revenues and expenses are
being realized by FiberMedia.
 
 EMPLOYEES
 
 As of
March 31, 2009, we had 242 employees, of which 42, working primarily at the
Pavilion Theatre, are part-time and 200 are full-time.  Of our
full-time employees, 55 are in sales and marketing, 85 are in operations, 8 are
in research and development, 22 are in technical services, and 30 are in finance
and administration.  The Pavilion Theatre has a collective bargaining
agreement with one union which covers three union projectionists, one of whom is
a full-time employee.
 
 AVAILABLE
INFORMATION
 
 The
Company’s Internet website address is www.cinedigmcorp.com. The Company will
make available, free of charge at the “For Our Shareholders” section of its
website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, proxy statements and all amendments to those reports and
statements filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable
after such reports are electronically filed with, or furnished to, the
SEC.
 
 In
addition, the SEC maintains a website that contains reports, proxy and
information statements, and other information regarding companies that file
electronically with the Commission.  This information is available at www.sec.gov.
 
 ITEM
1A. RISK FACTORS
 
 An
inability to obtain necessary financing may have a material adverse effect on
our financial position, operations and prospects if unanticipated capital needs
arise.
 
 Our
capital requirements may vary significantly from what we currently project and
be affected by unforeseen delays and expenses.  We may experience
problems, delays, expenses and difficulties frequently encountered by
similarly-situated companies, as well as difficulties as a result of changes in
economic, regulatory or competitive conditions.  If we encounter any
of these problems or difficulties or have underestimated our operating losses or
capital requirements, we may require significantly more financing than we
currently anticipate.  We cannot assure you that we will be able to
obtain any required additional financing on terms acceptable to us, if at
all.  An inability to obtain necessary financing could have a material
adverse effect on our financial position, operations and
prospects.  The agreement for a credit facility (the “GE Credit
Facility”) with General Electric Capital Corporation (“GECC”) 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 our
subsidiaries.  In August 2007, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) pursuant to which the Company
issued 10% Senior Notes (the “2007 Senior Notes”) in the
aggregate
  11
  principal
amount of $55.0 million (the “August 2007 Private Placement”). The 2007 Senior
Notes restrict the Company and its subsidiaries (other than AccessIT DC and its
subsidiaries) from incurring other indebtedness, creating or acquiring
subsidiaries which do not guarantee such notes, making certain investments and
modifying authorized capital.
 
 We
have limited experience in our newer business operations, which may negatively
affect our ability to generate sufficient revenues to achieve
profitability.
 
 We were
incorporated on March 31, 2000.  Our first data center, a part of our
initial business, became operational in December 2000.  Subsequent
thereto, we added additional data centers and expanded into the following new
business areas which are currently our primary focus:  (a) providing
satellite delivery services, through our wholly-owned subsidiary AccessIT
Satellite; (b) operating a movie theatre, through our wholly-owned subsidiary
ADM Cinema; (c) placing digital cinema projection systems into movie theatres
and collecting virtual print fees in connection with such placements, through
our indirect wholly-owned subsidiary AccessIT DC; (d) providing pre-show
on-screen advertising and entertainment, through our wholly-owned subsidiary USM
and (e) operating an alternate content distribution company, through our
wholly-owned subsidiary, CEG.  Although we have retained certain
senior management of the acquired businesses and have hired other experienced
personnel, we have little experience in these new areas of business and cannot
assure you that we will be able to develop and market the services provided
thereby. We also cannot assure you that we will be able to successfully operate
these businesses.  Our efforts to expand into these five business
areas may prove costly and time-consuming and have become our primary business
focus.
 
 Our
limited experience in the digital cinema industry and
providing transactional software for movie distributors and exhibitors could
result in:
 
 ·
              increased
      operating and capital costs;·
              an inability
      to effect a viable growth strategy;·
              service
      interruptions for our customers; and·
              an inability
      to attract and retain customers.
 
 We may
not be able to generate sufficient revenues to achieve profitability through the
operation of our digital cinema business or our entertainment software
business.  We cannot assure you that we will be successful in
marketing and operating these new businesses or, even if we are successful in
doing so, that we will not experience additional losses.
 
 We
face the risks of a development company in a new and rapidly evolving market and
may not be able successfully to address such risks and ever be successful or
profitable.
 
 We have
encountered and will continue to encounter the challenges, uncertainties and
difficulties frequently experienced by development companies in new and rapidly
evolving markets, including:
 
 ·
              limited operating experience;·
              net losses;·
              lack of sufficient customers or loss of significant
      customers;·
              insufficient revenues and cash flow to be
      self-sustaining;·
              necessary capital expenditures;·
              an unproven business model;·
              a changing business focus; and·
              difficulties in managing potentially rapid
      growth.
 
 This is
particularly the case with respect to our businesses with less operating
history.  We cannot assure you that we will ever be successful or
profitable.
 
 If
the current digital technology changes, demand for DMS’ delivery systems and
software may be reduced and if use of the current digital presentation requiring
electronic delivery does not expand, DMS’ business will not experience
growth.
 
 Even
though we are among the first to integrate software and systems for the delivery
of digital content to movie theatres and other venues, there can be no assurance
that certain major movie studios or providers of alternative digital content
that currently rely on traditional distribution networks to provide physical
delivery of digital files will quickly adopt a different method, particularly
electronic delivery, of distributing digital content to movie theatres or other
venues or that those major movie studios or content providers that currently
utilize electronic delivery to distribute digital content will continue to do
so. If the development of digital presentations and changes in the way digital
files are delivered does not continue to occur, the demand for
  12
  DMS’
delivery systems and software will not grow and if new technology is developed
which is adopted by major movie studios or providers of alternative digital
content, there may be reduced demand for DMS’ delivery systems and
software.
 
 If
we do not respond to future advances in technology and changes in customer
demands, our financial position, prospects and results of operations may be
adversely affected.
 
 The
demand for our digital media delivery services and entertainment software will
be affected, in large part, by future advances in technology and changes in
customer demands.  Our success will also depend on our ability to
address the increasingly sophisticated and varied needs of our existing and
prospective customers.
 
 We cannot
assure you that there will be a continued demand for the digital cinema software
and delivery services provided by DMS.  DMS’ profitability depends
largely upon the general expansion of digital presentations at theatres, which
may not occur for several years.  Although AccessIT DC has entered
into digital cinema deployment agreements with seven motion picture studios,
there can be no assurance that these and other major movie studios which are
currently relying on traditional distribution networks to provide physical
delivery of digital files will adopt a different method, particularly electronic
delivery, of distributing digital content to movie theatres or that they will
release all, some or any of their motion pictures via digital
cinema.  If the development of digital presentations and changes in
the way digital files are delivered does not continue to occur, there may be
reduced demand or market for DMS’ software and systems.
 
 We
expect competition to be intense: if we are unable to compete successfully, our
business and results of operations will be seriously harmed.
 
 The
markets for the managed services business, the digital cinema business and the
entertainment software business, although relatively new, are competitive,
evolving and subject to rapid technological and other changes.  We
expect the intensity of competition in each of these areas to increase in the
future.  Companies willing to expend the necessary capital to create
facilities and/or software similar to ours may compete with our
business.  Increased competition may result in reduced revenues and/or
margins and loss of market share, any of which could seriously harm our
business.  In order to compete effectively in each of these fields, we
must differentiate ourselves from competitors.
 
 Many of
our current and potential competitors have longer operating histories and
greater financial, technical, marketing and other resources than us, which may
permit them to adopt aggressive pricing policies.  As a result, we may
suffer from pricing pressures that could adversely affect our ability to
generate revenues and our results of operations.  Many of our
competitors also have significantly greater name and brand recognition and a
larger customer base than us.  We may not be able to compete
successfully with our competitors.  If we are unable to compete
successfully, our business and results of operations will be seriously
harmed.
 
 Our
plan to acquire additional businesses involves risks, including our inability to
successfully complete an acquisition, our assumption of liabilities, dilution of
your investment and significant costs.
 
 Although
there are no acquisitions identified by us as probable at this time, we may make
further acquisitions of similar or complementary businesses or
assets.  Even if we identify appropriate acquisition candidates, we
may be unable to negotiate successfully the terms of the acquisitions, finance
them, integrate the acquired business into our then existing business and/or
attract and retain customers.  We are also subject to limitations on
our ability to make acquisitions pursuant to the 2007 Senior
Notes.  Completing an acquisition and integrating an acquired
business, including our recently acquired businesses, may require a significant
diversion of management time and resources and involves assuming new
liabilities.  Any acquisition also involves the risks that the assets
acquired may prove less valuable than expected and/or that we may assume unknown
or unexpected liabilities, costs and problems.  If we make one or more
significant acquisitions in which the consideration consists of our capital
stock, your equity interest in our company could be diluted, perhaps
significantly.  If we were to proceed with one or more significant
acquisitions in which the consideration included cash, we could be required to
use a substantial portion of our available cash, or obtain additional financing
to consummate them.
 
 Our
previous acquisitions involve risks, including our inability to integrate
successfully the new businesses and our assumption of certain
liabilities.
 
 We have
made several meaningful acquisitions to expand into new business
areas.  However, we may experience costs and hardships in integrating
the new acquisitions into our current business structure.  In July
2006, we acquired all of the capital stock of USM and in January 2007, the
Company, through its wholly-owned subsidiary, CEG, purchased substantially all
of the assets of BP/KTF, LLC.  We cannot assure you that we will be
able to effectively market the services provided by USM and
CEG.  Further, these new businesses and assets may involve a
significant diversion of our management time and resources and be
costly.  Our acquisition of these businesses and assets also involves
the risks that the businesses and assets acquired may prove to be
less
  13
  valuable
than we expected and/or that we may assume unknown or unexpected liabilities,
costs and problems.  In addition, we assumed certain liabilities in
connection with these acquisitions and we cannot assure you that we will be able
to satisfy adequately such assumed liabilities.  Other companies that
offer similar products and services may be able to market and sell their
products and services more cost-effectively than we can.
 
 If
we do not manage our growth, our business will be harmed.
 
 We may
not be successful in managing our rapid growth.  Since November 2003,
we have acquired several businesses including most recently the acquisitions of
USM and CEG.  These subsidiaries operate in business areas different
from our IDC operations business.  The number of our employees has
grown from 11 in March 2003 to just under 250 in March 2009.  Past
growth has placed, and future growth will continue to place, significant
challenges on our management and resources, related to the successful
integration of the newly acquired businesses.  To manage the expected
growth of our operations, we will need to improve our existing, and implement
new, operational and financial systems, procedures and controls.  We
may also need to expand our finance, administrative, client services and
operations staffs and train and manage our growing employee base
effectively.  Our current and planned personnel, systems, procedures
and controls may not be adequate to support our future operations.Our business, results of
operations and financial position will suffer if we do not effectively manage
our growth.
 
 If
we are not successful in protecting our intellectual property, our business will
suffer.
 
 We depend
heavily on technology to operate our business.  Our success depends on
protecting our intellectual property, which is one of our most important
assets.  We have intellectual property consisting of:
 
 ·
              
              licensable
      software products;·
              
              rights
      to certain domain names;·
              
              registered
      service marks on certain names and phrases;·
              
              various
      unregistered trademarks and service marks;·
              
              know-how;·
              
              rights
      to certain logos; and·
              
              a
      pending patent application with respect to certain of our
      software.
 
 If we do
not adequately protect our intellectual property, our business, financial
position and results of operations would be harmed.  Our means of
protecting our intellectual property may not be
adequate.  Unauthorized parties may attempt to copy aspects of our
intellectual property or to obtain and use information that we regard as
proprietary.  In addition, competitors may be able to devise methods
of competing with our business that are not covered by our intellectual
property.  Our competitors may independently develop similar
technology, duplicate our technology or design around any intellectual property
that we may obtain.
 
 The
success of some of our business operations depends on the proprietary nature of
certain software.  We do not, however, have patents with respect to
much of our software.  Because there is no patent protection in
respect of much of our software, other companies are not prevented from
developing and marketing similar software.  We cannot assure you,
therefore, that we will not face more competitors or that we can compete
effectively against any companies that develop similar software.  We
also cannot assure you that we can compete effectively or not suffer from
pricing pressure with respect to our existing and developing products that could
adversely affect our ability to generate revenues.  Further, our
pending patent application may not be issued and if issued may not be broad
enough to protect our rights, or if such patent is issued such patent could be
successfully challenged.
 
 Although
we hold rights to various web domain names, regulatory bodies in the United
States and abroad could establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names.  The relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is
unclear.  We may be unable to prevent third parties from acquiring
domain names that are similar to or diminish the value of our proprietary
rights.
 
 Our
substantial debt and lease obligations could impair our financial flexibility
and restrict our business significantly.
 
 We now
have, and will continue to have, significant debt obligations.  We
have notes payable to third parties with principal amounts aggregating $251.2
million as of March 31, 2009.  We also have capital lease obligations
covering facilities and computer network equipment with principal amounts of
$6.0 million as of March 31, 2009.
 
  14
  In August
2007, we issued the 2007 Senior Notes in the aggregate principal amount of $55.0
million.  Additionally, AccessIT DC, our indirect wholly-owned
subsidiary, has entered into the GE Credit Facility, which permits permited us
to borrow up to $217.0 million of which $201.3 million has been drawn down as of
March 31, 2009 and AccessIT DC has repaid principal of $15.4 million as of March
31, 2009.  As of March 31, 2009, the balance of the GE Credit Facility
was $185.8 million and is included in the notes payable to third parties
mentioned above.  The obligations and restrictions under the GE Credit
Facility, the 2007 Senior Notes and our other debt obligations could have
important consequences for us, including:
 
 ·
              
              limiting
      our ability to obtain necessary financing in the future and making it more
      difficult for us to satisfy our debt obligations;·
              
              requiring
      us to dedicate a substantial portion of our cash flow to payments on our
      debt obligations, thereby reducing the availability of our cash flow to
      fund working capital, capital expenditures and other corporate
      requirements;·
              
              making
      us more vulnerable to a downturn in our business and limiting our
      flexibility to plan for, or react to, changes in our business;
      and·
              
              placing
      us at a competitive disadvantage compared to competitors that might have
      stronger balance sheets or better access to capital by, for example,
      limiting our ability to enter into new markets.
 
 If we are
unable to meet our lease and debt obligations, we could be forced to restructure
or refinance our obligations, to seek additional equity financing or to sell
assets, which we may not be able to do on satisfactory terms or at
all.  As a result, we could default on those obligations and in the
event of such default, our lenders could accelerate our debt or take other
actions that could restrict our operations.
 
 The
foregoing risks would be intensified to the extent we borrow additional money or
incur additional debt.
 
 The
agreements governing our GE Credit Facility and our issuance of the 2007 Senior
Notes in August 2007 impose certain limitations on us.
 
 The
agreement governing our GE Credit Facility restricts the ability of AccessIT DC
and its existing and future subsidiaries to, among other things:
 
 ·
                
                make
      certain capital expenditures;·
                
                incur
      other indebtedness;·
                
                engage
      in a new line of business;·
                
                sell
      certain assets;·
                
                acquire,
      consolidate with, or merge with or into other companies;
    and·
                
                enter
      into transactions with affiliates.
 
 The
agreements governing our issuance of the 2007 Senior Notes in August 2007
restrict the ability of the Company and its subsidiaries, subject to certain
exceptions, to, among other things:
 
 ·
                  
                  incur
      other indebtedness;·
                  
                  create
      or acquire subsidiaries which do not guarantee the notes;·
                  
                  make
      certain investments;·
                  
                  pay
      dividends; and·
                  
                  modify
      authorized capital.
 
 We
may not be able to generate the amount of cash needed to fund our future
operations.
 
 Our
ability either to make payments on or to refinance our indebtedness, or to fund
planned capital expenditures and research and development efforts, will depend
on our ability to generate cash in the future.  Our ability to
generate cash is in part subject to general economic, financial, competitive,
regulatory and other factors that are beyond our control.
 
 Based on
our current level of operations, we believe our cash flow from operations,
subsequent borrowings and amended GE Credit Facility terms will be adequate to
meet our future liquidity needs through at least March 31,
2010.  Significant assumptions underlie this belief, including, among
other things, that there will be no material adverse developments in our
business, liquidity or capital requirements.  If we are unable to
service our indebtedness, we will be forced to adopt an alternative strategy
that may include actions such as:
 
  15
  
 ·
                
                reducing
      capital expenditures;·
                
                reducing
      research and development efforts;·
                
                selling
      assets;·
                
                restructuring
      or refinancing our remaining indebtedness; and·
                
                seeking
      additional funding.
 
 We cannot
assure you, however, that our business will generate sufficient cash flow from
operations, or that we will be able to make future borrowings in amounts
sufficient to enable us to pay the principal and interest on our current
indebtedness or to fund our other liquidity needs.  We may need to
refinance all or a portion of our indebtedness on or before
maturity.  We cannot assure you that we will be able to refinance any
of our indebtedness on commercially reasonable terms or at all.
 
 We
have incurred losses since our inception.
 
 We have
incurred losses since our inception in March 2000 and have financed our
operations principally through equity investments and borrowings.  As
of March 31, 2009, we had positive working capital, defined as current assets
less current liabilities, of $3.4 million and cash and cash equivalents of $26.3
million; we had an accumulated deficit of $138.1 million and, from inception
through such date, and we had provided $0.2 million in cash for operating
activities.  However, our net losses are likely to continue for the
foreseeable future.
 
 Our
ability to become profitable is dependent upon us achieving a sufficient volume
of business from our customers.  If we cannot achieve a high enough
volume, we likely will incur additional net and operating losses.  We
may be unable to continue our business as presently conducted unless we obtain
funds from additional financings.
 
 Our net
losses and cash outflows may increase as and to the extent that we increase the
size of our business operations, increase the purchases of Systems for AccessIT
DC’s Phase I Deployment or Phase 2 DC’s Phase II Deployment, increase our sales
and marketing activities, enlarge our customer support and professional services
and acquire additional businesses.  These efforts may prove to be more
expensive than we currently anticipate which could further increase our
losses.  We must significantly increase our revenues in order to
become profitable.  We cannot reliably predict when, or if, we will
become profitable.  Even if we achieve profitability, we may not be
able to sustain it.  If we cannot generate operating income or
positive cash flows in the future, we will be unable to meet our working capital
requirements.
 
 Many
of our corporate actions may be controlled by our officers, directors and
principal stockholders; these actions may benefit these principal stockholders
more than our other stockholders.
 
 As of
March 31, 2009, our directors, executive officers and principal stockholders,
those known by the Company to beneficially own more than 5% of the outstanding
shares of the Company’s Common Stock, beneficially own, directly or indirectly,
in the aggregate, approximately 40.2% of our outstanding common
stock.  In particular, A. Dale Mayo, our President and Chief Executive
Officer, beneficially holds all 733,811 shares of Class B common stock, and
280,388 shares of Class A common stock which collectively represent
approximately 5.0% of our outstanding common stock, and includes 59,761
restricted shares of Class A common stock, 87,500 shares of Class A common stock
held by Mr. Mayo’s spouse, of which Mr. Mayo disclaims beneficial ownership, and
12,000 shares of Class A common stock held for the account of Mr. Mayo’s
grandchildren, the custodian of which accounts is Mr. Mayo’s spouse, of which
Mr. Mayo also disclaims beneficial ownership.  Our Class B common
stock entitles the holder to ten votes per share.  The shares of Class
A common stock have one vote per share.  Due to the supervoting Class
B common stock, Mr. Mayo has approximately 21.8% of our voting
power.  These stockholders, and Mr. Mayo himself, will have
significant influence over our business affairs, with the ability to control
matters requiring approval by our security holders, including elections of
directors and approvals of mergers or other business
combinations.  Also, certain corporate actions directed by our
officers may not necessarily inure to the proportional benefit of other
stockholders of our company.
 
 Our
success will significantly depend on our ability to hire and retain key
personnel.
 
 Our
success will depend in significant part upon the continued services of our key
technical, sales and senior management personnel.  If we lose one or
more of our key employees, we may not be able to find a suitable replacement(s)
and our business and results of operations could be adversely
affected.  In particular, our performance depends significantly upon
the continued service of A. Dale Mayo, our President and Chief Executive
Officer, whose experience and relationships in the movie theatre industry are
integral to our business, particularly in the business areas of AccessIT SW, DMS
and AccessIT DC.  Although we have obtained two $5.0 million key-man
life insurance policies in respect of Mr. Mayo, the loss of his services would
have a material and adverse effect on our business, operations and
prospects.  Each policy carries a death benefit of $5.0 million, and
while we are the beneficiary of each policy, under one of the policies the
proceeds are to be used to repurchase, after reimbursement of all premiums paid
by us, shares of our capital stock held by Mr. Mayo’s estate at the
then-determined fair
  16
  market
value.  We also rely on the experience and expertise of certain
officers of our subsidiaries.  In addition, our future success will
depend upon our ability to hire, train, integrate and retain qualified new
employees.
 
 We
may be subject to environmental risks relating to the on-site storage of diesel
fuel and batteries.
 
 Our IDCs
contain tanks for the storage of diesel fuel for our generators and significant
quantities of lead acid batteries used to provide back-up power generation for
uninterrupted operation of our customers’ equipment.  We cannot assure
you that our systems will be free from leaks or that use of our systems will not
result in spills.  Any leak or spill, depending on such factors as the
nature and quantity of the materials involved and the environmental setting,
could result in interruptions to our operations and the incurrence of
significant costs; particularly to the extent we incur liability under
applicable environmental laws.  This could have a material adverse
effect on our business, financial position and results of
operations.  Although we are still the lessee of the IDCs,
substantially all of the revenues and expenses are being realized by FiberMedia,
unrelated third parties, and not the Company.
 
 We
may not be successful in the eventual disposal of our Data Center
Services.
 
 In
connection with the disposition of our Data Center Services, we entered into a
MCA with FiberMedia, unrelated third parties, to operate our
IDCs.  FiberMedia operates a network of geographically distributed
IDCs.  We have assigned our IDC customer contracts to FiberMedia, and
going forward, FiberMedia will be responsible for all customer service issues,
including the maintenance of the IDCs, sales, installation of customer
equipment, cross connects, electrical and other customer needs.  Among
such items are certain operating leases which expire from June 2009 through
January 2016.  As of March 31, 2009, obligations under these operating
leases totaled $6.2 million.  We will attempt to obtain landlord
consents to assign each facility lease to FiberMedia.  Until such
landlord consents are obtained, we will remain as the lessee and pursuant to the
MCA, FiberMedia will reimburse our costs under the facility leases, including
rent, at an escalating percentage, starting at 50% in May 2007 and increasing to
100% in May 2008 and thereafter through the remaining term of each IDC
lease.  100% of all other operating costs for each IDC, are payable by
FiberMedia through the term of each IDC lease.  We cannot assure you
that the existing landlords would consent to the assignment of these leases to a
buyer of our data centers.  As a result, we may have continuing
obligations under these leases, which could have a material adverse effect
on our business, financial position and results of operations.
 
 If
the market price of our common stock declines, we may not be able to maintain
our listing on the NASDAQ Global Market which may impair our financial
flexibility and restrict our business significantly.
 
 The stock
markets have experienced extreme price and volume fluctuations that have
affected the market prices of equity securities of many companies that may be
unrelated or disproportionate to the operating results of such companies. These
broad market movements may adversely affect the market price of the Company’s
Common Stock.  The Company’s Common Stock is presently listed on
NASDAQ.  Although we are not currently in jeopardy of delisting, we
cannot assure you that NASDAQ will continue its suspension of the continued
listing requirement relating to minimum bid prices of securities currently
scheduled to expire on July 20, 2009.  If NASDAQ discontinues such
suspension and our Common Stock continues to trade at current prices, we cannot
assure you that we will meet the criteria for continued listing and our Common
Stock could become delisted.  Any such delisting could harm our
ability to raise capital through alternative financing sources on terms
acceptable to us, or at all, and may result in the loss of confidence in our
financial stability by suppliers, customers and employees. If the Company’s
Common Stock is delisted from the NASDAQ, we may face a lengthy process to
re-list the Company’s Common Stock, if we are able to re-list the Company’s
Common Stock at all, and the liquidity that NASDAQ provides will no longer be
available to investors.
 
 If the
Company’s Common Stock were to be delisted from NASDAQ, the holders of the 2007
Senior Notes would have the right to redeem the outstanding principal of the
2007 Senior Notes plus interest. As a result, we could be forced to restructure
or refinance our obligations, to seek additional equity financing or to sell
assets, which we may not be able to do on satisfactory terms or at all. If we
default under the 2007 Senior Notes obligations, our lenders could take actions
that would restrict our operations.
 
 While
we believe we currently have effective internal control over financial
reporting, we are required to assess our internal control over financial
reporting on an annual basis and any future adverse results from such assessment
could result in a loss of investor confidence in our financial reports and have
an adverse effect on our stock price.
  Section
404 of the Sarbanes-Oxley Act of 2002 and the accompanying rules and regulations
promulgated by the SEC to implement it required us to include in our Form 10-K
annual reports by our management and independent auditors regarding the
effectiveness of our internal control over financial reporting. The reports
included, among other things, an assessment of the effectiveness of our internal
control over financial reporting as of the end of our fiscal year. These
assessments did not result in the disclosure of any material weaknesses in our
internal control over financial reporting identified by management. During this
process, if our management identified one or more material weaknesses in our
internal control over financial reporting that cannot
  17
  be
remediated in a timely manner, we would not be unable to assert such internal
control as effective. While we currently believe our internal control over
financial reporting is effective, the effectiveness of our internal controls in
future periods is subject to the risk that our controls may become inadequate
because of changes in conditions, and, as a result, the degree of compliance of
our internal control over financial reporting with the applicable policies or
procedures may deteriorate. If, in the future, we are unable to conclude that
our internal control over financial reporting is effective (or if our
independent auditors disagree with our conclusion), we could lose investor
confidence in the accuracy and completeness of our financial reports, which
could have an adverse effect on our stock price.
 
 New
technologies may make our Digital Cinema Assets less desirable to motion picture
studios or exhibitors of digital content and result in decreasing
revenues.
 
 The
demand for our Systems and other assets in connection with our digital cinema
business (collectively, our “Digital Cinema Assets”) may be affected by future
advances in technology and changes in customer demands.  We cannot
assure you that there will be continued demand for our Digital Cinema
Assets.  Our profitability depends largely upon the continued use of
digital presentations at theatres.  Although we have entered into long
term agreements with major motion picture studios and independent studios (the
“Studio Agreements”), there can be no assurance that these studios will continue
to distribute digital content to movie theatres.  If the development
of digital presentations and changes in the way digital files are delivered does
not continue or technology is used that is not compatible with our Systems,
there may be no viable market for our Systems.  Any reduction in the
use of our Systems resulting from the development and deployment of new
technology may negatively impact our revenues and the value of our
Systems.
 
 We
have concentration in our business with respect to our major motion picture
studio customers, and the loss of one or more of our largest studio customers
could have a material adverse effect on us.
 
 Our
Studio Agreements account for a significant portion of our
revenues.  Together these studios generated 90%, 82%, 51%, 74%, 79%
and 56% of AccessIT DC’s, Phase 2 DC’s, AccessIT SW’s, AccessDM’s, the Media
Service segment’s, and consolidated revenues, respectively, for the fiscal year
ended March 31, 2009.
 
 The
Studio Agreements are critical to our business.  If some of the Studio
Agreements were terminated prior to the end of their terms or found to be
unenforceable, or if our Systems are not upgraded or enhanced as necessary, or
if we had a material failure of our Systems, it may have a material adverse
effect on our revenue, profitability, financial condition and cash
flows.  The Studio Agreements also generally provide that the VPF
rates and other material terms of the agreements may not be more favorable to
one studio as compared to the others.
 
 Termination
of the MLAs could damage our revenue and profitability.
 
 The
master license agreements with each of our licensed exhibitors (the “MLAs”) are
critical to our business. The MLAs each have a term which expires in 2020 and
provide the exhibitor with an option to purchase our Systems or to renew for
successive one year periods up to ten years thereafter. The MLAs also require
our suppliers to upgrade our Systems when technology necessary for compliance
with DCI Specification becomes commercially available and we may determine to
enhance the Systems which may require additional capital
expenditures.  If any one of the MLAs were terminated prior to the end
of its term, not renewed at its expiration or found to be unenforceable, or if
our Systems are not upgraded or enhanced as necessary, it would have a material
adverse effect on our revenue, profitability, financial condition and cash
flows.
 
 We
have concentration in our business with respect to our major licensed
exhibitors, and the loss of one or more of our largest exhibitors could have a
material adverse effect on us.
 
 Over 60%
of our Systems are in theatres owned or operated by one large
exhibitor.  The loss of this exhibitor or another of our major
licensed exhibitors could have a negative impact on the aggregate receipt of VPF
revenues as a result of the loss of any associated MLAs.  Although we
do not receive revenues from licensed exhibitors and we have attempted to limit
our licenses to only those theatres which we believe are successful, each MLA
with our licensed exhibitors is important, depending on the number of screens,
to our business since our VPF revenues are generated based on screen turnover at
theatres.  If the MLA with a significant exhibitor was terminated
prior to the end of its term, it would have a material adverse effect on our
revenue, profitability, financial condition and cash flows.  There can
be no guarantee that the MLAs with our licensed exhibitors will not be
terminated prior to the end of its term.
 
  18
  We
depend on a limited number of suppliers for our Systems, and any delay in supply
could affect our ability to grow.
 
 We currently
purchase Systems from a limited number of suppliers, and we were dependent on
one supplier for our Systems in our Phase One Deployment. The inability to
obtain certain components on a timely basis would limit our ability to complete
installation of such Systems in a timely manner and would affect the amount of
future revenues.
 
 An
increase in the use of alternative film distribution channels and other
competing forms of entertainment could drive down movie theatre attendance,
which, if causing significant theatre closures or a substantial decline in
motion picture production, may lead to reductions in our revenues.
 
 Various
exhibitor chains which are the Company’s distributors face competition for
patrons from a number of alternative motion picture distribution channels, such
as DVD, network and syndicated television, video on-demand, pay-per-view
television and downloading utilizing the internet.  These exhibitor
chains also compete with other forms of entertainment competing for patrons’
leisure time and disposable income such as concerts, amusement parks and
sporting events.  An increase in popularity of these alternative film
distribution channels and competing forms of entertainment could drive down
movie theatre attendance and potentially cause certain of our exhibitors to
close their theatres for extended periods of time.  Significant
theatre closures could in turn have a negative impact on the aggregate receipt
of our VPF revenues, which in turn may have a material adverse effect on our
business and ability to service our debt.
 
 An
increase in the use of alternative film distribution channels could also cause
the overall production of motion pictures to decline, which, if substantial,
could have an adverse effect on the businesses of the major studios with which
we have Studio Agreements.  A decline in the businesses of the major
studios could in turn force the termination of certain Studio Agreements prior
to the end of their terms. The Studio Agreements with each of the major studios
are critical to our business, and their early termination may have a material
adverse effect on our revenue, profitability, financial condition and cash
flows.
 
 Our
revenues and earnings are subject to market downturns.
 
 Our
revenues and earnings may fluctuate significantly in the
future.  General economic or other conditions could cause a downturn
in the market for our Systems or technology.  The recent financial
disruption affecting the banking system and financial markets and the concern as
to whether investment banks and other financial institutions will continue
operations in the foreseeable future have resulted in a tightening in the credit
markets, a low level of liquidity in many financial markets and extreme
volatility in fixed income, credit and equity markets.  The credit
crisis may result in our inability to refinance our outstanding debt obligations
or to finance our Phase II Deployment.  The recent credit crisis may
also result in the inability of our studios, exhibitors or other customers to
obtain credit to finance operations; a slowdown in global economies which could
result in lower consumer demand for films; counterparty failures negatively
impacting our Interest Rate Swap; or increased impairments of our
assets.  The current volatility in the financial markets and overall
economic uncertainty increase the risk of substantial quarterly and annual
fluctuations in our earnings.  Any of these factors could have a
material adverse affect on our business, results of operations and could result
in significant additional dilution to shareholders.
 
 Economic
conditions could materially adversely affect the Company.
 
 The
Company’s operations and performance could be influenced by worldwide economic
conditions.  Uncertainty about current global economic conditions
poses a risk as consumers and businesses may postpone spending in response to
tighter credit, negative financial news and/or declines in income or asset
values, which could have a material negative effect on the demand for the
Company’s products and services.  Other factors that could influence
demand include continuing increases in fuel and other energy costs, conditions
in the residential real estate and mortgage markets, labor and healthcare costs,
access to credit, consumer confidence, and other macroeconomic factors affecting
consumer spending behavior.  These and other economic factors could
have a material adverse effect on demand for the Company’s products and services
and on the Company’s financial condition and operating
results.  Uncertainty about current global economic conditions could
also continue to increase the volatility of the Company’s stock
price.
 
 The
continued threat of terrorism and ongoing military and other actions may result
in decreases in our net income, revenue and assets under management and may
adversely affect our business.
 
 The
continued threat of terrorism, both within the United States of America and
abroad, and the ongoing military and other actions and heightened security
measures in response to these types of threats, may cause significant volatility
and declines in the capital markets in the United States of America, Europe and
elsewhere, loss of life, property damage, additional disruptions to commerce and
reduced economic activity.  An actual terrorist attack could cause
losses from a decrease in our business.
 
  19
  The war on
terrorism, the threat of additional terrorist attacks, the political and the
economic uncertainties that may result and other unforeseen events may impose
additional risks upon and adversely affect the cinema industry and our
business.  We cannotoffer assurances that the threats of
future terrorist-like events in the United States of America and abroad or
military actions by the United States of America will not have a material
adverse effect on our business, financial condition or results of
operations.
 
 Changes
to existing accounting pronouncements or taxation rules or practices may affect
how we conduct our business and affect our reported results of
operations.
 
 New accounting
pronouncements or tax rules and varying interpretations of accounting
pronouncements or taxation practice have occurred and may occur in the future. A
change in accounting pronouncements or interpretations or taxation rules
or practices can have a significant effect on our reported results and may even
affect our reporting of transactions completed before the change is effective.
Changes to existing rules and pronouncements, future changes, if any, or the
questioning of current practices or interpretations may adversely affect our
reported financial results or the way we conduct our business.
 
 ITEM
2.  PROPERTY
 
 Our
segments operated from the following leased properties at March 31,
2009.
 
 Media
Services
 
 Operations
      of:
                                        Location:
                                        Facility
      Type:
                                        Expires:
                                        Square
      Feet:DMS
                                        Chatsworth,
      California
                                        Administrative
      offices, technical operations center, and warehouse (1)
                                        March
                                          2012
      (2)
                                        13,455AccessIT
      DC (3)AccessIT
      SW
                                        Auburn
      Hills, Michigan
                                        Administrative
      offices
                                        October
      2010 (4)
                                        1,203Hollywood,
      California
                                        Administrative
      and technical offices
                                        December
      2010 (5)
                                        9,412Managed
      Services (6)
                                        Manhattan
      Borough of New York City
                                        Technical
      operations offices
                                        June
                                          2013
      (8)
                                        3,000
 
 
 Content
& Entertainment
 
 Operations
      of:
                                Location:
                                Facility
      Type:
                                Expires:
                                Square
      Feet:Pavilion
      Theatre
                                Brooklyn
      Borough of New York City
                                Nine-screen
      digital movie theatre
                                July
                                  2022
      (7)
                                31,120USM
                                Waite
      Park, Minnesota
                                Administrative
      and Sales staff offices
                                October
      2013 (12)
                                11,544CEG
                                Sherman
      Oaks, California
                                Administrative
      offices
                                January
      2012 (9)
                                3,015
 
 
 Other
 
 Operations
      of:
              Location:
              Facility
      Type:
              Expires:
              Square
      Feet:Data
      Centers (13)
              Jersey
      City, New Jersey
              IDC
      facility
              June
                2009
      (8)
              12,198Manhattan
      Borough of New York City
              IDC
      facility
              July
                2010
      (10)
              11,450Brooklyn
      Borough of New York City
              IDC
      facility
              January
                2016
      (8)
              30,520Access
      Digital Server Assets (14)
 
  20
  Corporate
 
 Operations
      of:
              Location:
              Facility
      Type:
              Expires:
              Square
      Feet:Cinedigm
              Morristown,
      New Jersey
              Executive
      offices
              May
                2012
      (11)
              5,237
 
 (1)
              Location
      contains a data center which we use as a dedicated digital content
      delivery site.
 (2)
              Lease
      has an option to renew for an additional five years with six months prior
      written notice at the then prevailing market rental
  rate.
 (3)
              Employees
      share office space with AccessIT SW in Hollywood,
    California.
 (4)
              Lease
      has an option to renew for up to an additional five years with 180 days
      prior written notice at 95% of the then prevailing market rental
      rate.
 (5)
              Lease
      has an option to renew for one additional three-year term with nine months
      prior written notice at the then prevailing market rental
      rate.
 (6)
              Operations
      of Managed Services are based in the IDCs now operated by
      FiberMedia.  Effective July 1, 2008, a portion of the operations
      of Managed Services operate at the new location in New York indicated
      above.
 (7)
              Lease
      has options to renew for two additional ten-year terms and contains a
      provision for the payment of additional rent if box office revenues exceed
      certain levels.  To date, no additional rent has been
      paid.
 (8)
              There
      is no lease renewal provision.
 (9)
              In
      addition to this office, employees of CEG currently share office space
      with BP/KTF, LLC in Woodland Hills, California, which charges CEG for a
      pro-rated share of office space used.  This office is currently
      being sub-leased to an unrelated third party through the remaining period
      of this lease.
 (10)
              Lease
      has options to renew for two additional five-year terms with twelve months
      prior written notice at the then prevailing market rental
      rate.
 (11)
              Lease
      was renewed in February 2009 with a commencement date in June
      2009.  Lease has an option to renew for one additional five-year
      term with nine months prior written notice at the then prevailing market
      rental rate.
 (12)
              USM’s
      previous administrative office lease expired during the fiscal year ended
      March 31, 2009.  As a result, USM combined their administrative
      and sales staff offices.  Lease has an option to renew for up to
      an additional five years with 90 days prior written notice at the then
      prevailing market rental rate.
 (13)
              Since
      May 1, 2007, the IDC facility has been operated by FiberMedia pursuant to
      a master collocation agreement.  The Company and FiberMedia are
      attempting to have the IDC facility leases assigned to FiberMedia by the
      landlords, and FiberMedia is attempting to extend the term of the lease
      for the Jersey City IDC Facility.
 (14)
              Operations
      of the Access Digital Server Assets are based in the IDC located in the
      Brooklyn Borough of New York City, now operated by
    FiberMedia.
 
 We
believe that we have sufficient space to conduct our business for the
foreseeable future.  All of our leased properties are, in the opinion
of our management, in satisfactory condition and adequately covered by
insurance.
 
 We do not
own any real estate or invest in real estate or related
investments.
 
 ITEM
3.  LEGAL PROCEEDINGS
 
 Our
subsidiary, ADM Cinema, was named as a defendant inan action filed on May
19, 2008 in the Supreme Court of the State of New York, County of Kings by
Pavilion on the Park, LLC (“Landlord”).  Landlord is the owner of the
premises located at 188 Prospect Park West, Brooklyn, New York, known as the
Pavilion Theatre.  Pursuant to the relevant lease, ADM Cinema leases
the Pavilion Theatre from Landlord and operates it as a movie
theatre.
 
 In the
complaint, Landlord alleges that ADM Cinema violated its obligations under
Article 12 of the lease in that ADM Cinema failed to comply with an Order of the
Fire Department of the City of New York issued on September 24, 2007 calling for
the installation of a sprinkler system in the Pavilion Theatre and that such
violation constitutes an event of default under the lease.  Landlord
seeks to terminate the lease and evict ADM Cinema from the premises and to
recover its attorneys’ fees and damages for ADM Cinema’s alleged “holding over”
by remaining on the premises. We have reached agreement in principle with
Landlord to settle this matter, but in the event that no settlement is reached,
we believe that we have meritorious defenses against these claims and we intend
to defend our position vigorously. However, if we do not prevail, any
significant loss resulting in eviction may have a material effect on our
business, results of operations and cash flows.
 
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
 
 None.
  21
  PART
II
 
 ITEM
5.MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
 
 CLASS
A COMMON STOCK
 
 Our Class
A Common Stock trades publicly on the Nasdaq Global Market (“NASDAQ”), under the
trading symbol “CIDM”. The following table shows the high and low sales prices
per share of our Class A Common Stock as reported by NASDAQ for the periods
indicated:
 
 For
      the fiscal years ended March 31,2008
                  
                  
                  2009HIGH
                  
                  
                  LOW
                  
                  
                  HIGH
                  
                  
                  LOWApril
      1 – June 30
                  
                  $
                  8.52
                  
                  
                  $
                  5.24
                  
                  
                  $
                  4.15
                  
                  
                  $
                  1.89July
      1 – September 30
                  
                  $
                  9.68
                  
                  
                  $
                  5.40
                  
                  
                  $
                  2.68
                  
                  
                  $
                  1.02October
      1 – December 31
                  
                  $
                  5.84
                  
                  
                  $
                  2.96
                  
                  
                  $
                  1.50
                  
                  
                  $
                  0.25January
      1 – March 31
                  
                  $
                  4.46
                  
                  
                  $
                  2.05
                  
                  
                  $
                  0.94
                  
                  
                  $
                  0.31
 
 The last
reported closing price per share of our Class A Common Stock as reported by
NASDAQ on March 31, 2009 was $0.62 per share.  As of March 31, 2009,
there were approximately 107 holders of record of our Class A Common Stock, not
including beneficial owners of our Class A Common Stock whose shares are held in
the names of various dealers, clearing agencies, banks, brokers and other
fiduciaries.
 
 CLASS
B COMMON STOCK
 
 There is
no public trading market for our Class B common stock (“Class B Common
Stock”).  Each outstanding share of Class B Common Stock may be
converted into one share of Class A Common Stock at any time, and from time to
time, at the option of the holder and the holder of Class B Common Stock is
entitled to ten (10) votes for each share of Class B Common Stock
held.  As of March 31, 2009, there was one holder of our Class B
Common Stock.
 
 DIVIDEND
POLICY
 
 We have
never paid any cash dividends on our Class A Common Stock or Class B Common
Stock (together, the “Common Stock”) and do not anticipate paying any on our
Common Stock in the foreseeable future. Any future payment of dividends on our
Common Stock will be in the sole discretion of our board of directors (the
“Board”).  At the present time, the Company and its subsidiaries,
other than AccessIT DC and its subsidiaries, are prohibited from paying
dividends under the terms of the 2007 Senior Notes.  The holders of
our Series A 10% Non-Voting Cumulative Preferred Stock are entitled to receive
dividends, however, such dividends will accrue and will not be paid until the
Company is permitted under the terms of the 2007 Senior Notes to make such
payments.
 
 SALES OF UNREGISTERED
SECURITIES
 
 In
January 2009, we issued 129,871 shares of Class A Common Stock as a placement
agent fee related to the issuance of preferred stock.  There was no
underwriter associated with this privately negotiated
transaction.  These shares were issued in reliance upon applicable
exemptions from registration under Section 4(2) of the Securities Act of 1933,
as amended.
 
 In
connection with the acquisition of CEG in January 2007, CEG entered into a
services agreement with SD Entertainment, Inc. (“SDE”) to provide certain
services, such as the provision of shared office space and certain shared
administrative personnel.  In January 2009, we issued 22,010 shares of
unregistered Class A Common Stock to SDE as partial payment for such services
and resources.  There was no underwriter associated with this
privately negotiated transaction.  These shares were issued in
reliance upon applicable exemptions from registration under Section 4(2) of the
Securities Act.
 
 PURCHASE
OF EQUITY SECURITIES
 
 There
were no purchases of shares of our Class A Common Stock made by us or
on our behalf during the three months ended March 31,
2009.  Although we are currently precluded from purchasing shares of
our Class A Common Stock under the terms of the 2007 Senior Notes (see Note 5),
we do not anticipate purchasing any shares of our Class A Common Stock in
the foreseeable future.
  22
   ITEM
6.  SELECTED FINANCIAL DATA
 
  The
following tables set forth our historical selected financial and operating data
for the periods indicated. The selected financial and operating data should be
read together with the other information contained in this document, including
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” in Item 7 and the audited historical financial statements and the
notes thereto included elsewhere in this document.  The historical
results here are not necessarily indicative of future results.
 
 For
      the fiscal years ended March 31,(In
      thousands, except per share data)2005
                      
                      
                      2006
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2009Statement
      of Operations Data:Revenues
                      
                      $
                      10,651
                      
                      
                      $
                      16,795
                      
                      
                      $
                      47,110
                      
                      
                      $
                      80,984
                      
                      
                      $
                      83,014Direct
      operating (exclusive of depreciation and amortization shown
      below)
                      
                      
                      5,811
                      
                      
                      
                      11,550
                      
                      
                      
                      22,214
                      
                      
                      
                      26,569
                      
                      
                      
                      25,671Gross
      margin
                      
                      
                      4,840
                      
                      
                      
                      5,245
                      
                      
                      
                      24,896
                      
                      
                      
                      54,415
                      
                      
                      
                      57,343Selling,
      general and administrative
                      
                      
                      5,607
                      
                      
                      
                      8,887
                      
                      
                      
                      18,565
                      
                      
                      
                      23,170
                      
                      
                      
                      18,070Provision
      for doubtful accounts
                      
                      
                      640
                      
                      
                      
                      186
                      
                      
                      
                      848
                      
                      
                      
                      1,396
                      
                      
                      
                      587Research
      and development.
                      
                      
                      666
                      
                      
                      
                      300
                      
                      
                      
                      330
                      
                      
                      
                      162
                      
                      
                      
                      188Stock-based
      compensation
                      
                      
                      4
                      
                      
                      
                      -
                      
                      
                      
                      2,920
                      
                      
                      
                      453
                      
                      
                      
                      945Loss
      on disposition of assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,561
                      
                      
                      
                      -
                      
                      
                      
                      -Impairment
      of intangible asset
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,588
                      
                      
                      
                      -Impairment
      of goodwill
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,525Depreciation
      and amortization of property and equipment
                      
                      
                      2,105
                      
                      
                      
                      3,693
                      
                      
                      
                      14,699
                      
                      
                      
                      29,285
                      
                      
                      
                      32,531Amortization
      of intangible assets
                      
                      
                      1,518
                      
                      
                      
                      1,308
                      
                      
                      
                      2,773
                      
                      
                      
                      4,290
                      
                      
                      
                      3,434Loss
      from operations
                      
                      
                      (5,700
                      )
                      
                      
                      (9,129
                      )
                      
                      
                      (17,800
                      )
                      
                      
                      (5,929
                      )
                      
                      
                      (4,937
                      )Interest
      income
                      
                      
                      5
                      
                      
                      
                      316
                      
                      
                      
                      1,425
                      
                      
                      
                      1,406
                      
                      
                      
                      372Interest
      expense – cash portion
                      
                      
                      (605
                      )
                      
                      
                      (2,237
                      )
                      
                      
                      (7,273
                      )
                      
                      
                      (22,284
                      )
                      
                      
                      (22,775
                      )Interest
      expense – non-cash
                      
                      
                      (832
                      )
                      
                      
                      (1,407
                      )
                      
                      
                      (1,903
                      )
                      
                      
                      (7,043
                      )
                      
                      
                      (4,745
                      )Debt
      conversion expense
                      
                      
                      -
                      
                      
                      
                      (6,269
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Debt
      refinancing expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,122
                      )
                      
                      
                      -Other
      (expense) income, net
                      
                      
                      33
                      
                      
                      
                      1,603
                      
                      
                      
                      (448
                      )
                      
                      
                      (715
                      )
                      
                      
                      (754
                      )Change
      in fair value of interest rate swap
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4,529
                      )Net
      loss
                      
                      $
                      (7,099
                      )
                      
                      $
                      (17,123
                      )
                      
                      $
                      (25,999
                      )
                      
                      $
                      (35,687
                      )
                      
                      $
                      (37,368
                      )Preferred
      stock dividends
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (50
                      )Net
      loss attributable to common shareholders
                      
                      $
                      (7,099
                      )
                      
                      $
                      (17,123
                      )
                      
                      $
                      (25,999
                      )
                      
                      $
                      (35,687
                      )
                      
                      $
                      (37,418
                      )Basic
      and diluted net loss per share
                      
                      $
                      (0.73
                      )
                      
                      $
                      (1.22
                      )
                      
                      $
                      (1.10
                      )
                      
                      $
                      (1.40
                      )
                      
                      $
                      (1.36
                      )Shares
      used in computing basic and diluted net loss per
                        share
      (1)
                      
                      
                      9,669
                      
                      
                      
                      14,086
                      
                      
                      
                      23,730
                      
                      
                      
                      25,577
                      
                      
                      
                      27,476Balance
      Sheet Data (At Period End):Cash
      and cash equivalents
                      
                      $
                      4,779
                      
                      
                      $
                      36,641
                      
                      
                      $
                      29,376
                      
                      
                      $
                      29,655
                      
                      
                      $
                      26,329Working
      capital
                      
                      $
                      1,733
                      
                      
                      $
                      48,851
                      
                      
                      $
                      13,130
                      
                      
                      $
                      14,038
                      
                      
                      $
                      3,419Total
      assets
                      
                      $
                      36,172
                      
                      
                      $
                      122,342
                      
                      
                      $
                      301,727
                      
                      
                      $
                      373,676
                      
                      
                      $
                      322,397Notes
      payable, net of current portion
                      
                      $
                      12,682
                      
                      
                      $
                      1,948
                      
                      
                      $
                      164,196
                      
                      
                      $
                      250,689
                      
                      
                      $
                      225,957Total
      stockholders' equity
                      
                      $
                      10,651
                      
                      
                      $
                      97,774
                      
                      
                      $
                      90,805
                      
                      
                      $
                      68,007
                      
                      
                      $
                      38,787
  23
  
 For
      the fiscal years ended March 31,(In
      thousands, except per share data)2005
                                
                                
                                2006
                                
                                
                                2007
                                
                                
                                2008
                                
                                
                                2009Other
      Financial Data (At Period End):Net
      cash  (used in) provided by operating activities
                                
                                $
                                (3,258
                                )
                                
                                $
                                (5,488
                                )
                                
                                $
                                (19,190
                                )
                                
                                $
                                (443
                                )
                                
                                $
                                33,818Net
      cash used in investing activities
                                
                                $
                                (5,925
                                )
                                
                                $
                                (50,872
                                )
                                
                                $
                                (135,277
                                )
                                
                                $
                                (96,855
                                )
                                
                                $
                                (23,735
                                )Net
      cash provided by (used in) financing activities
                                
                                $
                                11,632
                                
                                
                                $
                                88,222
                                
                                
                                $
                                147,202
                                
                                
                                $
                                97,577
                                
                                
                                $
                                (13,409
                                )
 
 (1)
              For
      all periods presented, the Company has incurred net losses and, therefore,
      the impact of dilutive potential common stock equivalents and convertible
      notes are anti-dilutive and are not included in the weighted
      shares.
 
 ITEM
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 The
following discussion and analysis should be read in conjunction with our
historical consolidated financial statements and the related notes included
elsewhere in this document.
 
 This
report contains forward-looking statements within the meaning of the federal
securities laws. These include statements about our expectations, beliefs,
intentions or strategies for the future, which are indicated by words or phrases
such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,”
“estimates,“ and similar words. Forward-looking statements represent, as of the
date of this report, our judgment relating to, among other things, future
results of operations, growth plans, sales, capital requirements and general
industry and business conditions applicable to us.  These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties, assumptions and other factors, some of which
are beyond the Company’s control that could cause actual results to differ
materially from those expressed or implied by such forward-looking
statements.
 
 OVERVIEW
 
 Cinedigm
Digital Cinema Corp. was incorporated in Delaware on March 31, 2000 and began
doing business as Cinedigm Digital Cinema Corp. on November 25, 2008
(“Cinedigm”, and collectively with its subsidiaries, the
“Company”).  The Company provides technology solutions, software
services, electronic delivery and content distribution services to owners and
distributors of digital content to movie theatres and other
venues.  The Company has three segments, media services (“Media
Services”), media content and entertainment (“Content & Entertainment”) and
other (“Other”). The Company’s Media Services segment provides technology
solutions, software services and electronic delivery services to the motion
picture and television industries, primarily to facilitate the conversion from
analog (film) to digital cinema and has positioned the Company at what it
believes to be the forefront of an industry relating to the delivery and
management of digital cinema and other content to theatres and other remote
venues worldwide.  The Company’s Content & Entertainment segment
provides motion picture exhibition to the general public and cinema advertising
and content distribution services to theatrical exhibitors.  The
Company’s Other segment provides hosting services and network access for other
web hosting services (“Access Digital Server Assets”).  Overall, the
Company’s goal is to aid in the transformation of movie theatres to
entertainment centers by providing a platform of hardware, software and content
choices.  Additional information related to the Company’s reporting
segments can be found in Note 9 to the Company’s Consolidated Financial
Statements.
 
  24
  The
following organizational chart provides a graphic representation of our business
and our three reporting segments:
 
 
 
 We have
incurred net losses of $26.0 million, $35.7 million and $37.4 million in the
fiscal years ended March 31, 2007, 2008 and 2009, respectively, and until
recently, have used cash in operating activities, and we have an accumulated
deficit of $38.8 million as of March 31, 2009.  We also have
significant contractual obligations related to our debt for the next fiscal year
2010 and beyond. We expect to continue generating net losses for the foreseeable
future. Certain of our costs could be reduced if our working capital
requirements increased. Based on our cash position at March 31, 2009, and
expected cash flows from operations, we believe that we have the ability to meet
our obligations through March 31, 2010. We are seeking to raise additional
capital to refinance certain outstanding debt, to meet equipment requirements
related to Phase 2 DC’s Phase II Deployment and for working capital as
necessary. Although we recently entered into certain agreements related to the
Phase II Deployment, there is no assurance that financing for the Phase II
Deployment will be completed as contemplated or under terms acceptable to us or
our existing shareholders. Failure to generate additional revenues, raise
additional capital or manage discretionary spending could have a material
adverse effect on our ability to continue as a going concern. The accompanying
consolidated financial statements do not reflect any adjustments which may
result from our inability to continue as a going concern.
 
 Critical
Accounting Policies
 
 The
following is a discussion of our critical accounting policies.
 
 PROPERTY
AND EQUIPMENT
 
 Property
and equipment are stated at cost, less accumulated depreciation. Depreciation
expense is recorded using the straight-line method over the estimated useful
lives of the respective assets as follows:
 
 Computer
      equipment
                  3-5
      yearsDigital
      cinema projection systems
                  10
      yearsOther
      projection system equipment
                  5
      yearsMachinery
      and equipment
                  3-10
      yearsFurniture
      and fixtures
                  3-6
      yearsVehicles
                  5
      years
 
 
 Leasehold
improvements are being amortized over the shorter of the lease term or the
estimated useful life of the improvement. Maintenance and repair costs are
charged to expense as incurred. Major renewals, improvements and additions are
capitalized.
 
 Useful
lives are determined based on an estimate of either physical or economic
obsolescence, or both.  During the last three fiscal years the Company
has not made any revisions to estimated useful lives, nor recorded any
impairment charges on its fixed assets.
 
  25
  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, 2007, 2008 and 2009,
respectively.  Amortization of capitalized software development costs,
included in direct operating costs, for the fiscal years ended March 31, 2007,
2008 and 2009 amounted to $0.8 million, $0.6 million and $0.7 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, 2007, 2008 and 2009, unbilled receivables under
such customized software development contracts aggregated $1.4 million, $1.2
million and $0.1 million, respectively.  During the fiscal year ended
March 31, 2009, the Company reached an agreement with a customer regarding a
customized product contract whereby the Company will cease development efforts
on the customized product and the customer will complete the development of the
product going forward at their sole expense and deliver the completed product
back to the Company.  The Company will continue to own the product at
all times and retains the rights to market the finished product to
others.  The customer agreed, and has made, certain payments to the
Company as settlement of all billed and unbilled amounts.
 
 GOODWILL
AND INTANGIBLE ASSETS
 
 The
carrying value of goodwill and other intangible assets with indefinite lives are
reviewed for possible impairment in accordance with SFAS No. 142 “Goodwill and
Other Intangible Assets” (“SFAS No. 142”).   SFAS No. 142
addresses the recognition and measurement of goodwill and other intangible
assets subsequent to their acquisition.  The Company tests its
goodwill for impairment annually and in interim periods if certain events occur
indicating that the carrying value of goodwill may be impaired. The Company
reviews possible impairment of finite lived intangible assets in accordance with
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
The Company records goodwill and intangible assets resulting from past business
combinations.
 
 The
Company’s process of evaluating goodwill for impairment involves the
determination of fair value of its four goodwill reporting units: AccessIT SW,
The Pavilion Theatre, USM and CEG.  Identification of reporting units
is based on the criteria contained in SFAS No. 142.  The Company
normally conducts its annual goodwill impairment analysis during the fourth
quarter of each fiscal year, measured as of March 31, unless triggering events
occur which require goodwill to be tested as of an interim date.  As
discussed further below, the Company concluded that one or more triggering
events had occurred during the three months ended December 31, 2008 and recorded
an impairment charge of $6.5 million.  The Company updated the
impairment tests as of March 31, 2009 and concluded there was no additional
impairment charge.
 Inherent
in the fair value determination for each reporting unit are certain judgments
and estimates relating to future cash flows, including management’s
interpretation of current economic indicators and market conditions, and
assumptions about the Company’s strategic plans with regard to its operations.
To the extent additional information arises, market conditions change or the
Company’s strategies change, it is possible that the conclusion regarding
whether the Company’s remaining goodwill is impaired could change and result in
future goodwill impairment charges that will have a material effect on the
Company’s consolidated financial position or results of
operations.
  26
   
 The
discounted cash flow methodology establishes fair value by estimating the
present value of the projected future cash flows to be generated from the
reporting unit. The discount rate applied to the projected future cash flows to
arrive at the present value is intended to reflect all risks of ownership and
the associated risks of realizing the stream of projected future cash
flows.  The discounted cash flow methodology uses our projections of
financial performance for a five-year period.  The most significant
assumptions used in the discounted cash flow methodology are the discount rate,
the terminal value and expected future revenues and gross margins, which vary
among reporting units. The discount rates utilized as of the December 31, 2008
testing date range from 16.0% - 27.5% based on the estimated market
participant weighted average cost of capital (“WACC”) for each unit. 
The market participant based WACC for each unit gives consideration to factors
including, but not limited to, capital structure, historic and projected
financial performance, and size.
 
 The
market multiple methodology establishes fair value by comparing the reporting
unit to other companies that are similar, from an operational or industry
standpoint and considers the risk characteristics in order to determine the risk
profile relative to the comparable companies as a group.  The most
significant assumptions are the market multiplies and the control premium.
The Company has elected not to apply a control premium to the fair
value conclusions for the purposes of impairment testing.
 
 The
Company then assigns a weighting to the discounted cash flows and market
multiple methodologies to derive the fair value of the reporting
unit.  The income approach is weighted 60% to 70% and the
market approach is weighted 40% to 30% to derive the fair value of the
reporting unit.  The weightings are evaluated each time a
goodwill impairment assessment is performed and give consideration to the
relative reliability of each approach at that time.
 
 Based on
the results of our impairment evaluation, the Company recorded an impairment
charge of $6.5 million in the quarter ended December 31, 2008 related to our
content and entertainment reporting segment.
 
 The
changes in the carrying amount of goodwill are as follows ($ in
thousands):
 
 Balance
      at March 31, 2008
                    $14,549Goodwill
      impairment – USM
                    (4,401
                    )Goodwill
      impairment – The Pavilion Theatre
                    (1,960
                    )Goodwill
      impairment – CEG
                    (164
                    )Balance
      at March 31, 2009
                    $  8,024
 
 The
impairment charges were recorded following a period of decline in the Company’s
market capitalization and overall negative economic conditions during the fiscal
year ended March 31, 2009.  Declines were noted in the market valuations of
designated peer group companies of each of the above reporting units and were a
significant factor in the resulting impairment charges.  The impairment
charge recorded to the USM reporting unit was further impacted by a recent
downturn in in-theatre advertising sales due to deterioration in overall
economic conditions and a resulting reduction in the forecasted discounted cash
flows.  The impairment charge recorded for the Pavilion Theatre reporting
unit was impacted by revised revenue estimates to better align its forecasted
operations due to current recessionary trends and its current business model
within the Company.  Also, CEG’s near term forecasts were revised to
reflect what is anticipated to be a competitive landscape for the provision of
alternative content, however offset by expected rapid digital screen count
growth and alternative content availability.  The impairment tests did not
reveal any impairment noted in the remaining goodwill reporting units, primarily
Software, due to historical and expected sales of software products to the
theatrical market, primarily to support the digital cinema rollout.
 
 REVENUE
RECOGNITION
 
 Media
Services
 
 Media
Services revenues are generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Virtual
      print fees (“VPFs”) and alternative content fees (“ACFs”).
              
              Staff
      Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition in Financial
      Statements” (“SAB No. 104”).
  27
  
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Software
      multi-element licensing arrangements, software maintenance contracts, and
      professional consulting services, which includes systems implementation,
      training, and other professional services, delivery revenues via satellite
      and hard drive, data encryption and preparation fee revenues, satellite
      network monitoring and maintenance fees.
              
              Statement
      of Position (“SOP”) 97-2, “Software Revenue
Recognition”Custom
      software development services.
              
              SOP
      81-1, “Accounting for Performance of Construction-Type and Certain
      Production-Type Contracts” (“SOP 81-1”)Customer
      licenses and application service provider (“ASP Service”)
      agreements.
              
              SAB
      No. 104
 
 VPFs are
earned pursuant to contracts with movie studios and distributors, whereby
amounts are payable to AccessIT DC and to Phase 2 DC according to a fixed fee
schedule, when movies distributed by the studio are displayed on screens
utilizing the Company’s Systems installed in movie theatres.  One VPF
is payable for every movie title displayed per System. The amount of VPF revenue
is therefore dependent on the number of movie titles released and displayed on
the Systems in any given accounting period. VPF revenue is recognized in the
period in which the movie first opens for general audience viewing in that
digitally-equipped movie theatre, as AccessIT DC’s and Phase 2 DC’s performance
obligations have been substantially met at that time.
 
 Phase 2
DC’s agreements with distributors require the payment of VPF’s for 10 years from
the date each system is installed, however, Phase 2 DC may no longer collect
VPF’s once “cost recoupment”, as defined in the agreements, is achieved. 
Cost recoupment will occur once the cumulative VPF’s and other cash receipts
collected by Phase 2 DC have equaled the total of all cash outflows, including
the purchase price of all Systems, all financing costs, all “overhead and
ongoing costs”, as defined, subject to maximum agreed upon amounts during
the three-year rollout period and thereafter, plus a compounded return on any
billed but unpaid overhead and ongoing costs, of 15% per year.  Further, if
cost recoupment occurs before the end of the 8th
contract year, a one-time “cost recoupment bonus” is payable by the studios to
Phase 2 DC.  Any other cash flows, net of expenses, received by Phase 2 DC
following the achievement of cost recoupment are required to be returned to the
distributors on a pro-rata basis. At this time, the Company cannot estimate the
timing or probability of the achievement of cost recoupment.
 
 ACFs are
earned pursuant to contracts with movie exhibitors, whereby amounts are payable
to AccessIT DC and Phase 2 DC, generally as a percentage of the applicable box
office revenue derived from the exhibitor’s showing of content other than
feature films, such as concerts and sporting events (typically referred to as
“alternative content”).  ACF revenue is recognized in the period in
which the alternative content opens for audience viewing.
 
 For
software multi-element licensing arrangements that do not require significant
production, modification or customization of the licensed software, revenue is
recognized for the various elements as follows: revenue for the licensed
software element is recognized upon delivery and acceptance of the licensed
software product, as that represents the culmination of the earnings process and
the Company has no further obligations to the customer, relative to the software
license. Revenue earned from consulting services is recognized upon the
performance and completion of these services. Revenue earned from annual
software maintenance is recognized ratably over the maintenance term (typically
one year).
 
 Revenues
relating to customized software development contracts are recognized on a
percentage-of-completion method of accounting in accordance with SOP
81-1.
 
 Revenue
is deferred in cases where:  (1) a portion or the entire contract
amount cannot be recognized as revenue, due to non-delivery or pre-acceptance of
licensed software or custom programming, (2) uncompleted 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 earned revenue
in accordance with the Company’s revenue recognition policies described
above.
 
 Managed
Services’ revenues, which consist of monthly recurring billings pursuant to
network monitoring and maintenance contracts, are recognized as revenues in the
month earned, and other non-recurring billings are recognized on a time and
materials basis as revenues in the period in which the services were
provided.
 
  28
  Content
& Entertainment
 
 Content
& Entertainment revenues are generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Movie
      theatre admission and concession revenues.
              
              SAB
      No. 104Cinema
      advertising service revenues and distribution fee
revenues.
              
              SOP
      00-2, “Accounting by Producers or Distributors of Films” (“SOP
      00-2”)Cinema
      advertising barter revenues.
              
              The
      Emerging Issues Task Force (“EITF”) 99-17, “Accounting for Advertising
      Barter Transactions” (“EITF 99-17”)
 
 Movie
theatre admission and concession revenues are generated at the Company’s
nine-screen digital movie theatre, the Pavilion Theatre. Movie theatre admission
revenues are recognized on the date of sale, as the related movie is viewed on
that date and the Company’s performance obligation is met at that time.
Concession revenues consist of food and beverage sales and are also recognized
on the date of purchase.
 
 USM has
contracts with exhibitors to display pre-show advertisements on their screens,
in exchange for certain fees paid to the exhibitors. USM then contracts with
businesses of various types to place their advertisements in select theatre
locations, designs the advertisement, and places it on-screen for specific
periods of time, generally ranging from three to twelve
months.  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 in-theatre advertising is displayed, pursuant to the
specific terms of each advertising contract. USM has 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 a in-theatre advertising is displayed.
 
 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.  The Company recognizes 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, 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 CEG’s
participation in box office receipts.  CEG has 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.
 
 Barter
advertising revenue is recognized for the fair value of the advertising time
surrendered in exchange for alternative content.  The Company includes
the value of such exchanges in both Content & Entertainment’s net revenues
and direct operating expenses. There may be a timing difference between the
screening of alternative content and the screening of the underlying advertising
used to acquire the content.  In accordance with EITF 99-17, the
acquisition cost is being recorded and recognized as a direct operating
expense by CEG when the alternative content is screened, and the underlying
advertising is being deferred and recognized as revenue ratably over the period
such advertising is screened by USM. For the fiscal years ended March 31, 2007,
2008 and 2009, the Company has recorded $0, $0 and $1.6 million, respectively,
in net revenues and direct operating expenses with no impact on net
loss.
 
 Other
 
 Other
revenues, attributable to the Access Digital Server Assets, were generated as
follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Hosting
      and network access fees.
              
              SAB
      No. 104
  Since May
1, 2007, the Company’s internet data centers (“IDCs”) have been operated by
FiberMedia AIT, LLC and Telesource Group, Inc. (together, “FiberMedia”),
unrelated third parties, pursuant to a master collocation
agreement.  Although the Company is still the lessee of the IDCs,
substantially all of the revenues and expenses were being realized by FiberMedia
and not the Company and since May 1, 2008, 100% of the revenues and expenses are
being realized by FiberMedia.
  29
  
 Results
of Operations for the Fiscal Years Ended March 31, 2008 and 2009
 
 Revenues
 
 For
      the Fiscal Years Ended March 31,($
      in thousands)
                      
                      2008
                      
                      
                      2009
                      
                      
                      ChangeRevenues:Media
      Services
                      
                      $
                      53,917
                      
                      
                      $
                      59,049
                      
                      
                      
                      10
                      %Content
      & Entertainment
                      
                      
                      25,767
                      
                      
                      
                      22,720
                      
                      
                      
                      (12
                      )%Other
                      
                      
                      1,300
                      
                      
                      
                      1,245
                      
                      
                      
                      (4
                      )%$
                      80,984
                      
                      
                      $
                      83,014
                      
                      
                      
                      3
                      %
 
 Revenues
were $81.0 million and $83.0 million for the fiscal years ended March 31, 2008
and 2009, respectively, an increase of $2.0 million or 3%.  In the
Media Service segment, the increase in revenues was primarily due to a 14%
increase in VPF revenues, attributable to the increased number of Systems
installed in movie theatres, following the completion of our Phase I Deployment
with 3,724 screens.  We experienced a 24% increase in revenues from
delivery of movies to digitally equipped theatres, due to the increase in the
number of such theatres over the last year, as well as increases in satellite
revenues and ACF revenues.  We also experienced an overall 46% decline
in software revenues, mainly due to a 93% decline of one-time license fees from
our TCC software realized during the Phase I Deployment.  We expect
these software license fees to resume as Systems are deployed in our Phase II
Deployment, and a possible international deployment of Systems.  In
the Content & Entertainment segment, revenues decreased 12% due to a 24%
decline in in-theatre advertising revenues, attributable to the elimination of
various under-performing customer contracts and also because of economic
conditions in fiscal year 2009 which negatively impacted the advertising
industry, offset by non-cash barter revenues of $1.6 million, which represents
the fair value of advertising provided to alternative content providers of CEG,
and a 5% increase in distribution revenues by CEG of alternative content and
content sponsorship revenues, relating to digitally-equipped
locations.  The primary driver of the increased revenues is the number
of programs CEG is distributing, together with the nationwide (and anticipated
worldwide) conversion of theatres to digital capabilities, a trend the Company
expects to continue. In addition to the distribution of independent motion
pictures, the Company also expects that with its implementation of the
CineLiveSM
product into movie theatres, CEG’s revenues will increase from the distribution
of live 2D and 3D content such as concerts and sporting events. We expect
consolidated revenues to generally remain near current levels until there is an
increase in the number of Systems deployed from our Phase II Deployment, which
will drive VPFs and other revenue sources including content delivery and
distribution of alternative content generated from digitally equipped movie
theatres.  We are dependant on the availability of suitable financing
for any large scale Phase II Deployment.  To date such sources of
financing are still being pursued.
 
 Direct Operating
Expenses
 
 For
      the Fiscal Years Ended March 31,($
      in thousands)
                        
                        2008
                        
                        
                        2009
                        
                        
                        ChangeDirect
      operating costs:Media
      Services
                        
                        $
                        8,938
                        
                        
                        $
                        8,466
                        
                        
                        
                        (5
                        )%Content
      & Entertainment
                        
                        
                        16,749
                        
                        
                        
                        16,310
                        
                        
                        
                        (3
                        )%Other
                        
                        
                        882
                        
                        
                        
                        895
                        
                        
                        
                        1
                        %$
                        26,569
                        
                        
                        $
                        25,671
                        
                        
                        
                        (3
                        )%
 
 Total
direct operating costs were $26.6 million and $25.7 million for the fiscal years
ended March 31, 2008 and 2009, respectively, a decrease of $0.9 million or
3%.   The decrease in the Media Services segment and the Content
& Entertainment segment was primarily related to reduced staffing levels and
the Content & Entertainment segment also decreased due to reduced minimum
guaranteed obligations under theatre advertising agreements with exhibitors for
displaying cinema advertising offset by non-cash content acquisition expenses of
$1.6 million for CEG related to the fair value of advertising provided by USM.
Other than these non-cash content acquisition expenses, we expect direct
operating expenses to decrease or remain consistent as compared to prior
periods.
 
  30
  Selling, General and
Administrative Expenses
 
 For
      the Fiscal Years Ended March 31,($
      in thousands)
                            
                            2008
                            
                            
                            2009
                            
                            
                            ChangeSelling,
      general and administrative expenses:Media
      Services
                            
                            $
                            6,137
                            
                            
                            $
                            4,153
                            
                            
                            
                            (32
                            )%Content
      & Entertainment
                            
                            
                            9,377
                            
                            
                            
                            6,679
                            
                            
                            
                            (29
                            )%Other
                            
                            
                            215
                            
                            
                            
                            217
                            
                            
                            
                            1
                            %Corporate
                            
                            
                            7,441
                            
                            
                            
                            7,021
                            
                            
                            
                            (6
                            )%$
                            23,170
                            
                            
                            $
                            18,070
                            
                            
                            
                            (22
                            )%
 
 Total
selling, general and administrative expenses were $23.2 million and $18.1
million for the fiscal years ended March 31, 2008 and 2009, respectively, a
decrease of $5.1 million or 22%.  The decrease was primarily related
to reduced staffing levels in both the Media Services segment and the Content
& Entertainment segment, as well as reduced professional fees within
Corporate. Following the completion of our Phase I Deployment, overall headcount
reductions have now stabilized.  As of March 31, 2008 and 2009, we had
295 and 242 employees, respectively, of which 45 and 42, respectively, were
part-time employees and 74 and 43, respectively, were sales
personnel.  Due to reduced headcount levels primarily from the
consolidation of sales territories in USM, resulting in a reduced sales and
administrative work force within the Content & Entertainment segment, we
expect selling, general and administrative expenses to stabilize as compared to
prior periods.  We expect the Media Services’ selling, general and
administrative expenses to remain consistent as compared to prior periods until
a Phase II Deployment begins, when we would expect a slight
increase.
 
 Impairment of intangible
asset
 
 During
the fiscal year ended March 31, 2008, we recorded an expense for the impairment
of intangible asset of $1.6 million.  In connection with the CEG
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 CEG.  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.
 
 Impairment of
goodwill
 
 During
the fiscal year ended March 31, 2009, the Company concluded that the fair value
of its reporting units within the Content & Entertainment segment, was below
the carrying amount and recorded an impairment charge of $6.5
million.  This resulted from the continued decline in our market
capitalization, the extremely depressed economic conditions generally, the
re-evaluation of our forecasts and other assumptions, and the diminished market
values of our identified peer companies.
 
 Depreciation and
Amortization Expense on Property and Equipment
 
 For
      the Fiscal Years Ended March 31,($
      in thousands)
                              
                              2008
                              
                              
                              2009
                              
                              
                              ChangeDepreciation
      expense:Media
      Services
                              
                              $
                              27,046
                              
                              
                              $
                              30,693
                              
                              
                              
                              13
                              %Content
      & Entertainment
                              
                              
                              1,748
                              
                              
                              
                              1,536
                              
                              
                              
                              (12
                              )%Other
                              
                              
                              422
                              
                              
                              
                              238
                              
                              
                              
                              (44
                              )%Corporate
                              
                              
                              69
                              
                              
                              
                              64
                              
                              
                              
                              (7
                              )%$
                              29,285
                              
                              
                              $
                              32,531
                              
                              
                              
                              11
                              %
 
 Total
depreciation and amortization expense was $29.3 million and $32.5 million for
the fiscal years ended March 31, 2008 and 2009, respectively, an increase of
$3.2 million or 11%.  The increase was primarily attributable to the
increased amount of assets supporting AccessIT DC’s Phase I
Deployment.  Depreciation expense for the fiscal year ended March 31,
2009 included depreciation and amortization expense on all 3,724 Systems while
the number of Systems during the fiscal period ended March 31, 2008 increased
from 2,275 to 3,724.
  31
  
 Interest
income
 
 Interest
income decreased $1.0 million or 74%. The decrease was attributable to lower
cash balances compared to the prior year, and lower bank interest rates on
deposited funds.  We anticipate that interest income will continue to
be moderately reduced in future periods.
 
 Interest
expense
  For
      the Fiscal Years Ended March 31,($
      in thousands)
                              
                              2008
                              
                              
                              2009
                              
                              
                              ChangeInterest
      expense:Media
      Services
                              
                              $
                              18,677
                              
                              
                              $
                              16,815
                              
                              
                              
                              (10
                              )%Content
      & Entertainment
                              
                              
                              1,325
                              
                              
                              
                              1,053
                              
                              
                              
                              (21
                              )%Other
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              %Corporate
                              
                              
                              9,325
                              
                              
                              
                              9,652
                              
                              
                              
                              4
                              %$
                              29,327
                              
                              
                              $
                              27,520
                              
                              
                              
                              (6
                              )%
 
 Total
interest expense was $29.3 million and $27.5 million for the fiscal years ended
March 31, 2008 and 2009, respectively, a decrease of $1.8 million or
6%.  Total interest expense included $22.3 million and $22.8 million
of interest paid and accrued along with non-cash interest expense of $7.0
million and $4.7 million for the fiscal years ended March 31, 2008 and 2009,
respectively.  The decrease in interest paid and accrued within the
Media Services segment relates to the reduced interest rate on the GE Credit
Facility in part due to the Interest Rate Swap (see change in fair value of
interest rate swap discussed below), along with less interest related to the
reduced outstanding principal balance of the GE Credit Facility offset by
increased interest for the $9.6 million of vendor financing.  The
decrease in interest expense within the Content & Entertainment segment
related to reduced interest due to the repayment of an USM term note with a
portion of the proceeds from the 2007 Senior Notes in August
2007.  The increase in interest expense within Corporate relates to
the interest on the 2007 Senior Notes offset by the elimination of interest
expense on the $22.0 million of One Year Senior Notes, which were also repaid
with the proceeds from the $55.0 million of 2007 Senior Notes in August
2007.
 
 Non-cash
interest expense was from $7.0 million and $4.7 million for the fiscal years
ended March 31, 2008 and 2009, respectively.  The decrease was due to
the payment of interest on the $55.0 million of 2007 Senior Notes in cash
instead of by issuing shares of Class A Common Stock, along with reduced
non-cash interest for the value of the shares issued as payment of interest on
the $22.0 million of One Year Senior Notes, which were repaid with the proceeds
from the $55.0 million of 2007 Senior Notes in August 2007.  Non-cash
interest could increase or continue to decrease depending on management’s future
decisions to pay interest payments on the 2007 Senior Notes in cash or shares of
Class A Common Stock.
 
 As a
result of the completion of our Phase I Deployment and the continued payments of
principal related to the GE Credit Facility, and subject to any Phase II
Deployment related borrowings, we expect our interest expense to
stabilize.
 
 Debt refinancing
expense
 
 During
the fiscal year ended March 31, 2008, the Corporate segment 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.
 
 Change in fair value of
interest rate swap
 
 The
change in fair value of the interest rate swap was $4.5 million in the
Media Services segment for the fiscal year ended March 31, 2009  due
to the recent decline in Libor rates and the projected outlook for Libor rates
remaining below the Company’s 2.8% fixed Libor rate under the interest rate swap
agreement.
 
 Recent
      Accounting Pronouncements
 
 In
December 2007, the Financial Accounting
Standards Board ("FASB") released SFAS No. 141(R), “Business Combinations
(revised 2007)” (“SFAS 141(R)”), which changes many well-established business
combination accounting practices and significantly affects how acquisition
transactions are reflected in the financial statements. Additionally, SFAS
141(R) will affect how companies negotiate and structure transactions, model
financial projections of acquisitions and communicate to
stakeholders.
  32
  SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period effective for the Company beginning April 1, 2009.  SFAS 141(R)
will have an impact on the Company’s consolidated financial statements related
to any future acquisitions.
 
 In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160establishes new
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary.  SFAS
No. 160 is effective forthe Company beginning April 1, 2009.The
Company does not believe that SFAS 160 will have a material impact on its
consolidated financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”).
SFAS 161requires
enhanced disclosures about an entity’s derivative and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations,
and (c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. SFAS 161 is effective
for the Company beginning April 1, 2009.  SFAS 161 encourages, but
does not require, comparative disclosures for earlier periods at initial
adoption.The Company
does not believe that SFAS 161 will have a material impact on its consolidated
financial statements.
 
 In April
2008, the FASB issued FASB Staff Position No. FAS 142-3, ”Determination of the
Useful Life of Intangible Assets” (“FSP FAS 142-3”).  FSP FAS 142-3
applies to all recognized intangible assets and its guidance is restricted to
estimating the useful life of recognized intangible assets. FSP FAS 142-3 is
effective for the first fiscal period beginning after December 15, 2008 and must
be applied prospectively to intangible assets acquired after the effective date.
The Company will be required to adopt FSP FAS 142-3 to intangible assets
acquired beginning April 1, 2009.
 
 In May
2009, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,” (“SFAS 162”).  SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.”The Company
does not believe that SFAS 162 will have a material impact on its consolidated
financial statements.
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an
Instrument (or an Embedded Feature) is indexed to an Entity’s Own Stock”
(“EITF 07-5”).  The provisions of EITF 07-5 are to be applied to
an entity’s existing arrangements to reevaluate, in part, whether financial
instruments or embedded features within those arrangements are exempt from
accounting under SFAS 133.  EITF 07-5 clarifies how to determine
whether certain instruments or features are indexed to an entity’s own stock
under EITF Issue No. 01-6, “The Meaning of‘Indexed to a Company’s Own Stock’” (“EITF 01-6”) and thereby
possibly exempt from accounting under FAS 133.  The consensus reached
in EITF 07-5 supersedes those reached in EITF 01-6.  The Company will
apply the provisions to its new arrangements as they arise.  The
application of EITF 07-5 is effective for the Company beginning April 1,
2009.  We
are currently evaluating the impact of adoption and application of EITF
07-5.
 
 In April
2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1 ("the
FSP"). This FSP amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments not measured on the balance sheet at fair value in interim
financial statements as well as in annual financial statements. Prior to this
FSP, fair values for these assets and liabilities were only disclosed annually.
This FSP applies to all financial instruments within the scope of SFAS 107
and requires all entities to disclose the method(s) and significant assumptions
used to estimate the fair value of financial instruments. This FSP shall be
effective for interim periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. An entity may
early adopt this FSP only if it also elects to early adopt FSP FAS 157-4,
Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, and FSP FAS
115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP does not require disclosures
for earlier periods presented for comparative purposes at initial adoption. In
periods after initial adoption, this FSP requires comparative disclosures only
for periods ending after initial adoption. We will adopt the FSP as of June 30,
2009 and are currently evaluating the disclosure requirements of this new
FSP.
 
 In
June 2008, the FASB issued Staff Position EITF 03-06-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
("FSP EITF 03-06-1"). This Staff Position provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in SFAS No. 128, Earnings per Share. FSP
EITF 03-06-1 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those years
  33
  and
requires all prior-period earnings per share data to be adjusted
retrospectively. FSP EITF 03-06-1 is effective for the Company beginning
April 1, 2009. The adoption of FSP EITF 03-06-1 is not expected to
have a material impact on the Company's financial statements.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date, that is, whether that date represents the date the financial statements
were issued or were available to be issued. SFAS 165 is effective for interim or
annual financial periods ending after June 15, 2009.  We will
adopt SFAS 165 in the first quarter of fiscal 2010 and do not expect a material
impact on our consolidated financial statements upon adoption.
 
 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
business is primarily driven by the emerging digital cinema marketplace and the
primary revenue driver will be the increasing number of digitally equipped
screens. There are approximately 38,000 domestic (United States and Canada)
movie theatre screens and approximately 107,000 screens
worldwide.  Approximately 5,200 of the domestic screens are equipped
with digital cinema technology, and 3,778 of those screens contain our Systems
and software. We anticipate the vast majority of the industry’s screens to be
converted to digital in the next 5-7 years, and we have announced plans to
convert up to an additional 10,000 domestic screens to digital in our Phase II
Deployment over the next three years, of which 54 Systems have been installed as
of March 31, 2009. For those screens that are deployed by us, the primary
revenue source will be VPFs, with the number of digital movies shown per screen,
per year will be the key factor for earnings and measuring the VPFs, since the
studios pay such fees on a per movie, per screen basis.  For all new
digital screens, whether or not deployed by us, the opportunity for other forms
of revenue also increases. We may generate additional software license fee
revenues (mainly from the TCC software which is used by exhibitors to aid in the
operation of their systems), ACFs (such as concerts and sporting events) and
fees from the delivery of content via satellite or hard drive.  In all
cases, the number of digitally-equipped screens in the marketplace is the
primary determinant of our potential revenue streams, although the emerging
presence of competitors for software and content distribution and delivery may
limit this opportunity.
 
 In August
2006, AccessIT DC entered into a credit agreement (the “Credit Agreement”) with
GECC, as administrative agent and collateral agent for the lenders party
thereto, and one or more lenders party thereto.  As of March 31, 2009,
the outstanding principal balance of the GE Credit Facility was $185.8 million
at a weighted average interest rate of 7.1%. Further borrowings are not
permitted under the GE Credit Facility.  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.  The GE Credit Facility is not guaranteed by the
Company or its other subsidiaries, other than AccessIT DC.
 
 In August
2007, AccessIT DC received $9.6 million of vendor financing (the “Vendor Note”)
for equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note bears
interest at 11% and may be prepaid without penalty.  Interest is due
semi-annually commencing February 2008 and is paid by Cinedigm.  The
balance of the Vendor Note, together with all unpaid interest is due on the
maturity date of August 1, 2016.  The Vendor Note is not guaranteed by
the Company or its other subsidiaries, other than AccessIT DC.  As of
March 31, 2009, the outstanding principal balance of the Vendor Note 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
  34
  “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, 2009, all shares
issued to the holders of the 2007 Senior Notes were registered for
resale.  Under the  2007 Senior Notes we agreed (i) to limit
our total indebtedness to an aggregate of $315.0 million unless certain
conditions were met, which conditions have been met allowing us to incur
indebtedness in excess of $315.0 million in the aggregate, (ii) not to pay
dividends on any capital stock, and (iii) not to, and not to cause our
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.  Additionally, under the 2007 Senior Notes,
AccessIT DC and its 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, 2009, the
outstanding principal balance of the 2007 Senior Notes was $55.0
million.
 
 In May
2009, AccessIT DC entered into the fourth amendment (the “GE Fourth Amendment”)
with respect to the GE Credit Facility (see Note 5) to (1) increase the interest
rate from 4.5% to 6% above the Eurodollar Base Rate; (2) set the Eurodollar Base
Rate floor at 2.5%; (3) reduce the required amount to be reserved for the
payment of interest from nine months of forward cash interest to a fixed $6.9
million, and permitted a one-time payment of $2.6 million to be made from
AccessIT DC to its parent Company, AccessDM; (4) increase the quarterly maximum
consolidated leverage ratio covenants that AccessIT DC is required to meet on a
trailing 12 months basis; (5) increase the maximum consolidated senior leverage
ratio covenants that AccessIT DC is required to meet on a trailing 12 months
basis; (6) reduce the quarterly minimum consolidated fixed charge coverage ratio
covenants that AccessIT DC is required to meet on a trailing 12 months basis and
(7) add a covenant requiring AccessIT DC to maintain a minimum unrestricted cash
balance of $2.0 million at all times.  All of the changes contained in
the GE Fourth Amendment are effective as of May 4, 2009 except for the covenant
changes in (4), (5) and (6) above, which were effective as of March 31,
2009.  In connection with the GE Fourth Amendment, AccessIT DC paid
fees to GE and the other lenders totaling $1.0 million.  At March 31,
2009 the Company was in compliance with all covenants contained in the GE Credit
Facility, as amended and noted above.
 
 As of
March 31, 2009, we had cash and cash equivalents of $26.3 million and our
working capital was $3.4 million.
 
 Operating
activities used net cash of $19.2 million and $0.4 million for the fiscal years
ended March 31, 2007 and 2008, respectively, and provided net cash of $33.8
million for the fiscal year ended March 31, 2009. The decrease in cash used by
operating activities, from the fiscal year ended March 31, 2007 to the fiscal
year ended March 31, 2008, was primarily due to a reduction in cash used for
accounts payable and accrued expenses, offset by an increase in accounts
receivable and unbilled revenues and additionally offset by adjustments not
requiring cash, specifically depreciation and amortization and non-cash interest
expense.    The increase in cash provided by operating
activities, from the fiscal year ended March 31, 2008 to the fiscal year ended
March 31, 2009, was primarily due to an increase of non-cash items, specifically
the impairment of intangible assets, change in the fair value of our interest
rate swap and depreciation and amortization along with improved collections of
outstanding accounts receivable, reduced payments for accounts payable and
accrued expenses and a reduction of unbilled revenues offset by a slight
increase in net loss and increased prepaid expenses   We expect
operating activities to continue providing cash to operations as the balance of
accounts receivable is reduced by collections.  However, if and when a
Phase II Deployment is accelerated, we would expect an increase in accounts
receivable.
 
 Investing
activities used net cash of $135.3 million, $96.9 million and $23.7 million for
the fiscal years ended March 31, 2007, 2008 and 2009, respectively. The decrease
in cash used by investing activities, from the fiscal year ended March 31, 2007
to the fiscal year ended March 31, 2008, was due to reduced payments for
purchases of and deposits paid for property and equipment, as our Phase I
Deployment was completed during the quarter ended December 2007, offset by
reduced maturities of available-for-sale securities. The decrease was due to
reduced payments for purchases of and deposits paid for property and equipment,
as our Phase I Deployment was completed during the quarter ended December
2007.  The decrease in cash used by investing activities, from the
fiscal year ended March 31, 2008 to the fiscal year ended March 31, 2009, was
due to reduced payments for purchases of and deposits paid for property and
equipment, as our Phase I Deployment was completed during the quarter ended
December 2007.  If and when a Phase II Deployment begins, we would
expect an increase in capital expenditures resulting in an increase in cash used
by investing activities.
 
 Financing
activities provided net cash of $147.2 million and $97.6 million for the fiscal
years ended March 31, 2007 and 2008, respectively, and used net cash of $13.4
million for the fiscal year ended March 31, 2009. The decrease in cash provided
by financing activities, from the fiscal year ended March 31, 2007 to the fiscal
year ended March 31, 2008, was mainly due to reduced borrowings under the GE
Credit Facility, offset by increased proceeds from the 2007 Senior Notes and
other notes payable.  The decrease from cash provided by financing
activities to cash used by financing activities, from the fiscal year
ended
  35
  March 31,
2008 to the fiscal year ended March 31, 2009, was mainly due to principal
repayments on various notes payable, mainly $15.4 million on the GE Credit
Facility, offset by $4.0 million of proceeds received from preferred stock
investors. Financing activities are expected to continue using net cash for
principal repayments on the GE Credit Facility, which began in August
2008.  Although we have engaged a third-party investment banking firm
to assist us in seeking to refinance the GE Credit Facility and to finance the
Phase II Deployment, the terms of any such refinancing or financing have not yet
been determined.  If and when a Phase II Deployment begins, we expect
an increase in cash provided by financing activities for borrowings under a
financing that we intend to enter into in connection with the Phase II
Deployment.  Our Phase II Deployment would allow for the purchase of
up to 10,000 Systems, which together with installation and related costs, could
aggregate approximately $700 million.  The cost of such equipment is
expected to be funded with a combination of long term debt and payments from
exhibitors and other third parties.  The Company is currently pursuing
various financing options with private parties in connection with the Phase II
Deployment.  If the Company is not successful in securing funding for
its Phase II Deployment from lenders, exhibitors and/or hardware vendors, such
deployment would have to be delayed, which would significantly reduce revenue
growth.
 
 We have
contractual obligations that include long-term debt consisting of notes payable,
a revolving credit facility, non-cancelable long-term capital lease obligations
for the Pavilion Theatre and computer equipment for USM and Managed Services,
non-cancelable operating leases consisting of real estate leases and minimum
guaranteed obligations under theatre advertising agreements between USM and
exhibitors for displaying cinema advertising.
 
 The
following table summarizes our significant contractual obligations as of March
31, 2009:
 
 Contractual
      Obligations ($ in thousands)
                  
                  Total
                  
                  
                  2010
                  
                  
                  2011
      &
                    2012
                  
                  
                  2013
      &
                    2014
                  
                  
                  ThereafterLong-term
      debt (1)
                  
                  $
                  81,345
                  
                  
                  $
                  7,635
                  
                  
                  $
                  59,529
                  
                  
                  $
                  2,117
                  
                  
                  $
                  12,064Credit
      facilities (2)
                  
                  
                  226,590
                  
                  
                  
                  37,608
                  
                  
                  
                  77,989
                  
                  
                  
                  110,993
                  
                  
                  
                  —Capital
      lease obligations
                  
                  
                  15,495
                  
                  
                  
                  1,217
                  
                  
                  
                  2,393
                  
                  
                  
                  2,284
                  
                  
                  
                  9,601Total
      debt-related obligations, including interest
                  
                  $
                  323,430
                  
                  
                  $
                  46,460
                  
                  
                  $
                  139,911
                  
                  
                  $
                  115,394
                  
                  
                  $
                  21,665Operating
      lease obligations (3)
                  
                  $
                  8,999
                  
                  
                  $
                  2,745
                  
                  
                  $
                  3,116
                  
                  
                  $
                  1,857
                  
                  
                  $
                  1,281USM
      theatre agreements (4)
                  
                  
                  20,454
                  
                  
                  
                  4,071
                  
                  
                  
                  5,167
                  
                  
                  
                  4,318
                  
                  
                  
                  6,898Total
      obligations to be included in operating expenses
                  
                  $
                  29,453
                  
                  
                  $
                  6,816
                  
                  
                  $
                  8,283
                  
                  
                  $
                  6,175
                  
                  
                  $
                  8,179Purchase
      obligations (5)
                  
                  
                  7,360
                  
                  
                  
                  7,360
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Grand
      Total
                  
                  $
                  360,243
                  
                  
                  $
                  60,636
                  
                  
                  $
                  148,194
                  
                  
                  $
                  121,569
                  
                  
                  $
                  29,844
 
 (1)
              Includes
      interest on the 2007 Senior Notes to be paid on a quarterly basis that may
      be paid, at the Company’s option and subject to certain conditions, in
      shares of our Class A Common Stock.  Subsequent to the quarter
      ended June 30, 2008, the Company elected to pay all such interest payments
      in cash.  Interest expense on the 2007 Senior Notes for the
      fiscal years ended March 31, 2007, 2008 and 2009 amounted to $0, $3.6
      million and $5.5 million, respectively.  The outstanding
      principal amount of $55.0 million for the 2007 Senior Notes is due August
      2010, but may be extended for one 6 month period at the discretion of the
      Company to February 2011, if certain conditions are
      met.  Includes the amounts due under the Vendor Note, of which
      the outstanding principal amount of $9.6 million is not guaranteed by the
      Company or its other subsidiaries, other than AccessIT
  DC.
 (2)
              Represents
      the amount due under the GE Credit Facility including interest thereon
      which is not guaranteed by the Company or its other subsidiaries, other
      than AccessIT DC.
 (3)
              Includes
      operating lease agreements for the IDCs now operated and paid for by
      FiberMedia, consisting of unrelated third parties, which total aggregates
      to $6.2 million.  The Company will attempt to obtain landlord
      consents to assign each facility lease to FiberMedia.  Until
      such landlord consents are obtained, the Company will remain as the
      lessee.
 (4)
              Represents
      minimum guaranteed obligations under theatre advertising agreements with
      exhibitors for displaying cinema
advertising.
 (5)
              Includes
      $7.0 million for Systems related to Phase 2 DC’s Phase II Deployment, to
      be funded by Phase 2 DC’s credit facility and payments from
      exhibitors.
 
 We expect
to continue to generate net losses for the foreseeable future primarily due to
depreciation and amortization, interest on funds advanced under the GE Credit
Facility, interest on the 2007 Senior Notes, software development, marketing and
promotional activities and the development of relationships with other
businesses. Certain of these costs, including costs of
  36
  software
development and marketing and promotional activities, could be reduced if
necessary. The restrictions imposed by the 2007 Senior Notes and the Credit
Agreement may limit our ability to obtain financing, make it more difficult to
satisfy our debt obligations or require us to dedicate a substantial portion of
our cash flow to payments on our existing debt obligations, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures and
other corporate requirements.  We are seeking to raise additional
capital to refinance certain outstanding debt, and also for equipment
requirements related to our Phase II Deployment or for working capital as
necessary. Although we recently entered into certain agreements with studio and
exhibitors related to the Phase II Deployment, there is no assurance that
financing for the Phase II Deployment will be completed as contemplated or under
terms acceptable to us or our existing shareholders. Failure to generate
additional revenues, raise additional capital or manage discretionary spending
could have a material adverse effect on our ability to continue as a going
concern and to achieve our intended business objectives. The accompanying
consolidated financial statements do not reflect any adjustments which may
result from our inability to continue as a going concern.
 
 Seasonality
 
 Content
& Entertainment revenues derived from our Pavilion Theatre and 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. We believe the seasonality of
motion picture exhibition, however, is becoming less pronounced as the motion
picture studios are releasing movies somewhat more evenly throughout the
year.
 
 Subsequent
Events
 
 In April
2009, funds in the amount of $3.7 million were drawn down on the Barco Related
Facility (see Note 5) by our indirectly wholly-owned subsidiary, Phase 2 B/AIX,
which requires interest-only payments at 7.3% per annum through December 31,
2009 and principal installments commencing in March 2010.
 
 In May
2009, AccessIT DC entered into the GE Fourth Amendment with respect to the GE
Credit Facility (as discussed previously under “Liquidity and Capital
Resources”).
 
 Off-balance
sheet arrangements
 
 We are
not a party to any off-balance sheet arrangements, other than operating leases
in the ordinary course of business, which is disclosed above in the table of our
significant contractual obligations.
 
 Impact
of Inflation
 
 The
impact of inflation on our operations has not been significant to
date.  However, there can be no assurance that a high rate of
inflation in the future would not have an adverse impact on our operating
results.
 
  37
  ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 ACCESS
INTEGRATED TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 INDEX
TO FINANCIAL STATEMENTS
 
 
 Report
      of Independent Registered Public Accounting Firm
              F-1Consolidated
      Balance Sheets at March 31, 2008 and 2009
              F-2Consolidated
      Statements of Operations for the fiscal years ended March 31, 2008 and
      2009
              F-3Consolidated
      Statements of Cash Flows for the fiscal years ended March 31, 2008 and
      2009
              F-4Consolidated
      Statements of Stockholders’ Equity for the fiscal years ended March 31,
      2008 and 2009
              F-5Notes
      to Consolidated Financial Statements
              F-7
 
 
  38
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Stockholders
 Access
Integrated Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp.
 
 
 We have
audited the accompanying consolidated balance sheets of Access Integrated
Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp. (the "Company") as of
March 31, 2008 and 2009, and the related consolidated statements of operations,
cash flows and stockholders' equity for the years then ended.  These
financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting as of March 31, 2009.  Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.  Accordingly we
express no such opinion.  An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
March 31, 2008 and 2009, and the consolidated results of its operations and its
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
 
 
 /s/
Eisner LLP
 
 
 Florham
Park, New Jersey
 June 9,
2009
  F-1
  ACCESS INTEGRATED
TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 CONSOLIDATED
BALANCE SHEETS
 (In
thousands, except for share data)
 
 March
      31,2008
                          
                          
                          2009ASSETSCurrent
      assetsCash and cash equivalents
                          
                          $
                          29,655
                          
                          
                          $
                          26,329Accounts receivable, net
                          
                          
                          21,494
                          
                          
                          
                          13,884Unbilled revenue, current portion
                          
                          
                          6,393
                          
                          
                          
                          3,082Deferred costs, current portion
                          
                          
                          3,859
                          
                          
                          
                          3,936Prepaid expenses and other current assets
                          
                          
                          1,316
                          
                          
                          
                          1,798Note receivable, current portion
                          
                          
                          158
                          
                          
                          
                          616Total
      current assets
                          
                          
                          62,875
                          
                          
                          
                          49,645Property and equipment, net
                          
                          
                          269,031
                          
                          
                          
                          243,124Intangible assets, net
                          
                          
                          13,592
                          
                          
                          
                          10,707Capitalized software costs, net
                          
                          
                          2,777
                          
                          
                          
                          3,653Goodwill
                          
                          
                          14,549
                          
                          
                          
                          8,024Accounts receivable, net of current portion
                          
                          
                          299
                          
                          
                          
                          386Deferred costs, net of current portion
                          
                          
                          6,595
                          
                          
                          
                          3,967Note receivable, net of current portion
                          
                          
                          1,220
                          
                          
                          
                          959Unbilled revenue, net of current portion
                          
                          
                          2,075
                          
                          
                          
                          1,253Security deposits
                          
                          
                          408
                          
                          
                          
                          424Restricted cash
                          
                          
                          255
                          
                          
                          
                          255Total
      assets
                          
                          $
                          373,676
                          
                          
                          $
                          322,397LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts payable and accrued expenses
                          
                          $
                          25,213
                          
                          
                          $
                          14,954Current portion of notes payable
                          
                          
                          16,998
                          
                          
                          
                          25,248Current portion of deferred revenue
                          
                          
                          6,204
                          
                          
                          
                          5,535Current portion of customer security deposits
                          
                          
                          333
                          
                          
                          
                          314Current portion of capital leases
                          
                          
                          89
                          
                          
                          
                          175Total
      current liabilities
                          
                          
                          48,837
                          
                          
                          
                          46,226Notes payable, net of current portion
                          
                          
                          250,689
                          
                          
                          
                          225,957Capital leases, net of current portion
                          
                          
                          5,814
                          
                          
                          
                          5,832Deferred revenue, net of current portion
                          
                          
                          283
                          
                          
                          
                          1,057Customer security deposits, net of current portion
                          
                          
                          46
                          
                          
                          
                          9Fair value of interest rate swap
                          
                          
                          —
                          
                          
                          
                          4,529Total
      liabilities
                          
                          
                          305,669
                          
                          
                          
                          283,610Commitments
      and contingencies (Note 7)Stockholders’
      EquityPreferred stock, 15,000,000 shares authorized; issued and
      outstanding:
                            Series A 10%-$0.001 par value per share; 20 shares authorized; 0 and 8
      shares issued and outstanding, at
                            March 31, 2008 and March 31, 2009, respectively. Liquidation preference
      $4,050
                          
                          
                          —
                          
                          
                          
                          3,476Class A common stock, $0.001 par value per share; 40,000,000 and
      65,000,000 shares
                            authorized at March 31, 2008 and  March 31, 2009,
      respectively; 26,143,612 and 27,544,315 shares issued
                            and 26,092,172 and 27,492,875 shares outstanding at March
      31, 2008 and  March 31, 2009, respectively
                          
                          
                          26
                          
                          
                          
                          27Class
      B common stock, $0.001 par value per share; 15,000,000
      shares
                            authorized; 733,811 shares issued and outstanding, at March 31,
      2008 and
                            March 31, 2009, respectively
                          
                          
                          1
                          
                          
                          
                          1Additional paid-in capital
                          
                          
                          168,844
                          
                          
                          
                          173,565Treasury stock, at cost; 51,440 shares
                          
                          
                          (172
                          )
                          
                          
                          (172
                          )Accumulated deficit
                          
                          
                          (100,692
                          )
                          
                          
                          (138,110
                          )Total
      stockholders’ equity
                          
                          
                          68,007
                          
                          
                          
                          38,787Total
      liabilities and stockholders’ equity
                          
                          $
                          373,676
                          
                          
                          $
                          322,397
 
  See
accompanying notes to Consolidated Financial Statements
  F-2
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (In
thousands, except for share and per share data)
 
 
 For
      the fiscal years ended
                            March
      31,2008
                          
                          
                          2009Revenues
                          
                          $
                          80,984
                          
                          
                          $
                          83,014Costs
      and expenses:Direct
      operating (exclusive of depreciation and amortization
                            shown
      below)
                          
                          
                          26,569
                          
                          
                          
                          25,671Selling,
      general and administrative
                          
                          
                          23,170
                          
                          
                          
                          18,070Provision
      for doubtful accounts
                          
                          
                          1,396
                          
                          
                          
                          587Research
      and development
                          
                          
                          162
                          
                          
                          
                          188Stock-based
      compensation
                          
                          
                          453
                          
                          
                          
                          945Impairment
      of intangible asset
                          
                          
                          1,588
                          
                          
                          
                          —Impairment
      of goodwill
                          
                          
                          —
                          
                          
                          
                          6,525Depreciation
      and amortization of property and equipment
                          
                          
                          29,285
                          
                          
                          
                          32,531Amortization
      of intangible assets
                          
                          
                          4,290
                          
                          
                          
                          3,434Total
      operating expenses
                          
                          
                          86,913
                          
                          
                          
                          87,951Loss
      from operations before other expense
                          
                          
                          (5,929
                          )
                          
                          
                          (4,937
                          )Interest
      income
                          
                          
                          1,406
                          
                          
                          
                          372Interest
      expense
                          
                          
                          (29,327
                          )
                          
                          
                          (27,520
                          )Debt
      refinancing expense
                          
                          
                          (1,122
                          )
                          
                          
                          —Other
      expense, net
                          
                          
                          (715
                          )
                          
                          
                          (754
                          )Change
      in fair value of interest rate swap
                          
                          
                          —
                          
                          
                          
                          (4,529
                          )Net
      loss
                          
                          $
                          (35,687
                          )
                          
                          $
                          (37,368
                          )Preferred
      stock dividends
                          
                          
                          —
                          
                          
                          
                          (50
                          )Net
      loss attributable to common shareholders
                          
                          $
                          (35,687
                          )
                          
                          $
                          (37,418
                          )Net
      loss per Class A and Class B common share:
                            Basic
      and diluted
                          
                          $
                          (1.40
                          )
                          
                          $
                          (1.36
                          )Weighted
      average number of Class A and Class B common shares
      outstanding:
                            Basic
      and diluted
                          
                          
                          25,576,787
                          
                          
                          
                          27,476,420
 
 
  See
accompanying notes to Consolidated Financial Statements
  F-3
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)
 
 For
      the fiscal years ended
                        March
      31,2008
                      
                      2009Cash
      flows from operating activitiesNet
      loss
                      $
                      (35,687
                      )
                      
                      $
                      (37,
      368
                      )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Loss
      on disposal of assets
                      
                      172
                      
                      
                      
                      165Loss
      on impairment of intangible asset
                      
                      1,588
                      
                      
                      
                      —Loss
      on impairment of goodwill
                      
                      —
                      
                      
                      
                      6,525Depreciation and
      amortization of property and equipment and
                        amortization of
      intangible assets
                      
                      33,575
                      
                      
                      
                      35,965Amortization
      of software development costs
                      
                      590
                      
                      
                      
                      677Amortization
      of debt issuance costs included in interest expense
                      
                      1,211
                      
                      
                      
                      1,520Provision
      for doubtful accounts
                      
                      1,396
                      
                      
                      
                      587Stock-based
      compensation
                      
                      453
                      
                      
                      
                      945Non-cash
      interest expense
                      
                      7,043
                      
                      
                      
                      4,745Debt
      refinancing expense
                      
                      1,122
                      
                      
                      
                      —Gain
      on available-for-sale securities
                      
                      (148
                      )
                      
                      
                      —Change
      in fair value of interest rate swap
                      
                      —
                      
                      
                      
                      4,529Changes
      in operating assets and liabilities:Accounts
      receivable
                      
                      (4,437
                      )
                      
                      
                      6,936Prepaid
      expenses and other current assets
                      
                      (323
                      )
                      
                      
                      (482
                      )Unbilled
      revenue
                      
                      (4,923
                      )
                      
                      
                      3,734Other
      assets
                      
                      472
                      
                      
                      
                      (222
                      )Accounts
      payable and accrued expenses
                      
                      (76
                      )
                      
                      
                      5,513Deferred
      revenue
                      
                      (2,668
                      )
                      
                      
                      105Other
      liabilities
                      
                      197
                      
                      
                      
                      (56
                      )Net
      cash (used in) provided by operating activities
                      
                      (443
                      )
                      
                      
                      33,818Cash
      flows from investing activitiesPurchases
      of property and equipment
                      
                      (76,177
                      )
                      
                      
                      (22,032
                      )Deposits
      paid for property and equipment
                      
                      (20,052
                      )
                      
                      
                      —Purchases
      of intangible assets
                      
                      —
                      
                      
                      
                      (550
                      )Additions
      to capitalized software costs
                      
                      (528
                      )
                      
                      
                      (1,153
                      )Acquisition
      of UniqueScreen Media
                      
                      (121
                      )
                      
                      
                      —Acquisition
      of CEG
                      
                      (15
                      )
                      
                      
                      —Acquisition
      of Access Digital Server Assets
                      
                      (35
                      )
                      
                      
                      —Purchase
      of available-for-sale securities
                      
                      (6,000
                      )
                      
                      
                      —Maturities
      and sales of available-for-sale securities
                      
                      6,148
                      
                      
                      
                      —Restricted
      short-term investment
                      
                      (75
                      )
                      
                      
                      —Net
      cash used in investing activities
                      
                      (96,855
                      )
                      
                      
                      (23,735
                      )Cash
      flows from financing activitiesRepayment
      of notes payable
                      
                      (17,372
                      )
                      
                      
                      (1,553
                      )Proceeds
      from notes payable
                      
                      14,600
                      
                      
                      
                      —Repayment
      of credit facilities
                      
                      —
                      
                      
                      
                      (15,499
                      )Proceeds
      from credit facilities
                      
                      66,660
                      
                      
                      
                      569Proceeds
      from 2007 Senior Notes
                      
                      36,891
                      
                      
                      
                      —Payments
      of debt issuance costs
                      
                      (3,114
                      )
                      
                      
                      (564
                      )Principal
      payments on capital leases
                      
                      (76
                      )
                      
                      
                      (121
                      )Costs
      associated issuance of Series A preferred stock
                      
                      —
                      
                      
                      
                      (142
                      )Net
      proceeds from issuance of Series A preferred stock
                      
                      —
                      
                      
                      
                      3,950Costs
      associated issuance of Class A common stock
                      
                      (47
                      )
                      
                      
                      (49
                      )Net
      proceeds from exercise
      of stock options
                      
                      35
                      
                      
                      
                      —Net
      cash provided by (used in) financing activities
                      
                      97,577
                      
                      
                      
                      (13,409
                      )Net
      increase (decrease) in cash and cash equivalents
                      
                      279
                      
                      
                      
                      (3,326
                      )Cash
      and cash equivalents at beginning of year
                      
                      29,376
                      
                      
                      
                      29,655Cash
      and cash equivalents at end of year
                      $
                      29,655
                      
                      
                      $
                      26,329
 
 See
accompanying notes to Consolidated Financial Statements
  F-4
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 (In
thousands, except share data)
 
 Class
      A
                  Common
      Stock
                
                
                Class
      B
                  Common
      Stock
                
                Treasury
                  Stock
                
                
                Additional
                  Pain-In
                  Capital
                
                Accumulated
                  Deficit
                
                Total
                  Stockholders’
                  EquityShares
                
                Amount
                
                
                Shares
                
                Amount
                
                Shares
                
                AmountBalances
      as of March 31, 2007
                
                23,988,607
                
                
                $24
                
                
                763,811
                
                
                $1
                
                
                (51,440
                )
                
                $(172
                )
                
                
                
                $155,957
                
                
                $(65,005
                )
                
                $90,805Issuance
      of common stock in
      connection with exercise of warrants and stock
      options
                
                6,500
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                32
                
                
                —
                
                
                32Issuance
      of common stock in connection with the  additional purchase
      price of USM
                
                145,861
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                1,000
                
                
                —
                
                
                1,000Issuance
      of common stock in payment of  interest on the One Year Senior
      Notes
                
                357,737
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                2,452
                
                
                —
                
                
                2,452Issuance
      of common stock in payment of  interest on  the 2007
      Senior Notes
                
                1,609,516
                
                
                2
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                7,948
                
                
                —
                
                
                7,950Additional
      Interest on the 2007 Senior Notes to be issued in common
      stock
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                1,020
                
                
                —
                
                
                1,020Issuance
      of common stock in connection with the additional purchase price of
      Managed Services
                
                5,391
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                29
                
                
                —
                
                
                29Costs
      associated with issuance of  common stock
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                (47
                )
                
                —
                
                
                (47
                )Conversion
      of Class B shares to Class A
                
                30,000
                
                
                —
                
                
                (30,000
                )
                
                —
                
                
                —
                
                
                —
                
                
                
                
                —
                
                
                —
                
                
                —Stock-based
      compensation
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                453
                
                
                —
                
                
                453Net
      loss
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                —
                
                
                (35,687
                )
                
                (35,687
                )Balances
      as of March 31, 2008
                
                26,143,612
                
                
                $26
                
                
                733,811
                
                
                $1
                
                
                (51,440
                )
                
                $(172
                )
                
                
                
                $168,844
                
                
                $(100,692
                )
                
                $68,007
 
  See
accompanying notes to Consolidated Financial Statements
 
 
 
  F-5
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 (In
thousands, except share data)
 
 Series
      A
                      Preferred
      Stock
                    
                    Class
      A
                      Common
      Stock
                    
                    Class
      B
                      Common
      Stock
                    
                    Treasury
                      Stock
                    
                    Additional
                      Pain-In
                      Capital
                    
                    
                    Accumulated
                      Deficit
                    
                    
                    Total
                      Stockholders’
                      EquityShares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Shares
                    
                    
                    AmountBalances
      as of March 31, 2008
                    —
                    
                    $—
                    
                    26,143,612
                    
                    $26
                    
                    733,811
                    
                    $1
                    
                    (51,440
                    )
                    
                    $(172
                    )
                    $168,844
                    
                    
                    $(100,692
                    )
                    
                    $68,007Issuance
      of common stock in connection with the vesting of restricted
      stock
                    —
                    
                    —
                    
                    32,745
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    
                    —Issuance
      of common stock in connection with the  additional purchase
      price of Access Digital Server Assets
                    —
                    
                    —
                    
                    30,000
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    129
                    
                    
                    —
                    
                    
                    129Issuance
      of common stock in connection with the additional purchase price of
      Managed Services
                    —
                    
                    —
                    
                    15,219
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    82
                    
                    
                    —
                    
                    
                    82Issuance
      of common stock in payment of  interest on  the 2007
      Senior Notes
                    —
                    
                    —
                    
                    1,075,847
                    
                    1
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    1,547
                    
                    
                    —
                    
                    
                    1,548Amortized
      value of common stock to be issued in payment of additional interest on
      the 2007 Senior Notes
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    1,581
                    
                    
                    —
                    
                    
                    1,581Issuance
      of common stock in connection with the shared services agreement with SD
      Entertainment, Inc.
                    —
                    
                    —
                    
                    117,021
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    142
                    
                    
                    —
                    
                    
                    142Issuance
      of Series A preferred stock
                    8
                    
                    4,000
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    
                    4,000Issuance
      of common stock warrants in connection with the issuance of Series A
      preferred stock
                    —
                    
                    (537
                    )
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    537
                    
                    
                    —
                    
                    
                    —Issuance
      of common stock for professional services in connection with the issuance
      of Series A preferred stock
                    —
                    
                    —
                    
                    129,871
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    100
                    
                    
                    —
                    
                    
                    100Costs
      associated with issuance of Series A
                      preferred
      stock
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    (292
                    )
                    
                    —
                    
                    
                    (292
                    )Accretion
      of preferred stock dividends
                    —
                    
                    13
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    (13
                    )
                    
                    —
                    
                    
                    —Preferred
      stock dividends
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    —
                    
                    
                    (50
                    )
                    
                    (50
                    )Costs
      associated with issuance of common stock
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    (37
                    )
                    
                    —
                    
                    
                    (37
                    )Conversion
      of Class B shares to Class A
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    
                    —Stock-based
      compensation
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    945
                    
                    
                    —
                    
                    
                    945Net
      loss
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    —
                    
                    
                    —
                    
                    —
                    
                    
                    (37,368
                    )
                    
                    (37,368
                    )Balances
      as of March 31, 2009
                    8
                    
                    $3,476
                    
                    27,544,315
                    
                    $27
                    
                    733,811
                    
                    $1
                    
                    (51,440
                    )
                    
                    $(172
                    )
                    $173,565
                    
                    
                    $(138,110
                    )
                    
                    $38,787
 
 
 
 
 See
accompanying notes to Consolidated Financial Statements
  F-6
  
 ACCESS
INTEGRATED TECHNOLOGIES, INC.
 d/b/a
CINEDIGM DIGITAL CINEMA CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the years ended March 31, 2008 and 2009
 ($ in
thousands, except for per share data)
 
 1.
                NATURE
      OF OPERATIONS
 
 Access
Integrated Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp. was
incorporated in Delaware on March 31, 2000 and began doing business as Cinedigm
Digital Cinema Corp. on November 25, 2008 (“Cinedigm”, and collectively with its
subsidiaries, the “Company”).  The Company provides technology
solutions, software services, electronic delivery and content distribution
services to owners and distributors of digital content to movie theatres and
other venues.  The Company has three segments, media services (“Media
Services”), media content and entertainment (“Content & Entertainment”) and
other (“Other”). The Company’s Media Services segment provides technology
solutions, software services, digital content electronic delivery services via
satellite and hard drive to the motion picture and television industries,
primarily to facilitate the conversion from analog (film) to digital cinema and
has positioned the Company at what it believes to be the forefront of an
industry relating to the delivery and management of digital cinema and other
content to theatres and other remote venues worldwide.  The Company’s
Content & Entertainment segment provides content distribution services to
theatrical exhibitors, in-theatre advertising and motion picture exhibition to
the general public.  The Company’s Other segment provides hosting
services and network access for other web hosting services (“Access Digital
Server Assets”).  Overall, the Company’s goal is to aid in the
transformation of movie theatres to entertainment centers by providing a
platform of hardware, software and content choices. Additional information
related to the Company’s reporting segments can be found in Note 9.
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES
 
 BASIS
OF PRESENTATION AND CONSOLIDATION
 
 For the
fiscal years ended March 31, 2008 and 2009, the Company incurred net losses of
$35,687 and $37,368, respectively.  For the fiscal year ended March
31, 2008, the Company’s operating activities used cash of $443, and for the
fiscal year ended March 31, 2009 the Company’s operating activities provided
cash of $33,818. In addition, the Company has an accumulated deficit of $138,110
as of March 31, 2009. At March 31, 2009, the Company also has contractual
obligations (including interest and excluding non-cash interest) of $60,636 for
the fiscal year 2010. Management expects that the Company will continue to
generate losses for the foreseeable future. Certain of these variable costs
could be reduced if working capital decreased. Based on the Company’s cash
position at March 31, 2009, and expected cash flows from operations, subsequent
borrowings and amended debt terms, management believes that the Company has the
ability to meet its obligations through March 31, 2010. The Company may attempt
to raise additional capital from various sources for equipment requirements
related to the Company’s Phase II Deployment or for working capital as
necessary. There is no assurance that such financing will be completed as
contemplated or under terms acceptable to the Company or its existing
shareholders. Failure to generate additional revenues, raise additional capital
or manage discretionary spending could have a material adverse effect on the
Company’s ability to continue as a going concern and to achieve its intended
business objectives. The accompanying consolidated financial statements do not
reflect any adjustments which may result from the Company’s inability to
continue as a going concern.
 
 The
Company’s consolidated financial statements include the accounts of Cinedigm,
Access Digital Media, Inc. (“AccessDM”), Hollywood Software, Inc. d/b/a AccessIT
Software (“AccessIT SW”), Core Technology Services, Inc. (“Managed Services”),
FiberSat Global Services, Inc. d/b/a AccessIT Satellite and Support Services,
(“AccessIT Satellite”), ADM Cinema Corporation (“ADM Cinema”) d/b/a the Pavilion
Theatre (the “Pavilion Theatre”), Christie/AIX, Inc. d/b/a AccessIT Digital
Cinema (“AccessIT DC”), PLX Acquisition Corp., UniqueScreen Media, Inc.
(“USM”),  Vistachiara Productions, Inc. ., f/k/a The Bigger Picture,
curently d/b/a Cinedigm Content and Entertainment Group  (“CEG”),
Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”) and Access Digital Cinema
Phase 2 B/AIX Corp. (“Phase 2 B/AIX’). AccessDM and AccessIT Satellite will
together be known as the Digital Media Services Division (“DMS”). All
intercompany transactions and balances have been eliminated.
 
 USE
OF ESTIMATES
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. The Company’s most significant
estimates related to software revenue recognition, capitalization of software
development costs, amortization and impairment testing of intangible assets and
depreciation of fixed assets. On an on-going basis, the Company evaluates its
estimates, including those related to the carrying values of its fixed
assets
  F-7
  and
intangible assets, the valuation of deferred tax assets, and the valuation of
assets acquired and liabilities assumed in purchase business combinations. The
Company bases its estimates on historical experience and on various other
assumptions that the Company believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates under different
assumptions or conditions.
 
 CASH
AND CASH EQUIVALENTS
 
 The
Company considers all highly liquid investments with an original maturity of
three months or less to be “cash equivalents.” The carrying amount of the
Company’s cash equivalents approximates fair value due to the short maturities
of these investments and consists primarily of money market funds and other
overnight investments. The Company maintains bank accounts with major banks,
which from time to time may exceed the Federal Deposit Insurance Corporation’s
(“FDIC”) insured limits. The Company periodically assesses the financial
condition of the institutions and believes that the risk of any loss is
minimal
 
 ADVERTISING
 
 Advertising
costs are expensed as incurred and are included in selling, general and
administrative expenses.
 
 INVESTMENT
SECURITIES
 
 During
the fiscal year ended March 31, 2008, the Company held investment securities
which were principally auction rate perpetual preferred
securities.  The Company had classified these investment securities as
available-for-sale. Securities accounted for as available-for-sale were required
to be reported at fair value with unrealized gains and losses, net of taxes,
excluded from net income and shown separately as a component of accumulated
other comprehensive income within stockholders’ equity. The securities that the
Company had classified as available-for-sale generally traded at par and as a
result typically did not have any realized or unrealized gains or
losses.  As of March 31, 2008 and 2009, the Company did not hold any
investment securities.
 
 DEFERRED
COSTS
 
 Deferred
costs primarily consist of the unamortized debt issuance costs related to the
credit facility with General Electric Capital Corporation (“GECC”) and the
$55,000 of 10% Senior Notes issued in August 2007 (see Note 5), which are
amortized over the term of the respective debt.  Also included in deferred
costs is advertising production, post production and technical support costs
related to developing and displaying advertising, which are capitalized and
amortized on a straight-line basis over the same period as the related cinema
advertising revenues are recognized.
 
 DEPOSITS
ON PROPERTY AND EQUIPMENT
 
 Deposits
on property and equipment represent amounts paid when digital cinema projection
systems (the “Systems”) are ordered from Christie Digital Systems USA, Inc.
(“Christie”) in connection with AccessIT DC’s Phase I Deployment (see Note 7).
During AccessIT DC’s Phase I Deployment, such amounts were classified as
long-term assets due to the nature of the assets underlying these deposits,
although such deposits were to be offset against invoices from Christie when the
associated invoices were paid.  As of March 31, 2008 and 2009, the
Company had $3,802 and $0, respectively, of unapplied deposits which are
combined with accounts payable and accrued expenses, as AccessIT DC’s Phase I
Deployment was finalized, and the related projection systems had been delivered
and installed.
 
 PROPERTY
AND EQUIPMENT
 
 Property
and equipment are stated at cost, less accumulated depreciation. Depreciation
expense is recorded using the straight-line method over the estimated useful
lives of the respective assets as follows:
 
 Computer
      equipment
                3-5
      yearsDigital
      cinema projection systems
                10
      yearsOther
      projection system equipment
                5
      yearsMachinery
      and equipment
                3-10
      yearsFurniture
      and fixtures
                3-6
      yearsVehicles
                5
      years
 
 Leasehold
improvements are being amortized over the shorter of the lease term or the
estimated useful life of the leasehold improvement. Maintenance and repair costs
are charged to expense as incurred. Major renewals, improvements and additions
are
  F-8
  capitalized.  Upon
the sale or other disposition of any property and equipment, the cost and
related accumulated depreciation and amortization are removed from the accounts
and the gain or loss is included in the statement of operations.
 
 ACCOUNTING
FOR DERIVATIVES
 
 In April
2008, the Company executed an interest rate swap agreement (the “Interest Rate
Swap”) (see Note 5) to limit the Company’s exposure to changes in interest rates
under the credit facility with GECC.  The Interest Rate Swap is a
derivative financial instrument, which the Company accounts for pursuant to
Statement of Financial Accounting Standards (“SFAS”) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended and interpreted
("SFAS No. 133").  SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and requires that all derivatives be
recorded at fair value at the balance sheet date.  Changes in fair
value of derivative financial instruments are either recognized in other
comprehensive income (a component of stockholders' equity) or in the
consolidated statement of operations depending on whether the derivative is
being used to hedge changes in cash flows or fair value.  The Company
has determined that this is not a hedging transaction and changes in the value
of its Interest Rate Swap were recorded in the consolidated statement of
operations.
 
 FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 On April
1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157),
for financial assets and liabilities. The statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements.  The fair value measurement disclosures are
grouped into three levels based on valuation factors:
 
 ·
              Level
      1 – quoted prices in active markets for identical
    investments
 ·
              Level
      2 – other significant observable inputs (including quoted prices for
      similar investments, market corroborated inputs,
  etc.)
 ·
              Level
      3 – significant unobservable inputs (including the Company’s own
      assumptions in determining the fair value of
  investments)
 
 Assets
and liabilities measured at fair value on a recurring basis use the market
approach, where prices and other relevant information is generated by market
transactions involving identical or comparable assets or
liabilities.
 
 The
following table summarizes the levels of fair value measurements of the
Company’s financial assets and liabilities as of March 31, 2009:
 
 Level
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3Cash
      and cash equivalents
                    
                    $
                    26,329
                    
                    
                    $
                    —
                    
                    
                    $
                    —Interest
      rate swap
                    
                    $
                    —
                    
                    
                    $
                    (4,529
                    )
                    
                    $
                    —
 
 In April
2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115” (“SFAS 159”) and elected not to measure any additional financial
instruments and other items at fair value.
 
 The
Company’s cash and cash equivalents, accounts receivable, unbilled revenue and
accounts payable and accrued expenses are financial instruments and are recorded
at cost in the consolidated balance sheets. The estimated fair values of these
financial instruments approximate their carrying amounts based on their
short-term nature.  The carrying amount of notes receivable approximates
the fair value based on the discounted cash flows of that instrument using
current assumptions at the balance sheet date.  At March 31, 2009, the
estimated fair value of the Company’s fixed rate debt was $60,833, compared to a
carrying amount of $65,357.  At March 31, 2009 the estimated fair value of
the Company’s variable rate debt was $167,844, compared to a carrying amount of
$185,848.  The fair value of fixed rate and variable rate debt is estimated
by management based upon current interest rates available to the Company at the
respective balance sheet date for arrangements with similar terms and
conditions.
 
 CONCENTRATIONS
OF CREDIT RISK
 
 The
Company’s customer base is primarily composed of businesses throughout the
United States.  The Company routinely assesses the financial strength
of its customers and the status of its accounts receivable and, based upon
factors surrounding the credit risk, establishes an allowance, if required, for
uncollectible accounts and, as a result, believes that its accounts
receivable
  F-9
  credit
risk exposure beyond such allowance is limited.  Based on borrowing
rates currently available to the Company for loans with similar terms, the
carrying value of notes payable and capital lease obligations approximates fair
value.
 
 The
Company determines its allowance by considering a number of factors, including
the length of time such receivables are past due, the Company’s previous loss
history, and the customer’s current ability to pay its obligation to the
Company.  The Company writes off receivables when all collection efforts
have been exhausted.
 
 CONCENTRATIONS
OF SUPPLIER RISK
 
 The
Company currently purchases Systems from a limited number of suppliers.
Previously, the Company had been dependent on one supplier for Systems in
AccessIT DC’s Phase One Deployment. The inability to obtain certain components
on a timely basis would limit the Company’s ability to complete installation of
such Systems in a timely manner and could affect the amount of future
revenues.
 
 IMPAIRMENT
OF LONG-LIVED ASSETS
 
 The
Company reviews the recoverability of its long-lived assets on a periodic basis
in order to identify business conditions, which may indicate a possible
impairment. The assessment for potential impairment is based primarily on the
Company’s ability to recover the carrying value of its long-lived assets from
expected future undiscounted cash flows. If the total of expected future
undiscounted cash flows is less than the total carrying value of the assets, a
loss is recognized for the difference between the fair value (computed based
upon the expected future discounted cash flows) and the carrying value of the
assets. No impairment charge was recorded for the fiscal years ended March 31,
2008 and 2009, respectively.
 
 GOODWILL
AND INTANGIBLE ASSETS
 
 The
carrying value of goodwill and other intangible assets with indefinite lives are
reviewed for possible impairment in accordance with SFAS No. 142 “Goodwill and
Other Intangible Assets” (“SFAS No. 142”).   SFAS No. 142
addresses the recognition and measurement of goodwill and other intangible
assets subsequent to their acquisition.  The Company tests its
goodwill for impairment annually and in interim periods if certain events occur
indicating that the carrying value of goodwill may be impaired. The Company
reviews possible impairment of finite lived intangible assets in accordance with
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
The Company records goodwill and intangible assets resulting from past business
combinations.
 
 As of
March 31, 2009, the Company’s finite-lived intangible assets consisted of
customer relationships and agreements, theatre relationships, covenants not to
compete, trade names and trademarks and Federal Communications Commission
licenses (for satellite transmission services), which are estimated to have
useful lives ranging from two to ten years.  In June 2007, the
unamortized balance of the liquor license (for the Pavilion Theatre) was charged
to other expense.  In connection with the acquisition of CEG in
January 2007 (the CEG Acquisition”), $2,071 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
CEG.  As a result, the unamortized balance of $1,588 was charged to
expense and recorded as impairment of intangible asset in the consolidated
financial statements.  At March 31, 2009, no impairment charge was
recorded for intangible assets.
 
 The
Company’s process of evaluating goodwill for impairment involves the
determination of fair value of its four goodwill reporting units: AccessIT SW,
The Pavilion Theatre, USM and CEG.  Identification of reporting units
is based on the criteria contained in SFAS No. 142.  The Company
normally conducts its annual goodwill impairment analysis during the fourth
quarter of each fiscal year, measured as of March 31, unless triggering events
occur which require goodwill to be tested as of an interim date.  As
discussed further below, the Company concluded that one or more triggering
events had occurred during the three months ended December 31, 2008 and
conducted impairment tests as of December 31, 2008 and recorded an impairment
charge of $6.5 million.  The Company updated the impairment tests as
of March 31, 2009 and concluded there was no additional impairment
charge.
 
 Inherent
in the fair value determination for each reporting unit are certain judgments
and estimates relating to future cash flows, including management’s
interpretation of current economic indicators and market conditions, and
assumptions about the Company’s strategic plans with regard to its operations.
To the extent additional information arises, market conditions change or the
Company’s strategies change, it is possible that the conclusion regarding
whether the Company’s remaining goodwill is impaired could change and result in
future goodwill impairment charges that will have a material effect on the
Company’s consolidated financial position or results of operations.
   F-10
  The
discounted cash flow methodology establishes fair value by estimating the
present value of the projected future cash flows to be generated from the
reporting unit. The discount rate applied to the projected future cash flows to
arrive at the present value is intended to reflect all risks of ownership and
the associated risks of realizing the stream of projected future cash
flows.  The discounted cash flow methodology uses our projections of
financial performance for a five-year period.  The most significant
assumptions used in the discounted cash flow methodology are the discount rate,
the terminal value and expected future revenues and gross margins, which vary
among reporting units. The discount rates utilized as of the December 31, 2008
testing date range from 16.0% - 27.5% based on the estimated market
participant weighted average cost of capital (“WACC”) for each unit. 
The market participant based WACC for each unit gives consideration to factors
including, but not limited to, capital structure, historic and projected
financial performance, and size.
 
 The
market multiple methodology establishes fair value by comparing the reporting
unit to other companies that are similar, from an operational or industry
standpoint and considers the risk characteristics in order to determine the risk
profile relative to the comparable companies as a group.  The most
significant assumptions are the market multiplies and the control premium.
The Company has elected not to apply a control premium to the fair
value conclusions for the purposes of impairment testing.
 
 The
Company then assigns a weighting to the discounted cash flows and market
multiple methodologies to derive the fair value of the reporting
unit.  The income approach is weighted 60% to 70% and the
market approach is weighted 40% to 30% to derive the fair value of the
reporting unit.  The weightings are evaluated each time a
goodwill impairment assessment is performed and give consideration to the
relative reliability of each approach at that time.
 
 Based on
the results of our impairment evaluation, the Company recorded an impairment
charge of $6,525 during the fiscal year ended March 31, 2009 related to our
Content and Entertainment segment.
 
 Information
related to the segments of the Company and its subsidiaries regarding goodwill
is detailed below:
 
 Media
      Services
                  
                  
                  Content
      & Enter-tainment
                  
                  
                  Other
                  
                  
                  Corp.
                  
                  
                  TotalBalance
      as of March 31, 2007
                  
                  $
                  4,529
                  
                  
                  $
                  8,720
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  13,249Additional
      purchase price related to the AccessIT Digital Server
      Assets
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  164
                  
                  
                  
                  —
                  
                  
                  
                  164Additional
      costs associated with the USM Acquisition
                  
                  
                  —
                  
                  
                  
                  121
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  121Additional
      purchase price related to the USM Acquisition
                  
                  
                  —
                  
                  
                  
                  1,000
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,000Additional
      costs associated with the CEG Acquisition
                  
                  
                  —
                  
                  
                  
                  15
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  15Balance
      as of March 31, 2008
                  
                  $
                  4,529
                  
                  
                  $
                  9,856
                  
                  
                  $
                  164
                  
                  
                  $
                  —
                  
                  
                  $
                  14,549Impairment
      charge associated with the Pavilion Theatre
                  
                  
                  —
                  
                  
                  
                  (1,960
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,960
                  )Impairment
      charge associated with USM
                  
                  
                  —
                  
                  
                  
                  (4,401
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (4,401
                  )Impairment
      charge associated with CEG
                  
                  
                  —
                  
                  
                  
                  (164
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (164
                  )Balance
      as of March 31, 2009
                  
                  $
                  4,529
                  
                  
                  $
                  3,331
                  
                  
                  $
                  164
                  
                  
                  $
                  —
                  
                  
                  $
                  8,024
 
 The
impairment charges were recorded following a period of decline in the Company’s
market capitalization and overall negative economic conditions during the fiscal
year ended March 31, 2009.  Declines were noted in the market valuations of
designated peer group companies of each of the above reporting units and were a
significant factor in the resulting impairment charges.  The impairment
charge recorded to the USM reporting unit was further impacted by a recent
downturn in in-theatre advertising sales due to deterioration in overall
economic conditions and a resulting reduction in the forecasted discounted cash
flows.  The impairment charge recorded for the Pavilion Theatre reporting
unit was impacted by revised revenue estimates to better align its forecasted
operations due to current recessionary trends and its current business model
within the Company.  Also, CEG’s near term forecasts were revised to
reflect what is anticipated to be a competitive landscape for the provision of
alternative content, however offset by expected rapid digital screen count
growth and alternative content availability.  The impairment tests did not
reveal any impairment noted in the remaining goodwill reporting units, primarily
Software, due to historical and expected sales of software products to the
theatrical market, primarily to support the digital cinema
rollout.
  F-11
  
 CAPITALIZED
SOFTWARE DEVELOPMENT COSTS
 
 Internal
Use Software
 
 We
account for internal use 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, Capitalized costs are amortized on a
straight-line basis over estimated lives ranging from three to five years,
beginning when the software is ready for its intended use.  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 of the underlying software, which range
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,
2008 and 2009, respectively.  Amortization of capitalized software
development costs, included in direct operating costs, for the fiscal years
ended March 31, 2008 and 2009 amounted to $590 and $677,
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, 2008 and 2009, unbilled receivables under such
customized software development contracts aggregated $1,187 and $108,
respectively.  During the fiscal year ended March 31, 2009, the
Company reached an agreement with a customer regarding a customized product
contract whereby the Company will cease development efforts on the customized
product and the customer will complete the development of the product going
forward at their sole expense and deliver the completed product back to the
Company.  The Company will continue to own the product at all times
and retains the rights to market the finished product to others.  The
customer agreed, and has made, certain payments to the Company as settlement of
all billed and unbilled amounts.  After all such payments, the
remaining amount of $400 has been included in capitalized software costs as of
March 31, 2009.  The Company believes this amount will be recoverable
from future sales of the product to other customers.
 
 REVENUE
RECOGNITION
 
 Media
Services
 
 Media
Services revenues are generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Virtual
      print fees (“VPFs”) and alternative content fees (“ACFs”).
              
              Staff
      Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition in Financial
      Statements” (“SAB No. 104”).Software
      multi-element licensing arrangements, software maintenance contracts, and
      professional consulting services, which includes systems implementation,
      training, and other professional services, delivery revenues via satellite
      and hard drive, data encryption and preparation fee revenues, satellite
      network monitoring and maintenance fees.
              
              Statement
      of Position (“SOP”) 97-2, “Software Revenue Recognition”Custom
      software development services.
              
              SOP
      81-1, “Accounting for Performance of Construction-Type and Certain
      Production-
  F-12
  
 Type
      Contracts” (“SOP 81-1”)Customer
      licenses and application service provider (“ASP Service”)
      agreements.
              
              SAB
      No. 104
 
 VPFs are
earned pursuant to contracts with movie studios and distributors, whereby
amounts are payable to AccessIT DC and Phase 2 DC according to a fixed fee
schedule, when movies distributed by the studio are displayed on screens
utilizing the Company’s Systems installed in movie theatres.  One VPF
is payable for every movie title displayed per System. The amount of VPF revenue
is therefore dependent on the number of movie titles released and displayed on
the Systems in any given accounting period. VPF revenue is recognized in the
period in which the movie first opens for general audience viewing in that
digitally-equipped movie theatre, as AccessIT DC’s and Phase 2 DC’s performance
obligations have been substantially met at that time.
 
 Phase 2
DC’s agreements with distributors require the payment of VPF’s for 10 years from
the date each system is installed, however, Phase 2 DC may no longer collect
VPF’s once “cost recoupment”, as defined in the agreements, is achieved. 
Cost recoupment will occur once the cumulative VPF’s and other cash receipts
collected by Phase 2 DC have equaled the total of all cash outflows, including
the purchase price of all Systems, all financing costs, all “overhead and
ongoing costs”, as defined, subject to maximum agreed upon amounts during the
three-year rollout period and thereafter, plus a compounded return on any billed
but unpaid overhead and ongoing costs, of 15% per year.  Further, if cost
recoupment occurs before the end of the 8th
contract year, a one-time “cost recoupment bonus” is payable by the studios to
Phase 2 DC.  Any other cash flows, net of expenses, received by Phase 2 DC
following the achievement of cost recoupment are required to be returned to the
distributors on a pro-rata basis. At this time, the Company cannot estimate the
timing or probability of the achievement of cost recoupment.
 
 ACFs are
earned pursuant to contracts with movie exhibitors, whereby amounts are payable
to AccessIT DC and Phase 2 DC, generally as a percentage of the applicable box
office revenue derived from the exhibitor’s showing of content other than
feature films, such as concerts and sporting events (typically referred to as
“alternative content”).  ACF revenue is recognized in the period in
which the alternative content opens for audience viewing.
 
 For
software multi-element licensing arrangements that do not require significant
production, modification or customization of the licensed software, revenue is
recognized for the various elements as follows: Revenue for the licensed
software element is recognized upon delivery and acceptance of the licensed
software product, as that represents the culmination of the earnings process and
the Company has no further obligations to the customer, relative to the software
license. Revenue earned from consulting services is recognized upon the
performance and completion of these services. Revenue earned from annual
software maintenance is recognized ratably over the maintenance term (typically
one year).
 
 Revenues
relating to customized software development contracts are recognized on a
percentage-of-completion method of accounting in accordance with SOP
81-1.
 
 Revenue
is deferred in cases where:  (1) a portion or the entire contract
amount cannot be recognized as revenue, due to non-delivery or pre-acceptance of
licensed software or custom programming, (2) uncompleted 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 earned revenue
in accordance with the Company’s revenue recognition policies described
above.
 
 Managed
Services’ revenues, which consist of monthly recurring billings pursuant to
network monitoring and maintenance contracts, are recognized as revenues in the
month earned, and other non-recurring billings are recognized on a time and
materials basis as revenues in the period in which the services were
provided.
 
 Content
& Entertainment
 
 Content
& Entertainment revenues are generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Movie
      theatre admission and concession revenues.
              
              SAB
      No. 104Cinema
      advertising service revenues and distribution fee
revenues.
              
              SOP
      00-2, “Accounting by Producers or Distributors of Films” (“SOP
      00-2”)Cinema
      advertising barter revenues
              
              The
      Emerging Issues Task Force (“EITF”) 99-17, “Accounting for Advertising
      Barter Transactions” (“EITF 99-17”)
  F-13
  
 Movie
theatre admission and concession revenues are generated at the Company’s
nine-screen digital movie theatre, the Pavilion Theatre. Movie theatre admission
revenues are recognized on the date of sale, as the related movie is viewed on
that date and the Company’s performance obligation is met at that time.
Concession revenues consist of food and beverage sales and are also recognized
on the date of purchase.
 
 USM has
contracts with exhibitors to display pre-show advertisements on their screens,
in exchange for certain fees paid to the exhibitors. USM then contracts with
businesses of various types to place their advertisements in select theatre
locations, designs the advertisement, and places it on-screen for specific
periods of time, generally ranging from three to twelve
months.  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 in-theatre advertising is displayed, pursuant to the
specific terms of each advertising contract. USM has 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 a in-theatre advertising is displayed.
 
 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.  The Company recognizes 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, 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 CEG’s
participation in box office receipts.  CEG has 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.
 
 Barter
advertising revenue is recognized for the fair value of the advertising time
surrendered in exchange for alternative content.  The Company includes
the value of such exchanges in both Content & Entertainment’s net revenues
and direct operating expenses. There may be a timing difference between the
screening of alternative content and the screening of the underlying advertising
used to acquire the content.  In accordance with EITF 99-17, the
acquisition cost is being recorded and recognized as a direct operating
expense by CEG when the alternative content is screened, and the underlying
advertising is being deferred and recognized as revenue ratably over the period
such advertising is screened by USM. For the fiscal years ended March 31, 2008
and 2009, the Company has recorded $0 and $1,577, respectively, in net revenues
and direct operating expenses with no impact on net loss.
 
 Other
 
 Other
revenues, attributable to the Access Digital Server Assets, were generated as
follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Hosting
      and network access fees.
              
              SAB
      No. 104
  
 Since May
1, 2007, the Company’s internet data centers (“IDCs”) have been operated by
FiberMedia AIT, LLC and Telesource Group, Inc. (together, “FiberMedia”),
unrelated third parties, pursuant to a master collocation
agreement.  Although the Company is still the lessee of the IDCs,
substantially all of the revenues and expenses were being realized by FiberMedia
and not the Company and since May 1, 2008, 100% of the revenues and expenses are
being realized by FiberMedia.
 
 DIRECT
OPERATING COSTS
 
 Direct
operating costs consists of facility operating costs such as rent, utilities,
real estate taxes, repairs and maintenance, insurance and other related
expenses, direct personnel costs, film rent expense, amortization of capitalized
software development costs, exhibitors payments for displaying cinema
advertising and other deferred expenses, such as advertising production, post
production and technical support related to developing and displaying
advertising. These other deferred expenses are capitalized and amortized on a
straight-line basis over the same period as the related cinema advertising
revenues are recognized.
 
  F-14
  STOCK-BASED
COMPENSATION
 
 The
Company has two stock-based employee compensation plans, which are described
more fully in Note 6 and accounts for share-based payments under SFAS No.
123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which is a revision
of SFAS No. 123, Accounting for Stock-Based Compensation. Under SFAS
123(R), the Company is required to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions) and recognize such cost in the
statement of operations over the period during which an employee is required to
provide service in exchange for the award (usually the vesting period). Pro
forma disclosure is no longer an alternative.
 
 The
Company adopted SFAS 123(R) using the “modified prospective” method in which
stock-based compensation cost is recognized beginning with the April 1, 2006
adoption date (a) based on the requirements of SFAS 123(R) for all
share-based payments granted after April 1, 2006 and (b) based on the
requirements of SFAS No. 123 for all awards granted to employees prior to April
1, 2006 that remain unvested on the adoption date. There were no unvested stock
options as of March 31, 2006, as the compensation committee of the Board
approved the acceleration of the vesting of all unvested stock options awarded
under the Company’s stock incentive plans as of March 31, 2006. For the fiscal
years ended March 31, 2008 and 2009, the Company recorded stock-based
compensation expense of $453 and $945, respectively.  The Company has
estimated that the stock-based compensation expense, using a Black-Scholes
option valuation model, related to such stock options currently outstanding at
March 31, 2009, will be approximately $591 for the fiscal year 2010 (see Note 6
for further discussion of stock options).
 
 The
Company estimated the fair value of stock options at the date of each grant
using a Black-Scholes option valuation model with the following
assumptions:
  Assumptions
      for Option Grants
                          
                          For the fiscal years
                            ended March 31,2008
                          
                          
                          2009Range of risk-free interest
      rates
                          
                          
                          2.5
      – 5.0
                          %
                          
                          
                          2.7
      – 4.4
                          %Dividend yield
                          
                          
                          —
                          
                          
                          
                          —Expected life (years)
                          
                          
                          5
                          
                          
                          
                          5Range of expected
      volatilities
                          
                          
                          52.5
      – 56.5
                          %
                          
                          
                          52.6
      – 58.7
                          %
 The
risk-free interest rate used in the Black-Scholes option pricing model for
options granted under the Company’s stock option plan awards is the historical
yield on U.S. Treasury securities with equivalent remaining lives.
 
 The
Company does not currently anticipate paying any cash dividends on common stock
in the foreseeable future. Consequently, an expected dividend yield of zero is
used in the Black-Scholes option pricing model.
 
 The
Company estimates the expected life of options granted under the Company’s stock
option plans using both exercise behavior and post-vesting termination behavior,
as well as consideration of outstanding options.
 
 The
Company estimates expected volatility for options granted under the Company’s
stock option plans based on a measure of historical volatility in the trading
market for the Company’s common stock.
 
 INCOMES
TAXES
 
 Income
taxes have been provided for under the liability method.  Deferred tax
assets and liabilities are determined based on the difference between the
financial statement and the tax basis of assets and liabilities as measured by
the enacted rates which will be in effect when the differences
reverse.  The Company provides a full valuation allowance against net
deferred tax assets if, based upon the available evidence, it is more likely
than not that the deferred tax asset will not be realized.
 
 NET
LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
 
 Computations
of basic and diluted net loss per share of the Company’s Common Stock have been
made in accordance with SFAS No. 128, “Earnings Per Share”.  Basic and
diluted net losses per share have been calculated as follows:
 
 Basic
      and diluted net loss per share =
              Net
      lossWeighted
      average number of common shares
                outstanding
      during the period
 
  F-15
  Shares
issued and reacquired during the period are weighted for the portion of the
period that they were outstanding.
 
 The
Company has incurred net losses for the fiscal years ended March 31, 2008 and
2009 and, therefore, the impact of dilutive potential common shares from
outstanding stock options, warrants (prior to the application of the treasury
stock method), and convertible notes (on an as-converted basis) were excluded
from the computation as it would be anti-dilutive.  Potentially
dilutive shares excluded from the computations aggregated 3,406,654 and
5,714,261 for the fiscal years ended March 31, 2008 and 2009,
respectively.
 
 RECENT
      ACCOUNTING PRONOUNCEMENTS
 
 In
December 2007, the Financial Accounting Standards Board (“FASB”) released SFAS
No. 141(R), “Business Combinations (revised 2007)” (“SFAS 141(R)”), which
changes many well-established business combination accounting practices and
significantly affects how acquisition transactions are reflected in the
financial statements. Additionally, SFAS 141(R) will affect how companies
negotiate and structure transactions, model financial projections of
acquisitions and communicate to stakeholders. SFAS 141(R) must be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period effective for the
Company beginning April 1, 2009.  SFAS 141(R) is not expected to have
an impact on the Company’s consolidated financial statements at the time of
adoption.
 
 In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160establishes new
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary.  SFAS
No. 160 is effective forthe Company beginning April 1, 2009.The
Company does not believe that SFAS 160 will have a material impact on its
consolidated financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”).
SFAS 161requires
enhanced disclosures about an entity’s derivative and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations,
and (c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. SFAS 161 is effective
for the Company beginning April 1, 2009.  SFAS 161 encourages, but
does not require, comparative disclosures for earlier periods at initial
adoption.The Company
does not believe that SFAS 161 will have a material impact on its consolidated
financial statements.
 
 In April
2008, the FASB issued FASB Staff Position No. FAS 142-3, ”Determination of the
Useful Life of Intangible Assets” (“FSP FAS 142-3”).  FSP FAS 142-3
applies to all recognized intangible assets and its guidance is restricted to
estimating the useful life of recognized intangible assets. FSP FAS 142-3 is
effective for the first fiscal period beginning after December 15, 2008 and must
be applied prospectively to intangible assets acquired after the effective date.
The Company will be required to adopt FSP FAS 142-3 to intangible assets
acquired beginning April 1, 2009.  The Company does not believe that
FSP FAS 142-3 will have a material impact on its consolidated financial
statements
 
 In May
2009, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,” (“SFAS 162”).  SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP. SFAS 162 is effective 60 days
following the SEC’s approval of Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles.”The Company
does not believe that SFAS 162 will have a material impact on its consolidated
financial statements.
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an
Instrument (or an Embedded Feature) is indexed to an Entity’s Own Stock”
(EITF 07-5).  The provisions of EITF 07-5 are to be applied to an
entity’s existing arrangements to reevaluate, in part, whether financial
instruments or embedded features within those arrangements are exempt from
accounting under SFAS 133.  EITF 07-5 clarifies how to determine
whether certain instruments or features are indexed to an entity’s own stock
under EITF Issue No. 01-6, “The Meaning of‘Indexed to a Company’s Own Stock’” (EITF 01-6) and thereby
possibly exempt from accounting under FAS 133.  The consensus reached
in EITF 07-5 supersedes those reached in EITF 01-6.  The application
of EITF 07-5 is effective for the Company beginning April 1,
2009.  The Company is currently
evaluating the impact of adoption and application of EITF
07-5.
 
 In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1 ("the FSP"). This FSP
amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments not measured on the balance sheet at fair value in interim
financial statements as well as in annual financial statements. Prior to this
FSP, fair values for these
  F-16
  assets
and liabilities were only disclosed annually. This FSP applies to all financial
instruments within the scope of SFAS 107 and requires all entities to
disclose the method(s) and significant assumptions used to estimate the fair
value of financial instruments. This FSP shall be effective for interim periods
ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. An entity may early adopt this FSP only if it
also elects to early adopt FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, and FSP FAS
115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP does not require disclosures
for earlier periods presented for comparative purposes at initial adoption. In
periods after initial adoption, this FSP requires comparative disclosures only
for periods ending after initial adoption. The Company will adopt the FSP as of
June 30, 2009 and is currently evaluating the disclosure requirements of this
new FSP.
 
 In
June 2008, the FASB issued Staff Position EITF 03-06-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
("FSP EITF 03-06-1"). This Staff Position provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in SFAS No. 128, Earnings per Share. FSP
EITF 03-06-1 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those years and requires all
prior-period earnings per share data to be adjusted retrospectively. FSP
EITF 03-06-1 is effective for the Company beginning April 1, 2009. The
adoption of FSP EITF 03-06-1 is not expected to have a material impact on
the Company's financial statements.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date, that is, whether that date represents the date the financial statements
were issued or were available to be issued. SFAS 165 is effective for interim or
annual financial periods ending after June 15, 2009.  The Company
will adopt SFAS 165 in the first quarter of fiscal 2010 and does not expect a
material impact on the Company’s consolidated financial statements upon
adoption.
 
 3.
                CONSOLIDATED
      BALANCE SHEET COMPONENTS
 
 CASH
AND CASH EQUIVALENTS
 
 Cash and
cash equivalents consisted of the following:
 
 As
      of March 31,2008
                    
                    
                    2009Cash
      in banks
                    
                    $
                    23,161
                    
                    
                    $
                    24,250Money
      market funds
                    
                    
                    6,494
                    
                    
                    
                    2,079Total
      cash and cash equivalents
                    
                    $
                    29,655
                    
                    
                    $
                    26,329
 
 RESTRICTED
CASH
 
 The
Company had $255 of restricted cash as of March 31, 2008 and 2009, respectively,
in the form of a bank certificate of deposit underlying an outstanding bank
standby letter of credit for an office space lease for AccessIT SW.
 
 ACCOUNTS
RECEIVABLE
 
 Accounts
receivable, net consisted of the following:
 
 As
      of March 31,2008
                    
                    
                    2009Trade
      receivables
                    
                    $
                    23,800
                    
                    
                    $
                    15,333Allowance
      for doubtful accounts
                    
                    
                    (2,306
                    )
                    
                    
                    (1,449
                    )Total
      accounts receivable, net
                    
                    $
                    21,494
                    
                    
                    $
                    13,884
 
 The
Company determines its allowance by considering a number of factors, including
the length of time such receivables are past due, the Company’s previous loss
history, the customer’s payment history and the customer’s current ability to
pay.  The Company writes off receivables when all collection efforts have
been exhausted.
  F-17
  PROPERTY
AND EQUIPMENT, NET
 
 Property
and equipment, net was comprised of the following:
 
 As
      of March 31,2008
                    
                    
                    2009Land
                    
                    $
                    1,500
                    
                    
                    $
                    1,500Building
      and improvements
                    
                    
                    4,600
                    
                    
                    
                    4,600Leasehold
      improvements
                    
                    
                    1,748
                    
                    
                    
                    1,803Computer
      equipment and software
                    
                    
                    7,050
                    
                    
                    
                    7,306Digital
      cinema projection systems
                    
                    
                    285,060
                    
                    
                    
                    289,483Other
      projection system equipment
                    
                    
                    4,021
                    
                    
                    
                    3,848Machinery
      and equipment
                    
                    
                    9,882
                    
                    
                    
                    11,715Furniture
      and fixtures
                    
                    
                    734
                    
                    
                    
                    740Vehicles
                    
                    
                    125
                    
                    
                    
                    84314,720
                    
                    
                    
                    321,079Less
      - accumulated depreciation and amortization
                    
                    
                    (45,689
                    )
                    
                    
                    (77,955
                    )Total
      property and equipment, net
                    
                    $
                    269,031
                    
                    
                    $
                    243,124
 
 Land and
building and improvements represent the Company’s capital lease for the Pavilion
Theatre.  Leasehold improvements consist primarily of costs incurred
at the Pavilion Theatre and for the offices of AccessIT SW.  Computer
equipment and software consists primarily of software used in the Company’s
Managed Storage Services business, the Cinefence License, the Access Digital
Server Assets and from the AccessIT SW, Managed Services and Boeing Digital
Asset Acquisitions.  Digital cinema projection systems consist
entirely of equipment purchased in connection with the AccessIT DC Phase I
Deployment and the Phase 2 DC Phase II Deployment.  The GE Credit
Facility (see Note 5) is secured by a first priority perfected security interest
on all of the digital cinema projection systems of AccessIT DC.  Other
projection system equipment consists entirely of equipment in the USM
operations.  Machinery and equipment consists primarily of costs
incurred for satellite equipment purchased in connection with AccessIT DC’s
Phase I Deployment and equipment from the FiberSat Acquisition.  For
the fiscal years ended March 31, 2008 and 2009, total depreciation and
amortization expense amounted to $29,285 and $32,531,
respectively.  For the fiscal years ended March 31, 2008 and 2009, the
amortization of the Company’s capital leases, and included in depreciation and
amortization expense, amounted to $359 and $396, respectively.
 
 Depreciation
expense on property and equipment for the next five fiscal years is estimated as
follows:
 
 For
      the fiscal years ending March 31,2010
                        
                        $
                        31,8662011
                        
                        $
                        31,2312012
                        
                        $
                        30,6062013
                        
                        $
                        30,2082014
                        
                        $
                        30,132
 
 INTANGIBLE
ASSETS, NET
 
 Intangible
assets, net consisted of the following:
 
 As
      of March 31, 2008
                            
                            
                            As
      of March 31, 2009Gross
      Carrying Amount
                            
                            Accumulated
      Amortization
                            
                            
                            Gross
      Carrying Amount
                            
                            
                            Accumulated
                              AmortizationTrademarks
                            $
                            81
                            
                            $
                            (76
                            )
                            
                            $
                            81
                            
                            
                            $
                            (80
                            )Corporate
      trade names
                            
                            889
                            
                            
                            (584
                            )
                            
                            
                            889
                            
                            
                            
                            (729
                            )Customer
      relationships and contracts
                            
                            11,348
                            
                            
                            (4,265
                            )
                            
                            
                            11,348
                            
                            
                            
                            (6,500
                            )Theatre
      relationships
                            
                            6,575
                            
                            
                            (1,089
                            )
                            
                            
                            7,125
                            
                            
                            
                            (1,770
                            )Covenants
      not to compete
                            
                            2,509
                            
                            
                            (1,796
                            )
                            
                            
                            2,509
                            
                            
                            
                            (2,166
                            )$
                            21,402
                            
                            $
                            (7,810
                            )
                            
                            $
                            21,952
                            
                            
                            $
                            (11,245
                            )
 
  F-18
  For the
fiscal years ended March 31, 2008 and 2009, amortization expense amounted to
$4,290 and $3,434, respectively.
 
 During
the fiscal year ended March 31, 2008, a certain customer decided not to continue
its contract with CEG.  As a result, the unamortized balance of $1,588
was charged to expense and recorded as impairment of intangible asset in the
consolidated financial statements and is included in the Content &
Entertainment segment.  The Company did not record any impairment of
intangible assets during the fiscal year ended March 31, 2009.
 
 Amortization
expense on intangible assets for the next five fiscal years is estimated as
follows:
 
 For
      the fiscal years ending March 31,2010
                          
                          $
                          2,9772011
                          
                          $
                          2,8882012
                          
                          $
                          1,5762013
                          
                          $
                          7192014
                          
                          $
                          714
  CAPITALIZED
SOFTWARE COSTS, NET
 
 Capitalized
software costs, net consisted of the following:
 
 As
      of March 31,2008
                    
                    
                    2009Capitalized
      software
                    
                    $
                    5,242
                    
                    
                    $
                    6,795Less
      - accumulated amortization
                    
                    
                    (2,465
                    )
                    
                    
                    (3,142
                    )Total
      capitalized software costs, net
                    
                    $
                    2,777
                    
                    
                    $
                    3,653
 
 For the
years ended March 31, 2008 and 2009, amortization of software costs, which is
included in direct operating costs, amounted to $590 and $677,
respectively.
 
 During
the fiscal year ended March 31, 2009, the Company reached an agreement with a
customer regarding a customized product contract whereby the Company will cease
development efforts on the customized product and the customer will complete the
development of the product going forward at their sole expense and deliver the
completed product back to the Company.  The Company will continue to
own the product at all times and retains the rights to market the finished
product to others.  The customer agreed, and has made, certain
payments to the Company as settlement of all billed and unbilled
amounts.  After all such payments, the remaining amount of $400 has
been included in capitalized software costs as of March 31, 2009.  The
Company believes this amount will be recoverable from future sales of the
product to other customers and no amortization will be recorded until the
completed product has been delivered back to the Company.
 
 ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
 
 Accounts
payable and accrued expenses consisted of the following:
 
 As
      of March 31,2008
                      
                      
                      2009Accounts
      payable
                      
                      $
                      18,182
                      
                      
                      $
                      5,992Accrued
      compensation and benefits
                      
                      
                      1,075
                      
                      
                      
                      1,542Accrued
      taxes payable
                      
                      
                      591
                      
                      
                      
                      325Interest
      payable
                      
                      
                      2,671
                      
                      
                      
                      3,175Accrued
      other expenses
                      
                      
                      2,694
                      
                      
                      
                      3,920Total
      accounts payable and accrued expenses
                      
                      $
                      25,213
                      
                      
                      $
                      14,954
 
 For the
years ended March 31, 2008 and 2009, amounts ordered from Christie for Systems
in connection with AccessIT DC’s Phase I Deployment and included in accounts
payable amounted to $19,734 and $293, respectively, and amounts ordered from
Christie for Systems in connection with Phase 2 DC’s Phase II Deployment and
included in accounts payable amounted to $0 and $898,
respectively.  At March 31, 2008 and 2009, accounts payable has been
reduced by $3,802 and $0, respectively, related to unapplied deposits paid to
Christie for digital cinema projection systems that will be applied on
subsequent payments to Christie.
 
  F-19
  For the
years ended March 31, 2008 and 2009, the Company has also included $0 and $325,
respectively, for accrued taxes payable, representing the estimated amounts due
for various state property taxes.
 
 For the
years ended March 31, 2008 and 2009, the Company has also included $0 and
$3,075, respectively, in accrued other expenses, representing the amounts
ordered from Barco N.V. (“Barco”) for Systems in connection with Phase 2 DC’s
Phase II Deployment.
 
 4.
                NOTES
      RECEIVABLE
 
 Notes
receivable consisted of the following:
 
 As
      of March 31, 2008
                        
                        
                        As
      of March 31, 2009Note
      Receivable (as defined below)
                        
                        Current
                          Portion
                        
                        
                        Long
      Term Portion
                        
                        
                        Current
                          Portion
                        
                        
                        Long
      Term PortionExhibitor
      Note
                        
                        $
                        50
                        
                        
                        $
                        91
                        
                        
                        $
                        54
                        
                        
                        $
                        37Exhibitor
      Install Notes
                        
                        
                        95
                        
                        
                        
                        1,002
                        
                        
                        
                        118
                        
                        
                        
                        908TIS
      Note
                        
                        
                        —
                        
                        
                        
                        100
                        
                        
                        
                        —
                        
                        
                        
                        —FiberMedia
      Note
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        431
                        
                        
                        
                        —Other
                        
                        
                        13
                        
                        
                        
                        27
                        
                        
                        
                        13
                        
                        
                        
                        14$
                        158
                        
                        
                        $
                        1,220
                        
                        
                        $
                        616
                        
                        
                        $
                        959
 
 In March
2006, in connection with AccessIT DC’s Phase I Deployment, the Company issued to
a certain motion picture exhibitor a 7.5% note receivable for $231 (the
“Exhibitor Note”), in return for the Company’s payment for certain financed
digital projectors.  The Exhibitor Note requires monthly principal and
interest payments through September 2010.  As of March 31, 2008 and
2009, the outstanding balance of the Exhibitor Note was $141 and $91,
respectively.
 
 In
connection with AccessIT DC’s Phase I Deployment (see Note 7), the Company
agreed to provide financing to certain motion picture exhibitors upon the
billing to the motion picture exhibitors by Christie for the installation costs
associated with the placement of Systems in movie theatres.  In April
2006, certain motion picture exhibitors agreed to issue to the Company two 8%
notes receivable for an aggregate of $1,287 (the “Exhibitor Install Notes”).
Under the Exhibitor Install Notes, the motion picture exhibitors are required to
make monthly interest only payments through October 2007 and quarterly principal
and interest payments thereafter through August 2009 and August 2017,
respectively.  As of March 31, 2008 and 2009, the outstanding balance
of the Exhibitor Install Notes was $1,097 and $1,026, respectively.
 
 Prior to
the acquisition of USM in July 2006 (the “USM Acquisition”), Theatre Information
Systems, Ltd. (“TIS”), a developer of proprietary software, issued to USM a 4.5%
note receivable for $100 (the “TIS Note”) to fund final modifications to certain
proprietary software and the development and distribution of related marketing
materials. Interest accrues monthly on the outstanding principal amount. The TIS
Note and all the accrued interest is due in one lump-sum payment in April 2009.
Provided that the TIS Note has not been previously repaid, the entire unpaid
principal balance and any accrued but unpaid interest may, at USM’s option, be
converted into a 10% limited partnership interest in TIS.  During the
fiscal year ended March 31, 2009, the TIS Note and all accrued interest
aggregating $150 was written-off as the Company determined it was
uncollectable.  As of March 31, 2009, the outstanding balance of the
TIS Note was $0.
 
 In
November 2008, FiberMedia issued to the Company a 10% note receivable for $631
(the “FiberMedia Note”) related to certain expenses FiberMedia is required to
repay to the Company under a master collocation agreement of the IDCs.
FiberMedia is required to make monthly principal and interest payments beginning
in January 2009 through July 2009.  As of March 31, 2009, the
aggregate outstanding balance of the FiberMedia Note was $431.
  The
aggregate principal repayments to the Company on notes receivable are scheduled
to be as follows:
 
 For
      the fiscal years ending March 31,2010
                        
                        $
                        6162011
                        
                        
                        1432012
                        
                        
                        1002013
                        
                        
                        1082014
                        
                        
                        117Thereafter
                        
                        
                        491$
                        1,575
 F-20
  5.
                DEBT
      AND CREDIT FACILITIES
 
 Notes
payable consisted of the following:
 
 As
      of March 31, 2008
                            
                            
                            As
      of March 31, 2009Note
      Payable (as defined below)
                            
                            Current
                              Portion
                            
                            
                            Long
      Term Portion
                            
                            
                            Current
      Portion
                            
                            
                            Long
      Term PortionHS
      Notes
                            
                            $
                            540
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —Boeing
      Note
                            
                            
                            450
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —First
      USM Note
                            
                            
                            414
                            
                            
                            
                            221
                            
                            
                            
                            221
                            
                            
                            
                            —SilverScreen
      Note
                            
                            
                            113
                            
                            
                            
                            20
                            
                            
                            
                            20
                            
                            
                            
                            —Vendor
      Note*
                            
                            
                            —
                            
                            
                            
                            9,600
                            
                            
                            
                            —
                            
                            
                            
                            9,6002007
      Senior Notes
                            
                            
                            —
                            
                            
                            
                            55,000
                            
                            
                            
                            —
                            
                            
                            
                            55,000Other
                            
                            
                            50
                            
                            
                            
                            —
                            
                            
                            
                            15
                            
                            
                            
                            —GE
      Credit Facility*
                            
                            
                            15,431
                            
                            
                            
                            185,848
                            
                            
                            
                            24,824
                            
                            
                            
                            161,024NEC
      Facility
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            168
                            
                            
                            
                            333$
                            16,998
                            
                            
                            $
                            250,689
                            
                            
                            $
                            25,248
                            
                            
                            $
                            225,957
 
 * The
Vendor Note and the GE Credit Facility are not guaranteed by the Company or its
other subsidiaries, other than AccessIT DC.
 
 In
November 2003, the Company issued two 5-year, 8% notes payable aggregating
$3,000 (the “HS Notes”) to the founders of AccessIT SW as part of the purchase
price for AccessIT SW.  On March 31, 2007, one of the holders of the
HS Notes agreed to reduce their note by $150 for 30,000 shares of unregistered
Class A Common Stock and forego $150 of principal payments at the end of their
note term.  During the fiscal years ended March 31, 2008 and 2009, the
Company repaid principal of $655 and $540, respectively, on the HS
Notes.  As of March 31, 2009, the HS Notes were repaid in
full.
 
 In March
2004, in connection with the Boeing Digital Asset Acquisition, the Company
issued a 4-year, non-interest bearing note payable with a face amount of $1,800
(the “Boeing Note”). The estimated fair value of the Boeing Note was determined
to be $1,367 on the closing date.  Interest is being imputed, at a
rate of 12%, over the term of the Boeing Note, and is being charged to non-cash
interest expense. Principal repayments of $450 for each of the fiscal years
ended March 31, 2008 and 2009, respectively, were made. During the fiscal years
ended March 31, 2007, 2008 and 2009, non-cash interest expense resulting from
the Boeing Note was $91, $48 and $0, respectively.  As of March 31,
2009, the Boeing Note was repaid in full.
 
 In July
2006, in connection with the USM Acquisition, the Company issued an 8% note
payable in the principal amount of $1,204 (the “First USM Note”) and an 8% note
payable in the principal amount of $4,000 (the “Second USM Note”), both in favor
of the stockholders of USM. The First USM Note is payable in twelve equal
quarterly installments commencing on October 1, 2006 until July 1, 2009. The
Second USM Note was payable on November 30, 2006, or earlier if certain
conditions were met, and was paid by the Company in October 2006. The First USM
Note may be prepaid in whole or from time to time in part without penalty
provided that the Company pays all accrued and unpaid interest. As of March 31,
2008 and 2009, the outstanding principal balance of the First USM Note was $635
and $221, respectively.
 
 Prior to
the USM Acquisition, USM had purchased substantially all the assets of
SilverScreen Advertising Incorporated (“SilverScreen”) and issued a 3-year, 4%
note payable in the principal amount of $333 (the “SilverScreen Note”) as part
of the purchase price for SilverScreen. The SilverScreen Note is payable in
equal monthly installments until May 2009.  As of March 31, 2008 and
2009, the outstanding principal balance of the SilverScreen Note was $133 and
$20, respectively.
  In August
2007, AccessIT DC obtained $9,600 of vendor financing (the “Vendor Note”) for
equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note bears
interest at 11% and may be prepaid without penalty.  Interest is due
semi-annually commencing February 2008 and is paid by Cinedigm.  The
balance of the Vendor Note, together with all unpaid interest is due on the
maturity date of August 1, 2016.  As of March 31, 2008 and 2009, the
outstanding balance of the Vendor Note was $9,600.
 
 In August
2007, the Company entered into a securities purchase agreement (the “Purchase
Agreement”) with the purchasers party thereto (the “Purchasers”) pursuant to
which the Company issued 10% Senior Notes (the “2007 Senior Notes”) in the
aggregate principal amount of $55,000 (the “August 2007 Private Placement”). The
term of the 2007 Senior Notes is three years which may be
  F-21
  
 extended
for one 6 month period at the discretion of the Company if certain conditions
are met.  Interest on the 2007 Senior Notes is payable on a quarterly
basis in cash or, at the Company’s option and subject to certain conditions, in
shares of its Class A Common Stock (“Interest Shares”). In addition, each
quarter, the Company issues 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”).  The Company 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 net
proceeds of approximately $53,200 from the August 2007 Private Placement were
used for expansion of digital cinema rollout plans, to pay off the existing
obligations under the $22,000 of One Year Senior Notes, to pay off certain other
outstanding debt obligations, for investment in Systems and for working capital
and other general corporate purposes. The Purchase Agreement also requires the
2007 Senior Notes to be guaranteed by each of the Company’s 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 the obligations of the Company
under the 2007 Senior Notes.  The Company also entered into a
Registration Rights Agreement with the Purchasers pursuant to which the Company
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 December 31, 2007, all shares issued to the holders of
the 2007 Senior Notes were registered for resale (see Note 6).  Under
the 2007 Senior Notes the Company agreed (i) to limit its total indebtedness to
an aggregate of $315,000 until certain conditions were met, which conditions
have been met allowing the Company to incur indebtedness in excess of $315,000
in the aggregate, (ii) not to pay dividends on any capital stock, and (iii) 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 $10,000; provided that no more than $5,000 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).  At the present
time, the Company and its subsidiaries, other than AccessIT DC and its
subsidiaries, are prohibited from paying dividends under the terms of the 2007
Senior Notes.  As of March 31, 2008 and 2009, the outstanding
principal balance of the 2007 Senior Notes was $55,000.
 
 CREDIT
FACILITIES
 
 In August
2006, AccessIT DC entered into an agreement with GECC pursuant to which GECC and
certain other lenders agreed to provide to AccessIT DC a $217,000 Senior Secured
Multi Draw Term Loan (the “GE Credit Facility”). Proceeds from the GE Credit
Facility were used for the purchase and installation of up to 70% of the
aggregate purchase price, including all costs, fees or other expenses associated
with the purchase acquisition, receipt, delivery, construction and installation
of Systems in connection with AccessIT DC’s Phase I Deployment (see Note 7) and
to pay transaction fees and expenses related to the GE Credit Facility, and for
certain other specified purposes. The remaining cost of the Systems was funded
from other sources of capital including contributed equity. Each of the
borrowings by AccessIT DC bears interest, at the option of AccessIT DC and
subject to certain conditions, based on the bank prime loan rate in the United
States or the Eurodollar rate, plus a margin ranging from 2.75% to 4.50%,
depending on, among other things, the type of rate chosen, the amount of equity
contributed into AccessIT DC and the total debt of AccessIT DC. Under the GE
Credit Facility, AccessIT DC must pay interest only through July 31, 2008.
Beginning August 31, 2008, in addition to the interest payments, AccessIT DC
must repay approximately 71.5% of the principal amount of the borrowings over a
five-year period with a balloon payment for the balance of the principal amount,
together with all unpaid interest on such borrowings and any fees incurred by
AccessIT DC pursuant to the GE Credit Facility on the maturity date of August 1,
2013. In addition, AccessIT DC may prepay borrowings under the GE Credit
Facility in whole or in part, after July 31, 2007 and before August 1, 2010,
subject to paying certain prepayment penalties ranging from 3% to 1%, depending
on when the prepayment is made. The GE Credit Facility is required to be
guaranteed by each of AccessIT DC’s existing and future direct and indirect
domestic subsidiaries (the “Guarantors”) and secured by a first priority
perfected security interest on all of the collective assets of AccessIT DC and
the Guarantors, including real estate owned or leased, and all capital stock or
other equity interests in AccessIT DC and its subsidiaries, subject to specified
exceptions. The GE Credit Facility is not guaranteed by the Company or its other
subsidiaries, other than AccessIT DC. During the fiscal years ended March 31,
2008 and 2009, the Company repaid principal of $0 and $15,431, respectively, on
the GE Credit Facility.  As of March 31, 2008 and 2009, the outstanding
principal balance of the GE Credit Facility was $201,279 and $185,848,
respectively, at a weighted average interest rate of 8.6% and 7.1%,
respectively. 
 Under the
GE Credit Facility, as amended, AccessIT DC is required to maintain compliance
with certain financial covenants. Material covenants include a leverage ratio,
and an interest coverage ratio.  In September 2007, AccessIT DC
entered into the third amendment with respect to the GE Credit Facility to (1)
lower the interest reserve from 12 months to 9 months; (2) modify the definition
of total equity ratio to count as capital contributions (x) up to $23,300 of
permitted subordinated indebtedness and (y) up to $4,000 of previously paid and
approved expenses that were incurred during the deployment of Systems; (3)
change the
  F-22
  leverage
ratio covenant; (4) add a new consolidated senior leverage ratio covenant; and
(5) change the consolidated fixed charge coverage ratio
covenant.
 
 In May
2009, AccessIT DC entered into the fourth amendment (the “GE Fourth Amendment”)
with respect to the GE Credit Facility to (1) increase the interest rate from
4.5% to 6% above the Eurodollar Base Rate; (2) set the Eurodollar Base Rate
floor at 2.5%; (3) reduce the required amount to be reserved for the payment of
interest from 9 months of forward cash interest to a fixed $6,900, and permitted
a one-time payment of $2,600 to be made from AccessIT DC to its parent Company,
AccessDM; (4) increase the quarterly maximum consolidated leverage ratio
covenants that AccessIT DC is required to meet on a trailing 12 months basis;
(5) increase the maximum consolidated senior leverage ratio covenants that
AccessIT DC is required to meet on a trailing 12 months basis; (6) reduce the
quarterly minimum consolidated fixed charge coverage ratio covenants that
AccessIT DC is required to meet on a trailing 12 months basis and (7) add a
covenant requiring AccessIT DC to maintain a minimum unrestricted cash balance
of $2,000 at all times.  All of the changes contained in the GE Fourth
Amendment are effective as of May 4, 2009 except for the covenant changes in
(4), (5) and (6) above, which were effective as of March 31, 2009.  In
connection with the GE Fourth Amendment, AccessIT DC paid fees to GE and the
other lenders totaling $1,000.  At March 31, 2009, the Company was in
compliance with all covenants contained in the GE Credit Facility, as
amended.
 
 In April
2008, AccessIT DC executed the Interest Rate Swap, otherwise known as an
“arranged hedge transaction” or "synthetic fixed rate financing" with a
counterparty for a notional amount of approximately 90% of the amounts
outstanding under the GE Credit Facility or an initial amount of $180,000. Under
the Interest Rate Swap, AccessIT DC will effectively pay a fixed rate of 7.3%,
to guard against AccessIT DC’s exposure to increases in the variable interest
rate under the GE Credit Facility. GE Corporate Financial Services arranged the
transaction, which took effect commencing August 1, 2008 as required by the GE
Credit Facility and will remain in effect until August 2010.  As
principal repayments of the GE Credit Facility occur, the notional amount will
decrease by a pro rata amount, such that approximately 90% of the remaining
principal amount will be covered by the Interest Rate Swap at any
time.
 
 Upon any
refinance of the GE Credit Facility or other early termination or at the
maturity date of the Interest Rate Swap, the fair value of the Interest Rate
Swap, whether favorable to the Company or not, would be settled in cash with the
counter party.  As of March 31, 2009, the fair value of the Interest
Rate Swap liability was $4,529.  During the fiscal years ended March
31, 2007, 2008 and 2009, the change in fair value recorded in the consolidated
statements of operations was $0, $0 and $4,529, respectively.
 
 In May
2008, AccessDM entered into a credit facility with NEC Financial Services, LLC
(the “NEC Facility”) to fund the purchase and installation of equipment to
enable the exhibition of 3-D live events in movie theatres as part of the
Company’s CineLiveSMproduct
offering.  The NEC Facility provides for maximum borrowings of up to
approximately $2,000, repayments over a 47 month period, and interest at annual
rates ranging from 8.25-8.44%.  As of March 31, 2009, AccessDM has
borrowed $569 and the equipment purchased therewith is included in property and
equipment.  During the fiscal year ended March 31, 2009, the Company
repaid principal of $68 on the NEC Credit Facility.  As of March 31,
2009, the outstanding principal balance of the NEC Credit Facility was
$501.
 
 In
December 2008, Phase 2 B/AIX, an indirect wholly-owned subsidiary of the
Company, entered into a credit facility (the “Barco Related Facility”) with a
bank to fund the purchase of Systems from Barco, to be installed in movie
theatres as part of the Company’s Phase II Deployment.  The Barco
Related Facility provides for borrowings of up to a maximum of $8,900 through
December 31, 2009 (the “Draw Down Period”) and requires interest-only payments
at 7.3% per annum during the Draw Down Period.  For any funds drawn,
the principal is to be repaid in twenty-eight equal quarterly installments
commencing in March 2010 (the “Repayment Period”) at an interest rate of 8.5%
per annum during the Repayment Period.  The Barco Related
Facility may be prepaid at any time without penalty and is not guaranteed
by the Company or its other subsidiaries.  As of March 31, 2009, no
funds were drawn down on the Barco Related Facility.
 
 At March
31, 2009, the Company was in compliance with all of its debt
covenants.
 
 The
aggregate principal repayments on the Company’s notes payable are scheduled to
be as follows:
  F-23
  
 For
      the fiscal years ending March 31,2010
                        
                        $
                        25,2482011
                        
                        
                        82,8612012
                        
                        
                        30,8372013
                        
                        
                        33,7202014
                        
                        
                        68,939Thereafter
                        
                        
                        9,600$
                        251,205
 
 6.
                STOCKHOLDERS’
      EQUITY
 
 CAPITAL
STOCK
 
 COMMON
STOCK
 
 In August
2004, the Company’s Board authorized the repurchase of up to 100,000 shares of
Class A Common Stock, which may be purchased at prevailing prices from
time-to-time in the open market depending on market conditions and other
factors.    Under the terms of the 2007 Senior Notes (see
Note 5), the Company is currently precluded from purchasing shares of its Class
A Common Stock.  As of March 31, 2009, the Company has repurchased
51,440 shares of Class A Common Stock for an aggregate purchase price of $172,
including fees, which have been recorded as treasury stock.
 
 In April
2007, in connection with the acquisition of USM and the achievement of certain
digital cinema deployment milestones, the Company issued 67,906 shares of the
Company’s Class A Common Stock, with a value of $512, to the USM Stockholders as
additional purchase price.  The Company agreed to register the resale
of these shares of Class A Common Stock with the SEC. The Company filed a
registration statement on Form S-3 on April 27, 2007, which was declared
effective by the SEC on May 18, 2007.
 
 In June
2007, the Company issued 74,947 and 72,104 shares of Class A Common Stock as
Additional Interest and Interest Shares, respectively, pursuant to the One Year
Senior Notes (see Note 5). The Company agreed to register the resale of these
shares of Class A Common Stock with the SEC. The Company filed a registration
statement on Form S-3 on July 27, 2007, which was declared effective by the SEC
on August 9, 2007.
 
 In July
2007, in connection with the acquisition of USM and the achievement of certain
digital cinema deployment milestones, the Company issued an additional 77,955
shares of the Company’s Class A Common Stock, with a value of $488, to the USM
Stockholders as additional purchase price.  The Company agreed to
register the resale of these shares of Class A Common Stock with the SEC. The
Company filed a registration statement on Form S-3 on July 27, 2007, which was
declared effective by the SEC on August 9, 2007.
 
 In August
2007, the Company issued 105,715 shares of Class A Common Stock as Interest
Shares pursuant to the One Year Senior Notes (see Note 5) for interest due up
through the date refinanced.  The Company issued an additional 104,971
shares of Class A Common Stock as an inducement for certain holders of the One
Year Senior Notes to invest in the August 2007 Private Placement and $686 was
recorded as debt refinancing expense for the value of such
shares.  The Company agreed to register the resale of all 210,686
shares of Class A Common Stock with the SEC. The Company filed a registration
statement on Form S-3 on September 26, 2007, which was declared effective by the
SEC on November 2, 2007.
 
 Pursuant
to the 2007 Senior Notes, in August 2007 the Company issued 715,000 shares of
Class A Common Stock (the “Advance Additional Interest Shares”) covering the
first 12 months of Additional Interest (see Note 5).  The Company
registered the resale of these shares of Class A Common Stock and also
registered the resale of an additional 1,249,875 shares of Class A Common Stock
for future Interest Shares and Additional Interest.  The Company filed
a registration statement on Form S-3 on September 26, 2007, which was declared
effective by the SEC on November 2, 2007.  The Company is recording
the value of the Advance Additional Interest Shares of $4,676 to interest
expense over the 36 month term of the 2007 Senior Notes.  For the
fiscal years ended March 31, 2007, 2008 and 2009, the Company recorded $0, $576
and $1,603, respectively, of interest expense in connection with the Advance
Additional Interest Shares.
 
 Commencing
with the quarter ended December 31, 2008 and through the maturity of the 2007
Senior Notes in the quarter ended September 30, 2010, the Company is obligated
to issue a minimum of 132,000 shares or a maximum of 220,000 shares of Class A
Common Stock per quarter as Additional Interest (the “Additional Interest
Shares”).  The Company estimated the initial value of the Additional
Interest Shares to be $5,244 and is amortizing that amount over the 36 month
term of the 2007 Senior Notes.  For
  F-24
  the
fiscal years ended March 31, 2007, 2008 and 2009, the Company recorded $0,
$1,020 and $1,582, respectively, to interest expense in connection with the
Additional Interest Shares.  In December 2008 and March 2009, the
Company issued 220,000 shares of Class A Common Stock, each period, as
Additional Interest Shares with a value of $81 and $136,
respectively.
 
 In
December 2007, March 2008 and June 2008, the Company issued 345,944, 548,572 and
635,847 shares of Class A Common Stock, respectively, as Interest Shares
pursuant to the 2007 Senior Notes (see Note 5), which were part of the 1,249,875
shares of Class A Common Stock previously registered for resale on the
registration statement on Form S-3 filed on September 26, 2007, which was
declared effective by the SEC on November 2, 2007 and part of an additional
500,000 shares of Class A Common Stock the resale of which was registered on the
registration statement on Form S-3, which was filed on May 6, 2008, and was
declared effective by the SEC on June 30, 2008.   The resale of
an additional 750,000 shares of Class A Common Stock issued as future Interest
Shares and Additional Interest Shares were registered on the registration
statement on Form S-3, which was filed on September 12, 2008, and was declared
effective by the SEC on April 22, 2009.  For the fiscal years ended
March 31, 2007, 2008 and 2009, the Company recorded $0, $3,634 and $1,342,
respectively, as non-cash interest expense in connection with the Interest
Shares.
 
 In April
2008, in connection with the acquisition of Managed Services in January 2004,
the Company issued 15,219 shares of unregistered Class A Common Stock as
additional purchase price based on subsequent performance of the business
acquired.  The value of such shares was accrued for in the fiscal year
ended March 31, 2008.  No additional purchase price will be payable in
connection with the acquisition of Managed Services.
 
 In April
2008, in connection with the acquisition of the Access Digital Server Assets by
the Company in January 2006, the Company issued 30,000 shares of unregistered
Class A Common Stock as additional purchase price based on subsequent
performance.  The value of such shares was accrued for in the fiscal
year ended March 31, 2008.  No additional purchase price will be
payable in connection with the acquisition of the Access Digital Server
Assets.
 
 In
connection with the acquisition of CEG in January 2007, CEG entered into a
services agreement (the “SD Services Agreement”) with SD Entertainment, Inc.
(“SDE”) to provide certain services, such as the provision of shared office
space and certain shared administrative personnel.  The SD Services
Agreement is on a month-to-month term and requires the Company to pay
approximately $18 per month, of which 70% may be paid periodically in the form
of Cinedigm Class A Common Stock, at the Company’s option.  In June
2008, September 2008 and January 2009, the Company issued 24,579, 22,010 and
70,432 shares of unregistered Class A Common Stock, respectively, with a value
of $60, $33 and $49, respectively, to SDE as partial payment for such services
and resources.
 
 In
September 2008, the Company amended its Fourth Amended and Restated Certificate
of Incorporation to designate as Class A Common Stock the 25,000,000 shares of
undesignated common stock.
 
 In
September 2008 and January 2009, the Company issued 12,824 and 19,921 shares of
Class A Common Stock, respectively, for restricted stock awards that vested
during the fiscal year ended March 31, 2009.
 
 In
January 2009, the Company issued 129,871 shares of Class A Common Stock as a
placement agent fee related to the issuance of preferred stock with a value of
$100.
 
 PREFERRED
STOCK
 
 In
February 2009, the Company issued eight shares of Series A 10% Non-Voting
Cumulative Preferred Stock (“Preferred Stock”) to two
investors.  There is no public trading market for our Preferred Stock.
The Preferred Stock has the designations, preferences and rights set forth in
the certificate of designations filed with the Secretary of State for the State
of Delaware on February 3, 2009 (the “Certificate of Designations”). Pursuant to
the Certificate of Designations, holders of our Preferred Stock shall have the
following rights among others: (1) the holders are entitled to receive dividends
at the rate of 10% of the Preferred Stock original issue price per annum on each
outstanding share of Preferred Stock (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares). Such dividends shall begin to accrue commencing upon the first date
such share is issued and becomes outstanding and shall be payable in cash or, at
the Company’s option, by converting the cash amount of such dividends into Class
A Common Stock, and will not be paid until the Company is permitted to do so
under the terms of the 2007 Senior Notes, (2) the holders will not have the
right to vote on matters brought before the stockholders of the Corporation, (3)
upon any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, before any distribution or payment shall be made to
the holders of any Junior Stock (as defined in the Certificate of Designations),
subject to the rights of any series of preferred stock that may from
time-to-time come into existence and which is expressly senior to the rights of
the Preferred Stock, the holders of Preferred Stock shall be entitled to be paid
in cash out of the assets of the Company an amount per share of Preferred Stock
equal to 100% of the Preferred Stock original issue price (as adjusted for any
  F-25
  stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares), plus accrued but unpaid dividends (the “Liquidation Preference”),
for each share of Preferred Stock held by each such holder, (4) the holders will
have no rights with respect to the conversion of the Preferred Stock into shares
of Class A Common Stock or any other security of the Company and (5) the
Preferred Stock may be redeemed by the Company at any time after the second
anniversary of the original issue date upon 30 days advance written notice to
the holder for a price equal to 110% of the Liquidation Preference, payable in
cash or, at the Company’s option, so long as the closing price of the Class A
Common Stock is $2.18 or higher (as shall be adjusted for stock splits) for at
least 90 consecutive trading days ending on the trading day into Class
A Common Stock at the market price, as measured on the original issue date for
the initial issuance of shares of Series A Preferred Stock.
 
 In
connection with the issuance of Preferred Stock, the Company issued warrants to
purchase 700,000 shares of Class A Common Stock, to each holder of Preferred
Stock, at an exercise price of $0.63 per share (the “Preferred Warrants”). The
Preferred Warrants are exercisable beginning on March 12, 2009 for a period of
five years thereafter. The Preferred Warrants are callable by the Company,
provided that the closing price of the Company’s Class A Common Stock is $1.26
per share, 200% of the applicable exercise price, for twenty consecutive trading
days.  The Company allocated the proceeds of the Preferred Stock over
the fair value of the Preferred Warrants of $537, with the remaining amount
allocated to the Preferred Stock.
 
 CINEDIGM’S
EQUITY INCENTIVE PLAN
 
 Stock
Options
 
 AccessIT’s
stock option plan (“the Plan”) currently provides for the issuance of up to
3,700,000 options to purchase shares of Class A Common Stock to employees,
outside directors and consultants. On May 9, 2008, the Board approved an
amendment to the Plan, which was not required to be approved by the
shareholders, to allow for the grant of restricted stock units in addition to
the other equity-based awards available under the Plan.  On May 9,
2008, the Company’s Board approved the expansion of the Plan from 2,200,000 to
3,700,000 options, which was approved by the shareholders at the Company’s 2008
Annual Meeting of Stockholders held on September 4, 2008.
 
 Awards
under the Plan may be in any of the following forms (or a combination thereof)
(i) stock option awards; (ii) stock appreciation rights; (iii) stock or
restricted stock or restricted stock units; or (iv) performance
awards.  The Plan provides for the granting of incentive stock options
(“ISOs”) with exercise prices not less than the fair market value of the
Company’s Class A Common Stock on the date of grant. ISOs granted to
shareholders of more than 10% of the total combined voting power of the Company
must have exercise prices of at least 110% of the fair market value of the
Company’s Class A Common Stock on the date of grant. ISOs and non-statutory
stock options granted under the Plan are subject to vesting provisions, and
exercise is subject to the continuous service of the participant. The exercise
prices and vesting periods (if any) for non-statutory options are set at the
discretion of the Company’s Board. Upon a change of control of the Company, all
stock options (incentive and non-statutory) that have not previously vested will
vest immediately and become fully exercisable. In connection with the grants of
stock options under the Plan, the Company and the participants have executed
stock option agreements setting forth the terms of the grants.
 
 During
the fiscal year ended March 31, 2009, under the Plan, the Company granted
325,503 stock options to its employees, at an exercise prices ranging from $3.25
to $5.49 per share.
  The
following table summarizes the activity of the Plan related to shares issuable
pursuant to outstanding options:
 
 Shares
      Under Option
                    
                    
                    Weighted
      Average Exercise Price Per ShareBalance
      at March 31, 2007
                    1,596,497
                    
                    
                    $
                    7.90Granted
                    694,197
                    (1)
                    
                    
                    4.18Exercised
                    (6,500
                    )
                    
                    
                    5.32Cancelled
                    (207,625
                    )
                    
                    
                    7.71Balance
      at March 31, 2008
                    2,076,569
                    (2)
                    
                    $
                    6.68Granted
                    325,503
                    
                    
                    
                    3.28Exercised
                    —
                    
                    
                    
                    —Cancelled
                    (88,450
                    )
                    
                    
                    9.16Balance
      at March 31, 2009
                    2,313,622
                    
                    
                    $
                    6.11
  F-26
  (1)
              The
      issuance of an additional 320,003 stock options was subject to shareholder
      approval, which was obtained at the Company’s 2008 Annual Meeting of
      Stockholders held on September 4,
2008.
 (2)
              As
      of March 31, 2008, there were no shares available for issuance under the
      Plan, due to the number of options and restricted stock then outstanding
      along with historical option exercises.  An expansion of the
      number of shares issuable under the Plan was obtained at the Company’s
      2008 Annual Meeting of Stockholders held on September 4,
    2008.
 
 An
analysis of all options outstanding under the Plan as of March 31, 2009 is
presented below:
 
 Range
      of Prices
                
                Options
      Outstanding
                
                Weighted
                  Average
                  Remaining
                  Life
      in Years
                
                Weighted
                  Average
                  Exercise
                  Price
                
                Options
                  Exercisable
                
                Weighted
                  Average
                  Exercise
                  Price
      of
                  Options
                  Exercisable
                
                
                Aggregate
      Intrinsic Value$2.50
      - $4.99
                
                
                951,750
                
                
                4.31
                
                $
                3.28
                
                
                195,050
                
                $
                3.38
                
                $
                —$5.00
      - $6.99
                
                
                522,500
                
                
                6.13
                
                
                5.32
                
                
                396,540
                
                
                5.31
                
                
                —$7.00
      - $9.99
                
                
                317,372
                
                
                4.13
                
                
                7.82
                
                
                267,902
                
                
                7.79
                
                
                —$10.00
      - $13.52
                
                
                522,000
                
                
                3.70
                
                
                11.02
                
                
                516,390
                
                
                11.01
                
                
                —2,313,622
                
                
                4.56
                
                $
                6.11
                
                
                1,375,882
                
                $
                7.66
                
                $
                —
 
 For the
fiscal years ended March31, 2008 and 2009, the Company recorded $404 and $589,
respectively, of stock-based compensation expense relating to
options.  As of March 31, 2009, unamortized stock-based compensation
relating to options outstanding totaled $1,019, which will be expensed as
follows:
 
 For
      the fiscal years ending March 31,
                    
                    Stock-based
      Compensation Expense
                    
                    
                    Weighted
      Average Fair Value Per Share2010
                    
                    $
                    591
                    
                    
                    $
                    1.872011
                    
                    
                    428
                    
                    
                    
                    1.572012
                    
                    
                    —
                    
                    
                    
                    —2013
                    
                    
                    —
                    
                    
                    
                    —2014
                    
                    
                    —
                    
                    
                    
                    —Thereafter
                    
                    
                    —
                    
                    
                    
                    —$
                    1,019
                    
                    
                    $
                    1.72
 
 The
outstanding options at March 31, 2009 will expire as follows:
 
 For
      the fiscal years ending March 31,
                        Number
      of Shares
                        
                        Weighted
      Average Exercise Price Per Share
                        
                        Exercise
      Price2010
                        —
                        
                        $
                        —
                        
                        $—2011
                        80,372
                        
                        
                        9.00
                        
                        $7.50
      - $12.502012
                        253,753
                        
                        
                        8.31
                        
                        $5.00
      - $10.892013
                        268,247
                        
                        
                        8.94
                        
                        $2.50
      - $10.892014
                        930,000
                        
                        
                        3.59
                        
                        $3.25
      - $5.00Thereafter
                        781,250
                        
                        
                        7.13
                        
                        $3.19
      - $13.522,313,622
                        
                        $
                        6.11
                        
                        $2.50
      -
$13.52
 
 Restricted
Stock Awards
 
 During
the fiscal year ended March 31, 2009, under the Plan, the Company granted
723,700 shares of restricted stock units to selected employees, of which 338,700
will vest equally over a three year period and 385,000 will vest at the end of
the third year
  F-27
  or sooner
depending on the Company’s stock price.  The market price on the grant
date for all of these awards was $1.66 per share.
 
 The
following table summarizes the activity of the Plan related to restricted stock
awards:
 
 Restricted
      Stock
                      Awards
                    
                    
                    Weighted
      Average Market Price Per ShareBalance
      at March 31, 2007
                    —
                    
                    
                    $
                    —Granted
                    103,047
                    
                    
                    
                    3.79Forfeitures
                    (433
                    )
                    
                    
                    5.56Balance
      at March 31, 2008
                    102,614
                    
                    
                    $
                    3.78Granted
                    723,700
                    
                    
                    
                    1.66Vested
                    (32,745
                    )
                    
                    
                    3.70Forfeitures
                    (20,401
                    )
                    
                    
                    2.56Balance
      at March 31, 2009
                    773,168
                    
                    
                    $
                    1.83
 
 For the
fiscal years ended March31, 2008 and 2009, the Company recorded $49 and $356,
respectively, of stock-based compensation expense relating to restricted stock
awards.  As of March 31, 2009, unamortized stock-based compensation
relating to restricted stock awards outstanding totaled $1,560, which will be
expensed as follows:
 
 For
      the fiscal years ending March 31,
                    
                    Stock-based
      Compensation Expense
                    
                    
                    Weighted
      Average Market Price Per Share2010
                    
                    $
                    673
                    
                    
                    $
                    1.632011
                    
                    
                    639
                    
                    
                    
                    1.632012
                    
                    
                    223
                    
                    
                    
                    1.442013
                    
                    
                    25
                    
                    
                    
                    1.062014
                    
                    
                    —
                    
                    
                    
                    —Thereafter
                    
                    
                    —
                    
                    
                    
                    —$
                    1,560
                    
                    
                    $
                    1.52
 
 ACCESSDM
STOCK OPTION PLAN
 
 In May
2003, AccessDM adopted the 2003 Stock Option Plan (the “AccessDM Plan”) under
which ISOs and nonstatutory stock options may be granted to employees, outside
directors, and consultants. The purpose of the AccessDM Plan is to enable
AccessDM to attract, retain and motivate employees, directors, advisors and
consultants. AccessDM reserved a total of 2,000,000 shares of AccessDM’s common
stock for issuance upon the exercise of stock options granted in accordance with
the AccessDM Plan. Options granted under the AccessDM Plan expire ten years
following the date of grant (five years for shareholders who own greater
than 10% of the outstanding stock) and are subject to limitations on transfer.
Options granted under the AccessDM Plan vest generally over three-year periods.
The AccessDM Plan is administered by AccessDM’s Board. 
 The
AccessDM Plan provides for the granting of ISOs with exercise prices not less
than the fair market value of AccessDM’s common stock on the date of grant. ISOs
granted to shareholders of more than 10% of the total combined voting power of
AccessDM must have exercise prices of at least 110% of the fair market value of
AccessDM common stock on the date of grant. ISOs and non-statutory stock options
granted under the AccessDM Plan are subject to vesting provisions, and exercise
is subject to the continuous service of the participants. The exercise prices
and vesting periods (if any) for non-statutory options are set at the discretion
of AccessDM’s Board. Upon a change of control of AccessDM, all stock options
(incentive and non-statutory) that have not previously vested will vest
immediately and become fully exercisable. In connection with the grants of stock
options under the AccessDM Plan, AccessDM and the participants have executed
stock option agreements setting forth the terms of the grants.
 
 As of
March 31, 2009, the AccessDM Plan currently provides for the issuance of up to
2,000,000 options to purchase shares of AccessDM common stock to
employees.  During the fiscal year ended March 31, 2009, AccessDM did
not issue any options to purchase shares of AccessDM common stock.
 
 The
following table summarizes the activity of the AccessDM Plan related to shares
issuable pursuant to outstanding options:
  F-28
  
 Shares
      Under Option
                                
                                
                                
                                Weighted
      Average Exercise Price Per ShareBalance
      at March 31, 2007
                                
                                
                                1,055,000
                                (2
                                )
                                
                                $
                                0.95
                                (1
                                )Granted
                                
                                
                                —
                                
                                
                                
                                
                                —Exercised
                                
                                
                                —
                                
                                
                                
                                
                                —Cancelled
                                
                                
                                —
                                
                                
                                
                                
                                —Balance
      at March 31, 2008
                                
                                
                                1,055,000
                                (2
                                )
                                
                                $
                                0.95
                                (1
                                )Granted
                                
                                
                                —
                                
                                
                                
                                
                                —Exercised
                                
                                
                                —
                                
                                
                                
                                
                                —Cancelled
                                
                                
                                —
                                
                                
                                
                                
                                —Balance
      at March 31, 2009
                                
                                
                                1,055,000
                                (2
                                )
                                
                                $
                                0.95
                                (1
                                )
 
 (1)
              Since
      there is no public trading market for AccessDM’s common stock, the fair
      market value of AccessDM’s common stock on the date of grant was
      determined by an appraisal of such
options.
 (2)
              As
      of March 31, 2009, there were 19,213,758 shares of AccessDM’s common stock
      issued and outstanding.
 
 An
analysis of all options outstanding under the AccessDM Plan as of March 31, 2009
is presented below:
 
 Range
      of Prices
                          
                          Options
      Outstanding
                          
                          Weighted
                            Average
                            Remaining
                            Life
      in Years
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price
                          
                          Options
                            Exercisable
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price
      of
                            Options
                            Exercisable$0.20
      - $0.25
                          
                          1,005,000
                          
                          5.30
                          
                          $
                          0.21
                          
                          1,005,000
                          
                          $
                          0.21$15.88
                          
                          50,000
                          
                          7.22
                          
                          
                          15.88
                          
                          50,000
                          
                          
                          15.881,055,000
                          
                          5.39
                          
                          $
                          0.95
                          
                          1,055,000
                          
                          $
                          0.95
 
 All the
options outstanding under the AccessDM Plan vested in the fiscal year ended
March 31, 2006, and as a result, no stock-based compensation expense was
recorded for the fiscal years ended March 31, 2008 and 2009.
  WARRANTS
 
 Warrants
outstanding consisted of the following:
 
 As
      of March 31,Outstanding
      Warrant (as defined below)
                    2008
                    
                    2009July
      2005 Private Placement Warrants
                    467,275
                    
                    467,275New
      Warrants
                    760,196
                    
                    760,196Preferred
      Warrants
                    —
                    
                    1,400,0001,227,471
                    
                    2,627,471
 
 In July
2005, in connection with the private placement in July 2005, the Company issued
warrants to purchase 477,275 shares of Class A Common Stock at an exercise price
of $11.00 per share (the “July 2005 Private Placement Warrants”). The July 2005
Private Placement Warrants are exercisable beginning on February 18, 2006 for a
period of five years thereafter. The July 2005 Private Placement Warrants are
callable by the Company, provided that the closing price of the Company’s Class
A Common Stock is $22.00 per share, 200% of the applicable exercise price, for
twenty consecutive trading days. The Company agreed to register the resale of
the shares of the Class A Common Stock underlying the July 2005 Private
Placement Warrants with the SEC.  The Company filed a Form S-3 on
August 18, 2005, which was declared effective by the SEC on August 31, 2005.
During the fiscal year ended March 31, 2007, 10,000 of the July 2005 Private
Placement Warrants were exercised for $110 in cash, and the Company issued
10,000 shares of Class A Common Stock. As of March 31, 2009, 467,275 July 2005
Private Placements Warrants were outstanding.
 
 In August
2005, in connection with the a conversion agreement,the Company issued to the
investors the warrants to purchase 760,196 shares of Class A Common Stock at an
exercise price of $11.39 per share (the “New Warrants”). The Company was
required to register the resale of the shares of Class A Common Stock underlying
the New Warrants with the SEC. The Company
 
  F-29
  filed a
Form S-3 on November 16, 2005, which was declared effective by the SEC on
December 2, 2005.  As of March 31, 2009, 760,196 New Warrants were
outstanding.
 
 In
February 2009, in connection with the issuance of Preferred Stock, the Company
issued warrants to purchase 700,000 shares of Class A Common Stock, to each
holder of Preferred Stock, at an exercise price of $0.63 per share (the
“Preferred Warrants”). The Preferred Warrants are exercisable beginning on March
12, 2009 for a period of five years thereafter. The Preferred Warrants are
callable by the Company, provided that the closing price of the Company’s Class
A Common Stock is $1.26 per share, 200% of the applicable exercise price, for
twenty consecutive trading days. The Company allocated the proceeds of the
Preferred Stock over the fair value of the Preferred Warrants of $537, with the
remaining amount allocated to the Preferred Stock.
 
 7.
                COMMITMENTS
      AND CONTINGENCIES
 
 In
December 2007, AccessIT DC’s Phase I Deployment was completed and as of March
31, 2008, there were no significant Phase I purchase obligations not included in
the Company’s consolidated financial statements.
 
 In
October 2008, in connection with the Phase II Deployment, Phase 2 DC entered
into digital cinema deployment agreements with six motion picture studios for
the distribution of digital movie releases to motion picture exhibitors equipped
with Systems, and providing for payment of VPFs to Phase 2 DC.  As of
March 31, 2009, Phase 2 DC also entered into master license agreements with
three exhibitors covering a total of 493 screens, whereby the exhibitors agreed
to the placement of Systems as part of the Phase II Deployment.  As of
March 31, 2009 the Company has installed 54 Systems.  Installation of
additional Systems in the Phase II Deployment is still contingent upon the
completion of appropriate vendor supply agreements and financing for the
purchase of Systems.
 
 In
November 2008, in connection with the Phase II Deployment, Phase 2 DC entered
into a supply agreement with Christie, for the purchase of up to 10,000 Systems
at agreed upon pricing, as part of the Phase II Deployment.  As of
March 31, 2009, the Company has purchased 12 Systems under this agreement for
$898, which is included in accounts payable and accrued expenses.
 
 In
November 2008, in connection with the Phase II Deployment, Phase 2 DC entered
into a supply agreement with Barco, for the purchase of up to 5,000 Systems at
agreed upon pricing, as part of the Phase II Deployment.  As of March
31, 2009, the Company has purchased 42 Systems under this agreement for $3,075,
which is included in accounts payable and accrued expenses.
  LITIGATION
 
 The
Company’s subsidiary, ADM Cinema, was named as a defendant inan action filed on May
19, 2008 in the Supreme Court of the State of New York, County of Kings by
Pavilion on the Park, LLC (“Landlord”).  Landlord is the owner of the
premises located at 188 Prospect Park West, Brooklyn, New York, known as the
Pavilion Theatre.  Pursuant to the relevant lease, ADM Cinema leases
the Pavilion Theatre from Landlord and operates it as a movie
theatre.
 
 In the
complaint, Landlord alleges that ADM Cinema violated its obligations under
Article 12 of the lease in that ADM Cinema failed to comply with an Order of the
Fire Department of the City of New York issued on September 24, 2007 calling for
the installation of a sprinkler system in the Pavilion Theatre and that such
violation constitutes an event of default under the lease.  Landlord
seeks to terminate the lease and evict ADM Cinema from the premises and to
recover its attorneys’ fees and damages for ADM Cinema’s alleged “holding over”
by remaining on the premises. The Company believes that they have reached
agreement in principle with Landlord to settle this matter, but in the event
that no settlement is reached, the Company believes that they have meritorious
defenses against these claims and the Company intends to defend their position
vigorously. However, if the Company does not prevail, any significant loss
resulting in eviction may have a material effect on the Company’s business,
results of operations and cash flows.
 
 LEASES
 
 As of
March 31, 2009, the Company has outstanding capital lease obligations of $6,007.
The Company’s outstanding capital lease obligations are in the following
principal amounts:
   F-30
  
 As
      of March 31,Entity
                
                Purpose
      of capital lease
                
                2008
                
                2009The
      Pavilion Theatre
                
                For
      building, land and improvements
                
                $5,903
                
                $5,814Managed
      Services
                
                Computer
      equipment
                
                —
                
                125USM
                
                Computer
      equipment
                
                —
                
                68$5,903
                
                $6,007
 
 As of
March 31, 2009, minimum future capital lease payments (including interest)
totaled $15,494, are due as follows:
 
 For
      the fiscal years ending March 31,2010
                    
                    $
                    1,2172011
                    
                    
                    1,2172012
                    
                    
                    1,1762013
                    
                    
                    1,1322014
                    
                    
                    1,152Thereafter
                    
                    
                    9,60015,494Less:
      amount representing interest
                    
                    
                    (9,487
                    )Outstanding
      capital lease obligation
                    
                    $
                    6,007
 
 Assets
recorded under capitalized lease agreements included in property and equipment
consists of the following:
 
 As
      of March 31,2008
                    
                    
                    2009Land
                    
                    $
                    1,500
                    
                    
                    $
                    1,500Building
                    
                    
                    4,600
                    
                    
                    
                    4,600Computer
      equipment
                    
                    
                    —
                    
                    
                    
                    2256,100
                    
                    
                    
                    6,325Less:
      accumulated depreciation
                    
                    
                    (1,136
                    )
                    
                    
                    (1,532
                    )Net
      assets under capital lease
                    
                    $
                    4,964
                    
                    
                    $
                    4,793
 
 Depreciation
expense on assets under capitalized lease agreements was $359 and $396 for the
fiscal years ended March 31, 2008 and 2009, respectively.
  The
Company’s businesses operate from leased properties under non-cancelable
operating lease agreements.  As of March 31, 2009, obligations under
non-cancelable operating leases totaled $8,999, including $6,245 for the IDCs
currently being operated by FiberMedia, are due as follows:
 
 For
      the fiscal years ending March 31,2010
                      
                      $
                      2,7452011
                      
                      
                      1,8222012
                      
                      
                      1,2942013
                      
                      
                      1,0172014
                      
                      
                      840Thereafter
                      
                      
                      1,281$
                      8,999
 
 
 Total
rent expense was $3,174 and $1,253, net of sub-lease income, for the fiscal
years ended March 31, 2008 and 2009, respectively.  The rent expense
for fiscal year ended March 31, 2009 excludes the rent expense for the IDCs, as
100% of the rent expense was reimbursed by FiberMedia.
 
  F-31
  
 8.
                SUPPLEMENTAL
      CASH FLOW DISCLOSURE


For
      the fiscal years ended
                                          March
      31,2008
                                        
                                        
                                        2009Interest
      paid
                                        
                                        $
                                        19,339
                                        
                                        
                                        $
                                        20,751Equipment
      in accounts payable and accrued expenses purchased from
      Christie
                                        
                                        $
                                        15,932
                                        
                                        
                                        $
                                        1,191Deposits
      applied to equipment purchased from Christie
                                        
                                        $
                                        24,763
                                        
                                        
                                        $
                                        —Deposits
      applied to equipment in accounts payable and accrued expenses purchased
      from Christie
                                        
                                        $
                                        3,802
                                        
                                        
                                        $
                                        —Issuance
      of Class A Common Stock as additional purchase price for Managed
      Services
                                        
                                        $
                                        29
                                        
                                        
                                        $
                                        82Issuance
      of Class A Common Stock as additional purchase price for
      USM
                                        
                                        $
                                        1,000
                                        
                                        
                                        $
                                        —Repayment
      of One Year Senior Notes
                                        
                                        $
                                        18,000
                                        
                                        
                                        $
                                        —Note
      payable issued for customer contract
                                        
                                        $
                                        75
                                        
                                        
                                        $
                                        —Additional
      purchase price in accounts payable and accrued expenses for Access Digital
      Server Assets
                                        
                                        $
                                        129
                                        
                                        
                                        $
                                        —Legal
      fees from the holders of the 2007 Senior Notes included in debt issuance
      costs
                                        
                                        $
                                        109
                                        
                                        
                                        $
                                        —Legal
      fees from the holders of the Preferred Stock included
      in stock issuance costs
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        50Issuance
      of Class A Common Stock as additional purchase price for Access
      Digital Server Assets
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        129Issuance
      of Class A Common Stock for professional services
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        242Assets
      acquired under capital leases
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        225Equipment
      in accounts payable and accrued expenses purchased from
    Barco
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        3,075Capitalized
      software associated with customized software development
      contract
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        400Accretion
      of preferred stock discount
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        13Accrued
      dividends on preferred stock
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        50




9.    SEGMENT
INFORMATION





Segment
information has been prepared in accordance with SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information.” The Company is
comprised of three reportable segments: Media Services, Content &
Entertainment and Other. The segments were determined based on the products and
services provided by each segment and how management reviews and makes decisions
regarding segment operations. Accounting policies of the segments are the same
as those described in Note 2. Performance of the segments is evaluated on
operating income before interest, taxes, depreciation and
amortization.  Future changes to this organization structure may
result in changes to the reportable segments disclosed.




The Media
Services segment consists of the following:
 
 Operations
      of:
              
              Products
      and services provided:AccessIT DC
      and Phase 2 DC
              
              Financing
      vehicles and administrators for the Company’s 3,724 Systems installed
      nationwide in AccessIT DC’s Phase I Deployment and our second digital
      cinema deployment, through Phase 2 DC (our “Phase II Deployment”) to
      theatrical exhibitors.
                Collects
      VPFs from motion picture studios and distributors and ACFs from
      alternative content providers and movie exhibitors and theatrical
      exhibitors.AccessIT
      SW
              
              Develops
      and licenses software to the theatrical distribution and exhibition
      industries, provides ASP Service, and provides software enhancements and
      consulting services.DMS
              
              Distributes
      digital content to movie theatres and other venues having digital
      projection equipment and provides satellite-based broadband video, data
      and Internet transmission, encryption management services, video network
      origination and management services and a virtual booking center to
      outsource the booking and scheduling of satellite and fiber networks and
      provides forensic watermark detection services for motion picture studios
      and forensic recovery services for content
  owners.


F-32










Managed
      Services
              
              Provides
      information technology consulting services and managed network monitoring
      services through its global network command
  center.





The
Content & Entertainment segment consists of the following:





Operations
      of:
            
            Products
      and services provided:Pavilion
      Theatre
            
            A
      nine-screen digital movie theatre and showcase to demonstrate the
      Company’s integrated digital cinema solutions.USM
            
            Provides
      cinema advertising services and entertainment.CEG
            
            Acquires,
      distributes and provides the marketing for programs of alternative content
      to movie exhibitors.





The Other
segment consists of the following:





Operations
      of:
            
            Products
      and services provided:Access
      Digital Server Assets
            
            Provides
      hosting services and provides network access for other web hosting
      services.





Since May
1, 2007, the Company’s IDCs have been operated by FiberMedia, consisting of
unrelated third parties, pursuant to a master collocation
agreement.  Although the Company is still the lessee of the IDCs,
substantially all of the revenues and expenses were being realized by FiberMedia
and not the Company and since May 1, 2008, 100% of the revenues and expenses are
being realized by FiberMedia.





Information
related to the segments of the Company and its subsidiaries is detailed
below:





As
      of March 31, 2008Media
      Services
                
                
                Content
      & Entertainment
                
                
                Other
                
                
                Corporate
                
                
                ConsolidatedTotal
      intangible assets, net
                
                $
                666
                
                
                $
                12,924
                
                
                $
                —
                
                
                $
                2
                
                
                $
                13,592Total
      goodwill
                
                $
                4,529
                
                
                $
                9,856
                
                
                $
                164
                
                
                $
                —
                
                
                $
                14,549Total
      assets
                
                $
                315,588
                
                
                $
                39,755
                
                
                $
                1,136
                
                
                $
                17,197
                
                
                $
                373,676




As
      of March 31, 2009Media
      Services
                                                                                
                                                                                
                                                                                Content
      & Entertainment
                                                                                
                                                                                
                                                                                Other
                                                                                
                                                                                
                                                                                Corporate
                                                                                
                                                                                
                                                                                ConsolidatedTotal
      intangible assets, net
                                                                                
                                                                                $
                                                                                697
                                                                                
                                                                                
                                                                                $
                                                                                10,010
                                                                                
                                                                                
                                                                                $
                                                                                —
                                                                                
                                                                                
                                                                                $
                                                                                —
                                                                                
                                                                                
                                                                                $
                                                                                10,707Total
      goodwill
                                                                                
                                                                                $
                                                                                4,529
                                                                                
                                                                                
                                                                                $
                                                                                3,331
                                                                                
                                                                                
                                                                                $
                                                                                164
                                                                                
                                                                                
                                                                                $
                                                                                —
                                                                                
                                                                                
                                                                                $
                                                                                8,024Total
      assets
                                                                                
                                                                                $
                                                                                276,399
                                                                                
                                                                                
                                                                                $
                                                                                29,379
                                                                                
                                                                                
                                                                                $
                                                                                360
                                                                                
                                                                                
                                                                                $
                                                                                16,259
                                                                                
                                                                                
                                                                                $
                                                                                322,397
 
 
 Capital
      Expenditures
                                                  
                                                  Media
      Services
                                                  
                                                  
                                                  Content
      & Entertainment
                                                  
                                                  
                                                  Other
                                                  
                                                  
                                                  Corporate
                                                  
                                                  
                                                  ConsolidatedFor
      the fiscal year ended March 31, 2008
                                                  
                                                  $
                                                  75,491
                                                  
                                                  
                                                  $
                                                  642
                                                  
                                                  
                                                  $
                                                  13
                                                  
                                                  
                                                  $
                                                  31
                                                  
                                                  
                                                  $
                                                  76,177For
      the fiscal year ended March 31, 2009
                                                  
                                                  $
                                                  21,697
                                                  
                                                  
                                                  $
                                                  312
                                                  
                                                  
                                                  $
                                                  3
                                                  
                                                  
                                                  $
                                                  20
                                                  
                                                  
                                                  $
                                                  22,032





F-33








For
      the Fiscal Year Ended March 31, 2008Media
      Services
                      
                      
                      Content
      & Entertainment
                      
                      
                      Other
                      
                      
                      Corporate
                      
                      
                      ConsolidatedRevenues
      from external customers
                      
                      $
                      53,917
                      
                      
                      $
                      25,767
                      
                      
                      $
                      1,300
                      
                      
                      $
                      —
                      
                      
                      $
                      80,984Intersegment
      revenues
                      
                      
                      734
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      734Total
      segment revenues
                      
                      
                      54,651
                      
                      
                      
                      25,767
                      
                      
                      
                      1,300
                      
                      
                      
                      —
                      
                      
                      
                      81,718Less:
      Intersegment revenues
                      
                      
                      (734
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (734
                      )Total
      consolidated revenues
                      
                      $
                      53,917
                      
                      
                      $
                      25,767
                      
                      
                      $
                      1,300
                      
                      
                      $
                      —
                      
                      
                      $
                      80,984Direct
      operating (exclusive of depreciation and amortization shown
      below)
                      
                      
                      8,938
                      
                      
                      
                      16,749
                      
                      
                      
                      882
                      
                      
                      
                      —
                      
                      
                      
                      26,569Selling,
      general and administrative
                      
                      
                      6,137
                      
                      
                      
                      9,377
                      
                      
                      
                      215
                      
                      
                      
                      7,441
                      
                      
                      
                      23,170Provision
      for doubtful accounts
                      
                      
                      586
                      
                      
                      
                      810
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,396Research
      and development
                      
                      
                      162
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      162Stock-based
      compensation
                      
                      
                      266
                      
                      
                      
                      65
                      
                      
                      
                      —
                      
                      
                      
                      122
                      
                      
                      
                      453Impairment
      of intangible asset
                      
                      
                      —
                      
                      
                      
                      1,588
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,588Depreciation
      and amortization of property and equipment
                      
                      
                      27,046
                      
                      
                      
                      1,748
                      
                      
                      
                      423
                      
                      
                      
                      68
                      
                      
                      
                      29,285Amortization
      of intangible assets
                      
                      
                      777
                      
                      
                      
                      3,509
                      
                      
                      
                      —
                      
                      
                      
                      4
                      
                      
                      
                      4,290Total
      operating expenses
                      
                      
                      43,912
                      
                      
                      
                      33,846
                      
                      
                      
                      1,520
                      
                      
                      
                      7,635
                      
                      
                      
                      86,913(Loss)
      income from operations
                      
                      $
                      10,005
                      
                      
                      $
                      (8,079
                      )
                      
                      $
                      (220
                      )
                      
                      $
                      (7,635
                      )
                      
                      $
                      (5,929
                      )







For
      the Fiscal Year Ended March 31, 2009Media
      Services
                          
                          
                          Content
      & Entertainment
                          
                          
                          Other
                          
                          
                          Corporate
                          
                          
                          ConsolidatedRevenues
      from external customers
                          
                          $
                          59,049
                          
                          
                          $
                          22,720
                          
                          
                          $
                          1,245
                          
                          
                          $
                          —
                          
                          
                          $
                          83,014Intersegment
      revenues
                          
                          
                          1,112
                          
                          
                          
                          75
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1,187Total
      segment revenues
                          
                          
                          60,161
                          
                          
                          
                          22,795
                          
                          
                          
                          1,245
                          
                          
                          
                          —
                          
                          
                          
                          84,201Less:
      Intersegment revenues
                          
                          
                          (1,112
                          )
                          
                          
                          (75
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (1,187
                          )Total
      consolidated revenues
                          
                          $
                          59,049
                          
                          
                          $
                          22,720
                          
                          
                          $
                          1,245
                          
                          
                          $
                          —
                          
                          
                          $
                          83,014Direct
      operating (exclusive of depreciation and amortization shown
      below)
                          
                          
                          8,466
                          
                          
                          
                          16,310
                          
                          
                          
                          895
                          
                          
                          
                          —
                          
                          
                          
                          25,671Selling,
      general and administrative
                          
                          
                          4,153
                          
                          
                          
                          6,679
                          
                          
                          
                          217
                          
                          
                          
                          7,021
                          
                          
                          
                          18,070Provision
      for doubtful accounts
                          
                          
                          140
                          
                          
                          
                          447
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          587Research
      and development
                          
                          
                          188
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          188Stock-based
      compensation
                          
                          
                          215
                          
                          
                          
                          99
                          
                          
                          
                          —
                          
                          
                          
                          631
                          
                          
                          
                          945Impairment
      of intangible asset
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Impairment
      of goodwill
                          
                          
                          —
                          
                          
                          
                          6,525
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          6,525Depreciation
      and amortization of property and equipment
                          
                          
                          30,693
                          
                          
                          
                          1,536
                          
                          
                          
                          238
                          
                          
                          
                          64
                          
                          
                          
                          32,531Amortization
      of intangible assets
                          
                          
                          519
                          
                          
                          
                          2,914
                          
                          
                          
                          —
                          
                          
                          
                          1
                          
                          
                          
                          3,434Total
      operating expenses
                          
                          
                          44,374
                          
                          
                          
                          34,510
                          
                          
                          
                          1,350
                          
                          
                          
                          7,717
                          
                          
                          
                          87,951(Loss)
      income from operations
                          
                          $
                          14,675
                          
                          
                          $
                          (11,790
                          )
                          
                          $
                          (105
                          )
                          
                          $
                          (7,717
                          )
                          
                          $
                          (4,937
                          )





F-34





10.
            RELATED
      PARTY TRANSACTIONS





In
connection with the CEG Acquisition, CEG entered into a services agreement with
SD Entertainment, Inc. (“SDE”) to provide certain services and other
resources.  An employee officer of CEG is also an officer of
SDE.  Payments for such services to SDE for the fiscal years ended
March 31, 2008 and 2009 totaled $233 and $211, respectively.





11.
            INCOME
      TAXES





The
Company did not record any current or deferred income tax benefit from income
taxes in the fiscal years ended March 31, 2008 and 2009.





Net
deferred tax liabilities consisted of the following:




As
      of March 31,2008
                  
                  
                  2009Deferred
      tax assets:
                    Net
      operating loss carryforwards
                  
                  $
                  40,989
                  
                  
                  $
                  54,868Stock
      based compensation
                  
                  
                  1,094
                  
                  
                  
                  1,395Revenue
      deferral
                  
                  
                  700
                  
                  
                  
                  904Interest
      rate swap
                  
                  
                  —
                  
                  
                  
                  1,711Other
                  
                  
                  1,103
                  
                  
                  
                  728Total
      deferred tax assets before valuation allowance
                  
                  
                  43,886
                  
                  
                  
                  59,606Less:
      Valuation allowance
                  
                  
                  (29,361
                  )
                  
                  
                  (40,701
                  )Total
      deferred tax assets after valuation allowance
                  
                  $
                  14,525
                  
                  
                  $
                  18,905Deferred
      tax liabilities:Depreciation
      and amortization
                  
                  $
                  (9,341
                  )
                  
                  $
                  (15,819
                  )Intangibles
                  
                  
                  (5,167
                  )
                  
                  
                  (3,069
                  )Other
                  
                  
                  (17
                  )
                  
                  
                  (17
                  )Total
      deferred tax liabilities
                  
                  
                  (14,525
                  )
                  
                  
                  (18,905
                  )Net
      deferred tax
                  
                  $
                  —
                  
                  
                  $
                  —
 
 The
Company has provided a valuation allowance equal to its net deferred tax assets
for the fiscal years ended March 31, 2008 and 2009.  The Company is
required to recognize all or a portion of its deferred tax assets if it believes
that it is more likely than not, given the weight of all available evidence,
that all or a portion of its deferred tax assets will be
realized.  Management assesses the realizability of the deferred tax
assets at each interim and annual balance sheet date based on actual and
forecasted operating results.  The Company assessed both its positive
and negative evidence to determine the proper amount of its required valuation
allowance.  Factors considered include the Company's current taxable
income and projections of future taxable income.  Management increased
the valuation allowance by $12,262 and $11,340 during the fiscal years ended
March 31, 2008 and 2009, respectively.  Management will continue to
assess the realizability of the deferred tax assets at each interim and annual
balance sheet date based on actual and forecasted operating
results.
 
 At March
31, 2009, the Company had Federal and state net operating loss carryforwards of
approximately $137,000 available to reduce future taxable income.  The
federal net operating loss carryforwards will begin to expire in
2020.  Under the provisions of the Internal Revenue Code, certain
substantial changes in the Company's ownership may result in a limitation on the
amount of net operating losses that may be utilized in future
years.  Depending on a variety of factors, this limitation, if
applicable, could cause a portion or all of these net operating losses to expire
before utilization.
 
 The
differences between the United States statutory federal tax rate and the
Company’s effective tax rate are as follows:





F-35








As
      of March 31,2008
                  
                  2009Provision
      at the U.S. statutory federal tax rate
                  
                  
                  34.0
                  %
                  34.0
                  %State
      income taxes, net of federal benefit
                  
                  
                  6.7
                  
                  5.5Goodwill
      impairment
                  
                  
                  0.0
                  
                  (4.0
                  )Change
      in valuation allowance
                  
                  
                  (34.4
                  )
                  (30.7
                  )Disallowed
      interest
                  
                  
                  (6.7
                  )
                  (4.4
                  )Non-deductible
      equity compensation
                  
                  
                  (0.4
                  )
                  (0.3
                  )Other
                  
                  
                  0.8
                  
                  (0.1
                  )Income
      tax (provision) benefit
                  
                  
                  0.0
                  %
                  0.0
                  %





Effective
April 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN No. 48), "Accounting for Uncertainty in Income
Taxes," which clarifies the accounting and disclosure for uncertainty in income
taxes. The adoption of this interpretation did not have any impact on the
Company’s financial statements, as the Company did not have any unrecognized tax
benefits during the fiscal years ended March 31, 2008 and 2009.





The
Company files income tax returns in the U.S. federal jurisdiction and various
states. For federal income tax purposes, the Company’s fiscal 2005 through 2009
tax years remain open for examination by the tax authorities under the normal
three year statute of limitations.  For state tax purposes, the
Company’s fiscal 2004 through 2009 tax years generally remain open for
examination by most of the tax authorities under a four year statute of
limitations.




12.
                QUARTERLY
      FINANCIAL DATA (Unaudited) ($ in thousands, except per share
      data)
 For
      the Quarter EndedFiscal
      year 2008
                  
                  6/30/2007
                  
                  
                  9/30/2007
                  
                  
                  12/31/2007
                  
                  
                  3/31/2008Revenues
                  
                  $
                  18,146
                  
                  
                  $
                  19,466
                  
                  
                  $
                  21,480
                  
                  
                  $
                  21,892Gross
      Margin
                  
                  $
                  11,940
                  
                  
                  $
                  12,482
                  
                  
                  $
                  14,872
                  
                  
                  $
                  15,121Net
      Loss
                  
                  $
                  (6,843
                  )
                  
                  $
                  (9,257
                  )
                  
                  $
                  (8,352
                  )
                  
                  $
                  (11,235
                  )Basic
      and diluted net loss per share
                  
                  $
                  (0.28
                  )
                  
                  $
                  (0.36
                  )
                  
                  $
                  (0.32
                  )
                  
                  $
                  (0.43
                  )Shares
      used in computing basic and diluted net loss per
    share
                  
                  
                  24,758,441
                  
                  
                  
                  25,338,550
                  
                  
                  
                  25,931,467
                  
                  
                  
                  26,277,411
 
 
 For
      the Quarter EndedFiscal
      year 2009
                  
                  6/30/2008
                  
                  
                  9/30/2008
                  
                  
                  12/31/2008
                  
                  
                  3/31/2009Revenues
                  
                  $
                  20,570
                  
                  
                  $
                  21,849
                  
                  
                  $
                  22,710
                  
                  
                  $
                  17,885Gross
      Margin
                  
                  $
                  14,773
                  
                  
                  $
                  15,117
                  
                  
                  $
                  15,642
                  
                  
                  $
                  11,811Net
      Loss
                  
                  $
                  (4,285
                  )
                  
                  $
                  (6,296
                  )
                  
                  $
                  (17,441
                  )
                  
                  $
                  (9,346
                  )Basic
      and diluted net loss per share
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.23
                  )
                  
                  $
                  (0.63
                  )
                  
                  $
                  (0.34
                  )Shares
      used in computing basic and diluted net loss per
    share
                  
                  
                  26,865,147
                  
                  
                  
                  27,536,371
                  
                  
                  
                  27,566,462
                  
                  
                  
                  27,941,161
 
 13.
                VALUATION
      AND QUALIFYING ACCOUNTS
 Balance
      at Beginning of Period
                  
                  
                  Additions
      to Bad Debt Expense
                  
                  
                  Deductions
      (2)
                  
                  
                  Balance
      at End of PeriodFor
      the Fiscal Year Ended March 31, 2008:
                    Allowance
      for doubtful accounts
                  
                  $
                  1,332
                  
                  
                  $
                  1,396
                  
                  
                  $
                  422
                  
                  
                  $
                  2,306For
      the Fiscal Year Ended March 31, 2009:Allowance
      for doubtful accounts
                  
                  $
                  2,306
                  
                  
                  $
                  587
                  
                  
                  $
                  1,444
                  
                  
                  $
                  1,449
 
 (1)          Represents
write-offs of specific accounts receivable.
 
 14.
              SUBSEQUENT
      EVENTS
 
 In April
2009, funds in the amount of $3,746 were drawn down on the Barco Related
Facility (see Note 5) by our indirectly wholly-owned subsidiary, Phase 2 B/AIX,
which requires interest-only payments at 7.3% per annum through December 31,
2009 and principal installments commencing in March 2010.
 
 In May
2009, AccessIT DC entered into a fourth amendment with respect to the GE Credit
Facility (see Note 5).





F-36




PART
II. OTHER INFORMATION





ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
  AND


FINANCIAL
      DISCLOSURE





None.





ITEM
      9A.
            CONTROLS
      AND PROCEDURES





As of the
end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our principal executive officer and
principal financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act
of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures are effective to ensure that information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC
rules and forms, and that such information is accumulated and communicated to
our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.





Management's
Report on Internal Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as such term is identified in Exchange Act Rules 13a-15(f).
Internal control over financial reporting is a process designed by, or under the
supervision of, our Principal Executive Officer and Principal Financial &
Accounting Officer, and effected by the Board of Directors, management, and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. A company’s control over financial reporting includes
those policies and procedures that:





·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect our transactions and dispositions of the assets of the
      company;


·
            provide
      reasonable assurance that our transactions are recorded as necessary to
      permit preparation of our financial statements in accordance with
      accounting principles generally accepted in the United States of America,
      and that our receipts and expenditures of the company are being made only
      in accordance with authorizations of our management and our directors of
      the company; and


·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the company’s assets that
      could have a material effect on the financial
  statements.





Because
of inherent limitations, internal control over financial reporting has inherent
limitations which may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or because the
level of compliance with related policies or procedures may
deteriorate.





In making
the assessment, management used the framework in “Internal Control –Integrated
Framework” promulgated by the Committee of Sponsoring Organizations of the
Treadway Commission, commonly referred to as the “COSO” criteria. Based on that
assessment, our Principal Executive Officer and Principal Financial &
Accounting Officer concluded that our internal controls over financial reporting
were effective as of March 31, 2009.  This annual report on Form 10-K
does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permits the Company to provide only management’s report in this annual
report.





Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting, identified in
connection with the evaluation required by paragraph (d) of the Exchange Act,
that occurred during this fiscal quarter ended March 31, 2009, has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.





ITEM
      9B.
            OTHER
      INFORMATION





None.








39





PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





Except as
set forth below, the information required by this item will appear in Cinedigm’s
Proxy Statement for our 2009 Annual Meeting of Stockholders to be held on or
about September 10, 2009, which will be filed pursuant to Regulation 14A under
the Exchange Act and is incorporated by reference in this report pursuant to
General Instruction G(3) of Form 10-K (other than the portions thereof not
deemed to be “filed” for the purpose of Section 18 of the Exchange
Act).





Code
of Ethics





We have
adopted a code of ethics applicable to all members of the Board, executive
officers and employees. Such code of ethics is available on our Internet
website, www.cinedigmcorp.com.  We intend to disclose any amendment
to, or waiver of, a provision of our code of ethics by filing a Form 8-K with
the SEC.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





Information
required by this item will appear in Cinedigm’s Proxy Statement and is
incorporated by reference in this report pursuant to General Instruction G(3) of
Form 10-K (other than the portions thereof not deemed to be “filed” for the
purpose of Section 18 of the Exchange Act).





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      SHAREHOLDER MATTERS





Information
required by this item will appear in Cinedigm’s Proxy Statement and is
incorporated by reference in this report pursuant to General Instruction G(3) of
Form 10-K (other than the portions thereof not deemed to be “filed” for the
purpose of Section 18 of the Exchange Act).





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS





Information
required by this item will appear in Cinedigm’s Proxy Statement and is
incorporated by reference in this report pursuant to General Instruction G(3) of
Form 10-K (other than the portions thereof not deemed to be “filed” for the
purpose of Section 18 of the Exchange Act).





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Information
required by this item will appear in Cinedigm’s Proxy Statement and is
incorporated by reference in this report pursuant to General Instruction G(3) of
Form 10-K (other than the portions thereof not deemed to be “filed” for the
purpose of Section 18 of the Exchange Act).





PART
IV





ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES





(a)(1)
Financial Statements


See Index
to Financial Statements on page 38 herein.





(a)(2)
Financial Statement Schedules


None.





(a)(3)
Exhibits


The
exhibits are listed in the Exhibit Index beginning on page 43
herein.














40





SIGNATURES





Pursuant
to the requirements of  Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





ACCESS
INTEGRATED TECHNOLOGIES, INC.





Date:
                June
      15, 2009
                
                By:
                /s/
      A. Dale MayoA.
      Dale Mayo
                  President
      and Chief Executive Officer and Chairman of the Board of
      Directors
                  (Principal
      Executive Officer)Date:
                June
      15, 2009
                
                By:
                /s/
      Brian D. PflugBrian
      D. Pflug
                  Senior
      Vice President – Accounting & Finance
                  (Principal
      Financial & Accounting Officer)











41





POWER OF
ATTORNEY






KNOW ALL
MEN BY THESE PRESENTS, that each individual whose signature appears below hereby
constitutes and appoints A. Dale Mayo and Gary S. Loffredo, and each of them
individually, his or her true and lawful agent, proxy and attorney-in-fact, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to (i) act on, sign and file
with the Securities and Exchange Commission any and all amendments to this
Report together with all schedules and exhibits thereto, (ii) act on, sign and
file with the Securities and Exchange Commission any and all exhibits to this
Report and any and all exhibits and schedules thereto, (iii) act on, sign and
file any and all such certificates, notices, communications, reports,
instruments, agreements and other documents as may be necessary or appropriate
in connection therewith and (iv) take any and all such actions which may be
necessary or appropriate in connection therewith, granting unto such agents,
proxies and attorneys-in-fact, and each of them individually, full power and
authority to do and perform each and every act and thing necessary or
appropriate to be done, as fully for all intents and purposes as he or she might
or could do in person, and hereby approving, ratifying and confirming all that
such agents, proxies and attorneys-in-fact, any of them or any of his, her or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.





Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





SIGNATURE(S)
            
            TITLE(S)
            DATE/s/
      A.
      Dale Mayo
            
            President,
      Chief Executive Officer
            June
      15, 2009A.
      Dale Mayo
            
            and
      Chairman of the Board of Directors
              (Principal
      Executive Officer)/s/ Gary
      S. Loffredo
            
            Senior
      Vice President - General Counsel,
            June
      15, 2009Gary
      S. Loffredo
            
            Secretary
      and Director/s/
      Brian
      D. Pflug
            
            Senior
      Vice President - Accounting
            June
      15, 2009Brian
      D. Pflug
            
            and
      Finance
              (Principal
      Financial & Accounting Officer)/s/
      Wayne
      L. Clevenger
            
            Director
            June
      15, 2009Wayne
      L. Clevenger/s/
      Gerald
      C. Crotty
            
            Director
            June
      15, 2009Gerald
      C. CrottyDirectorRobert
      Davidoff/s/
      Matthew
      W. Finlay
            
            Director
            June
      15, 2009Matthew
      W. FinlayDirectorAdam
      Mizel/s/ Robert
      E. Mulholland
            
            Director
            June
      12, 2009Robert
      E. Mulholland








42





EXHIBIT
INDEX





ExhibitNumber
                  
                  Description of Document1.1
                  --
                  Form
      of Underwriting Agreement between the Company and the underwriter to the
      Company’s November 10, 2003 Public Offering. (1)2.1
                  --
                  Stock
      Purchase Agreement, dated July 17, 2003, between the Company and Hollywood
      Software, Inc. and its stockholders. (2)2.2
                  --
                  [Intentionally
      omitted]2.3
                  --
                  Amendment
      No. 1 to Stock Purchase Agreement, dated as of November 3, 2003, between
      and among the Company, Hollywood Software, Inc., the selling stockholders
      and Joseph Gunnar & Co., LLC. (1)2.4
                  --
                  [Intentionally
      omitted]2.5
                  --
                  Securities
      Purchase Agreement, dated August 24, 2007, by and among the Company and
      certain purchasers.  (21)2.6
                  --
                  Securities
      Purchase Agreement, dated February 9, 2009, by and among the Company and
      certain purchasers.  (30)2.7
                  --
                  Securities
      Purchase Agreement, dated February 10, 2009, by and among the Company and
      certain purchasers.  (30)2.8
                  --
                  [Intentionally
      omitted]2.9
                  --
                  Asset
      Purchase Agreement, dated as of October 19, 2004, among the Company,
      FiberSat Global Services, Inc., FiberSat Global Services LLC, Richard
      Wolfe, Ravi Patel, McKebben Communications, Globecomm Systems, Inc.,
      Timothy Novoselski, Scott Smith and Farina. (7)2.10
                  --
                  Asset
      Purchase Agreement, dated as of December 23, 2004, among ADM Cinema
      Corporation, Pritchard Square Cinema, LLC and Norman Adie.
    (9)2.11
                  --
                  [Intentionally
      omitted]2.12
                  --
                  Securities
      Purchase Agreement, dated as of February 9, 2005, among the Company and
      certain investors. (8)2.13
                  --
                  Securities
      Purchase Agreement, dated as of July 19, 2005, among the Company and
      certain purchasers. (12)2.14
                  --
                  Letter
      Agreement, dated August 29, 2005, among the Company and certain
      purchasers. (17)2.15
                  --
                  [Intentionally
      omitted]2.16
                  --
                  Stock
      Purchase and Sale Agreement, dated as of July 6, 2006, by and among Access
      Integrated Technolgoies, Inc., UniqueScreen Media, Inc., the holders of
      all of the capital stock of UniqueScreen Media, Inc. listed on the
      signature pages thereto and Granite Equity Limited Partnership, as the
      Stockholder Representative. (19)2.17
                  --
                  First
      Amendment to the Stock Purchase and Sale Agreement, dated as of July 6,
      2006, by and among Access Integrated Technolgoies, Inc., UniqueScreen
      Media, Inc., the holders of all of the capital stock of UniqueScreen
      Media, Inc. listed on the signature pages thereto and Granite Equity
      Limited Partnership, as the Stockholder Representative.
    (19)2.18
                  --
                  Asset
      Purchase Agreement, dated as of January 7, 2007, by and between Access
      Integrated Technologies, Inc., Vistachiara Productions, Inc., BP/KTF, LLC
      and each member of BP/KTF, LLC. (20)3.1
                  --
                  Fourth
      Amended and Restated Certificate of Incorporation of the Company, as
      amended. (32)3.2
                  --
                  Bylaws
      of the Company. (2)4.1
                  --
                  [Intentionally
      omitted]4.2
                  --
                  Specimen
      certificate representing Class A common stock.
  (1)


4.3
              --
              Form
      of Note to be issued  to purchaser pursuant to the Securities
      Purchase Agreement, dated August 24, 2007, by and among the Company and
      certain purchasers.  (21)


43




4.4
            --
            Registration
      Rights Agreement, dated August 24, 2007 by and among the Company and
      certain purchasers.  (21)4.5
            --
            Form
      of note to be issued by the Company to the selling stockholders of
      Hollywood Software, Inc. (2)4.6
            --
            Subsidiary
      Guaranty in favor of the holders of certain notes, dated August 24, 20007,
      by Access Digital Media, Inc., Core Technology Services, Inc., Hollywood
      Software, Inc., Fibersat Global Services Inc., PLX Acquisition Corp. And
      Vistachiara Productions, Inc. (21)4.7
            --
            Redemption
      Agreement, dated August 24, 2007, by and among the Company and certain of
      the holders of the Company’s One Year Notes. (21)4.8
            --
            Specimen
      certificate representing Series A Preferred Stock. (29)4.9
            --
            Pledge
      and Security Agreement, dated as of November 3, 2003, between the Company
      and the selling stockholders of Hollywood Software, Inc.
    (1)4.10
            --
            Form
      of Warrant issued in connection with the Series A Preferred Stock.
      (30)4.11
            --
            Promissory
      note dated March 29, 2004 issued by the Company to The Boeing Company.
      (5)4.12
            --
            [Intentionally
      omitted]4.13
            --
            [Intentionally
      omitted]4.14
            --
            [Intentionally
      omitted]4.15
            --
            [Intentionally
      omitted]4.16
            --
            [Intentionally
      omitted]4.17
            --
            [Intentionally
      omitted]4.18
            --
            [Intentionally
      omitted]4.18.1
            --
            Promissory
      Note, dated May 16, 2007 issued by the Company to David Gajda replacing
      the Promissory Note dated November 14, 2003 issued by the Company to David
      Gajda. (20)4.18.2
            --
            Letter
      Agreement dated May 16, 2007 between the Company and David Gajda.
      (20)4.19
            --
            Promissory
      Note, dated November 14, 2003, issued by the Company to Robert Jackovich.
      (6)4.20
            --
            [Intentionally
      omitted]4.21
            --
            [Intentionally
      omitted]4.22
            --
            [Intentionally
      omitted]4.23
            --
            [Intentionally
      omitted]4.24
            --
            [Intentionally
      omitted]4.25
            --
            Form
      of Warrant, dated July 19, 2005, issued to purchasers pursuant to
      Securities Purchase Agreement, dated as of July 19, 2005, among the
      Company and certain purchasers. (12)4.26
            --
            Registration
      Rights Agreement, dated as of July 19, 2005 among the Company and certain
      purchasers. (12)4.27
            --
            Form
      of Warrant issued to purchasers pursuant to a letter agreement.
      (14)4.28
            --
            Registration
      Rights Agreement, dated as of November 16, 2005, among the Company and
      certain purchasers. (14)4.29
            --
            [Intentionally
      omitted]


4.30
              --
              [Intentionally
      omitted]4.31
              --
              Form
      of Promissory Note, dated as of July 31, 2006, executed by Access
      Integrated Technologies, Inc. in favor of Granite Equity Limited
      Partnership in the principal amount of $1,204,402.34.
  (19)4.32
              --
              [Intentionally
      omitted]4.33
              --
              Form
      of Note, to be executed by Christie/AIX, Inc. in connection with that
      certain Credit Agreement, dated as of August 1, 2006, among Christie/AIX,
      Inc., the Lenders party thereto and General Electric Capital Corporation,
      as administrative agent and collateral agent for the Lenders.
      (19)


44







4.34
            --
            Registration
      Rights Agreement, dated as of July 31, 2006, by and among Access
      Integrated Technologies, Inc. and the stockholders signatory thereto.
      (19)4.35
            --
            Pledge
      Agreement, dated as of August 1, 2006, between Access Digital Media, Inc.
      and General Electric Capital Corporation, as administrative agent and
      collateral agent for the Lenders. (19)4.36
            --
            Guaranty
      and Security Agreement, dated as of August 1, 2006, among Christie/AIX,
      Inc. and each Grantor from time to time party thereto and General Electric
      Capital Corporation, as Administrative Agent and Collateral Agent.
      (19)4.37
            --
            [Intentionally
      omitted]4.38
            --
            [Intentionally
      omitted]4.39
            --
            Registration
      Rights Agreement, dated as of January 29, 2007, by and among Access
      Integrated Technologies, Inc., Vistachiara Productions, Inc., BP/KTF, LLC
      and each member of BP/KTF, LLC. (20)10.1
            --
            Amended
      and Restated Employment Agreement, dated March 31, 2008, between the
      Company and A. Dale Mayo.  (24)10.2
            --
            Employment
      Agreement, dated as of April 10, 2000, between the Company and Kevin
      Farrell. (2)10.3
            --
            Form
      of Employment Agreements between Hollywood Software, Inc. and David
      Gajda/Robert Jackovich. (2)10.4
            --
            Second
      Amended and Restated 2000 Equity Incentive Plan of the Company.
      (22)10.4.1
            --
            Amendment
      dated May 9, 2008 to the Second Amended and Restated 2000 Equity Incentive
      Plan of the Company. (26)10.4.2
            --
            Form
      of Notice of Restricted Stock Award (22)10.4.3
            --
            Form
      of Non-Qualified Stock Option Agreement (24)10.4.4
            --
            Form
      of Restricted Stock Unit Agreement (employees) (26)10.4.5
            --
            Form
      of Stock Option Agreement. (10)10.4.6
            --
            Form
      of Restricted Stock Unit Agreement (directors) (26)10.4.7
            --
            Amendment
      No. 2 dated September 4, 2008 to the Second Amended and Restated 2000
      Equity Incentive Plan of the Company. (28)10.5
            --
            [Intentionally
      omitted]10.6
            --
            [Intentionally
      omitted]10.7
            --
            [Intentionally
      omitted]10.8
            --
            [Intentionally
      omitted]10.9
            --
            [Intentionally
      omitted]10.10
            --
            [Intentionally
      omitted]


10.11
            --
            Services
      Distribution Agreement, dated July 17, 2001, between the Company and
      Managed Storage International, Inc. (2)10.12
            --
            License
      Agreement between the Company and AT&T Corp., dated July 31, 2001.
      (2)10.13
            --
            Master
      Agreement for Colocation Space between the Company (by assignment from Cob
      Solutions Global Services, Inc.) and KMC Telecom VI LLC dated April 11,
      2002. (2)10.14
            --
            [Intentionally
      omitted]10.15
            --
            Lease
      Agreement, dated as of May 23, 2000, between the Company (formerly
      Fibertech & Wireless, Inc.) and 55 Madison Associates, LLC.
      (2)10.16
            --
            Agreement
      of Lease, dated as of July 18, 2000, between the Company and 1-10 Industry
      Associates, LLC. (2)10.17
            --
            Lease
      Agreement, dated as of August 28, 2000, between the Company (formerly
      Fibertech & Wireless, Inc.) and RFG Co. Ltd.
  (2)





45








10.18
            --
            Letter
      Amendment to the Lease Agreement, dated August 28, 2000, between the
      Company (formerly Fibertech & Wireless, Inc.) and RFG Co. Ltd.
      (2)10.19
            --
            First
      Amendment to the Lease, dated August 28, 2000 between the Company
      (formerly Fibertech & Wireless, Inc.) and RFG Co. Ltd. dated October
      27, 2000. (2)10.20
            --
            Agreement
      of Lease, dated as of January 18, 2000, between the Company (by assignment
      from BridgePoint International (Canada), Inc.) and 75 Broad, LLC.
      (2)10.21
            --
            Additional
      Space and Lease Modification to the Agreement of Lease, dated as of
      January 18, 2000, between the Company (by assignment from BridgePoint
      International (Canada), Inc.) and 75 Broad, LLC dated May 16, 2000.
      (2)10.22
            --
            Second
      Additional Space and Lease Modification to the Agreement of Lease, dated
      as of January 18, 2000, between the Company (by assignment from
      BridgePoint International (Canada), Inc.) and 75 Broad, LLC dated August
      15, 2000. (2)10.23
            --
            Lease
      Agreement, dated as of January 17, 2001, as amended, between the Company
      (by assignment from R. E. Stafford, Inc. d/b/a ColoSolutions) and Union
      National Plaza I, Inc. (2)10.24
            --
            Lease
      Agreement, dated as of February 6, 2001, between the Company (by
      assignment from R. E. Stafford, Inc. d/b/a ColoSolutions) and Granite --
      Wall Street Limited Partnership (successor in interest to Duffy Wall
      Street L.L.C.). (2)10.25
            --
            Indenture
      Agreement, dated as of May 22, 2001, between the Company (by assignment
      from R. E. Stafford, Inc. d/b/a ColoSolutions) and Research Boulevard
      Partnership. (2)10.26
            --
            Lease
      Agreement, dated as of January 22, 2001, between the Company (by
      assignment from ColoSolutions L.L.C.) and 340 Associates, L.L.C.
      (2)10.27
            --
            Lease
      Agreement, dated as of September 29, 2002, between the Company (by
      assignment from R. E. Stafford, Inc. d/b/a ColoSolutions) and Jerry J.
      Howard and Eddy D. Howard. (2)10.28
            --
            Office
      Lease, dated as of February 22, 2001, between the Company (by assignment
      from R. E. Stafford, Inc. d/b/a ColoSolutions) and One Liberty Place, L.C.
      (2)10.29
            --
            Commercial
      Property Lease between Hollywood Software, Inc. and Hollywood Media
      Center, LLC, dated January 1, 2000. (2)10.30
            --
            Lease,
      dated as of February 1, 1999, between Hollywood Software, Inc. and Spieker
      Properties, L. P. (2)10.30.1
            --
            First
      Amendment to Lease, dated as of February 1, 1999, between Hollywood
      Software, Inc. and Spieker Properties, L.P. dated May 10, 2000.
      (2)10.30.2
            --
            Second
      Amendment to Lease, dated as of February 1, 1999, between Hollywood
      Software, Inc. and Spieker Properties, L.P. dated February 16, 2001.
      (2)10.30.3
            --
            Third
      Amendment to Lease, dated as of February 1, 1999, between Hollywood
      Software, Inc. and EOP-BREA Park Centre, L.P. (successor in interest to
      Spieker Properties, L.P.), dated June 27, 2002. (2)10.31
            --
            [Intentionally
      omitted]


10.32
            --
            [Intentionally
      omitted]10.33
            --
            [Intentionally
      omitted]10.34
            --
            [Intentionally
      omitted]10.35
            --
            [Intentionally
      omitted]10.36
            --
            Universal
      Transport Exchange License and Option Agreement, dated August 13, 2003, by
      and between the Company and Universal Access, Inc. (3)10.37
            --
            [Intentionally
      omitted]10.38
            --
            Confidentiality,
      Inventions and Noncompete Agreement, dated as of January 9, 2004, between
      the Company and Erik B. Levitt. (4)10.39
            --
            Employment
      Agreement, dated as of November 21, 2003, between the Company and Russell
      Wintner.  (6)





46








10.40
            --
            Lease
      Agreement, dated as of August 9, 2002, by and between OLP Brooklyn
      Pavilion LLC and Pritchard Square Cinema LLC. (17)10.40.1
            --
            First
      Amendment to Contract of Sale and Lease Agreement, dated as of August 9,
      2002, by and among Pritchard Square LLC, OLP Brooklyn Pavilion LLC and
      Pritchard Square Cinema, LLC. (17)10.40.2
            --
            Second
      Amendment to Contract of Sale and Lease Agreement, dated as of April 2,
      2003, by and among Pritchard Square LLC, OLP Brooklyn Pavilion LLC and
      Pritchard Square Cinema, LLC. (17)10.40.3
            --
            Third
      Amendment to Contract of Sale and Lease Agreement, dated as of November 1,
      2003, by and among Pritchard Square LLC, OLP Brooklyn Pavilion LLC and
      Pritchard Square Cinema, LLC. (17)10.40.4
            --
            Fourth
      Amendment to Lease Agreement, dated as of February 11, 2005, between ADM
      Cinema Corporation and OLP Brooklyn Pavilion
      LLC.  (11)10.41
            --
            2002
      ISDA Master Agreement between HSBC Bank USA, National Association and
      Christie/AIX, Inc., dated as of April 2, 2008. (25)10.42
            --
            Schedule
      to the ISDA Master Agreement between HSBC Bank USA, National Association
      and Christie/AIX, Inc., dated as of April 2, 2008. (25)10.43
            --
            Swap
      Transaction Confirmation from HSBC Bank USA, National Association to
      Christie/AIX, Inc., dated as of April 4, 2008. (25)10.44
            --
            [Intentionally
      omitted]10.45
            --
            Amended
      and Restated Digital Cinema Framework Agreement, dated as of September 30,
      2005, by and among Access Digital Media, Inc., Christie/AIX, Inc. and
      Christie Digital Systems USA, Inc. (13)10.46
            --
            Digital
      Cinema Deployment Agreement, dated September 14, 2005, by and among Buena
      Vista Pictures Distribution, Christie/AIX, Inc. and Christie Digital
      Systems USA, Inc. (13)10.47
            --
            Digital
      Cinema Deployment Agreement, dated October 12, 2005, by and between
      Twentieth Century Fox Film Corporation and Christie/AIX, Inc.
      (13)10.48
            --
            Placement
      Agency Agreement, dated as of January 17, 2006, by and between the Company
      and Craig-Hallum Capital Group LLC. (15)10.49
            --
            Digital
      Cinema Agreement, dated as of October 20, 2005, by and between Universal
      City Studios, LLP and Christie/AIX, Inc. (16)10.50
            --
            Master
      License Agreement, dated as of December, 2005, by and between
      Christie/AIX, Inc. and Carmike Cinemas, Inc. (16)10.51
            --
            [Intentionally
      omitted]10.52
            --
            Amended
      and Restated Digital System Supply Agreement, dated September 30, 2005, by
      and between Christie Digital Systems USA, Inc. and Christie/AIX, Inc.
      (18)


10.52.1
            --
            Letter
      Agreement amending the Amended and Restated Digital System Supply
      Agreement, dated as of February 21, 2006, by and between Christie Digital
      Systems USA, Inc. and Christie/AIX, Inc. (18)10.52.2
            --
            Letter
      Agreement amending the Amended and Restated Digital System Supply
      Agreement, entered into on November 2, 2006, by and between Christie
      Digital Systems USA, Inc. and Christie/AIX, Inc. (18)10.53
            --
            Credit
      Agreement, dated as of August 1, 2006, among Christie/AIX, Inc., the
      Lenders party thereto and General Electric Capital Corporation, as
      administrative agent and collateral agent for the Lenders.
      (19)10.53.1
            --
            First
      Amendment, effective as of August 30, 2006, with respect to that certain
      Credit Agreement, dated as of August 1, 2006, among Christie/AIX, Inc.,
      the Lenders party thereto and General Electric Capital Corporation, as
      administrative agent and collateral agent for the Lenders.
      (19)10.53.2
            --
            Second
      Amendment, dated December, 2006, with respect to that certain Credit
      Agreement, dated as of August 1, 2006, among Christie/AIX, Inc., the
      Lenders party thereto and General Electric Capital Corporation, as
      administrative agent and collateral agent  for the Lenders.
      (20)10.53.3
            --
            Third
      Amendment, dated September 28, 2007, with respect to that certain
      definitive Credit Agreement, dated as of August 1, 2006 (as amended,
      supplemented or otherwise modified prior to entry into the Third
      Amendment), with General Electric Capital Corporation, as administrative
      agent and collateral agent for the
  Lenders.  (23)


47








10.53.4
            --
            Fourth
      Amendment, dated May 5, 2009, with respect to that certain Credit
      Agreement, dated as of August 1, 2006, among Christie/AIX, Inc., the
      Lenders party thereto and General Electric Capital Corporation, as
      administrative agent and as collateral agent for the
    Lenders.*21.1
            --
            List
      of Subsidiaries.*23.1
            --
            Consent
      of Eisner LLP.*24.1
            --
            Powers
      of Attorney.* (Contained on signature page)31.1
            --
            Officer’s
      Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
            --
            Officer’s
      Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
            --
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.*32.2
            --
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.*





* Filed
herewith.




Documents
Incorporated Herein by Reference:




(1)
Previously filed with the Securities and Exchange Commission on November 4, 2003
as an exhibit to the Company’s Amendment No. 3 to Registration Statement on Form
SB-2 (File No. 333-107711).




(2)
Previously filed with the Securities and Exchange Commission on August 6, 2003
as an exhibit to the Company’s Registration Statement on Form SB-2 (File No.
333-107711).




(3)
Previously filed with the Securities and Exchange Commission on September 22,
2003 as an exhibit to the Company’s Amendment No. 1 to Registration Statement on
Form SB-2 (File No. 333-107711).




(4)
Previously filed with the Securities and Exchange Commission on February 17,
2004 as an exhibit to the Company’s Form 10-QSB for the quarter ended December
31, 2003 (File No. 001-31810).




(5)
Previously filed with the Securities and Exchange Commission on April 2, 2004 as
an exhibit to the Company’s Form 8-K (File No. 001-31810).




(6)
Previously filed with the Securities and Exchange Commission on June 25, 2004 as
an exhibit to the Company’s Form 10-KSB for the fiscal year ended March 31, 2004
(File No. 001-31810).
  (7)
Previously filed with the Securities and Exchange Commission on November 8, 2004
as an exhibit to the Company’s Form 8-K (File No. 001-31810).
  (8)
Previously filed with the Securities and Exchange Commission on February 10,
2005 as an exhibit to the Company’s Form 8-K (File No. 001-31810).
  (9)
Previously filed with the Securities and Exchange Commission on February 14,
2005 as an exhibit to the Company’s Form 10-QSB for the quarter ended December
31, 2004 (File No. 001-31810).
  (10)
Previously filed with the Securities and Exchange Commission on April 25, 2005
as an exhibit to the Company’s Registration Statement on Form S-8 (File No.
333-124290).
  (11)
Previously filed with the Securities and Exchanged Commission on April 29, 2005
as an exhibit to the Company’s Form 8-K (File No. 001-31810).
  (12)
Previously filed with the Securities and Exchange Commission on July 22, 2005 as
an exhibit to the Company’s Form 8-K (File No. 001-31810).





48





(13)
Previously filed with the Securities and Exchange Commission on November 14,
2005 as an exhibit to the Company’s Form 10-QSB for the quarter ended September
30, 2005 (File No. 001-31810).




(14)
Previously filed with the Securities and Exchange Commission on November 16,
2005 as an exhibit to the Company’s Registration Statement on Form S-3 (File No.
333-129747).




(15)
Previously filed with the Securities and Exchange Commission on January 19, 2006
as an exhibit to the Company’s 8-K (File No. 001-31810).




(16)
Previously filed with the Securities and Exchange Commission on February 13,
2006 as an exhibit to the Company’s Form 10-QSB (File No.
001-31810).




(17)
Previously filed with the Securities and Exchange Commission on June 29, 2006 as
an exhibit to the Company’s Form 10-KSB for the fiscal year ended March 31, 2006
(File No. 001-31810).




(18)
Previously filed with the Securities and Exchange Commission on November 8, 2006
as an exhibit to the Company’s Form 8-K (File No. 000-51910).




(19)  Previously
filed with the Securities and Exchange Commission on November 14, 2006 as an
exhibit to the Company’s Form 10-QSB for the fiscal quarter ended September 30,
2006 (File No. 000-51910).




(20)
Previously filed with the Securities and Exchange Commission on June 29, 2007 as
an exhibit to the Company’s Form 10-KSB (File No. 000-51910).




(21)
Previously filed with the Securities and Exchange Commission on August 29, 2007
as an exhibit to the Company’s Form 8-K (File No. 000-51910).




(22)
Previously filed with the Securities and Exchange Commission on September 24,
2007 as an exhibit to the Company’s Form 8-K (File No. 000-51910).




(23)
Previously filed with the Securities and Exchange Commission on October 16, 2007
as an exhibit to the Company’s Form 8-K (File No. 000-51910).
  (24)
Previously filed with the Securities and Exchange Commission on April 3, 2008 as
an exhibit to the Company’s Form 8-K (File No. 000-51910).
  (25)
Previously filed with the Securities and Exchange Commission on April 8, 2008 as
an exhibit to the Company’s Form 8-K (File No. 000-51910).
  (26)
Previously filed with the Securities and Exchange Commission on May 14, 2008 as
an exhibit to the Company’s Form 8-K (File No. 000-51910).
 
 (27)
Previously filed with the Securities and Exchange Commission on September 10,
2008 as an exhibit to the Company’s Form 8-K (File No. 000-51910).
 
 (28)
Previously filed with the Securities and Exchange Commission on February 9, 2009
as an exhibit to the Company's Form 10-Q for the quarter ended December 31, 2008
(File No. 000-51910).
 
 (29)
Previously filed with the Securities and Exchange Commission on February 9, 2009
as an exhibit to the Company’s Form 8-K (File No. 000-51910).
 
 (30)
Previously filed with the Securities and Exchange Commission on February 13,
2009 as an exhibit to the Company’s Form 8-K (File No.
000-51910).