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, 2008
 
 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:
 CLASS
A COMMON STOCK, PAR VALUE $0.001 PER SHARE
 
 Securities
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 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  x
              Non-accelerated
      filer   ̈
                (Do
      not check if a smaller reporting company)
              Smaller
      reporting company   ̈Indicate
      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 $2.11 per share, the closing
price of such common equity on the Nasdaq Global Market, as of June 6, 2008, was
approximately $49,186,427.  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 6, 2008, 26,137,391 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
2008 Annual Meeting of Stockholders to be held on or about September 4,
2008.
 
  
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 TABLE
OF CONTENTS
 
 
 
 PageFORWARD-LOOKING
      STATEMENTS
              1PART
      IITEM
      1.
              Business
              1ITEM
      1A.
              Risk
      Factors
              11ITEM
      1B.
              Unresolved
      Staff Comments
              18ITEM
      2.
              Property
              18ITEM
      3.
              Legal
      Proceedings
              19ITEM
      4.
              Submission
      of Matters to A Vote of Shareholders
              19PART
      IIITEM
      5.
              Market
      for Common Equity, Related Shareholder Matters and Issuer Purchases of
      Equity Securities
              20ITEM
      6.
              Selected
      Financial Data
              22ITEM
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              23ITEM
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              32ITEM
      8.
              Financial
      Statements and Supplementary Data
              33ITEM
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              34ITEM
      9A.
              Controls
      and Procedures
              34ITEM
      9B.
              Other
      Information
              34PART
      IIIITEM
      10.
              Directors,
      Executive Officers and Corporate Governance
              35ITEM
      11.
              Executive
      Compensation
              35ITEM
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
              35ITEM
      13.
              Certain
      Relationships and Related Transactions
              35ITEM
      14.
              Principal
      Accountant Fees and Services
              35PART
      IVITEM
      15.
              Exhibits,
      Financial Statement Schedules
              35SIGNATURES
              36
 
 
  
  FORWARD-LOOKING
STATEMENTS
 
 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. 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, “AccessIT,” “we,” “us,” “our” and the “Company” refers to Access
Integrated Technologies, Inc. and its subsidiaries unless the context otherwise
requires.
 
 PART
I
 
 ITEM
1. BUSINESS
 
 OVERVIEW
 
 AccessIT
was incorporated in Delaware on March 31, 2000.  We provide fully
managed storage, electronic delivery and software services and technology
solutions for owners and distributors of digital content to movie theatres and
other venues.  In the past, we have generated revenues from two
primary businesses, media services (“Media Services”) and internet data center
(“IDC” or “data center”) services (“Data Center Services”), a business we no
longer operated after May 1, 2007. Beginning April 1, 2007, we made changes to
our organizational structure which impacted our reportable segments, but did not
impact our consolidated financial position, results of operations or cash flows.
We realigned our focus to three primary businesses, media services (“Media
Services”), media content and entertainment (“Content & Entertainment”) and
other (“Other”). Our Media Services business provides software, services and
technology solutions to the motion picture and television industries, primarily
to facilitate the transition from analog (film) to digital cinema and has
positioned us at what we believe to be the forefront of an emerging industry
opportunity relating to the delivery and management of digital cinema and other
content to entertainment and other remote venues worldwide.  Our
Content & Entertainment business provides motion picture exhibition to the
general public and cinema advertising and film distribution services to movie
exhibitors.  Our Other business is attributable to the Data Center
Services.
  1
  MEDIA
SERVICES
 
 The Media
Services business consists of the following:
 
 Operations
      of:
              Products
      and services provided:Christie/AIX,
      Inc. d/b/a AccessIT Digital Cinema (“AccessIT DC”) and its subsidiary,
      Access Digital Cinema Phase 2 Corp. (“Phase 2
Corporation”)
              ·Financing
      vehicles and administrators for our 3,723 digital cinema projection
      systems (the “Systems”) installed nationwide (our “Phase I Deployment”)
      and our second digital cinema deployment (the “Phase II Deployment”) to
      motion picture exhibitors
                ·Collect
      virtual print fees (“VPFs”) from motion picture studios and distributors
      and alternative content fees (“ACFs”)  from alternative content
      providersHollywood
      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”)
              ·Stores
      and 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 Managed Services, a managed service provider of
information technologies (the “Managed Services Acquisition”) which operates a
24x7 GNCC, capable of running the networks and systems of large corporate
clients.  The three largest customers of Managed Services accounted
for approximately 60% of its revenues.
 
 In
November 2004, we acquired certain assets and liabilities of FiberSat Global
Services, LLC (the “FiberSat Acquisition”).
 
 In June
2005, we formed AccessIT DC, a wholly-owned subsidiary of AccessDM, to purchase
Systems for our Phase I Deployment, under the framework agreement (the
“Framework Agreement”) with Christie Digital Systems USA, Inc.
(“Christie”).  In September 2005, pursuant to a second amendment to
the Framework Agreement, Christie and AccessIT DC agreed to extend the number of
Systems which may be ordered to 4,000 Systems.  In December 2007,
AccessIT DC completed its Phase I Deployment with 3,723 Systems
installed.
 
 In June
2006, the Company, through its indirectly wholly-owned subsidiary, PLX
Acquisition Corp. (“PLX Acquisition”), purchased substantially all the assets of
PLX Systems Inc. (“PLX”) and Right Track Solutions Incorporated (“Right
Track”).  PLX Acquisition provides technology, expertise and core
competencies in intellectual property (“IP”) rights and royalty management,
expanding the Company’s ability to bring alternative forms of content, such as
non-traditional feature films.  PLX’s and Right Track’s assets have
been integrated into the operations of AccessIT SW.
 
  2
  In
October 2007, we formed Phase 2 Corporation, a wholly-owned subsidiary of AccessIT
DC, to purchase up to 10,000 additional Systems for our expected
Phase II Deployment.
 
 In
October 2007, AccessDM launched CineLiveSM,
a new hardware product that enables live 2-D and 3-D streaming broadcasts to be
converted from satellite feeds into on-screen entertainment, which can then be
delivered to and exhibited in digital cinema equipped
theatres.  CineLiveSM was
developed exclusively for AccessDM by International Datacasting Corporation
(IDC) and SENSIO Technologies Inc.
 
 The
business of AccessIT DC consists of the ownership and licensing of digital
systems to exhibitors and the collection of VPFs from motion picture studios and
ACFs from exhibitors, when content is shown on exhibitors’ screens.  We
have licensed the necessary software and technology solutions to the exhibitor
and have facilitated its transition from analog (film) to digital cinema. 
As part of AccessIT DC’s Phase I Deployment of digital systems, AccessIT DC has
agreements with seven major motion picture studios, certain smaller independent
studios and exhibitors allowing it to collect VPFs and ACFs when content is
shown in theatres, in exchange for it having facilitated the deployment, and
providing management services, of 3,723 Systems and the other digital cinema
assets.  AccessIT DC has agreements with sixteen domestic theatre circuits
that license our Systems in order to show digital content distributed by the
studios and other providers, including an AccessIT subsidiary, The Bigger
Picture.   Phase 2 Corporation has entered into agreements with four
major motion picture studios which will allow it to collect VPFs and ACFs once
Phase 2 Corporation enters into license agreements with exhibitors, arranges
suitable financing for the purchase of Systems, enters into vendor supply
agreements for the necessary equipment and once the Systems are installed and
ready for content.
 
 Products
 
 AccessIT
SW provides proprietary software applications and services to support customers
of varying sizes, through software licenses, its ASP Service which it hosts the
application through Managed Services and client access via the Internet and
provides outsourced film distribution services, called
IndieDirect.   Current proprietary software of AccessIT SW
consists of the following:
 
 Proprietary
      Software Product:
              Purpose:Theatrical
      Distribution System (“TDS”)
              Enables
      United States 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 Services
      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 Services
      software.Exhibition
      Management SystemTM (“EMSTM”)
              Manages
      all key aspects of film planning, scheduling, booking and motion picture
      studios payment for exhibitors.Motion
      Picture Planning System (“MPPS”)
              Plans
      and initiates movie release strategies using various movie criteria and
      historical performance data.Royalty
      Transaction Solution (“RTS”)
              An
      enterprise royalty accounting and licensing system built specifically for
      theentertainment
      industry.Distributed
      Software Product:
              Purpose:Vista
      Cinema Software (“Vista”)
              Theatre
      ticketing software.
 
 Domestic
Theatrical Distribution Management
 
 AccessIT
SW’s TDS product is currently licensed to several motion picture studios,
including Overture Films, Summit Entertainment, 20th Century Fox, Universal
Studios, MGM, Lionsgate and the Weinstein Company.  These studios
comprised approximately 41.9%, 12.4%, 11.8%, 5.3%, 4.6%, 3.0%, 2.4% and 2.3%,
respectively, of AccessIT SW’s revenues for the fiscal year ended March 31,
2008. Several
distributors utilize AccessIT SW’s products through its ASP Service, including
Director’s Limited, Freestyle Releasing, IDP, IFC Films, IFS, Magnolia Pictures
and Maple Pictures.  In addition, AccessIT SW licenses to customers
other distribution-related software, MPPS, which further automates and manages
related aspects of movie distribution, including advertising, strategic theatre
selection and competitive release planning.
 
  3
  AccessIT
SW also provides outsourced movie distribution services, specifically for
independent film distributors and producers, through IndieDirect.  The
IndieDirect staff uses the TDS distribution software to provide back office
movie booking,tracking, reporting,
settlement, and receivables management services.
 
 International
Theatrical Distribution Management
 
 In 2004,
AccessIT SW began developing TDSG, an international version of our successful
TDS application, to support worldwide movie distribution and has the capability
to run either from a single central location or multiple
locations.  In December 2004, AccessIT SW signed an agreement to
license TDSG to 20th Century Fox, who has begun the implementation of the
software, targeting fourteen overseas territories, encompassing eighteen foreign
offices.  As with our North American TDS solution, the TDSG system
seamlessly integrates with AccessIT’s digital content delivery, significantly
enhancing our international market opportunities.
 
 Exhibition
Management
 
 We
believe that our EMSTM system is one of the most powerful and comprehensive
systems available to manage all key elements of motion picture exhibition. This
fully supported solution can exchange information with every financial,
ticketing, point-of-sale, distributor and data system to eliminate manual
processes. Also, EMSTM is designed to create innovative revenue opportunities for
motion picture exhibitors from the presentation of new and/or additional
advertising and alternative entertainment in their movie theatres due to the
expanding use of digital content delivery.
 
 IP
Rights and Royalty Management
 
 AccessIT
SW also provides software for the management of IP rights and royalties, called
RTS, which was acquired in the acquisition of PLX.
 
 Distributed
Software
 
 AccessIT
SW also distributes Vista, a theatre ticketing solution, developed by Vista
Entertainment Solutions Limited (“Vista Entertainment”) which is based in New
Zealand.  AccessIT SW is currently the only United States-based
distributor of Vista to the United States theatre market.  Under our
distribution agreement with Vista Entertainment, AccessIT SW earns a percentage
of license fees, maintenance fees and consulting fees generated from each Vista
product we sell.
 
 Research
and Development
 
 The
Company’s research and development was approximately $300,000, $330,000 and
$162,000 for the fiscal years ended March 31, 2006, 2007 and 2008, respectively,
and was comprised mainly of personnel costs and third party contracted services
attributable to research and development efforts at AccessIT SW related to the
development of our digital software applications and various
product  enhancements to TDS and EMSTM.
 
 Market
Opportunity
 
 We
believe that:
 
 ·
              AccessIT
      SW’s products are becoming the industry standard method by which motion
      picture studios and exhibitors plan, manage and monitor operations and
      data regarding the presentation of theatrical
      entertainment.  Based upon certain industry figures,
      distributors using AccessIT SW’s TDS software cumulatively managed over
      one-third of the United States theatre box office revenues each year since
      1999;
 ·
              by
      adapting this system to serve the expanding digital entertainment
      industry, AccessIT SW’s products and services will be accepted as an
      important component in the digital content delivery and management
      business;
 ·
              the
      continued transition to digital content delivery will require a high
      degree of coordination among content providers, customers and intermediary
      service providers;
 ·
              producing,
      buying and delivering media content through worldwide distribution
      channels is a highly fragmented and inefficient process;
    and
 ·
              technologies
      created by AccessIT SW and the continuing development of and general
      transition to digital forms of media will help the digital content
      delivery and management business become increasingly streamlined,
      automated and enhanced.
 
  4
  Intellectual
Property
 
 AccessIT
SW currently has intellectual property consisting of:
 
 ·
              licensable
      software products, including TDS, TDSG, EMSTM, MPPS and
  RTS;
 ·
              domain
      names, including EPayTV.com, EpayTV.net, HollywoodSoftware.com,
      HollywoodSoftware.net, Indie-Coop.com, Indie-Coop.net, Indiedirect.com,
      IPayTV.com; PersonalEDI.com, RightsMart.com, RightsMart.net,
      TheatricalDistribution.com and
Vistapos.com;
 ·
              unregistered
      trademarks and service marks, including Coop Advertising V1.04, EMS ASP,
      Exhibitor Management System, Hollywood SW, Inc., HollywoodSoftware.com,
      Indie Co-op, Media Manager, On-Line Release Schedule, RightsMart, TDS and
      TheatricalDistribution.com; and
 ·
              logos,
      including those in respect of Hollywood SW, TDS and
  EMSTM.
 
 Customers
 
 Overture
Films, Pacific Theatres and Summit Entertainment, each represented 10% or
more of AccessIT SW’s revenues and together generated 38.1% of AccessIT SW’s
revenues and Carmike Theatres generated 31.3% of DMS’ TCC revenues. Pacific
Theatres and Summit Entertainment are also customers for Digital Media
Delivery. We expect to continue to conduct business with each of these
customers in fiscal year 2009.
 
 Competition
 
 Within
the major motion picture studios and exhibition circuits, AccessIT SW’s
principal competitors for its products are in-house development teams, which
generally are assisted by outside contractors and other
third-parties.  Most motion picture studios that do not use the TDS
software use their own in-house developed systems.  Internationally,
AccessIT SW is aware of one vendor based in the Netherlands providing similar
software on a smaller scale.  AccessIT SW’s movie exhibition product,
EMSTM, competes principally with customized solutions developed by the large
exhibition circuits and at least one other competitor that has been targeting
mid- to small-sized motion picture exhibitors.  We believe that
AccessIT SW, through its technology and management experience, may differentiate
itself by providing a competitive alternative to their forms of digital content
delivery and management business.
 
 Current
proprietary software of DMS for digital media delivery 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 Servicessoftware.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.
 
 Our TCC
system, provides in-theatre management for digitally–equipped movie theatres,
enabling one to control all the screens in a movie theatre, manage content and
version review, show building, program scheduling and encryption security key
management from a central terminal, whether located in the projection booth, the
theatre manager’s office or both.
 
 The
Digital Express e-Courier ServicesSM
software makes interaction between the content originator (such as the motion
picture studio) and the exhibitor easier:
 
 ·
              Programming
      is viewed, booked, scheduled and electronically delivered through Digital
      Express e-Courier ServicesSM.
 ·
              Once
      received, DCDMs are prepared for distribution employing wrapper
      technology, including the application of an additional layer of Advanced
      Encryption Standard encryption, for added
  security.
 ·
              Designed
      to provide transparent control over the delivery process, Digital Express
      e-Courier 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.
 
 Current
licensed software of AccessIT DC consists of the following:
  5
  
 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 motion picture exhibitors participating in AccessIT DC’s Phase I
Deployment.
 
 Market
Opportunity
 
 According
to the Motion Picture Association, on average, there were approximately 530 new
movie releases for each of the past two years.  The average major
movie is released to approximately 4,000 screens in the United States and 8,000
screens worldwide.  According to the National Association of Theatre
Owners, there are approximately 107,000 screens worldwide that play major movie
releases, with approximately 38,000 screens located in the United
States.
 
 We
believe that:
 
 ·
              the
      demand for digital content delivery will increase as the movie,
      advertising and entertainment industries continue to convert to a digital
      format in order to achieve cost savings, greater flexibility and/or
      improved image quality;
 ·
              digital
      content delivery eventually will replace, or at least become more
      prevalent than, the current method used for film delivery since existing
      film delivery generally involves the time-consuming, somewhat expensive
      and cumbersome process of receiving bulk printed film, rebuilding the film
      into shipping reels, packaging the film reels into canisters and
      physically delivering the film reels by traditional ground modes of
      transportation to movie theatres;
 ·
              the
      expanding use of digital content delivery will lead to an increasing need
      for digital content delivery, as the movie exhibition industry now has the
      capability to present advertisements, trailers and alternative
      entertainment in a digital format and in a commercially viable
      manner;
 ·
              motion
      picture exhibitors may be able to profit from the presentation of new
      and/or additional advertising in their movie theatres and that alternative
      entertainment at movie theatres may both expand their hours of operation
      and increase their occupancy rates;
 ·
              the
      demand for our digital content delivery is directly related to the number
      of digital movie releases each year, the number of movie screens those
      movies are shown on and the transition to digital presentations in those
      movie theatres;
 ·
              the
      cost to deliver digital movies to movie theatres will be much less than
      the cost to print and deliver analog movie prints, and such lesser cost
      will provide the economic model to drive the conversion from analog to
      digital cinema (according to Nash Information Services, LLC., the average
      film print costs $2,000 per print);
and
 ·
              digital
      content delivery will help reduce the cost of illegal off-the-screen
      recording of movies with handheld camcorders due to the watermark
      technology being utilized in content distributed through digital cinema
      (according to the Motion Picture Association of America, this costs the
      worldwide movie exhibition industry an estimated $6.1 billion
      annually).
 
 To date,
in connection with our Phase I Deployment, we have entered into digital cinema
deployment agreements with seven motion picture studios and a digital cinema
agreement with one alternative content provider for the distribution of digital
movie releases and alternative content to motion picture exhibitors equipped
with Systems, and providing for payment of VPFs and ACFs to AccessIT
DC.  In December 2007, AccessIT DC completed its Phase I Deployment
with 3,723 Systems installed.
 
 Intellectual
Property
 
 AccessDM
has received United States service mark registrations for the following:
AccessDM® and The Courier For The Digital Era®. AccessIT has received United
States service mark registration for Access Digital Media® and
Digi-Central®.
 
 DMS
currently has intellectual property consisting of unregistered trademarks and
service marks, including CineLiveSM.
   6
   FiberSat
Global Services, Inc. has received a United States trademark registration for
the marks Theatre Command Center® and Theater Command Center®.
 
 Customers
 
 Digital
Media Delivery customers are mainly the motion picture studios and in-theatre
advertising customers. For the fiscal year ended March 31, 2008, AccessIT
DC’s customers comprised 78.7% of Media Services’ revenues. Five
customers, 20th Century
Fox, Disney Worldwide Services, Paramount Pictures, Sony Pictures Releasing
Corporation and Warner Brothers, each represented 10% or more of AccessIT
DC’s revenues and together generated 57.3% and 47.1% of AccessIT DC’s and
Media Services’ revenues, respectively, and are also customers for
Entertainment Software.  We expect to continue to conduct business
with these customers in fiscal year 2009.
 
 Competition
 
 Companies
that have developed forms of digital content delivery to entertainment venues
include:
 
 ·
              Technicolor
      Digital Cinema, an affiliate of the Thomson Company, which has developed
      distribution technology and support services for the physical delivery of
      digital movies to motion picture exhibitors and is currently testing a
      rollout plan;
 ·
              National
      CineMedia, LLC (NCM), a venture of AMC, Cinemark USA, Inc. and Regal,
      which have joined to work on the development of a digital cinema business
      plan, primarily concentrated on in-theatre advertising, business meetings
      and non-feature film content distribution;
and
 ·
              DELUXE
      Laboratories, a wholly owned subsidiary of the MacAndrews & Forbes
      Holdings, Inc., which has developed distribution technology and support
      services for the physical delivery of digital movies to motion picture
      exhibitors.
 
 These
competitors have significantly greater financial, marketing and managerial
resources than we do, have generated greater revenue and are better known than
we are. However, we believe that DMS, through its technology and management
experience, its development of software capable of delivering digital content
electronically worldwide, its development of the Theatre Command Center
software, and the complement of AccessIT SW’s software, differentiate us from
our competitors by providing a competitive alternative to their forms of digital
content delivery.
 
 We expect
to co-market Digital Media Delivery to the current and prospective customers of
AccessIT SW, using marketing and sales efforts and resources of both companies,
which would enable owners of digital content to securely deliver such digital
content to their customers and, thereafter, to manage and track data regarding
the presentation of the digital content, including different forms of audio
and/or visual entertainment.  As the digital content industry
continues to develop, we may engage in other marketing methods, such as
advertising and service bundling, and may hire additional sales
personnel.
 
 Managed
Services
 
 We have
developed two distinct Managed Services offerings, Network and Systems
Management and Managed Storage Services.
 
 Network
and Systems Management
 
 We offer
our customers the economies of scale of the GNCC with an advanced engineering
staff.  Our network and systems management services
include:
 
 ·
              network
      architecture and design;
 ·
              systems
      and network monitoring and
management;
 ·
              data
      and voice integration;
 ·
              project
      management;
 ·
              auditing
      and assessment;
 ·
              on
      site support for hardware installation and repair, software installation
      and update and a 24x7 user help
desk;
 ·
              a
      24x7 Citrix server farm (a collection of computer servers);
      and
 ·
              fully
      managed hosting services.
  7
 Managed
Storage Services
 
 Our
managed storage services, known as AccessStorage-on-Demand,
include:
 
 ·
              hardware
      and software from such industry leaders as EMC Symmetrix, StorageTek and
      Veritas;
 ·
              pricing
      on a per-gigabyte of usage basis which provides customers with reliable
      primary data storage that is connected to their
  computers;
 ·
              the
      latest storage area network (“SAN”) technology and SAN monitoring by our
      GNCC; and
 ·
              a
      disaster recovery plan for customers that have their computers located
      within one of our IDCs by providing them with a tape back-up copy of their
      data that may then be sent to the customer’s computer if the customer’s
      data is lost, damaged or
inaccessible.
 
 All
managed storage services are available separately or may be bundled together
with other services.  Monthly pricing is based on the type of storage
(tape or disk), the capacity used and the level of accessibility
required.
 
 Market
Opportunity
 
 We
believe that:
 
 ·
              this
      low-cost and customizable alternative to designing, implementing, and
      maintaining a large scale network infrastructure enables our clients to
      focus on information technology business development, rather than the
      underlying communications infrastructure;
and
 ·
              our
      ability to offer clients the benefits of a SAN storage system at a
      fraction of the cost of building it themselves, allows our clients to
      focus on their core business.
 
 Intellectual
Property
 
 AccessIT
has received United States service mark registration for the following service
marks: Access Integrated Technologies®, AccessSecure®; AccessSafe®;
AccessBackup®; AccessBusinessContinuance®; AccessVault®; AccessContent®;
AccessColocenter®; AccessDataVault®; AccessColo®; AccessColo, Inc.®; and
AccessStore®.
 
 Customers
 
 Our
Managed Services customers mainly include major and mid-level networks and ISPs,
various users of network services, traditional voice and data transmission
providers, long distance carriers and commercial businesses and the motion
picture studio customers of our Media Services.  For the fiscal year
ended March 31, 2008, four customers, the Boeing Company, Kelley Drye &
Warren LLP (“KDW”), Rothschild, Inc. and the Weinstein Company, each represented
10% or more of Managed Service revenues and together generated 54% of Managed
Service’s revenues.  Other than KDW, who is also outside legal counsel
for the Company, we do not have any other relationships with these
customers.  We expect to continue to conduct business with these
customers in fiscal 2009, except for the Boeing Company with whom our
contractual relationship is expected to terminate.
 
 Competition
 
 Many data
center operators offer managed services to clients who co-locate servers in the
operator owned data center. Our focus is on delivery of managed services inside
the IDCs, now operated by FiberMedia AIT, LLC and Telesource Group, Inc.
(together, “FiberMedia”), as a lead product for primary data center services and
to also offer those services to clients who have servers outside the IDCs
allowing us to offer remote server and network monitoring, server and network
management and disaster recovery services.
 
 Our
competitors have greater financial, technical, marketing and managerial
resources than we do.  These competitors also generate greater revenue
and are better known than we are. However, we believe that, by offering the IDCs
now operated by FiberMedia along with related data center services, may
differentiate us from our competition by providing a competitive bundled
solution.
 
 Seasonality
 
 Media
Services revenues derived from the collection of VPFs from motion picture
studios are seasonal, coinciding with the timing of releases of movies by the
motion picture studios. Generally, motion picture studios release the most
marketable movies
  8
  during
the summer and the holiday season. The unexpected emergence of a hit movie
during other periods can alter the traditional trend. The timing of movie
releases can have a significant effect on our results of operations, and the
results of one quarter are not necessarily indicative of results for the next
quarter or any other quarter. The seasonality of motion picture exhibition,
however, has become less pronounced as the motion picture studios are releasing
movies somewhat more evenly throughout the year.
 
 Government
Regulation
 
 Except
for the requirement of compliance with United States export controls relating to
the export of high technology products, we are not subject to government
approval procedures or other regulations for the licensing of our Entertainment
Software products.
 
 The
distribution of movies is in large part regulated by federal and state antitrust
laws and has been the subject of numerous antitrust cases. Motion picture
studios offer and license movies to motion picture exhibitors, on a
movie-by-movie and theatre-by-theatre basis. Consequently, motion picture
exhibitors cannot assure themselves of a supply of movies by entering into
long-term arrangements with motion picture studios, but must negotiate for
licenses on a movie-by-movie basis.  AccessIT Satellite maintains a
Federal Communications Commission (“FCC”) broadcast license related to our
satellite transmission of content and should we violate any FCC laws, we may be
subject to fines and or forfeiture of our broadcast license.
 
 Media
Services is also subject to federal, state and local laws governing such matters
as wages, working conditions, citizenship and health and sanitation
requirements. We believe that we are in substantial compliance with all of such
laws.
 
 The
nature of Media Services does not subject us to environmental laws in any
material manner.
 
 CONTENT
& ENTERTAINMENT
 
 The
Content & Entertainment business 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. d/b/a AccessIT Advertising and Creative Services
      (“ACS”)
              ·Provides
      cinema advertising services and entertainmentVistachiara
      Productions, Inc. d/b/a The Bigger Picture (“The Bigger
      Picture”)
              ·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 ACS from ACS’s
stockholders (the “ACS Acquisition”).
 
 In
January 2007, through our wholly owned subsidiary, The Bigger Picture, we
purchased substantially all of the assets of BP/KTF, LLC (the “Bigger Picture
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.
 
 Intellectual
Property
 
 There is
no intellectual property related to our Content & Entertainment
business.
 
  9
  Customers
 
 For the
fiscal year ended March 31, 2008, ACS and our Pavilion Theatre comprised 75% and
22% 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.
 
 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 business 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 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 exhibitor 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.
 
 Our
Content & Entertainment business 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 business does not subject us to
environmental laws in any material manner.
 
  10
  OTHER
 
 The Other
business 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
 
 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.
 
 EMPLOYEES
 
 As of
March 31, 2008, we had 295 employees, of which 45, working primarily at the
Pavilion Theatre, are part-time and 250 are full-time.  Of our
full-time employees, 74 are in sales and marketing, 102 are in operations, 14
are in research and development, 22 are in technical services, and 38 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.accessitx.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, and all amendments to those reports 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.
 
 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 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 and which prohibits the Company and its
subsidiaries from incurring indebtedness in an aggregate of $315.0 million until
certain conditions are met.
 
 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
  11
  ACS and
(e) operating an alternate content distribution company, through our
wholly-owned subsidiary, The Bigger Picture.  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 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
  12
  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
successfully to 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
recent 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.  Most
recently, in July 2006, we acquired all of the capital stock of ACS and in
January 2007, the Company, through its wholly-owned subsidiary, The Bigger
Picture, 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 ACS and The Bigger Picture.  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 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 2004,
we have acquired the businesses discussed above and in connection with those
acquisitions, we have formed additional subsidiaries.  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 300 in March 2008.  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
  13
  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.
 
 We
may continue to have customer concentration in our business, and the loss of one
or more of our largest customers could have a material adverse effect on
us.
 
 We expect
that we will rely, at least in the near future, upon a limited number of
customers for a substantial percentage of our revenues and may continue to have
customer concentration company-wide.  For the fiscal year ended March
31, 2008, AccessIT DC’s customers comprised 78.7% of Media Services revenues.
For the fiscal year ended March 31, 2008, ACS and our Pavilion Theatre comprised
74.8% and 21.4% 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.  Media Services’ customers are principally worldwide motion
picture studios.  For the fiscal year ended March 31, 2008, five
customers, 20th Century
Fox, Disney Worldwide Services, Paramount Pictures, Sony Pictures Releasing
Corporation and Warner Brothers, each represented 10% or more of AccessIT DC’s
revenues and together generated 57.3%, 8.2%, 21.0% and 47.1% of AccessIT DC’s,
AccessIT SW’s, AccessDM’s and the Media Service segment’s revenues,
respectively.  In addition, many of our revenue-generating assets,
including the assets of AccessIT DC, are located in movie theatres nationwide,
which we do not own or control.  If some portion of these assets were
out of service for any reason, such as the closure of exhibitor locations or a
calamity that causes a physical property loss such as fire or flood, we would
experience an interruption in the amount of revenues we generate until those
assets could be restored to service.
 
 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
  14
  amounts
aggregating $267.7 million as of March 31, 2008.  We also have a
capital lease obligation covering facilities with the principal amount of $5.9
million as of March 31, 2008.
 
 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 us to borrow
up to $217.0 million of which $201.3 million has been drawn down as of March 31,
2008 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 and
available cash financed through the issuance of securities and our GE Credit
Facility will be adequate to meet our future liquidity needs for at least one
year from the date of this report.  Significant assumptions underlie
this belief, including, among other things, that there will be no
material
  15
  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:
 
 ·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, 2008, we had positive working capital, defined as current assets
less current liabilities, of $14.0 million and cash and cash equivalents of
$29.7 million; we had an accumulated deficit of $100.7 million; and, from
inception through such date, and we had used $33.6 million in cash for operating
activities.  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 expected 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
June 6, 2008, 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 43.0% 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
230,388 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 22.5% 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
  16
  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 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
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
master collocation agreement (“MCA”) with FiberMedia AIT, LLC and Telesource
Group, Inc. (together, “FiberMedia”) 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, 2008, obligations under these operating leases totaled $8.5
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, should the Company’s Common Stock decline significantly, that
the Company will meet the criteria for continued listing on NASDAQ. 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
adequate 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 require us to include in our
Form 10-K an annual report by our management regarding the effectiveness of
our internal control over financial reporting. The report includes, among other
things, an assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year. This assessment must
include disclosure of any material weaknesses in our internal control over
financial reporting identified by management. During this process, if our
management
  17
  identifies
one or more material weaknesses in our internal control over financial reporting
that cannot be remediated in a timely manner, we will be unable to assert such
internal control is 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 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.
 
 ITEM
1B.  UNRESOLVED STAFF COMMENTS
 
 None.
 
 ITEM
2.  PROPERTY
 
 Our
businesses operated from the following leased properties at March 31,
2008.
 
 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)
              31,120ACS
              St.
      Cloud, Minnesota
              Administrative
      offices
              July
      2008 (8)
              5,886Waite
      Park, Minnesota
              Sales
      staff offices
              January
      2012 (8)
              6,434Columbus,
      Ohio
              Sales
      staff offices
              August
      2008 (8)
              1,245The
      Bigger Picture
              Sherman
      Oaks, California
              Administrative
      offices
              January
      2012 (9)
              3,015
 
 
 Other
 
 Operations
      of:
              Location:
              Facility
      Type:
              Expires:
              Square
      Feet:Data
      Centers
              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)
              30,520
 
  18
  Corporate
 
 Operations
      of:
              Location:
              Facility
      Type:
              Expires:
              Square
      Feet:AccessIT
              Morristown,
      New Jersey
              Executive
      offices
              May
                2009
      (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 will 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.
 (8)
              There
      is no lease renewal provision.  However, the Company and
      FiberMedia are attempting to have the IDC facility leases assigned to
      Fibermedia by the landlords, and to extend the term of the lease for the
      Jersey City IDC Facility.
 (9)
              In
      addition to this office, employees of The Bigger Picture currently share
      office space with BP/KTF, LLC in Woodland Hills, California, which charges
      The Bigger Picture for a pro-rated share of office space
    used.
 (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
      has an option to renew for one additional four-year term with seven months
      prior written notice at the then prevailing market rental
      rate.  We are currently in negotiations regarding this lease
      renewal.
 
 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
 
 None.
 
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
 
 None.
  19
  PART
II
 
 ITEM
5.MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
 
 CLASS
A COMMON STOCK
 
 Until the
close of business on April 17, 2006, our Class A common stock (“Class A Common
Stock”) traded publicly on the American Stock Exchange (“AMEX”) under the
trading symbol “AIX”. Effective April 18, 2006, the Company’s Class A Common
Stock began trading publicly on the Nasdaq Global Market (“NASDAQ”), under the
trading symbol “AIXD”. 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 31,2007
              
              
              2008HIGH
              
              
              LOW
              
              
              HIGH
              
              
              LOWApril
      1 – June 30
              
              $
              14.73
              
              
              $
              9.81
              
              
              $
              8.52
              
              
              $
              5.24July
      1 – September 30
              
              $
              11.08
              
              
              $
              7.98
              
              
              $
              9.68
              
              
              $
              5.40October
      1 – December 31
              
              $
              11.30
              
              
              $
              8.40
              
              
              $
              5.84
              
              
              $
              2.96January
      1 – March 31
              
              $
              9.58
              
              
              $
              5.23
              
              
              $
              4.46
              
              
              $
              2.05
 
 The last
reported closing price per share of our Class A Common Stock as reported by
NASDAQ on June 6, 2008 was $2.11 per share.  As of June 6, 2008, there
were approximately 94 holders of record of our Class A Common Stock, not
including shares held in street name.
 
 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 each holder of Class B Common Stock is
entitled to ten (10) votes for each share of Class B Common Stock
held.  As of June 6, 2008, 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.
 
 PERFORMANCE
GRAPH
 
 The chart
below compares the cumulative total shareholder return on our Class A Common
Stock from our initial public offering on November 10, 2003 through the fiscal
year ended March 31, 2008 with the cumulative total return on (i) the Russell
2000 Index and (ii) a peer group consisting of the other companies identified by
our standard industrial code (SIC) with market capitalization of between $10
million and $100 million for the same period1. The
comparison assumes the investment of $100 on November 10, 2003, and reinvestment
of all dividends. The stockholder return is not necessarily indicative of future
performance.
  20
  
 
 
 1The peer
group, based on the criteria set forth above, consists of Access Plans USA,
Inc., Analytical Surveys, Inc., APAC Customer Services, Inc.,
Arbinet-Thexchange, Inc., Collectors Universe, Inc., Escala Group, Inc., IA
Global, Inc., ICTS International N.V., International Monetary Systems, Ltd.,
ITEX Corporation, LiveDeal, Inc., PacificNet Inc., Profile Technologies, Inc.,
SPAR Group, Inc. and SSI Surgical Services, Inc.
 
 SALES OF UNREGISTERED
SECURITIES
 
 On March
31, 2008, the Company issued 548,572 shares of Class A Common Stock to the
holders of the 2007 Senior Notes in payment of the quarterly interest due March
31, 2008.  Theses shares of Class A Common Stock were included among
the 1,249,875 shares of Class A Common Stock, the resale of which was previously
registered on the registration statement on Form S-3 on September 26, 2007,
which was declared effective by the SEC on November 2, 2007.  These
shares were issued in reliance upon applicable exemptions from registration
under Section 4(2) of the Securities Act of 1933, as amended.
 
 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, 2008. We do not
anticipate purchasing any shares of our Class A Common Stock in the
foreseeable future.
 
  21
  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,” 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)2004
              
              
              2005
              
              
              2006
              
              
              2007
              
              
              2008(Restated)
              
              
              (Restated)Statement
      of Operations Data:Revenues
              
              $
              7,201
              
              
              $
              10,651
              
              
              $
              16,795
              
              
              $
              47,110
              
              
              $
              80,984Direct
      operating (exclusive of depreciation and amortization shown
      below)
              
              
              3,667
              
              
              
              5,811
              
              
              
              11,550
              
              
              
              22,214
              
              
              
              26,569Selling,
      general and administrative
              
              
              3,204
              
              
              
              5,607
              
              
              
              8,887
              
              
              
              18,565
              
              
              
              23,170Provision
      for doubtful accounts
              
              
              73
              
              
              
              640
              
              
              
              186
              
              
              
              848
              
              
              
              1,396Research
      and development.
              
              
              55
              
              
              
              666
              
              
              
              300
              
              
              
              330
              
              
              
              162Stock-based
      compensation
              
              
              15
              
              
              
              4
              
              
              
              -
              
              
              
              2,920
              
              
              
              453Loss
      on disposition of assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,561
              
              
              
              -Impairment
      of intangible asset
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,588Depreciation
      of property and equipment
              
              
              1,557
              
              
              
              2,105
              
              
              
              3,693
              
              
              
              14,699
              
              
              
              29,285Amortization
      of intangible assets
              
              
              1,135
              
              
              
              1,518
              
              
              
              1,308
              
              
              
              2,773
              
              
              
              4,290Total
      operating expenses
              
              
              9,706
              
              
              
              16,351
              
              
              
              25,924
              
              
              
              64,910
              
              
              
              86,913Loss
      from operations
              
              
              (2,505
              )
              
              
              (5,700
              )
              
              
              (9,129
              )
              
              
              (17,800
              )
              
              
              (5,929
              )Interest
      income
              
              
              6
              
              
              
              5
              
              
              
              316
              
              
              
              1,425
              
              
              
              1,406Interest
      expense
              
              
              (542
              )
              
              
              (605
              )
              
              
              (2,237
              )
              
              
              (7,273
              )
              
              
              (22,284
              )Non-cash
      interest expense
              
              
              (1,823
              )
              
              
              (832
              )
              
              
              (1,407
              )
              
              
              (1,903
              )
              
              
              (7,043
              )Loss
      on early extinguishment of debt
              
              
              (126
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Debt
      conversion expense
              
              
              -
              
              
              
              -
              
              
              
              (6,269
              )
              
              
              -
              
              
              
              -Debt
      refinancing expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,122
              )Other
      (expense) income, net
              
              
              (27
              )
              
              
              33
              
              
              
              1,603
              
              
              
              (448
              )
              
              
              (715
              )Net
      loss
              
              $
              (5,017
              )
              
              $
              (7,099
              )
              
              $
              (17,123
              )
              
              $
              (25,999
              )
              
              $
              (35,687
              )Basic
      and diluted net loss per share
              
              $
              (1.04
              )
              
              $
              (0.73
              )
              
              $
              (1.22
              )
              
              $
              (1.10
              )
              
              $
              (1.40
              )Shares
      used in computing basic and diluted net loss per share
      (1)
              
              
              4,827
              
              
              
              9,669
              
              
              
              14,086
              
              
              
              23,730
              
              
              
              25,577Balance
      Sheet Data (At Period End):Cash
      and cash equivalents
              
              $
              2,330
              
              
              $
              4,779
              
              
              $
              36,641
              
              
              $
              29,376
              
              
              $
              29,655Working
      Capital
              
              
              212
              
              
              
              1,733
              
              
              
              48,851
              
              
              
              13,130
              
              
              
              14,038Total
      assets
              
              
              19,570
              
              
              
              36,172
              
              
              
              122,342
              
              
              
              301,727
              
              
              
              373,676Notes
      payable, net of current portion
              
              
              5,589
              
              
              
              12,682
              
              
              
              1,948
              
              
              
              164,196
              
              
              
              250,689Total
      stockholders' equity
              
              $
              9,495
              
              
              $
              10,651
              
              
              $
              97,774
              
              
              $
              90,805
              
              
              $
              68,007Other
      Financial Data (At Period End:Net
      cash provided by (used in) operating activities
              
              $
              321
              
              
              $
              (3,258
              )
              
              $
              (5,488
              )
              
              $
              (19,190
              )
              
              $
              (443
              )Net
      cash used in investing activities
              
              $
              (3,594
              )
              
              $
              (5,925
              )
              
              $
              (50,872
              )
              
              $
              (135,277
              )
              
              $
              (96,855
              )Net
      cash provided by financing activities
              
              $
              4,647
              
              
              $
              11,632
              
              
              $
              88,222
              
              
              $
              147,202
              
              
              $
              97,577
 
 (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.
 
  22
  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 the 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, including Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical fact included in this Form 10-K,
including 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 are forward-looking statements. 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
 
 AccessIT
was incorporated in Delaware on March 31, 2000.  We provide fully
managed storage, electronic delivery and software services and technology
solutions for owners and distributors of digital content to movie theatres and
other venues.  In the past, we have generated revenues from two
primary businesses, Media Services and Data Center Services, a business we no
longer operated after May 1, 2007. Beginning April 1, 2007, we made changes to
our organizational structure which impacted our reportable segments, but did not
impact our consolidated financial position, results of operations or cash flows.
We realigned our focus to three primary businesses, Media Services, Content
& Entertainment and Other. Our Media Services business provides software,
services and technology solutions to the motion picture and television
industries, primarily to facilitate the transition from analog (film) to digital
cinema and has positioned us at what we believe to be the forefront of an
emerging industry opportunity relating to the delivery and management of digital
cinema and other content to entertainment and other remote venues
worldwide.  Our Content & Entertainment business provides motion
picture exhibition to the general public and cinema advertising and film
distribution services to movie exhibitors.  Our Other business is
attributable to the Data Center Services.
 
 Since May
1, 2007, our IDCs have been operated by FiberMedia pursuant to a master
collocation agreement.  Although we are still the lessee of the IDCs,
substantially all of the revenues and expenses are being realized by FiberMedia
and not the Company.
 
 We have
incurred net losses of $17.1 million, $26.0 million and $35.7 million in the
fiscal years ended March 31, 2006, 2007 and 2008, respectively, and we have an
accumulated deficit of $100.7 million as of March 31, 2008. We anticipate that,
with our recent acquisitions and the operations of AccessIT DC and DMS, our
results of operations will improve. As we grow, we expect our operating costs
and general and administrative expenses will also increase for the foreseeable
future, but as a much lower percentage of revenue. In order to achieve and
sustain profitable operations, we will need to generate more revenues than we
have in prior years and we may need to obtain additional financing.
 
 Critical
Accounting Policies
 
 The
following is a discussion of our critical accounting policies.
 
 PROPERTY
AND EQUIPMENT
 
 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.
 
  23
  CAPITALIZED
SOFTWARE DEVELOPMENT COSTS
 
 Internal
Use Software
 
 We
account for these software development costs under Statement of Position (“SOP”)
98-1, “Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use” (“SOP
98-1”).  SOP 98-1 states that there are three distinct stages to the
software development process for internal use software.  The first
stage, the preliminary project stage, includes the conceptual formulation,
design and testing of alternatives.  The second stage, or the program
instruction phase, includes the development of the detailed functional
specifications, coding and testing.  The final stage, the
implementation stage, includes the activities associated with placing a software
project into service.  All activities included within the preliminary
project stage would be considered research and development and expensed as
incurred.  During the program instruction phase, all costs incurred
until the software is substantially complete and ready for use, including all
necessary testing, are capitalized and amortized on a straight-line basis over
estimated lives ranging from three to five years.  We have not sold,
leased or licensed software developed for internal use to our customers and we
have no intention of doing so in the future.
 
 Software
to be Sold, Licensed or Otherwise Marketed
 
 We
account for these software development costs under SFAS No. 86, “Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS
No. 86”).  SFAS No. 86 states that software development costs that are
incurred subsequent to establishing technological feasibility are capitalized
until the product is available for general release. Amounts capitalized as
software development costs are amortized using the greater of revenues during
the period compared to the total estimated revenues to be earned or on a
straight-line basis over estimated lives ranging from three to five years. We
review capitalized software costs for impairment on a periodic basis. To the
extent that the carrying amount exceeds the estimated net realizable value of
the capitalized software cost, an impairment charge is recorded. No impairment
charge was recorded for the fiscal years ended March 31, 2006, 2007 and 2008,
respectively.  Amortization of capitalized software development costs,
included in direct operating costs, for the fiscal years ended March 31, 2006,
2007 and 2008 amounted to $0.5 million, $0.8 million and $0.6 million,
respectively.  Revenues relating to customized software development
contracts are recognized on a percentage-of-completion method of accounting
using the cost to date to the total estimated cost approach.  For the
fiscal years ended March 31, 2006, 2007 and 2008, unbilled receivables under
such customized software development contracts aggregated $1.5 million, $1.4
million and $1.2 million, respectively.
 
 REVENUE
RECOGNITION
 
 Media
Services
 
 Our Media
Services revenues are generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Software
      licensing, including customer licenses and application service provider
      (“ASP Service”) agreements.
              
              Statement
      of Position (“SOP”) 97-2,
                “Software
      Revenue Recognition”Software
      maintenance contracts, and professional consulting services, which
      includes systems implementation, training, custom software development
      services and other professional services, delivery revenues via satellite
      and hard drive, data encryption and preparation fee revenues, satellite
      network monitoring and maintenance fees, movie theatre admission and
      concession revenues, virtual print fees (“VPFs”) and alternative content
      fees (“ACFs”).
              
              Staff
      Accounting Bulletin (“SAB”) No. 104
                “Revenue
      Recognition in Financial Statements”
                (“SAB
      No. 104”).Cinema
      advertising service revenues and distribution fee
revenues.
              
              SOP
      00-2, “Accounting by Producers or
                Distributors
      of Films” (“SOP 00-2”)
 
 Software
licensing revenue is recognized when the following criteria are met: (a)
persuasive evidence of an arrangement exists, (b) delivery has occurred and no
significant obligations remain, (c) the fee is fixed or determinable and (d)
collection is determined to be probable. Significant upfront fees are received
in addition to periodic amounts upon achievement of contractual events for
licensing of our products. Such amounts are deferred until the revenue
recognition criteria have been met, which typically occurs upon delivery and
acceptance.
 
 Revenues
relating to customized software development contracts are recognized on a
percentage-of-completion method of accounting.
  24
  
 Deferred
revenue is recorded in cases where:  (1) a portion or the entire
contract amount cannot be recognized as revenue, due to non-delivery or
acceptance of licensed software or custom programming, (2) incomplete
implementation of ASP Service arrangements, or (3) unexpired pro-rata periods of
maintenance, minimum ASP Service fees or website subscription fees. As license
fees, maintenance fees, minimum ASP Service fees and website subscription fees
are often paid in advance, a portion of this revenue is deferred until the
contract ends. Such amounts are classified as deferred revenue and are
recognized as revenue in accordance with our revenue recognition policies
described above.
 
 Cinema
advertising service revenue, and the associated direct selling, production and
support cost, is recognized on a straight-line basis over the period the related
advertising is displayed in-theatre, pursuant to the specific terms of each
advertising contract. We have the right to receive or bill the entire amount of
the advertising contract upon execution, and therefore such amount is recorded
as a receivable at the time of execution, and all related advertising revenue
and all direct costs actually incurred are deferred until such time as the
advertising is displayed in-theatre.
 
 The right
to sell and display such advertising, or other in-theatre programs, products and
services, is based upon advertising contracts with exhibitors which stipulate
payment terms to such exhibitors for this right. Payment terms generally consist
of either fixed annual payments or annual minimum guarantee payments, plus a
revenue share of the excess of a percentage of advertising revenue over the
minimum guarantee, if any.  We recognize the cost of fixed and minimum
guarantee payments on a straight-line basis over each advertising contract year,
and the revenue share cost, if any, as such obligations arise in accordance with
the terms of the advertising contract.
 
 Distribution
fee revenue is recognized for the theatrical distribution of third party feature
films and alternative content at the time of exhibition based on our
participation in box office receipts.  We have the right to receive or
bill a portion of the theatrical distribution fee in advance of the exhibition
date, and therefore such amount is recorded as a receivable at the time of
execution, and all related distribution revenue is deferred until the third
party feature films’ or alternative content’s theatrical release
date.
 
 Data
Center Services
 
 Our Data
Center Services revenues were generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:License
      fees for data center space, hosting and network access fees, electric,
      cross connect fees and riser access charges,  non-recurring
      installation and consulting fees, network monitoring and maintenance
      fees.
              
              SAB
      No. 104
 
 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 us.
 
 Results
of Operations for the Fiscal Years Ended March 31, 2006 and 2007
 
 Revenues
 
 Revenues
were $16.8 million and $47.1 million for the fiscal years ended March 31, 2006
and 2007, respectively, an increase of $30.3 million or 181%. The increase was
driven largely by the ACS Acquisition, VPF revenues, license fees earned for our
TCC software and the Bigger Picture Acquisition offset by reduced revenues from
our IDCs. We expect AccessIT DC’s VPF revenues, and DMS digital distribution
related revenues to significantly increase as an increasing number of Systems
are placed into service in support of AccessIT DC’s Phase I
Deployment.  We also expect ACS cinema on-screen advertising revenues
and alternative content distribution related revenues of The Bigger Picture to
increase significantly as both will have operations for a full
year.
 
 Direct Operating
Costs
 
 Total
direct operating costs were $11.5 million and $22.2 million for the fiscal years
ended March 31, 2006 and 2007, respectively, an increase of $10.7 million or
93%. The increase was attributable to the ACS Acquisition, payroll and other
operating costs.  We expect an increase in direct operating costs,
primarily in payroll and other costs related to the impact of the operations of
ACS and The Bigger Picture for a full year, offset by reduced direct operating
costs from our IDCs as those costs will be reimbursed by
FiberMedia.
 
  25
  Selling, General and
Administrative Expenses
 
 Total
selling, general and administrative expenses were $8.9 million and $18.6 million
for the fiscal years ended March 31, 2006 and 2007, respectively, an increase of
$9.7 million or 109%. The increase was primarily due to the ACS Acquisition and
increased company-wide staffing costs. We expect an increase in selling, general
and administrative expenses mainly in payroll and other expenses related to the
impact of the operations of ACS and The Bigger Picture for a full
year.  As of March 31, 2006 and 2007 we had 140 and 348 employees,
respectively, of which 54 and 52, respectively, were part-time employees and 0
and 115, respectively, were salespersons.  We anticipate an increase
in employees going forward as we expect to hire as employees some of the
subcontracted technical staff we used during the fiscal year ended March 31,
2007.
 
 Stock-based Compensation
Expense
 
 Total
stock-based compensation expense was $0 and $2.9 million for the fiscal years
ended March 31, 2006 and 2007, respectively.  We anticipate that we
will experience a decrease in our total stock-based compensation expense as $2.8
million for the fiscal year ended March 31, 2007 related to the Company’s
adoption of SFAS 123(R) (see Note 2 in the consolidated financial
statements).
 
 Loss on Disposition of
Assets
 
 For the
fiscal year ended March 31, 2007, we recognized a loss of $2.6 million on the
disposition of assets related to our IDCs.  Included in this loss was
the write-off of all the IDC net assets as of March 31, 2007 and the estimated
fiscal 2008 IDC net loss for those expenses not fully reimbursable by
FiberMedia.  The disposition of our Data Center Services represented a
strategic realignment of our technical and financial resources, thus enabling us
to focus on what we believe are more profitable business
opportunities.  It was determined that the agreement being negotiated
with FiberMedia prevented us from continuing to classify the IDCs as
discontinued operations as we retained significant involvement in the operations
of the IDCs.  We remain as the lessee of the relevant facilities until
such time that landlord consents can be obtained to assign each facility lease
to FiberMedia.
 
 Depreciation Expense on
Property and Equipment
 
 Total
depreciation expense was $3.7 million and $14.7 million for the fiscal years
ended March 31, 2006 and 2007, respectively, an increase of $11.0 million or
298%. The increase was primarily attributable to the depreciation for the assets
to support AccessIT DC’s Phase I Deployment. We anticipate that we will
experience an increase in our total depreciation expense consistent with the
depreciation of an increasing number of Systems purchased by AccessIT DC in
support of its Phase I Deployment.
 
 Amortization Expense of
Intangible Assets
 
 Total
amortization expense was $1.3 million and $2.8 million for the fiscal years
ended March 31, 2006 and 2007, respectively, an increase of $1.5 million or
112%. The increase was primarily attributable to the amortization of intangible
assets due to the ACS Acquisition and the Bigger Picture Acquisition. We
anticipate that we will experience a slight increase in our total amortization
expense as the intangible assets associated with both the ACS Acquisition and
the Bigger Picture Acquisition are expensed for a full fiscal year.
 
 Interest
Income
 
 Total
interest income was $0.3 million and $1.4 million for the fiscal years ended
March 31, 2006 and 2007, respectively, an increase of $1.1 million or 351%. The
increase was directly attributable to the amount of cash, cash equivalents and
investments on hand during the fiscal year ended March 31, 2007 compared to the
fiscal year ended March 31, 2006, resulting from the funds received from the
March 2006 Offering, the March 2006 Second Offering, the October 2006 Private
Placement and borrowings from the GE Credit Facility.  We anticipate
that we will experience a decrease in our interest income as the above mentioned
funds are used for operations and for additional Systems purchased by AccessIT
DC in support of its Phase I Deployment.
 
 Interest
expense
 
 Total
interest expense was $3.6 million and $9.2 million for the fiscal years ended
March 31, 2006 and 2007, respectively, an increase of $5.6 million or
152%.  Total interest expense included $2.2 million and $7.3 million
of interest paid and accrued along with $1.4 million and $1.9 million of
non-cash interest expense for the fiscal years ended March 31, 2006 and
2007, respectively.  The increase in interest paid and accrued was
primarily due to the interest expense, unused credit facility fees and the
amortization of debt issuance costs incurred on the GE Credit Facility and
interest associated with ACS’s Excel Credit Facility and Excel Term Noteoffset by the reduced
interest expense associated with the $7.6 million of 7% Convertible Debentures
and
  26
  $1.7
million of 6% convertible notes issued in February 2005 (the “6% Convertible
Notes”) converted to equity. Additionally, the fiscal year ended March 31, 2006
included $730 thousand of debt issuance costs which was charged to interest
expense in connection with the conversion of all of our Convertible Debentures
and 6% Convertible Notes. We anticipate that we will experience an increase in
our total interest expense consistent with the increase in our obligations under
the GE Credit Facility in support of AccessIT DC’s Phase I
Deployment.  We anticipate that we will experience an increase in our
interest expense consistent with the borrowings from the GE Credit Facility by
AccessIT DC in support of its Phase I Deployment.  The increase in
non-cash interest was primarily due to the value of the shares issued as payment
of interest on the $22.0 million of Senior Notes during the fiscal year ended
March 31, 2007 versus non-cash interest expense for the fiscal year ended March
31, 2006 resulting from the accretion of the value of warrants to purchase
shares of our Class A Common Stock attached to the $7.6 million Convertible
Debentures (which bore interest at 7% per year), the 5-Year Notes and $1.0
million that was expensed for the remaining accretion of the notes in connection
with the conversion of the $7.6 million of the Convertible
Debentures.  We do not anticipate any significant increase in our
non-cash interest expense.
 
 Debt conversion
expense
 
 Total
debt conversion expense was $6.3 million and $0 for the fiscal years ended March
31, 2006 and 2007, respectively. The prior year included the value of the New
Shares (as defined in Note 6)and New Warrants(as defined in Note 6)
issued as a result of the conversion of the $7.6 million Convertible Debentures
in August 2005.
 
 Other Income (Expense),
Net
 
 Total
other income, net was $1.6 million for the fiscal year ended March 31, 2006
compared to other expense, net of $0.5 million for the fiscal year ended March
31, 2007, an increase in expense of $2.1 million or 128%. The increase in
expense was directly attributable to other income resulting from the change in
value of the July 2005 Private Placement Warrants (as defined in Note 6) and the
New Warrants in the fiscal year ended March 31, 2006, while there was no such
other income in the fiscal year ended March 31, 2007.
 
 Results
of Operations for the Fiscal Years Ended March 31, 2007 and 2008
 
 Revenues
 
 Revenues
were $47.1 million and $81.0 million for the fiscal years ended March 31, 2007
and 2008, respectively, an increase of $33.9 million or 72%.  The
increase in revenue was primarily due to increased VPF revenues, in the Media
Services segment, attributable to the increased number of Systems installed in
movie theatres.  There were 2,275 Systems installed at March 31, 2007
compared to 3,723 Systems installed at March 31, 2008.  The increase
in revenues also resulted from the acquisition of ACS, part of the Content &
Entertainment segment, whose operations have been included in the consolidated
financial statements since August 1, 2006. Revenues in the Other segment
decreased due to the IDCs disposition at March 31, 2007.  We expect
revenues to remain at current levels until there is an increase in the number of
Systems we have deployed from our anticipated  Phase II Deployment,
due to the resultant VPFs and other revenue sources, including, content delivery
and distribution of alternative content, generated from digitally equipped movie
theatres.
 
 Direct Operating
Costs
 
 Total
direct operating costs were $22.2 million and $26.6 million for the fiscal years
ended March 31, 2007 and 2008, respectively, an increase of $4.4 million or 20%.
The increase in direct operating costs was predominantly in the Content &
Entertainment segment and was due to the acquisition of ACS, which operations
have been included in the consolidated financial statements since August 1,
2006, mainly due to the minimum guaranteed obligations under theatre advertising
agreements with exhibitors for displaying cinema advertising and due to the
acquisition of The Bigger Picture, which operations have been included in the
consolidated financial statements since February 1, 2007.  Direct
operating costs in the Other segment decreased due to the IDCs disposition at
March 31, 2007.
 
 Selling, General and
Administrative Expenses
 
 Total
selling, general and administrative expenses were $18.6 million and $23.2
million for the fiscal years ended March 31, 2007 and 2008, respectively, an
increase of $4.6 million or 25%.  The increase was primarily in the
Content & Entertainment segment and was due to the acquisitions of ACS and
The Bigger Picture, which operations have been included in the consolidated
financial statements since August 1, 2006 and February 1, 2007,
respectively.  The increased expenses were partially offset by reduced
staffing levels.  As of March 31, 2007 and 2008 we had 348 and 295
employees, respectively, of which 52 and 45, respectively, were part-time
employees and 115 and 74, respectively, were salespersons.  Due to
reduced headcount levels during the fiscal year ended March 31, 2008, primarily
from the consolidation of sales territories in ACS resulting in a reduced sales
and
  27
  administrative
work force within the Content & Entertainment segment, we expect selling,
general and administrative expenses to decrease as compared to prior
periods.
 
 Stock-based Compensation
Expense
 
 Total
stock-based compensation expense was $2.9 million and $0.5 million for the
fiscal years ended March 31, 2007 and 2008, respectively.  The
decrease was a result of the one-time charge related to our adoption of SFAS
123(R) (see Note 2 to the consolidated financial statements) during the fiscal
year ended March 31, 2007.
 
 Loss on Disposition of
Assets
 
 For the
fiscal year ended March 31, 2007, we recognized a loss of $2.6 million on the
disposition of assets related to our IDCs.  Included in this loss was
the write-off of all the IDC net assets as of March 31, 2007 and the estimated
fiscal 2008 IDC net loss for those expenses not fully reimbursable by
FiberMedia.  The disposition of our Data Center Services represented a
strategic realignment of our technical and financial resources, thus enabling us
to focus on what we believe are more profitable business
opportunities.  It was determined that the agreement being negotiated
with FiberMedia prevented us from continuing to classify the IDCs as
discontinued operations as we retained significant involvement in the operations
of the IDCs.  We remain as the lessee of the relevant facilities until
such time that landlord consents can be obtained to assign each facility lease
to FiberMedia.
 
 Impairment of intangible
asset
 
 During
fiscal year ended March 31, 2008, we recorded an expense for the impairment of
intangible asset of $1.6 million.  In connection with The Bigger
Picture Acquisition, approximately $2.1 million of the purchase price was
allocated to a certain customer contract.  During the fiscal year ended
March 31, 2008, the customer decided not to continue its contract with The
Bigger Picture.  As a result, the unamortized balance of $1.6 million
was charged to expense and recorded as an impairment of intangible asset in the
consolidated financial statements.
 
 Depreciation Expense on
Property and Equipment
 
 Total
depreciation expense was $14.7 million and $29.3 million for the fiscal years
ended March 31, 2007 and 2008, respectively, an increase of $14.6 million or
99%.  The increase was primarily attributable to the depreciation for
the increased amount of assets to support AccessIT DC’s Phase I
Deployment.  The value of digital cinema projection systems has
increased by $96.5 million since the period ended March 31, 2007.
 
 Amortization Expense of
Intangible Assets
 
 Total
amortization expense was $2.8 million and $4.3 million for the fiscal years
ended March 31, 2007 and 2008, respectively, an increase of $1.5 million or
55%.  The increase was primarily attributable to the amortization of
intangible assets due to the acquisitions of ACS and The Bigger Picture, whose
operations have been included in the consolidated financial statements since
August 1, 2006 and February 1, 2007, respectively.
 
 Interest
expense
 
 Total
interest expense was $9.2 million and $29.3 million for the fiscal years ended
March 31, 2007 and 2008, respectively, an increase of $20.1 million or
220%.  Total interest expense included $7.3 million and $22.3 million
of interest paid and accrued along with $1.9 million and $7.0 million of
non-cash interest expense for the fiscal years ended March 31, 2007 and
2008, respectively.  The increase in interest paid and accrued was
primarily due to the interest, unused credit facility fees and the amortization
of debt issuance costs incurred on the GE Credit Facility and the amortization
of debt issuance costs incurred on the One Year Senior Notes and the 2007 Senior
Notes.  With the completion of our Phase I Deployment, we do not
expect any significant further borrowings under the GE Credit Facility, and
therefore, pending any Phase II Deployment related borrowings, we expect our
interest expense to stabilize.  If management elects to pay the
interest on the 2007 Senior Notes with shares of Class A Common Stock, the
payments would result in non-cash interest expense.  The increase in
non-cash interest was due to the value of the shares issued as payment of
interest on the One Year Senior Notes and the 2007 Senior Notes, the
amortization of the value of shares issued in advance as Additional Interest on
the 2007 Senior Notes, and a pro-rata portion of the value of the minimum shares
to be issued as quarterly payment of Additional Interest on the 2007 Senior
Notes for the eight quarters from December 2008 through August
2010.  The One Year Senior Notes were repaid with the proceeds from
the 2007 Senior Notes in August 2007.  Non-cash interest could
continue to increase depending on management’s future decisions to pay interest
payments on the 2007 Senior Notes in cash or shares of Class A Common
Stock.
 
  28
  Debt refinancing
expense
 
 During
the fiscal year ended March 31, 2008, we recorded debt refinancing expense of
$1.1 million, of which $0.4 million related to the unamortized debt issuance
costs of the One Year Senior Notes and $0.7 million for shares of Class A Common
Stock issued to certain holders of the One Year Senior Notes as an inducement
for them to enter into a securities purchase agreement with us in August
2007.
 
 Liquidity
and Capital Resources
 
 We have
incurred operating losses in each year since we commenced our operations. Since
our inception, we have financed our operations substantially through the private
placement of shares of our common and preferred stock, the issuance of
promissory notes, our initial public offering and subsequent private and public
offerings, notes payable and Common Stock used to fund various
acquisitions.
 
 Our
management believes that the net proceeds generated by our recent financing
transactions, combined with our cash on hand and cash receipts from existing
operations, will be sufficient to permit us to meet our obligations through June
30, 2009.
 
 In August
2006, AccessIT DC entered into a credit agreement (the “Credit Agreement”) with
General Electric Capital Corporation (“GECC”), as administrative agent and
collateral agent for the lenders party thereto, and one or more lenders party
thereto.  Pursuant to the Credit Agreement, at any time prior to
August 1, 2008, AccessIT DC may draw up to $217.0 million under the GE Credit
Facility. As of March 31, 2008, $201.3 million was borrowed under the GE Credit
Facility at a weighted average interest rate of 8.58%. The Credit Agreement
contains certain restrictive covenants that restrict AccessIT DC and its
subsidiaries from making certain capital expenditures, incurring other
indebtedness, engaging in a new line of business, selling certain assets,
acquiring, consolidating with, or merging with or into other companies and
entering into transactions with affiliates and is non-recourse to the Company
and its other subsidiaries.
 
 In
October 2006, we entered into a securities purchase agreement (the “Purchase
Agreement”) with the purchasers party thereto (the “Purchasers”) pursuant to
which we issued 8.5% Senior Notes (the “One Year Senior Notes”) in the aggregate
principal amount of $22 million (the “October 2006 Private Placement”) and
received net proceeds of approximately $21.0 million.  In August 2007,
the One Year Senior Notes were repaid in full with a portion of the proceeds
received in connection with the August 2007 Private Placement, as discussed
below.
 
 In May
2007, we received $5.0 million of vendor financing (the “Vendor Note A”) for
equipment used in AccessIT DC’s Phase I Deployment.  The Vendor Note A
bore interest at 15% and was permitted to be prepaid without penalty. A
mandatory principal amount of $0.6 million plus all accrued and unpaid interest
was paid in December 2007.  The Vendor Note A and all accrued interest
was due and payable in July 2008. If the Vendor Note A was repaid in full
by March 31, 2008, the interest rate would become 8%, retroactive to the
beginning of the note term.  In February 2008, the outstanding
principal balance of the Vendor Note A of $4.4 million was repaid in
full.
 
 In August
2007, AccessIT DC received $9.6 million of vendor financing (the “Vendor Note
B”) for equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note B
bears interest at 11% and may be prepaid without penalty.  Interest is
due semi-annually commencing February 2008.  The balance of the Vendor
Note B, together with all unpaid interest is due on the maturity date of August
1, 2016.  As of March 31, 2008, the outstanding balance of the Vendor
Note B was $9.6 million.
 
 In August
2007, we entered into a securities purchase agreement (the “Purchase Agreement”)
with the purchasers party thereto (the “Purchasers”) pursuant to which we issued
10% Senior Notes (the “2007 Senior Notes”) in the aggregate principal amount of
$55.0 million (the “August 2007 Private Placement”) and received net proceeds of
approximately $53.0 million. The term of the 2007 Senior Notes is three years
which may be extended for one 6 month period at our discretion if certain
conditions are met.  Interest on the 2007 Senior Notes will be paid on
a quarterly basis in cash or, at our option and subject to certain conditions,
in shares of its Class A Common Stock (“Interest Shares”). In addition, each
quarter, we will issue shares of Class A Common Stock to the Purchasers as
payment of additional interest owed under the 2007 Senior Notes based on a
formula (“Additional Interest”).  We may prepay the 2007 Senior Notes
in whole or in part following the first anniversary of issuance of the 2007
Senior Notes, subject to a penalty of 2% of the principal if the 2007 Senior
Notes are prepaid prior to the two year anniversary of the issuance and a
penalty of 1% of the principal if the 2007 Senior Notes are prepaid thereafter,
and subject to paying the number of shares as Additional Interest that would be
due through the end of the term of the 2007 Senior Notes.  The
Purchase Agreement also requires the 2007 Senior Notes to be guaranteed by each
of our existing and, subject to certain exceptions, future subsidiaries (the
“Guarantors”), other than AccessIT DC and its respective subsidiaries.
Accordingly, each of the Guarantors entered into a subsidiary guaranty (the
“Subsidiary Guaranty”) with the Purchasers pursuant to which it guaranteed our
obligations under the 2007 Senior Notes.  We also entered into a
Registration Rights Agreement with the Purchasers pursuant to which we agreed to
register the resale of any shares of its Class A Common Stock issued pursuant to
the 2007 Senior Notes at any time and from time
  29
  to
time.  As of March 31, 2008, all shares issued to the holders of the
2007 Senior Notes have been registered for resale.  Under
the  2007 Senior Notes we agreed (i) to limit its and its
subsidiaries' indebtedness to an aggregate of $315.0 million and (ii) not to,
and not to cause its subsidiaries (except for AccessIT DC and its subsidiaries)
to, incur indebtedness, with certain exceptions, including an exception for
$10.0 million; provided that no more than $5.0 million of such indebtedness is
incurred by AccessDM or AccessIT Satellite or any of their respective
subsidiaries except as incurred by AccessDM pursuant to a guaranty entered into
in accordance with the GE Credit Facility (see below).  Additionally,
the Company and our subsidiaries may incur additional indebtedness in connection
with the deployment of Systems beyond our initial rollout of up to 4,000
Systems, if certain conditions are met.  As of March 31, 2008, the
outstanding principal balance of the 2007 Senior Notes was $55.0
million.
 
 As of
March 31, 2008, AccessIT DC has paid $278.5 million for Systems ordered in
connection with AccessIT DC’s Phase I Deployment.
 
 As of
March 31, 2008, we had cash and cash equivalents of $29.7 million and our
working capital was $14.0 million.
 
 Operating
activities used net cash of $5.5 million, $19.2 million and $0.4 million for the
fiscal years ended March 31, 2006, 2007 and 2008, respectively. The increase in
cash used by operating activities, from the fiscal year ended March 31, 2006 to
the fiscal year ended March 31, 2007, was primarily due to an increase of
accounts receivable related to the USM Acquisition and the reduction of accounts
payable and accrued expenses and an increased net loss offset by adjustments not
requiring cash, specifically depreciation and amortization, non-cash stock-based
compensation, loss on disposition of assets and non-cash interest
expense.  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.  We expect operating
activities to begin providing cash to operations as the balance of accounts
receivable is reduced by collections.  However, if and when a Phase II
Deployment is finalized, we would expect an increase in accounts
receivable.
 
 Investing
activities used net cash of $50.9 million, $135.3 million and $96.9 million for
the fiscal years ended March 31, 2006, 2007 and 2008, respectively. The increase
in cash used by investing activities, from the fiscal year ended March 31, 2006
to the fiscal year ended March 31, 2007, was due to the purchase of and deposits
paid for additional digital cinema projection systems and other assets,
primarily in connection with AccessIT DC’s Phase I Deployment along with the
purchase of PLX and USM (see Note 3) offset by the maturities and sales of
available-for-sale investment securities. 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.  We expect investing activities to continue to use cash
for the remaining payments due on Systems purchased for AccessIT DC’s Phase I
Deployment.  If and when a Phase II Deployment is finalized, we would
expect an increase in capital expenditures resulting in an increase in cash used
by investing activities.
 
 Financing
activities provided net cash of $88.2 million, $147.2 million and $97.6 million
for the fiscal years ended March 31, 2006, 2007 and 2008, respectively. The
increase in cash provided by financing activities, from the fiscal year ended
March 31, 2006 to the fiscal year ended March 31, 2007, was primarily due to the
net proceeds from the GE Credit Facility (see Note 6) and the October 2006
Private Placement (see Note 6) offset slightly by the repayments of notes
payable, credit facilities and debt issuance costs.  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.  As AccessIT DC’s Phase I Deployment
was completed during the quarter ended December 2007, financing activities are
expected to start using net cash for principal repayments on the GE Credit
Facility, which begin in August 2008.  However, we have engaged a
third-party to assist us in refinancing the GE Credit Facility, although, the
terms of any such refinancing are not known at this time.  If and when
a Phase II Deployment is implemented, 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.
 
  30
  The
following table summarizes our significant contractual obligations as of March
31, 2008 ($ in thousands):
 
 Payments
      Due by Period (1)Contractual
      Obligations
              
              Total
              
              
              2009
              
              
              2010
      &
                2011
              
              
              2012
      &
                2013
              
              
              ThereafterLong-term
      debt (2)
              
              $
              75,257
              
              
              $
              2,671
              
              
              $
              57,354
              
              
              $
              2,112
              
              
              $
              13,120Credit
      facilities (1) (4)
              
              
              275,113
              
              
              
              34,682
              
              
              
              84,208
              
              
              
              84,697
              
              
              
              71,526Capital
      lease obligations (1)
              
              
              16,396
              
              
              
              1,128
              
              
              
              2,256
              
              
              
              2,260
              
              
              
              10,752Operating
      lease obligations (3)
              
              
              11,217
              
              
              
              3,343
              
              
              
              4,134
              
              
              
              1,747
              
              
              
              1,993Theatre
      agreements
              
              
              26,059
              
              
              
              5,856
              
              
              
              6,438
              
              
              
              4,656
              
              
              
              9,109Purchase
      obligations
              
              
              174
              
              
              
              174
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              $
              404,216
              
              
              $
              47,854
              
              
              $
              154,390
              
              
              $
              95,472
              
              
              $
              106,500
 
 (1)
              Includes
      applicable interest.
 (2)
              Excludes
      interest on the 2007 Senior Notes to be paid on a quarterly basis that may
      be paid, at our option and subject to certain conditions, in shares of our
      Class A Common Stock.  Other than the first quarterly interest
      payment in September 2007, all subsequent quarterly interest payment have
      been paid in shares of our Class A Common
Stock.
 (3)
              Includes
      operating lease agreements for the IDCs now operated by FiberMedia, which
      total aggregates to $8.5 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.  However, FiberMedia has been reimbursing
      our lease-related IDC expenses in increasing monthly increments and as of
      May 1, 2008, FiberMedia is reimbursing 100% of our lease-related IDC
      expenses.
 (4)
              Includes
      interest at a weighted average interest rate of 8.58%, however, effective
      August 1, 2008, the interest rate will become fixed at 7.3% pursuant to an
      Interest Rate Swap (see “Subsequent Events”
  below).
 
 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 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 may attempt to raise additional capital from various
sources for working capital as necessary, but there is no assurance that such
financing will be completed as contemplated or under terms acceptable to us, or
our existing shareholders. Failure to generate additional revenues, raise
additional capital, meet our financial covenants or other obligations under our
Credit Agreement 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.
 
 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
2008, AccessIT DC entered into an Interest Rate Swap also known as a "synthetic
fixed rate financing" for 90% of the amounts outstanding under the GE Credit
Facility at a fixed rate of 7.3%, to hedge AccessIT DC’s exposure to increases
in interest rate under the GE Credit Facility. GE Corporate Financial Services
arranged the transaction, which will take effect commencing August 1, 2008 as
required by the GE Credit Facility.
 
 In April
2008, in connection with the acquisition of Managed Services in January 2004, we
issued 15,219 shares of unregistered Class A Common Stock as additional purchase
price based on the subsequent performance of the business
acquired.  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.
  31
  
 In April
2008, in connection with the acquisition of the Access Digital Server Assets, we
issued 30,000 shares of unregistered Class A Common Stock as additional purchase
price based on the subsequent performance.  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 May
2008, we filed a registration statement on Form S-3 to register an additional
500,000 shares of Class A Common Stock for future interest payments on the 2007
Senior Notes.
 
 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 our
CineLiveSM product
offering.  The NEC Facility provides for maximum borrowings of up to $2.0
million, repayments over a 47 month period, and interest at an annual rate of
8.25%.
 
 Subsequent
to March 31, 2008, under the Plan (see Note 7), we granted 5,500 stock options
to employees at an exercise price ranging from $3.87 to $5.49 per share. In
addition, we granted 620,250 restricted stock units (“RSUs”) to employees and
103,450 RSUs to five non-employee members of our Board.  Each RSU
represents a contingent right to receive one share of Class A Common Stock,
based on a three year vesting period, however, we have the discretion to settle
in shares of Class A Common Stock or cash or a combination thereof.
 
 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.
 
 ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Our
exposure to market rate risk for changes in interest rates relates primarily to
our GE Credit Facility and cash equivalents. The interest rate on certain
advances under the GE Credit Facility fluctuates with the bank’s prime
rate.  As of March 31, 2008, $201.3 million was borrowed under the GE
Credit Facility at a weighted average interest rate of 8.58%.
 
 Pursuant
to the GE Credit Facility, AccessIT DC is required to enter into some form, or
combination, of interest rate swap agreements, cap agreements, collar agreements
and insurance (“Interest Rate Contracts”) and thereafter maintain Interest Rate
Contracts on terms and with counter-parties reasonably satisfactory to GECC
until August 2013 for an amount equal to at least 50% of the aggregate principal
amount outstanding at August 2008.  These Interest Rate Contracts will
provide protection against fluctuation of interest rates.  In April
2008, AccessIT DC entered into an Interest Rate Swap also known as a "synthetic
fixed rate financing" for 90% of the amounts outstanding under the GE Credit
Facility at a fixed rate of 7.3%, to hedge AccessIT DC’s exposure to increases
in interest rate under the GE Credit Facility. GE Corporate Financial Services
arranged the transaction, which will take effect commencing August 1, 2008 in
accordance with the terms of the GE Credit Facility.
 
 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
credit risk exposure beyond such allowance is limited.
 
 As of
March 31, 2008, we have not entered into any derivative financial
instruments.  All sales and purchases are denominated in U.S.
dollars.
 
  32
  ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
 ACCESS
INTEGRATED TECHNOLOGIES, INC.
 INDEX
TO FINANCIAL STATEMENTS
 
 
 
 Report
      of Independent Registered Public Accounting Firm
              F-1Consolidated
      Balance Sheets at March 31, 2007 and 2008
              F-3Consolidated
      Statements of Operations for the fiscal years ended March 31, 2006, 2007
      and 2008
              F-4Consolidated
      Statements of Cash Flows for the fiscal years ended March 31, 2006, 2007
      and 2008
              F-5Consolidated
      Statements of Stockholders’ Equity for the fiscal years ended March 31,
      2006, 2007 and 2008
              F-7Notes
      to Consolidated Financial Statements
              F-10
 
 
  33
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
 Access
Integrated Technologies, Inc.
  We have
audited the accompanying consolidated balance sheets of Access Integrated
Technologies, Inc. and subsidiaries (the "Company") as of March 31, 2007 and
2008 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 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.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Access Integrated
Technologies, Inc. and subsidiaries as of March 31, 2007 and 2008, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Access Integrated Technologies, Inc.'s
assessment of internal control over financial reporting as of March 31, 2008,
based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated June 13, 2008 expressed an unqualified opinion
thereon.
 
 
 
 Florham
Park, New Jersey
 June 13,
2008
  F-1
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
 Access
Integrated Technologies, Inc.
  We have
audited Access Integrated Technologies, Inc. and subsidiaries’ (the "Company")
internal control over financial reporting as of March 31, 2008, based on
criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
("COSO").  The Company’s management is responsible for maintaining
effective control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Management’s report on Internal Control Over Financial
Reporting.  Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
 
 We
conducted our audit 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
effective internal control over financial reporting was maintained in all
material respects.  Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audit also included performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audit provides a reasonable basis for our opinion.
 
 A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) 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 its inherent limitations, internal control over financial reporting 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 that the degree of
compliance with the policies or procedures may deteriorate.
 
 In our
opinion, Access Integrated Technologies, Inc. and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
March 31, 2008, based on criteria established in Internal Control – Integrated
Framework issued by COSO.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Access
Integrated Technologies, Inc. and Subsidiaries as of March 31, 2007 and 2008 and
the related consolidated statements of operations, cash flows and stockholders'
equity for the years then ended, and our report dated June 13, 2008 expressed an
unqualified opinion thereon.
 
 
 
 Florham
Park, New Jersey
 June 13,
2008
  F-2
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 CONSOLIDATED
BALANCE SHEETS
 (In
thousands, except for share data)
 
 March
      31,2007
              
              
              2008ASSETSCurrent
      assetsCash
      and cash equivalents
              
              $
              29,376
              
              
              $
              29,655Accounts
      receivable, net
              
              
              18,504
              
              
              
              21,494Unbilled
      revenue, current portion
              
              
              2,324
              
              
              
              6,393Deferred
      costs, current portion
              
              
              2,318
              
              
              
              3,859Prepaid
      expenses
              
              
              970
              
              
              
              889Other
      current assets
              
              
              23
              
              
              
              427Note
      receivable, current portion
              
              
              101
              
              
              
              158Total
      current assets
              
              
              53,616
              
              
              
              62,875Deposits
      on property and equipment
              
              
              8,513
              
              
              
              —Property
      and equipment, net
              
              
              197,452
              
              
              
              269,031Intangible
      assets, net
              
              
              19,432
              
              
              
              13,592Capitalized
      software costs, net
              
              
              2,840
              
              
              
              2,777Goodwill
              
              
              13,249
              
              
              
              14,549Accounts
      receivable, net of current portion
              
              
              248
              
              
              
              299Deferred
      costs, net of current portion
              
              
              3,304
              
              
              
              6,595Note
      receivable, net of current portion
              
              
              1,227
              
              
              
              1,220Unbilled
      revenue, net of current portion
              
              
              1,221
              
              
              
              2,075Security
      deposits
              
              
              445
              
              
              
              408Restricted
      cash
              
              
              180
              
              
              
              255Total
      assets
              
              $
              301,727
              
              
              $
              373,676LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
              
              $
              28,931
              
              
              $
              25,213Current
      portion of notes payable
              
              
              2,480
              
              
              
              16,998Current
      portion of deferred revenue
              
              
              8,871
              
              
              
              6,204Current
      portion of customer security deposits
              
              
              129
              
              
              
              333Current
      portion of capital leases
              
              
              75
              
              
              
              89Total
      current liabilities
              
              
              40,486
              
              
              
              48,837Notes
      payable, net of current portion
              
              
              164,196
              
              
              
              250,689Capital
      leases, net of current portion
              
              
              5,903
              
              
              
              5,814Deferred
      revenue, net of current portion
              
              
              283
              
              
              
              283Customer
      security deposits, net of current portion
              
              
              54
              
              
              
              46Total
      liabilities
              
              
              210,922
              
              
              
              305,669Commitments
      and contingencies (Note 8)Stockholders’
      EquityClass
      A common stock, $0.001 par value per share; 40,000,000
      shares
                authorized;
      23,988,607 and 26,143,612 shares issued and 23,937,167
      and
                26,092,172
      shares outstanding at March 31, 2007 and March 31,
                2008,
      respectively
              
              
              24
              
              
              
              26Class
      B common stock, $0.001 par value per share; 15,000,000
      shares
                authorized;
      763,811 and 733,811 shares issued and outstanding, at
                March
      31, 2007 and March 31, 2008, respectively
              
              
              1
              
              
              
              1Additional
      paid-in capital
              
              
              155,957
              
              
              
              168,844Treasury
      stock, at cost; 51,440 shares
              
              
              (172
              )
              
              
              (172
              )Accumulated
      deficit
              
              
              (65,005
              )
              
              
              (100,692
              )Total
      stockholders’ equity
              
              
              90,805
              
              
              
              68,007Total
      liabilities and stockholders’ equity
              
              $
              301,727
              
              
              $
              373,676
 
  See
accompanying notes to Consolidated Financial Statements
  F-3
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (In
thousands, except for share and per share data)
 
 
 For
      the fiscal years ended March 31,2006
              
              
              2007
              
              2008Revenues
              $
              16,795
              
              
              $
              47,110
              
              
              $
              80,984Costs
      and expenses:Direct
      operating (exclusive of depreciation and amortization
                shown
      below)
              
              11,550
              
              
              
              22,214
              
              
              
              26,569Selling,
      general and administrative
              
              8,887
              
              
              
              18,565
              
              
              
              23,170Provision
      for doubtful accounts
              
              186
              
              
              
              848
              
              
              
              1,396Research
      and development
              
              300
              
              
              
              330
              
              
              
              162Stock-based
      compensation
              
              —
              
              
              
              2,920
              
              
              
              453Loss
      on disposition of assets
              
              —
              
              
              
              2,561
              
              
              
              —Impairment
      of intangible asset
              
              —
              
              
              
              —
              
              
              
              1,588Depreciation
      of property and equipment
              
              3,693
              
              
              
              14,699
              
              
              
              29,285Amortization
      of intangible assets
              
              1,308
              
              
              
              2,773
              
              
              
              4,290Total
      operating expenses
              
              25,924
              
              
              
              64,910
              
              
              
              86,913Loss
      from operations before other income (expense)
              
              (9,129
              )
              
              
              (17,800
              )
              
              
              (5,929
              )Interest
      income
              
              316
              
              
              
              1,425
              
              
              
              1,406Interest
      expense
              
              (3,644
              )
              
              
              (9,176
              )
              
              
              (29,327
              )Debt
      conversion expense
              
              (6,269
              )
              
              
              —
              
              
              
              —Debt
      refinancing expense
              
              —
              
              
              
              —
              
              
              
              (1,122
              )Other
      income (expense), net
              
              1,603
              
              
              
              (448
              )
              
              
              (715
              )Net
      loss
              $
              (17,123
              )
              
              $
              (25,999
              )
              
              $
              (35,687
              )Net
      loss per common share:Basic
      and diluted
              $
              (1.22
              )
              
              $
              (1.10
              )
              
              $
              (1.40
              )Weighted
      average number of common shares outstanding:Basic
      and diluted
              
              14,086,001
              
              
              
              23,729,763
              
              
              
              25,576,787
 
 
  See
accompanying notes to Consolidated Financial Statements
  F-4
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)
 
 For
      the fiscal years ended March 31,2006
              
              
              2007
              
              2008Cash
      flows from operating activitiesNet
      loss
              $
              (17,123
              )
              
              $
              (25,999
              )
              
              $
              (35,687
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Loss
      on disposal of assets
              
              —
              
              
              
              6
              
              
              
              172Loss
      on disposition of assets
              
              —
              
              
              
              2,561
              
              
              
              —Loss
      on impairment of intangible asset
              
              —
              
              
              
              —
              
              
              
              1,588Depreciation  of
      property and equipment and
                amortization  of
      intangible assets
              
              5,001
              
              
              
              17,472
              
              
              
              33,575Amortization
      of software development costs
              
              547
              
              
              
              840
              
              
              
              590Debt
      issuance costs included in interest expense
              
              730
              
              
              
              646
              
              
              
              1,211Provision
      for doubtful accounts
              
              186
              
              
              
              848
              
              
              
              1,396Stock-based
      compensation
              
              —
              
              
              
              2,920
              
              
              
              453Non-cash
      interest expense
              
              1,407
              
              
              
              1,903
              
              
              
              7,043Debt
      refinancing expense
              
              —
              
              
              
              —
              
              
              
              1,122Gain
      on available-for-sale securities
              
              —
              
              
              
              (393
              )
              
              
              (148
              )Net
      fair value change of Class A common stock warrants
              
              (1,660
              )
              
              
              —
              
              
              
              —Debt
      conversion expense
              
              6,269
              
              
              
              —
              
              
              
              —Changes
      in operating assets and liabilities:Accounts
      receivable
              
              (832
              )
              
              
              (9,451
              )
              
              
              (4,437
              )Prepaids
      and other current assets
              
              (111
              )
              
              
              (289
              )
              
              
              (323
              )Unbilled
      revenue
              
              (915
              )
              
              
              (3,602
              )
              
              
              (4,923
              )Other
      assets
              
              (449
              )
              
              
              (119
              )
              
              
              472Accounts
      payable and accrued expenses
              
              1,662
              
              
              
              (5,989
              )
              
              
              (76
              )Deferred
      revenues
              
              (145
              )
              
              
              (411
              )
              
              
              (2,668
              )Other
      liabilities
              
              (55
              )
              
              
              (133
              )
              
              
              197Net
      cash used in operating activities
              
              (5,488
              )
              
              
              (19,190
              )
              
              
              (443
              )Cash
      flows from investing activitiesPurchases
      of property and equipment
              
              (17,392
              )
              
              
              (118,602
              )
              
              
              (76,177
              )Deposits
      paid for property and equipment
              
              (8,673
              )
              
              
              (36,887
              )
              
              
              (20,052
              )Purchases
      of intangible assets
              
              (21
              )
              
              
              (3
              )
              
              
              —Additions
      to capitalized software costs
              
              (606
              )
              
              
              (1,015
              )
              
              
              (528
              )Payment
      of additional purchase price related Managed
Services
              
              —
              
              
              
              (14
              )
              
              
              —Acquisition
      of PLX Systems
              
              —
              
              
              
              (1,640
              )
              
              
              —Acquisition
      of UniqueScreen Media
              
              —
              
              
              
              (1,172
              )
              
              
              (121
              )Acquisition
      of The Bigger Picture
              
              —
              
              
              
              (337
              )
              
              
              (15
              )Acquisition
      of Access Digital Server Assets
              
              —
              
              
              
              —
              
              
              
              (35
              )Purchase
      of available-for-sale securities
              
              (24,000
              )
              
              
              (9,000
              )
              
              
              (6,000
              )Maturities
      and sales of available-for-sale securities
              
              —
              
              
              
              33,393
              
              
              
              6,148Restricted
      short-term investment
              
              (180
              )
              
              
              —
              
              
              
              (75
              )Net
      cash used in investing activities
              
              (50,872
              )
              
              
              (135,277
              )
              
              
              (96,855
              )Cash
      flows from financing activitiesRepayment
      of notes payable
              
              (1,697
              )
              
              
              (5,397
              )
              
              
              (17,372
              )Proceeds
      from notes payable
              
              —
              
              
              
              727
              
              
              
              14,600Repayment
      of credit facilities
              
              —
              
              
              
              (2,943
              )
              
              
              —Proceeds
      from credit facilities
              
              —
              
              
              
              138,077
              
              
              
              66,660Proceeds
      from One Year Senior Notes
              
              —
              
              
              
              22,000
              
              
              
              —Proceeds
      from 2007 Senior Notes
              
              —
              
              
              
              —
              
              
              
              36,891Payments
      of debt issuance costs
              
              —
              
              
              
              (5,054
              )
              
              
              (3,114
              )Principal
      payments on capital leases
              
              (424
              )
              
              
              (96
              )
              
              
              (76
              )
  F-5
  
 Costs
      associated with prior year issuance of Class A common
      stock
              
              —
              
              
              
              (251
              )
              
              
              (47
              )Net
      proceeds from issuance of Class A common stock
              
              90,343
              
              
              
              139
              
              
              
              35Net
      cash provided by financing activities
              
              88,222
              
              
              
              147,202
              
              
              
              97,577Net
      increase (decrease) in cash and cash equivalents
              
              31,862
              
              
              
              (7,265
              )
              
              
              279Cash
      and cash equivalents at beginning of period
              
              4,779
              
              
              
              36,641
              
              
              
              29,376Cash
      and cash equivalents at end of period
              $
              36,641
              
              
              $
              29,376
              
              
              $
              29,655
 
 See
accompanying notes to Consolidated Financial Statements
  F-6
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 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, 2005 as previously reported
              
              9,433,328
              
              
              $9
              
              
              
              965,811
              
              
              $1
              
              
              
              
              (51,440
              )
              
              $(172
              )
              
              
              $32,696
              
              
              
              
              $(21,487
              )
              
              
              
              $11,047Cumulative
      effect of restatement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (396
              )
              
              
              
              (396
              )Balances
      as of March 31, 2005 as restated
              
              9,433,328
              
              
              $9
              
              
              
              965,811
              
              
              $1
              
              
              
              
              (51,440
              )
              
              $(172
              )
              
              
              $32,696
              
              
              
              
              $(21,883
              )
              
              
              
              $10,651Issuance
      of common stock in connection with exercise of warrants and stock
      options
              
              395,305
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              1,801
              
              
              
              
              —
              
              
              
              
              1,801Issuance
      of common stock in connection with the July 2005 Private
      Placement
              
              1,909,115
              
              
              2
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              16,719
              
              
              
              
              —
              
              
              
              
              16,721Issuance
      of common stock in connection with the January 2006
      Offering
              
              1,500,000
              
              
              2
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              14,495
              
              
              
              
              —
              
              
              
              
              14,497Issuance
      of common stock in connection with the March 2006 Offering and the March
      2006 Second Offering
              
              5,894,999
              
              
              6
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              54,753
              
              
              
              
              —
              
              
              
              
              54,759Issuance
      of common stock in lieu of redeeming the Boeing
    Shares
              
              53,534
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              250
              
              
              
              
              —
              
              
              
              
              250Issuance
      of common stock in payment of interest on Convertible
      Debentures
              
              17,758
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              146
              
              
              
              
              —
              
              
              
              
              146Issuance
      of common stock in connection with the conversion of the Convertible
      Debentures
              
              2,507,657
              
              
              3
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              11,040
              
              
              
              
              —
              
              
              
              
              11,043Issuance
      of common stock in connection with the conversion of the 6% Convertible
      Notes
              
              307,871
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              1,699
              
              
              
              
              —
              
              
              
              
              1,699Conversion
      of Class B shares to Class A
              
              40,000
              
              
              —
              
              
              
              (40,000
              )
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              —
              
              
              
              
              —
              
              
              
              
              —Transfer
      to equity of liability relating to warrants upon registration
      effectiveness
              
              —
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              3,330
              
              
              
              
              —
              
              
              
              
              3,330Net
      loss as restated
              
              —
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              —
              
              
              
              
              (17,123
              )
              
              
              
              (17,123
              )Balances
      as of March 31, 2006
              
              22,059,567
              
              
              $22
              
              
              
              925,811
              
              
              $1
              
              
              
              
              (51,440
              )
              
              $(172
              )
              
              
              $136,929
              
              
              
              
              $(39,006
              )
              
              
              
              $97,774
 
 
 See
accompanying notes to Consolidated Financial Statements
 
  F-7
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 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, 2006
              
              22,059,567
              
              
              $22
              
              
              
              925,811
              
              
              $1
              
              
              
              
              (51,440
              )
              
              $(172
              )
              
              
              
              $136,929
              
              
              
              
              $(39,006
              )
              
              
              
              $97,774Issuance
      of common stock in connection with  exercise of warrants and
      stock options
              
              15,750
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              138
              
              
              
              
              —
              
              
              
              
              138Issuance
      of common stock in connection with the  purchase of the Access
      Digital Server Assets
              
              23,445
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              308
              
              
              
              
              —
              
              
              
              
              308Issuance
      of common stock in connection with the  acquisition of
      ACS
              
              974,184
              
              
              1
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              9,999
              
              
              
              
              —
              
              
              
              
              10,000Issuance
      of common stock in connection with the  acquisition of The
      Bigger Picture
              
              460,000
              
              
              1
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              3,923
              
              
              
              
              —
              
              
              
              
              3,924Issuance
      of common stock in payment of  interest on One Year Senior
      Notes
              
              260,267
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              1,811
              
              
              
              
              —
              
              
              
              
              1,811Issuance
      of common stock in connection with the additional purchase price of
      Managed Services
              
              3,394
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              30
              
              
              
              
              —
              
              
              
              
              30Issuance
      of common stock as payment for the reduction of principal due under the HS
      Notes
              
              30,000
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              150
              
              
              
              
              —
              
              
              
              
              150Costs
      associated with prior year issuance of  common
      stock
              
              —
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              (251
              )
              
              
              
              —
              
              
              
              
              (251
              )Conversion
      of Class B shares to Class A
              
              162,000
              
              
              —
              
              
              
              (162,000
              )
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              
              
              —
              
              
              
              
              —Stock
      compensation expense
              
              —
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              2,920
              
              
              
              
              —
              
              
              
              
              2,920Net
      loss
              
              —
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              
              
              (25,999
              )
              
              
              
              (25,999
              )Balances
      as of March 31, 2007
              
              23,988,607
              
              
              $24
              
              
              
              763,811
              
              
              $1
              
              
              
              
              (51,440
              )
              
              $(172
              )
              
              
              
              $155,957
              
              
              
              
              $(65,005
              )
              
              
              
              $90,805
 
  See
accompanying notes to Consolidated Financial Statements
 
 
 
  F-8
  ACCESS
INTEGRATED TECHNOLOGIES, INC.
 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 ACS
              
              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
      compensation expense
              
              —
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              
              —
              
              
              —
              
              
              
              
              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-9
  
 ACCESS
INTEGRATED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the years ended March 31, 2006, 2007 and 2008
 ($ in
thousands, except for per share data)
 
 
 1.
              
              NATURE
      OF OPERATIONS
 
 Access
Integrated Technologies, Inc. (“AccessIT” or the “Company”) was incorporated in
Delaware on March 31, 2000.  The Company provides fully managed
storage, electronic delivery and software services and technology solutions for
owners and distributors of digital content to movie theatres and other
venues.  In the past, the Company generated revenues from two primary
businesses, media services (“Media Services”) and internet data center (“IDC” or
“data center”) services (“Data Center Services”), a business the Company no
longer operated after May 1, 2007. Beginning April 1, 2007, the Company made
changes to its organizational structure which impacted the Company’s reportable
segments, but did not impact the Company’s consolidated financial position,
results of operations or cash flows. The Company realigned its focus to three
primary businesses, media services (“Media Services”), media content and
entertainment (“Content & Entertainment”) and other (“Other”). The Company’s
Media Services business provides software, services and technology solutions to
the motion picture and television industries, primarily to facilitate the
transition from analog (film) to digital cinema and has positioned the Company
at what the Company believes to be the forefront of an emerging industry
opportunity relating to the delivery and management of digital cinema and other
content to entertainment and other remote venues worldwide.  The
Company’s Content & Entertainment business provides motion picture
exhibition to the general public and cinema advertising and film distribution
services to movie exhibitors.  The Company’s Other business is
attributable to the Data Center Services.
 
 2.
              
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 BASIS
OF PRESENTATION AND CONSOLIDATION
 
 For the
fiscal years ended March 31, 2006, 2007 and 2008, the Company incurred net
losses of $17,123, $25,999 and $35,687, respectively, and cash used in operating
activities of $5,488, $19,190 and $443, respectively. In addition, the Company
has an accumulated deficit of $100,692 as of March 31, 2008. At March 31, 2008,
the Company also has contractual obligations (including interest and excluding
non-cash interest) of $47,854 for the fiscal year 2009. Management expects that
the Company will continue to generate losses for the foreseeable future. Certain
of these costs could be reduced if working capital decreased. Based on the
Company’s cash position at March 31, 2008, and expected cash flows from
operations, management believes that the Company has the ability to meet its
obligations through June 30, 2009. 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
outcome of such uncertainties.
 
 The
Company’s consolidated financial statements include the accounts of AccessIT,
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. d/b/a
AccessIT Advertising and Creative Services (“ACS”),  Vistachiara
Productions, Inc. d/b/a The Bigger Picture (“The Bigger Picture”) and Access
Digital Cinema Phase 2 Corp. (“Phase 2 Corporation”). AccessDM and AccessIT
Satellite will together be known as the Digital Media Services Division (“DMS”).
All intercompany transactions and balances have been eliminated.
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“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 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
  F-10
  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.
 
 Certain
reclassifications of prior period data have been made to conform to the current
presentation.
 
 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 cash deposits with major banks,
which from time to time may exceed federally insured limits. The Company
periodically assesses the financial condition of the institutions and believes
that the risk of any loss is minimal.
 
 INVESTMENT
SECURITIES
 
 During
the fiscal years ended March 31, 2007 and 2008, the Company held investment
securities which were principally auction rate perpetual preferred
securities.  However, as of each year end date, the Company was not
invested in these securities.  The Company classified all 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.
 
 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 8).
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, the Company had
$3,802 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 improvement. Maintenance and repair costs are
charged to expense as incurred. Major renewals, improvements and additions are
capitalized.  Upon the sale or other disposition of any property and
equipment, the cost and related accumulated depreciation are removed from the
accounts and the gain or loss is included in the statement of
operations.
 
 FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 The
carrying amounts of the Company’s financial instruments, which include cash and
cash equivalents, investment securities, accounts receivable, accounts payable,
accrued expenses and other obligations, approximate their fair value due to the
short-term maturities of the related instruments.
 
 
  F-11
  Concentrations
of Credit Risk


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.
 
 BUSINESS
COMBINATIONS AND INTANGIBLE ASSETS
 
 The
Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations” (“SFAS No. 141”) and SFAS No. 142, “Goodwill and other
Intangible Assets” (“SFAS No. 142”). SFAS No. 141 requires all business
combinations to be accounted for using the purchase method of accounting and
that certain intangible assets acquired in a business combination must be
recognized as assets separate from goodwill. SFAS No. 142 addresses the
recognition and measurement of goodwill and other intangible assets subsequent
to their acquisition. SFAS No. 142 also addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination,
whether acquired individually or with a group of other assets. This statement
provides that intangible assets with indefinite lives and goodwill will not be
amortized but will be tested at least annually for impairment. If impairment is
indicated, then the asset will be written down to its fair value, typically
based upon its future expected discounted cash flows. As of March 31, 2008, 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 Bigger Picture Acquisition (see Note 3), $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 The Bigger Picture.  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, 2008, the Company concluded that there was no impairment of any other
intangible assets.
 
 In
addition, the Company recorded goodwill in connection with the acquisitions of
AccessIT SW, Managed Services, AccessIT Satellite, the Pavilion Theatre, PLX,
ACS and The Bigger Picture.  Goodwill related to the acquisition of
the Pavilion Theatre was reduced in September 2005 in connection with the early
retirement of the outstanding note payable (see Note 6).  In September
2006, the amount of goodwill related to the Pavilion Theatre was reduced by $107
for the remaining unpaid amount related to the holdback of funds at the time of
purchase.  At March 31, 2008, the Company concluded that there was no
impairment of goodwill.
 
  F-12
  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, 2006
              
              $
              3,875
              
              
              $
              3,830
              
              
              $
              —
              
              
              $
              —
              
              
              $
              7,705Additional
      purchase price related to
                Managed
      Services
              
              
              212
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              212PLX
      Acquisition
              
              
              442
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              442ACS
      Acquisition
              
              
              —
              
              
              
              3,280
              
              
              
              —
              
              
              
              —
              
              
              
              3,280Bigger
      Picture Acquisition
              
              
              —
              
              
              
              1,717
              
              
              
              —
              
              
              
              —
              
              
              
              1,717Reduction
      due to the holdback of funds related to the Pavilion
      Theatre
              
              
              —
              
              
              
              (107
              )
              
              
              —
              
              
              
              —
              
              
              
              (107
              )Balance
      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 ACS Acquisition
              
              
              —
              
              
              
              121
              
              
              
              —
              
              
              
              —
              
              
              
              121Additional
      purchase price related to the ACS Acquisition
              
              
              —
              
              
              
              1,000
              
              
              
              —
              
              
              
              —
              
              
              
              1,000Additional
      costs associated with the Bigger Picture Acquisition
              
              
              —
              
              
              
              15
              
              
              
              —
              
              
              
              —
              
              
              
              15Balance
      as of March 31, 2008
              
              $
              4,529
              
              
              $
              9,856
              
              
              $
              164
              
              
              $
              —
              
              
              $
              14,549
 
 
 
 CAPITALIZED
SOFTWARE DEVELOPMENT COSTS
 
 Internal
Use Software
 
 The
Company accounts 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.  The Company has not
sold, leased or licensed software developed for internal use to the
Company’s customers and the Company has no intention of doing so in the
future.
 
 Software
to be Sold, Licensed or Otherwise Marketed
 
 The
Company accounts 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. The Company reviews capitalized software costs for impairment on
a periodic basis. To the extent that the carrying amount exceeds the estimated
net realizable value of the capitalized software cost, an impairment charge is
recorded. No impairment charge was recorded for the fiscal years ended March 31,
2006, 2007 and 2008, respectively.  Amortization of capitalized
software development costs, included in direct operating costs, for the fiscal
years ended March 31, 2006, 2007 and 2008 amounted to $547, $840 and $590,
respectively.  Revenues relating to customized software development
contracts are recognized on a percentage-of-completion method of accounting
using the cost to date to the total estimated cost approach.  For the
fiscal years ended March 31, 2006, 2007 and 2008, unbilled receivables under
such customized software development contracts aggregated $1,492, $1,405 and
$1,187, respectively.
 
  F-13
  REVENUE
RECOGNITION
 
 Media
Services
 
 The
Company’s Media Services revenues are generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:Software
      licensing, including customer licenses and application service provider
      (“ASP Service”) agreements.
              
              Statement
      of Position (“SOP”) 97-2,
                “Software
      Revenue Recognition”Software
      maintenance contracts, and professional consulting services, which
      includes systems implementation, training, custom software development
      services and other professional services, delivery revenues via satellite
      and hard drive, data encryption and preparation fee revenues, satellite
      network monitoring and maintenance fees, movie theatre admission and
      concession revenues, virtual print fees (“VPFs”) and alternative content
      fees (“ACFs”).
              
              Staff
      Accounting Bulletin (“SAB”) No. 104
                “Revenue
      Recognition in Financial Statements” (“SAB No. 104”).Cinema
      advertising service revenues and distribution fee
revenues.
              
              SOP
      00-2, “Accounting by Producers or
                Distributors
      of Films” (“SOP 00-2”)
 
 
 
 Software
licensing revenue is recognized when the following criteria are met: (a)
persuasive evidence of an arrangement exists, (b) delivery has occurred and no
significant obligations remain, (c) the fee is fixed or determinable and (d)
collection is determined to be probable. Significant upfront fees are received
in addition to periodic amounts upon achievement of contractual events for
licensing of the Company’s products. Such amounts are deferred until the revenue
recognition criteria have been met, which typically occurs upon delivery and
acceptance.
 
 Revenues
relating to customized software development contracts are recognized on a
percentage-of-completion method of accounting.
 
 Deferred
revenue is recorded in cases where:  (1) a portion or the entire
contract amount cannot be recognized as revenue, due to non-delivery or
acceptance of licensed software or custom programming, (2) incomplete
implementation of ASP Service arrangements, or (3) unexpired pro-rata periods of
maintenance, minimum ASP Service fees or website subscription fees. As license
fees, maintenance fees, minimum ASP Service fees and website subscription fees
are often paid in advance, a portion of this revenue is deferred until the
contract ends. Such amounts are classified as deferred revenue and are
recognized as revenue in accordance with the Company’s revenue recognition
policies described above.
 
 Cinema
advertising service revenue, and the associated direct selling, production and
support cost, is recognized on a straight-line basis over the period the related
advertising is displayed in-theatre, pursuant to the specific terms of each
advertising contract. The Company 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 advertising is displayed in-theatre.
 
 The right
to sell and display such advertising, or other in-theatre programs, products and
services, is based upon advertising contracts with exhibitors which stipulate
payment terms to such exhibitors for this right. Payment terms generally consist
of either fixed annual payments or annual minimum guarantee payments, plus a
revenue share of the excess of a percentage of advertising revenue over the
minimum guarantee, if any.  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, as such obligations arise in
accordance with the terms of the advertising contract.
 
 Distribution
fee revenue is recognized for the theatrical distribution of third party feature
films and alternative content at the time of exhibition based on the Company’s
participation in box office receipts.  The Company 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.
 
  F-14
  Data
Center Services
 
 The
Company’s Data Center Services revenues were generated as follows:
 
 Revenues
      consist of:
              
              Accounted
      for in accordance with:License
      fees for data center space, hosting and network access fees, electric,
      cross connect fees and riser access charges,  non-recurring
      installation and consulting fees, network monitoring and maintenance
      fees.
              
              SAB
      No. 104
 
 Since May
1, 2007, the Company’s IDCs have been operated by FiberMedia pursuant to a
master collocation agreement.  Although the Company is still the
lessee of the IDCs, substantially all of the revenues and expenses are being
realized by FiberMedia and not the Company.
 
 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.
 
 STOCK-BASED
COMPENSATION
 
 The
Company has two stock-based employee compensation plans, which are described
more fully in Note 7. Effective April 1, 2006, the Company adopted 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.
 
 Effective
March 8, 2006, the compensation committee of the Company’s Board of Directors
(the “Board”) approved the acceleration of the vesting of all unvested stock
options awarded under the Company’s stock incentive plans. The primary
purpose of the acceleration was to eliminate the impact of $3,098 of future
stock-based compensation expense, of which $1,410 is related to stock options
held by the Company’s executive officers and members of the Board, that would
have been recognized over the next three years as the stock options vested as a
result of adopting SFAS No. 123(R).  The Company will not be
required to recognize future compensation expense for the accelerated stock
options under SFAS No. 123(R) unless further modifications are made to
the stock options, which are not anticipated.
 
 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. At the Company’s
2006 Annual Meeting of Stockholders held on September 14, 2006, the expansion of
the Company’s stock incentive plan was approved by the shareholders. For the
fiscal year ended March 31, 2007, stock-based compensation expense of $2,920 was
recorded, of which $2,779 related to the 436,747 stock options awarded in excess
of options eligible to be granted under the Company’s stock incentive plan prior
to its expansion and $141 relates to stock options granted on or after April 1,
2006. For the fiscal year ended March 31, 2008, stock-based compensation expense
of $453 was recorded.   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, 2008, will be
approximately $700 for the fiscal year 2009 (see Note 7 for further discussion
of stock options).
 
 Previously,
the Company accounted for its stock-based employee compensation plans in
accordance with the provisions of Accounting Principles Board (“APB”) Opinion
No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related
interpretations. As such, stock-based compensation expense was recorded on the
date of grant only if the current fair value of the underlying stock exceeds the
exercise price. The Company followed the disclosure standards of SFAS No. 148
“Accounting for Stock-Based Compensation - Transition and Disclosures”, which
amended SFAS No. 123, “Accounting for Stock-Based
  F-15
  Compensation”
(“SFAS 123”), which required the Company to provide pro forma net loss and net
loss per share disclosures for stock option grants made in 1995 and future years
as if the fair-value based method of accounting for stock options as defined in
SFAS 123 had been applied.
 
 The
following table illustrates the effect on net loss and net loss per share if the
Company had applied the fair-value recognition provisions of SFAS No. 123 to
stock-based compensation for the year ended March 31, 2006:
 
 Net
      loss as reported
              
              $
              (17,123
              )Add:
      Stock-based compensation expense included in net
loss
              
              
              —Less:
      Stock-based compensation expense determined under fair-value based
      method
              
              
              (4,866
              )Pro
      forma net loss
              
              $
              (21,989
              )Basic
      and diluted net loss per share:As
      reported
              
              $
              (1.22
              )Pro
      forma
              
              $
              (1.56
              )
 
  F-16
  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:
 
 For
      the fiscal years ended March 31,2006
              
              
              2007
              
              
              2008Weighted-average
      risk-free interest rate
              
              
              4.2
              %
              
              
              4.7
              %
              
              
              3.2
              %Dividend
      yield
              
              
              —
              
              
              
              —
              
              
              
              —Expected
      life (years)
              
              
              10
              
              
              
              10
              
              
              
              5Weighted-average
      expected volatility
              
              
              88.4
              %
              
              
              56.3
              %
              
              
              55.1
              %
 
 
 
 NET
LOSS PER SHARE AVAILABLE 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
 
 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, 2006, 2007
and 2008 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 2,712,993, 2,827,743
and 3,406,654 for the fiscal years ended March 31, 2006, 2007 and 2008,
respectively.
 
 RECENT
ACCOUNTING PRONOUNCEMENTS
 
 In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with SFAS No. 109, “Accounting for Income Taxes.”  FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of an income tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company adopted FIN 48 on April 1, 2007 and had no effect
on the consolidated financial statements.
 
 In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value in GAAP, and expands disclosures about fair value measurements. SFAS 157
applies to derivatives and other financial instruments measured at fair value
under SFAS No. 133 “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS 133”) at initial recognition and in all subsequent periods.
Therefore, SFAS 157 nullifies the guidance in footnote 3 of the Emerging
Issues Task Force (“EITF”) Issue No. 02-3, “Issues Involved in
Accounting for Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities” (“EITF 02-3”). SFAS
157 also amends SFAS 133 to remove the similar guidance to that in
EITF 02-3, which was added by SFAS 155. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier application is encouraged,
provided that the reporting entity has not yet issued financial statements for
that fiscal year, including financial statements for an interim period within
that fiscal year. Any transition adjustment, measured as the difference between
the carrying amounts and the fair values of those financial instruments at the
date SFAS 157 is initially applied, should be recognized as a cumulative-effect
adjustment to the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial position)
for the fiscal year in which SFAS 157 is initially applied. The Company plans to
adopt SFAS 157 on April 1, 2008, and does not believe it will be affected by its
adoption.
 
 In
September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements
No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires the recognition of
the overfunded or underfunded status of a defined benefit postretirement plan
(other than a multiemployer plan) as
  F-17
  an asset
or liability in the reporting entity’s statement of financial position and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in unrestricted net
assets of a not-for-profit organization. SFAS 158 also requires the reporting
entity to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. A reporting entity
with publicly traded equity securities is required to recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15, 2006. The
Company adopted SFAS 158 on April 1, 2007 and was not affected by its
adoption.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities—including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to elect to measure
many financial instruments and certain other items at fair value. The objective
is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is expected to expand the use of fair value measurement,
which is consistent with the FASB’s long-term measurement objectives for
accounting for financial instruments. SFAS 159 is effective for fiscal years
beginning after November 15, 2007 and early adoption is permitted provided the
entity also elects to apply the provisions of SFAS 157. The Company plans to
adopt SFAS 159 on April 1, 2008, and does not believe it will be affected by its
adoption.
 
 In December 2007, the FASB
issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS
141(R)”).  SFAS 141(R) will change the accounting for business
combinations.  Under SFAS No. 141(R), an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited
exceptions.  SFAS No. 141(R) will change the accounting treatment
and disclosure for certain specific items in a business combination. SFAS
No. 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  SFAS 141(R) will impact
the Company in the event of any future acquisition after the date 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 for fiscal years beginning on or after
December 15, 2008.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 161changes the
disclosure requirements for derivative instruments 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 FASB Statement No. 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 financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged.  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.
We will be required to adopt FSP FAS 142-3 to intangible assets acquired
beginning with the first quarter of fiscal 2010.
 
 3.           ACQUISITIONS
 
 On
January 1, 2006, the Company purchased the domain name, website, customer list
and the IP address space of Ezzi.net and certain data center-related computer
equipment of R & S International, Inc. (together the “Access Digital Server
Assets”).  The Access Digital Server Assets were acquired to
complement the Company’s existing Data Center Services business and are
primarily used for hosting services and providing network access for other web
hosting services.  The purchase price of $448 included a cash payment
of $140 and 23,445 shares of unregistered Class A Common Stock issued in April
2006 valued at $308.  In addition in the fiscal year ended March 31,
2008, the Company paid an additional purchase price of $164, which consisted of
a cash payment of $35 and 30,000 shares of Class A Common Stock valued at $129,
which were issued in April 2008.
 
  F-18
  In June
2006, the Company, through its indirect wholly-owned subsidiary, PLX Acquisition
Corp., purchased substantially all of the assets of PLX Systems Inc. (“PLX”).
The results of PLX’s operations have been included in the consolidated financial
statements since June 1, 2006. 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, to movie-goers in addition to supporting IP
license contract management, royalty processing, revenue reporting and
billing.
 
 The total
purchase price of $1,640, including estimated transaction costs, allocated to
the net assets acquired based upon the results of an appraisal of fair value,
was as follows:
 
 Accounts
      receivable
              
              $
              73Prepaid
      expenses and other current assets
              
              
              27Property
      and equipment
              
              
              45Intangible
      assets
              
              
              209Capitalized
      software costs
              
              
              984Goodwill
              
              
              442Total
      assets acquired
              
              
              1,780Deferred
      revenues
              
              
              140Total
      liabilities assumed
              
              
              140Net
      assets acquired
              
              $
              1,640
 
 The
finite-lived intangible assets of $209, are estimated to have useful lives
ranging from three to five years, and have a weighted-average amortization
period of 3.24 years.
 
 In July
2006, the Company acquired 100% of the issued and outstanding stock of ACS (the
“ACS Acquisition”) for a combination of an aggregate of 974,184 shares of the
Company’s Class A Common Stock, $1,000 in cash, and promissory notes issued by
the Company in favor of the stockholders of ACS (the “ACS Stockholders”) in the
principal amount of $5,204 (see Note 6). The results of ACS’s operations have
been included in the consolidated financial statements since August 1, 2006. The
Company also agreed to pay to the ACS Stockholders additional purchase price, up
to a maximum of $1,000 in cash or the equivalent of the Company’s Class A Common
Stock, at the Company’s sole discretion. In April 2007 and July 2007, such
digital cinema deployment milestones were met, and the Company issued 67,906 and
77,955 shares of the Company’s Class A Common Stock, respectively, with a value
of $1,000 to the ACS Stockholders as additional purchase price (see Note
7).  The Company also assumed $5,914 of ACS’s debt, of which $5,598
relates to ACS’s revolving credit facility (see Note 6).
 
 The total
purchase price of approximately $16,400, including estimated transaction costs,
allocated to the net assets acquired based upon the results of an appraisal of
fair value, was as follows:
 
 Accounts
      receivable
              
              $
              7,304Prepaid
      expenses and other assets
              
              
              970Property
      and equipment
              
              
              2,849Customer
      relationships
              
              
              9,020Theatre
      relationships
              
              
              6,500Other
      intangible assets
              
              
              1,000Goodwill
              
              
              3,280Deferred
      Costs
              
              
              71Note
      receivable
              
              
              100Total
      assets acquired
              
              
              31,094Accounts
      payable and accrued expenses
              
              
              1,300Deferred
      revenues
              
              
              7,498Notes
      payable
              
              
              5,914Capital
      leases
              
              
              7Total
      liabilities assumed
              
              
              14,719Net
      assets acquired
              
              $
              16,375
 
 The
finite-lived intangible assets of $16,520, are estimated to have useful lives
ranging from two to ten years, and have a weighted-average amortization period
of 6.57 years.
 
  F-19
  In
December 2006, ACS’s revolving credit facility, assumed in the ACS Acquisition,
was converted into a term loan (see Note 6)  In August 2007, the
outstanding principal balance of $6,390 for the Excel Term Note was repaid in
full with a portion of the proceeds from the August 2007 Private Placement (see
Note 6).
 
 In
January 2007, the Company purchased substantially all of the assets and assumed
certain liabilities of BP/KTF, LLC, a subsidiary of privately-held Sabella Dern
Entertainment (“BP/KTF”) for 460,000 shares of the Company’s Class A Common
Stock. The results of Bigger Picture’s operations have been included in the
consolidated financial statements since February 1, 2007. The Company also
agreed to pay BP/KTF additional purchase price in cash or the equivalent of the
Company’s Class A Common Stock, at the Company’s sole discretion, if certain
conditions are met.
 
 The total
purchase price of approximately $4,300, including estimated transaction costs,
allocated to the net assets acquired based upon the results of an appraisal of
fair value, was as follows:
 
 Unbilled
      revenue
              
              $
              1,394Property
      and equipment
              
              
              16Customer
      relationships and contracts
              
              
              3,058Other
      intangible assets
              
              
              360Goodwill
              
              
              1,717Total
      assets acquired
              
              
              6,545Accounts
      payable and accrued expenses
              
              
              1,134Deferred
      revenues
              
              
              1,150Total
      liabilities assumed
              
              
              2,284Net
      assets acquired
              
              $
              4,261
 
 Of the
$3,058 of customer relationships and contracts, $2,071 was allocated to a
certain customer contract.  During the fiscal year ended March 31,
2008, the customer decided not to continue its contract with The Bigger
Picture.  As a result, the unamortized balance of $1,588 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 remaining finite-lived intangible assets of $1,347 are
estimated to have useful lives of five years.
 
 The
following pro forma information shows the results of operations for the fiscal
years ended March 31, 2006 and 2007, as though the above acquisitions had
occurred at the beginning of each respective fiscal year.  The pro
forma information reflects adjustments for (i) depreciation and amortization of
acquired tangible and intangible assets from the acquisitions, (ii) interest
expense for promissory notes issued by the Company in favor of the ACS
Stockholders in the principal amount of $5,204 (see Note 6), and (iii) the full
year impact of the issuance of 974,184 shares for the ACS Acquisition and
460,000 shares for the Bigger Picture Acquisition.  The pro forma
financial information below is presented for illustrative purposes only and is
not necessarily indicative of the operating results that would have been
achieved had the acquisitions been completed as of the dates indicated above or
the results that may be obtained in the future.
 
 For
      the Fiscal Years ended March 31,2006
              
              
              2007(unaudited)
              
              
              (unaudited)Revenues
              
              $
              35,581
              
              
              $
              55,578Net
      loss
              
              $
              (19,294
              )
              
              $
              (28,892
              )Basic
      and diluted net loss per share
              
              $
              (1.24
              )
              
              $
              (1.18
              )
 
 
 
  F-20
  4.
              
              CONSOLIDATED
      BALANCE SHEET COMPONENTS
 
 CASH
AND CASH EQUIVALENTS
 
 Cash and
cash equivalents consisted of the following:
 
 As
      of March 31,2007
              
              
              2008Bank
      balances
              
              $
              23,446
              
              
              $
              23,161Money
      market funds
              
              
              5,930
              
              
              
              6,494Total
      cash and cash equivalents
              
              $
              29,376
              
              
              $
              29,655
 
 
 
 As of
March 31, 2007 and 2008, cost approximated fair value of cash and cash
equivalents.
 
 RESTRICTED
CASH
 
 The
Company had $180 and $255 of restricted cash as of March 31, 2007 and 2008,
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 31,2007
              
              
              2008Trade
      receivables
              
              $
              19,836
              
              
              $
              23,800Allowance
      for doubtful accounts
              
              
              (1,332
              )
              
              
              (2,306
              )Total
      accounts receivable, net
              
              $
              18,504
              
              
              $
              21,494
 
 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.
 
 PROPERTY
AND EQUIPMENT, NET
 
 Property
and equipment, net was comprised of the following:
 
 As
      of March 31,2007
              
              
              2008Land
              
              $
              1,500
              
              
              $
              1,500Building
      and improvements
              
              
              4,600
              
              
              
              4,600Leasehold
      improvements
              
              
              1,482
              
              
              
              1,748Computer
      equipment and software
              
              
              6,288
              
              
              
              7,050Digital
      cinema projection systems
              
              
              188,577
              
              
              
              285,060Other
      projection system equipment
              
              
              3,699
              
              
              
              4,021Machinery
      and equipment
              
              
              9,181
              
              
              
              9,882Furniture
      and fixtures
              
              
              662
              
              
              
              734Vehicles
              
              
              125
              
              
              
              125216,114
              
              
              
              314,720Less
      - accumulated depreciation
              
              
              (18,662
              )
              
              
              (45,689
              )Total
      property and equipment, net
              
              $
              197,452
              
              
              $
              269,031
 
 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 new 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
  F-21
  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 AccessIT DC’s Phase I
Deployment.  Other projection system equipment consists entirely of
equipment purchased in connection with the ACS Acquisition.  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, 2006,
2007 and 2008, depreciation expense amounted to $3,693, $14,699 and $29,285,
respectively.  The amortization of the Company’s capital lease for the
Pavilion Theatre, and included in depreciation expense, amounted to $359 for
each of the fiscal years ended March 31, 2006, 2007 and 2008.
 
 At March
31, 2007, all the assets related to the Company’s IDCs were written-off and
included in the loss on disposition of assets, and consisted of the
following:
 
 Leasehold
      improvements
              
              $
              4,185Computer
      equipment and software
              
              
              326Machinery
      and equipment
              
              
              697Furniture
      and fixtures
              
              
              1785,386Less
      - accumulated depreciation
              
              
              (3,120
              )Total
      property and equipment, net
              
              $
              2,266
 
 
 INTANGIBLE
ASSETS, NET
 
 Intangible
assets, net consisted of the following:
 
 As
      of March 31,2007
              
              
              2008Trademarks
              
              $
              81
              
              
              $
              81Corporate
      trade names
              
              
              889
              
              
              
              889Customer
      relationships and contracts
              
              
              13,729
              
              
              
              11,348Theatre
      relationships
              
              
              6,500
              
              
              
              6,575Covenants
      not to compete
              
              
              2,649
              
              
              
              2,50923,848
              
              
              
              21,402Less
      - accumulated amortization
              
              
              (4,416
              )
              
              
              (7,810
              )Total
      intangible assets, net
              
              $
              19,432
              
              
              $
              13,592
 
 For the
fiscal years ended March 31, 2006, 2007 and 2008, amortization expense amounted
to $1,308, $2,773 and $4,290, respectively.
 
 Amortization
expense on intangible assets is estimated as follows:
 
 For
      the fiscal years ending March 31,2009
              
              $
              3,4122010
              
              $
              2,9312011
              
              $
              2,8422012
              
              $
              1,5312013
              
              $
              674
 
 CAPITALIZED
SOFTWARE COSTS, NET
 
 Capitalized
software costs, net consisted of the following:
 
 As
      of March 31,2007
              
              
              2008Capitalized
      software
              
              $
              4,715
              
              
              $
              5,242Less
      - accumulated amortization
              
              
              (1,875
              )
              
              
              (2,465
              )Total
      capitalized software costs, net
              
              $
              2,840
              
              
              $
              2,777
  F-22
  For the
years ended March 31, 2006, 2007 and 2008, amortization of software costs, which
is included in direct operating costs, amounted to $547, $840 and $590,
respectively.
 
 ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
 
 Accounts
payable and accrued expenses consisted of the following:
 
 As
      of March 31,2007
              
              
              
              2008Accounts
      payable
              
              $
              20,493
              
              
              
              $
              18,182Accrued
      compensation and benefits
              
              
              1,096
              
              
              
              
              1,075Accrued
      taxes payable
              
              
              553
              
              
              
              
              591Interest
      payable
              
              
              1,191
              
              
              
              
              2,671Accrued
      other expenses
              
              
              5,598
              
              
              
              
              2,694Total
      accounts payable and accrued expenses
              
              $
              28,931
              
              
              
              $
              25,213
 
 For the
years ended March 31, 2007 and 2008, amounts ordered from Christie for digital
cinema projection systems in connection with AccessIT DC’s Phase I Deployment
and included in accounts payable amounted to $19,677 and $19,734,
respectively.  In addition, included in accrued other expenses were
$233 and $0, respectively, for installation costs from Christie.  At
March 31, 2008, accounts payable has been reduced by $3,802 related to unapplied
deposits paid to Christie for digital cinema projection systems that will be
applied on subsequent payments to Christie.
 
 For the
years ended March 31, 2007 and 2008, the Company has also included $1,023 and
$26, respectively, in accrued other expenses, representing the estimated fiscal
2008 IDC operating losses expected as a result of the agreement with
FiberMedia.
 
 5.
              
              NOTES
      RECEIVABLE
 
 Notes
receivable consisted of the following:
 
 As
      of March 31, 2007
              
              
              As
      of March 31, 2008Note
      Receivable (as defined below)
              
              Current
      Portion
              
              
              Long
      Term Portion
              
              
              Current
      Portion
              
              
              Long
      Term PortionExhibitor
      Note
              
              $
              47
              
              
              $
              141
              
              
              $
              50
              
              
              $
              91Exhibitor
      Install Notes
              
              
              54
              
              
              
              986
              
              
              
              95
              
              
              
              1,002TIS
      Note
              
              
              —
              
              
              
              100
              
              
              
              —
              
              
              
              100Other
              
              
              —
              
              
              
              —
              
              
              
              13
              
              
              
              27$
              101
              
              
              $
              1,227
              
              
              $
              158
              
              
              $
              1,220
 
 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, the
outstanding balance of the Exhibitor Note was $141.
 
 In
connection with AccessIT DC’s Phase I Deployment (see Note 8), 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, the outstanding balance of the
Exhibitor Install Notes was $1,097.
 
 Prior to
the ACS Acquisition (see Note 3), Theatre Information Systems, Ltd. (“TIS”), a
developer of proprietary software, issued to ACS 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 ACS’s option, be converted into a 10%
limited partnership interest in TIS.  As of March 31, 2008, the
outstanding balance of the TIS Note was $100.
 
  F-23
  The
aggregate principal repayments to the Company on notes receivable are scheduled
to be as follows:
 
 For
      the fiscal years ending March 31,2009
              
              $
              1582010
              
              
              2612011
              
              
              1432012
              
              
              1002013
              
              
              108Thereafter
              
              
              608$
              1,378
 
 
 
 
 6.
              DEBT
      AND CREDIT FACILITIES
 
 Notes
payable consisted of the following:
 
 As
      of March 31, 2007
              
              
              As
      of March 31, 2008Note
      Payable (as defined below)
              
              Current
      Portion
              
              
              Long
      Term Portion
              
              
              Current
      Portion
              
              
              Long
      Term PortionHS
      Notes
              
              $
              828
              
              
              $
              367
              
              
              $
              540
              
              
              $
              —Boeing
      Note
              
              
              450
              
              
              
              402
              
              
              
              450
              
              
              
              —First
      ACS Note
              
              
              382
              
              
              
              634
              
              
              
              414
              
              
              
              221SilverScreen
      Note
              
              
              100
              
              
              
              144
              
              
              
              113
              
              
              
              20One
      Year Senior Notes
              
              
              —
              
              
              
              22,000
              
              
              
              —
              
              
              
              —Excel
      Term Note
              
              
              720
              
              
              
              6,030
              
              
              
              —
              
              
              
              —Vendor
      Note B
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              9,6002007
      Senior Notes
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              55,000Other
              
              
              —
              
              
              
              —
              
              
              
              50
              
              
              
              —GE
      Credit Facility
              
              
              —
              
              
              
              134,619
              
              
              
              15,431
              
              
              
              185,848$
              2,480
              
              
              $
              164,196
              
              
              $
              16,998
              
              
              $
              250,689
 
 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.  During the fiscal years ended March 31, 2007
and 2008, the Company repaid principal of $595 and $655 on the HS
Notes.  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.  As of March 31, 2008, the outstanding principal balance of the
HS Notes was $540.
 
 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. During the fiscal years ended March 31, 2007 and 2008,
principal repayments of $450 and $450, respectively, were made. During the
fiscal years ended March 31, 2006, 2007 and 2008, non-cash interest expense
resulting from the Boeing Note was $130, $91 and $48,
respectively.  As of March 31, 2008, the outstanding balance of the
Boeing Note, including imputed interest, was $450.
 
 In July
2006, in connection with the ACS Acquisition (see Note 3), the Company issued an
8% note payable in the principal amount of $1,204 (the “First ACS Note”) and an
8% note payable in the principal amount of $4,000 (the “Second ACS Note”), both
in favor of the stockholders of ACS. The First ACS Note is payable in twelve
equal quarterly installments commencing on October 1, 2006 until July 1, 2009.
The Second ACS 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 ACS
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, the outstanding principal balance of the First ACS Note was
$635.
 
 Prior to
the ACS Acquisition (see Note 3), ACS 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
  F-24
  part of
the purchase price for SilverScreen. The SilverScreen Note is payable in equal
monthly installments until May 2009.  As of March 31, 2008, the
outstanding principal balance of the SilverScreen Note was $133.
 
 In
October 2006, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with the purchasers party thereto (the “Purchasers”)
pursuant to which the Company issued 8.5% Senior Notes (the “One Year Senior
Notes”) in the aggregate principal amount of $22,000 (the “October 2006 Private
Placement”). The term of the One Year Senior Notes is one year and may be
extended for up to two 90-day periods at the discretion of the Company if
certain market conditions are met. Interest on the One Year Senior Notes will be
paid 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 will issue shares of Class A Common Stock
to the Purchasers as payment of interest owed under the One Year Senior Notes
based on a formula (“Additional Interest”). 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 One Year Senior Notes at any time and from time to time.
Pursuant to the One Year Senior Notes, the Company issued 46,750 shares of Class
A Common Stock as Additional Interest in payment of the first quarterly interest
on the One Year Senior Notes, due December 31, 2006. The Company elected to pay
the quarterly interest due December 31, 2006 in shares of its Class A Common
Stock and issued 53,029 Interest Shares. The Company filed a registration
statement on Form S-3 on January 26, 2007, which was declared effective by the
SEC on February 15, 2007.  Subsequent Additional Interest payments
will be made quarterly in arrears at the end of each quarterly period beginning
March 31, 2007. Pursuant to the One Year Senior Notes, the Company issued 81,768
shares of Class A Common Stock as Additional Interest in payment of the
quarterly interest on the One Year Senior Notes, due March 31, 2007. The Company
elected to pay the quarterly interest due March 31, 2007 in shares of its Class
A Common Stock and issued 78,720 Interest Shares. 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.  The Company may prepay the One
Year Senior Notes in whole or in part, without penalty, subject to paying the
Additional Interest. The net proceeds of approximately $20,965 from the October
2006 Private Placement is expected to be used for the expansion of the Company’s
digital cinema rollout plans to markets outside of the United States, and any
one or more of the following: (i) the payment of certain existing outstanding
indebtedness of the Company due within twelve months of the issuance of the One
Year Senior Notes, (ii) working capital and (iii) other general corporate
purposes, including acquisitions. The Purchase Agreement also requires the One
Year 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 ACS and their 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 One Year Senior Notes.
 
 In
February 2007, the Company and the Purchasers of the One Year Senior Notes
agreed to amend the One Year Senior Notes to: (i) remove the market conditions
that would otherwise restrict the Company from extending the term of the One
Year Senior Notes for up to two 90-day periods, (ii) provide for an increase in
the amount of permitted indebtedness the Company  may  incur,
to  up to  $5,000, (iii) provide for additional interest to be paid in
either cash or stock, at the Company’s option, if the average price of the
Company’s stock falls below $7.00 during the 30 days before any quarterly
interest due date , and (iv) provide an approximate 1% increase in the
value of the Additional Interest Shares payable to the Purchasers
annually.  In August 2007, the One Year Senior Notes were repaid in
full with a portion of the proceeds from the refinancing which closed in August
2007, which is discussed further below.  In August 2007, the Company
recorded debt refinancing expense of $1,122, of which $436 related to
unamortized debt issuance costs and $686 for shares of Class A Common Stock
issued to certain holders of the One Year Senior Notes (see Note 6) as an
inducement for them to enter into a securities purchase agreement with the
Company in August 2007.
 
 In May
2007, the Company received $5,000 of vendor financing (the “Vendor Note A”) for
equipment used in AccessIT DC’s Phase I Deployment.  The Vendor Note A
bore interest at 15% and was permitted to be prepaid without penalty. A
mandatory principal amount of $617 plus all accrued and unpaid interest was paid
in December 2007.  The Vendor Note A and all accrued interest was to
become due and payable in July 2008. If the Vendor Note A was repaid in
full by March 31, 2008, the interest rate would become 8%, retroactive to the
beginning of the note term.  In February 2008, the outstanding
principal balance of the Vendor Note A of $4,383 was repaid in
full.
 
 In August
2007, AccessIT DC obtained $9,600 of vendor financing (the “Vendor Note B”) for
equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note B bears
interest at 11% and may be prepaid without penalty.  Interest is due
semi-annually commencing February 2008.  The balance of the Vendor
Note B, together with all unpaid interest is due on the maturity date of August
1, 2016.  As of March 31, 2008, the outstanding balance of the Vendor
Note B was $9,600.
 
 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 extended for one 6
month period at the discretion of the Company if certain conditions are
met.  Interest on the 2007 Senior
  F-25
  Notes
will be paid 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 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”).  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 are expected to be 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 digital projection 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 have been registered for
resale (see Note 7).  Under the  2007 Senior Notes the
Company agreed (i) to limit its and its subsidiaries' indebtedness to an
aggregate of $315,000 and (ii) not to, and not to cause its subsidiaries (except
for AccessIT DC and its subsidiaries) to, incur indebtedness, with certain
exceptions, including an exception for $10,000; 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.  Additionally, the Company
and its subsidiaries may incur additional indebtedness in connection with the
deployment of Systems beyond the Company’s initial rollout of up to 4,000
Systems, if certain conditions are met.  As of March 31, 2008, the
outstanding principal balance of the 2007 Senior Notes was $55,000.
 
 CREDIT
FACILITIES
 
 In July
2006, in connection with the ACS Acquisition (see Note 3), the Company assumed
$5,598 of debt relating to ACS’s $7,500 revolving credit facility with Excel
Bank (the “Excel Credit Facility”). The Excel Credit Facility bore interest at a
rate between 2.75% to 3.5% over the current one-month London Interbank Offered
Rate (LIBOR), depending on ACS’s leverage ratio. A quarterly unused line fee was
due equal to 0.25% of the excess of $7,500 over the average outstanding balance
of the Excel Credit Facility during the quarter. Under the Excel Credit
Facility, ACS would pay interest only through December 31, 2008. The balance of
the principal amount, together with all unpaid interest on such borrowings and
any fees incurred by ACS pursuant to the Excel Credit Facility are due on the
maturity date of December 31, 2008. Pursuant to the Excel Credit Facility, ACS’s
bank deposits in excess of a minimum balance were swept from time to time by
Excel Bank toward the repayment of the Excel Credit Facility.  The
Excel Credit Facility was repaid in full, as discussed below.
 
 In
December 2006, in connection with the conversion of the Excel Credit Facility,
ACS issued a 5-year, 8% term note payable to Excel Bank with a face amount of
$6,750 (the “Excel Term Note”). Proceeds from the Excel Term Note were used to
repay the Excel Credit Facility, to purchase advertising projection systems and
for working capital. Interest is due monthly commencing January 1, 2007 and
principal shall be paid in quarterly installments commencing April 1, 2007. The
balance of the Excel Term Note, together with all unpaid interest are due on the
maturity date of January 1, 2012. ACS may prepay at any time and time from time,
all or any portion of the Excel Term Note, without penalty or premium. The Excel
Term Note is not guaranteed by the Company or its other subsidiaries, other than
ACS.  Since April 1, 2007, the Company paid quarterly installments
which repaid principal of $360 on the Excel Term Note.  In August
2007, the outstanding principal balance of $6,390 for the Excel Term Note was
repaid in full with a portion of the proceeds from the August 2007 Private
Placement, which is discussed further above.
 
 In August
2006, AccessIT DC entered into an agreement with General Electric Capital
Corporation (“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 will be 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 8) 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 is to be 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
  F-26
  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. As of March 31, 2008, $201,279 was
borrowed under the GE Credit Facility at a weighted average interest rate of
8.58%.
 
 In August
2006, the GE Credit Facility was amended to allow borrowings by AccessIT DC to
be in aggregate amounts not in exact multiples of $1,000.
 
 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 digital systems;
(3) change the leverage ratio covenant; (4) add a new consolidated senior
leverage ratio covenant; and (5) change the consolidated fixed charge
coverage ratio covenant.
 
 Pursuant
to the GE Credit Facility, AccessIT DC will be required to enter into some form,
or combination, of interest rate swap agreements, cap agreements, collar
agreements and insurance (“Interest Rate Contracts”) and thereafter maintain
Interest Rate Contracts on terms and with counter-parties reasonably
satisfactory to GECC until August 2013 for an amount equal to at least 50% of
the aggregate principal amount outstanding at August 2008.  These
Interest Rate Contracts will be in order to provide protection against
fluctuation of interest rates.  In April 2008, AccessIT DC completed
an Interest Rate Swap also known as a "synthetic fixed rate financing", under
which AccessIT DC would hedge its exposure to increases in interest rate under
the GE Credit Facility. GE Corporate Financial Services arranged the
transaction, which will take effect commencing August 1, 2008 in accordance with
the terms of the GE Credit Facility.
 
 At March
31, 2008, 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:
 
 For
      the fiscal years ending March 31,2009
              
              $
              16,9982010
              
              
              25,0652011
              
              
              82,6762012
              
              
              30,6952013
              
              
              33,714Thereafter
              
              
              78,539$
              267,687
 
 7.
              
              STOCKHOLDERS’
      EQUITY
 
 CAPITAL
STOCK
 
 In March
2004, in connection with the acquisition of certain assets from the Boeing
Company (the “Boeing Digital Asset Acquisition”), the Company issued 53,534
unregistered shares of Class A Common Stock (the “Boeing Shares”) to the Boeing
Company (“Boeing”), as part of the purchase price. At any time during the ninety
day period beginning March 29, 2005 to June 29, 2005, Boeing had the option to
sell the Boeing Shares to the Company in exchange for $250 in cash, which the
Company classified under commitments and contingencies. The ninety day period
expired on June 29, 2005, and Boeing did not require the Company to repurchase
the Boeing Shares.  Accordingly, the amount of $250 was credited to
additional paid-in capital.
 
 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.  As of March 31, 2007, 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.
  F-27
  
 In July
2005, the Company entered into a purchase agreement with certain institutional
and other accredited investors in a private placement (the “July 2005 Private
Placement”) to issue and sell 1,909,115 unregistered shares of Class A Common
Stock at a sale price of $9.50 per share and warrants to the investors for gross
proceeds of $18,137.  The Company agreed to register the resale of the
shares of Class A Common Stock issued with the SEC.  The Company filed
a Form S-3 on August 18, 2005, which was declared effective by the SEC onAugust 31,
2005.
 
 In August
2005, in connection with the Conversion Agreement (see Note 6), all Convertible
Debentures Warrants were exercised for $2,487 and the Company issued 560,196
shares of Class A Common Stock.  The Company also issued 71,359 New
Shares to the investors, and another 8,780 Placement Agent
Shares.  The Company was required to register the resale of the shares
of the Class A Common Stock underlying the Convertible Debentures Warrants with
the SEC.   The Company filed a Form S-3 on March 11, 2005, which
was declared effective by the SEC on March 21, 2005.  The Company was
also required to register the New Shares and the Placement Agent Shares on Form
S-3 with the SEC.  The Company filed a Form S-3 on November 16, 2005,
which was declared effective by the SEC on December 2, 2005.
 
 In
September 2005, in connection with the Exchange Offer completed in March 2004
(see Note 6), the AMEX 30-day average closing price of the Company’s Class A
Common Stock exceeded $12.00, and therefore, the Company converted all of the 6%
Convertible Notes into 307,871 shares of Class A Common Stock, of which 248,282
shares of Class A Common Stock were issued to certain officers and directors of
the Company. The Company registered the resale of 59,589 of these shares of
Class A Common Stock on Form S-3 with the SEC.  The Company filed a
Form S-3 on November 16, 2005, which was declared effective by the SEC on
December 2, 2005.
 
 In
December 2005, the Company filed a shelf registration statement on Form S-3 with
the SEC (the “Shelf”), which was declared effective on January 13, 2006. The
Shelf provided that the Company may offer and sell in one or more offerings up
to $75,000 of any combination of the following securities: Class A Common Stock,
preferred stock in one or more series and warrants to purchase Common Stock or
preferred stock.
 
 In
January 2006, in connection with the Shelf, the Company entered into: (1) a
placement agency agreement to issue and sell up to 1,145,000 registered shares
of Class A Common Stock at a price to the public of $10.70 per share to certain
institutional and other accredited investors, and (2) a purchase agreement with
an underwriter for 355,000 registered shares of Class A Common Stock at a price
to the public of $10.70 per share (together the “January 2006 Offering”) for
gross aggregate proceeds of $16,050.  The offering and sale of the
1,500,000 shares was completed on January 25, 2006.  The securities
were offered by the Company, pursuant to the Shelf.
 
 In March
2006, in connection with the Shelf, the Company entered into a purchase
agreement with two underwriters for 5,126,086 registered shares of Class A
Common Stock at a price to the public of $10.00 per share (the “March 2006
Offering”) for gross proceeds of $51,261, which was completed on March 17,
2006.  The Company granted the underwriters a 30-day option to
purchase up to an additional 768,913 shares of Class A Common Stock at a price
to the public of $10.00 per share (the “March 2006 Second Offering”) to cover
over-allotments, which was exercised by the underwriters on March 21, 2006 for
gross proceeds of $7,689 and was completed on March 24,
2006.    The securities were offered by the Company,
pursuant to the Shelf.
 
 As a
result of the January 2006 Offering, the March 2006 Offering and the March 2006
Second Offering, substantially all of the Shelf amount of $75.0 million has been
utilized.  The de minimus remainder has been withdrawn.
 
 In April
2006, the Company issued 23,445 shares of unregistered Class A Common Stock to R
& S International, Inc., in connection with the purchase of 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. The Company
agreed to register the resale of these shares with the SEC. The Company filed a
Form S-3/A on September 15, 2006, which was declared effective by the SEC on
September 19, 2006.
 
 In July
2006, in connection with the ACS Acquisition (see Note 3), the Company issued
974,184 shares of unregistered Class A Common Stock (the “ACS Shares”) as part
of the purchase price. Under the stock purchase agreement entered into by the
Company in connection with the ACS Acquisition, the Company was required to
register the resale of the ACS Shares with the SEC. The Company filed a Form S-3
on August 30, 2006, which was declared effective by the SEC on September 19,
2006.
 
 In
October 2006 and December 2006, the Company issued 46,750 and 53,029 shares of
Class A Common Stock as Additional Interest and Interest Shares, respectively,
in connection with the October 2006 Private Placement (see Note 6). The Company
agreed to register the resale of the shares of the Class A Common Stock
underlying these shares with the SEC. The Company filed a registration statement
on Form S-3 on January 26, 2007, which was declared effective by the SEC on
February 15, 2007.
 
  F-28
  In
January 2007, in connection with the BP Acquisition (see Note 3), the Company
issued 460,000 shares of unregistered Class A Common Stock (the “BP Shares”) as
payment of the purchase price. The Company entered into a Registration Rights
Agreement with BP, pursuant to which the Company agreed to register the resale
of all of the Class A Common Stock issued in connection with the BP Acquisition.
The Company filed a Form S-3/A on February 13, 2007, which was declared
effective by the SEC on February 15, 2007.
 
 In
February 2007, in connection with the Managed Services Acquisition in January
2004, the Company issued 3,394 shares of unregistered Class A Common Stock as
additional purchase price based on the subsequent performance of the business
acquired.
 
 In March
2007, the Company issued 81,768 and 78,720 shares of Class A Common Stock as
Additional Interest and Interest Shares, respectively, in connection with the
October 2006 Private Placement (see Note 6). The Company agreed to register the
resale of the shares of the Class A Common Stock underlying these shares 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 March
2007, the Company agreed to issue 30,000 shares of unregistered Class A Common
Stock to one of the holders of the HS Notes (see Note 6) for their agreement to
reduce the remaining principal on their note by $150.  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 April
2007, in connection with the acquisition of ACS 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 ACS 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 6). 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 ACS 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 ACS
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 6) 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 6).  The Company
registered the resale of these shares of Class A Common Stock and also
registered 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 year
ended March 31, 2008, the Company recorded $935 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 of Class A Common Stock per quarter as
Additional Interest (the “Minimum Additional Interest Shares”).  The
Company has estimated the value of the Minimum Additional Interest Shares to be
$5,244 million and is recording that amount over the 36 month term of the 2007
Senior Notes.  For the year ended March 31, 2008, the Company recorded
$1,020 million to interest expense in connection with the Minimum Additional
Interest Shares.
 
  F-29
  In
December 2007 and March 2008, the Company issued 345,944 and 548,572 shares of
Class A Common Stock, respectively, as Interest Shares pursuant to the 2007
Senior Notes (see Note 6), which were part of the 1,249,875 shares previously
registered on the registration statement on Form S-3 filed on September 26,
2007, which was declared effective by the SEC on November 2, 2007.
 
 ACCESSIT
STOCK OPTION PLAN
 
 Stock
Options
 
 AccessIT’s
stock option plan (“the Plan”) currently provides for the issuance of up to
2,200,000 options to purchase shares of Class A Common Stock to employees,
outside directors and consultants.  On June 9, 2005, the Company’s
Board approved the expansion of the Plan from 850,000 to 1,100,000 options,
which was approved by the shareholders at the Company’s 2005 Annual Meeting held
on September 15, 2005.  On July 6, 2006, the Board approved the
expansion of the Plan from 1,100,000 to 2,200,000 options, which was approved by
the shareholders at the Company’s 2006 Annual Meeting held on September 14,
2006.  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.
 
 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, 2008, under the Plan, the Company granted
644,197 stock options to its employees and 50,000 stock options to five
non-employee members of the Company’s Board, all at an exercise price ranging
from $3.19 to $9.04 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, 2006
              1,100,000
              
              
              $
              6.61Granted
              517,747
              (1)
              
              
              10.68Exercised
              (5,750
              )
              
              
              4.98Cancelled
              (15,500
              )
              
              
              10.46Balance
      at March 31, 2007
              1,596,497
              
              
              $
              7.90Granted
              694,197
              (2)
              
              
              4.18Exercised
              (6,500
              )
              
              
              5.32Cancelled
              (207,625
              )
              
              
              7.71Balance
      at March 31, 2008
              2,076,569
              (3)
              
              $
              6.68
 
 
 (1)
              The
      issuance of 436,747 stock options was subject to shareholder approval,
      which was obtained at the Company’s 2006 Annual Meeting of Stockholders
      held on September 14, 2006.
 (2)
              The
      issuance of an additional 320,003 stock options is subject to shareholder
      approval at the Company’s 2008 Annual Meeting of Stockholders to be held
      on or about September 4, 2008.
 (3)
              As
      of March 31, 2008, there are no shares available for issuance under the
      Plan, due to the number of options and restricted stock currently
      outstanding along with historical option exercises.  An
      expansion of the number of shares issuable under the Plan will be proposed
      at the Company’s 2008 Annual Meeting of Stockholders to be held on or
      about September 4, 2008.
  F-30
  An
analysis of all options outstanding under the Plan as of March 31, 2008 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
              
              
              637,997
              
              
              8.85
              
              $
              3.31
              
              
              195,500
              
              $
              3.40
              
              $
              120,520$5.00
      - $6.99
              
              
              530,500
              
              
              7.15
              
              
              5.32
              
              
              334,500
              
              
              5.32
              
              
              —$7.00
      - $9.99
              
              
              347,572
              
              
              6.84
              
              
              8.00
              
              
              246,122
              
              
              7.83
              
              
              —$10.00
      - $13.52
              
              
              560,500
              
              
              7.58
              
              
              11.00
              
              
              539,395
              
              
              10.98
              
              
              —2,076,569
              
              
              7.74
              
              $
              6.68
              
              
              1,315,517
              
              $
              7.82
              
              $
              120,520
 
 
 As of
March 31, 2008, unamortized stock-based compensation relating to options
outstanding totaled $1,641, which will be expensed as follows:
 
 
 For
      the fiscal years ending March 31,
              
              Stock-based
      Compensation Expense
              
              
              Weighted
      Average Fair Value Per Share2009
              
              $
              709
              
              
              $
              2.762010
              
              
              572
              
              
              
              2.402011
              
              
              360
              
              
              
              1.792012
              
              
              —
              
              
              
              —2013
              
              
              —
              
              
              
              —Thereafter
              
              
              —
              
              
              
              —$
              1,641
              
              
              $
              2.36
 
 
 The
outstanding options at March 31, 2008 will expire as follows:
 
 For
      the fiscal years ending March 31,
              Number
      of Shares
              
              Weighted
      Average Exercise Price Per Share
              
              Exercise
      Price2009
              —
              
              $
              —
              
              —2010
              —
              
              
              —
              
              —2011
              80,372
              
              
              9.00
              
              $7.50
      - $12.502012
              46,000
              
              
              5.00
              
              $5.002013
              76,000
              
              
              4.01
              
              $2.50
      - $7.50Thereafter
              1,874,197
              
              
              6.73
              
              $3.19
      - $13.522,076,569
              
              $
              6.68
              
              $2.50
      - $13.52
 
 
 
 Restricted
Stock Awards
 
 At the
Company’s 2007 Annual Meeting of Stockholders held on September 18, 2007,
shareholders approved an amendment to the Plan to allow various equity-based
awards to be granted pursuant to the Plan.  During the fiscal year
ended March 31, 2008, under the Plan, the Company granted 103,047 shares of
restricted stock to selected employees which will vest equally over a three year
period, all at a market price ranging from $2.51 to $5.56 per
share.
 
  F-31
  The
following table summarizes the activity of the Plan related to restricted
stock:
 
 Restricted
      Stock
              
              
              Weighted
      Average Market Price Per ShareBalance
      at March 31, 2006
              —
              
              
              $
              —Granted
              —
              
              
              
              —Forfeitures
              —
              
              
              
              —Balance
      at March 31, 2007
              —
              
              
              $
              —Granted
              103,047
              
              
              
              3.79Forfeitures
              (433
              )
              
              
              5.56Balance
      at March 31, 2008
              102,614
              
              
              $
              3.78
 
 As of
March 31, 2008, unamortized stock-based compensation relating to restricted
stock outstanding totaled $339, which will be expensed as follows:
 
 
 For
      the fiscal years ending March 31,
              
              Stock-based
      Compensation Expense
              
              
              Weighted
      Average Market Price Per Share2009
              
              $
              129
              
              
              $
              3.782010
              
              
              129
              
              
              
              3.782011
              
              
              81
              
              
              
              3.432012
              
              
              —
              
              
              
              —2013
              
              
              —
              
              
              
              —Thereafter
              
              
              —
              
              
              
              —$
              339
              
              
              $
              3.69
 
 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.
 
  F-32
  As of
March 31, 2008, 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, 2008, AccessDM did
not issue any options to purchase shares of AccessDM common stock.
 
 Shares
      Under Option
              
              Weighted
      Average Exercise Price Per ShareBalance
      at March 31, 2006
              
              1,055,000
              (2)
              $
              0.95
              (1)Granted
              
              —
              
              
              —Exercised
              
              —
              
              
              —Cancelled
              
              —
              
              
              —Balance
      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)
 
 
 
 (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, 2008, 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, 2008
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
 
 
 
 WARRANTS
 
 Warrants
outstanding consisted of the following:
 
 As
      of March 31,Outstanding
      Warrant (as defined below)
              
              
              2007
              
              
              
              2008Underwriter
      Warrants
              
              
              3,775
              
              
              
              —July
      2005 Private Placement Warrants
              
              
              467,275
              
              
              
              467,275New
      Warrants (see Note 6)
              
              
              760,196
              
              
              
              760,1961,231,246
              
              
              
              1,227,471
 
 In
November 2003, in connection with the Company’s initial public offering, the
Company issued to the underwriter, warrants to purchase up to 120,000 shares of
Class A Common Stock at an exercise price of $6.25 per share (the “Underwriter
Warrants”). The Underwriter Warrants were immediately exercisable and expired on
November 7, 2007. The exercise price was subject to adjustment in certain
circumstances, and in 2004 the exercise price was adjusted to $6.03 per
share.  During the fiscal year ended March 31, 2006, 49,085
Underwriter Warrants were exercised for an aggregate of $296 and the Company
issued 49,085 shares of Class A Common Stock.  In addition, 67,140
Underwriter Warrants were exercised on a cashless basis, which resulted in the
issuance of 33,278 shares of Class A Common Stock.  As of March 31,
2008, there were no Underwriter Warrants outstanding.
 
 In July
2005, in connection with the July 2005 Private Placement, 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
  F-33
  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, 2008, 467,275 July 2005 Private
Placements Warrants remained outstanding.
 
 In
accordance with EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed To, and Potentially Settled In, a Company’s Own Stock” (“EITF 00-19”),
and the terms of the July 2005 Private Placement Warrants, the fair value of the
July 2005 Private Placement Warrants were initially accounted for as a
liability, with an offsetting reduction to the carrying value of the Common
Stock. Such liability was reclassified to equity as of the August 31, 2005
effective date of the Form S-3.
 
 The fair
value of the July 2005 Private Placement Warrants was estimated to be $800 on
the closing date of the transaction, using the Black-Scholes option-pricing
model with the following assumptions: no dividends, risk-free interest rate of
3.84%, the contractual life of 5-years and volatility of 55%. In September 2005,
the fair value of the July 2005 Private Placement Warrants was re-measured and
estimated to be $1,050 and the increase in the fair value of $250 was recorded
as other expense.
 
 In August
2005, in connection with the Conversion Agreement (see Note 6), all Convertible
Debentures Warrants were exercised for $2,487 and the Company issued 560,196
shares of Class A Common Stock and the Company issued to the investors the New
Warrants to purchase 760,196 shares of Class A Common Stock at an exercise price
of $11.39 per share. The Company was required to register the resale of the
shares of the Class A Common Stock underlying the Convertible Debentures
Warrants with the SEC.  The Company filed a Form S-3 on March 11,
2005, which was declared effective by the SEC on March 21, 2005.  The
New Warrants were immediately exercisable upon issuance and for a period of five
years thereafter. 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
filed a Form S-3 on November 16, 2005, which was declared effective by the SEC
on December 2, 2005.  As of March 31, 2008, 760,196 New Warrants
remained outstanding.
 
 In
accordance with EITF 00-19, and the terms of the New Warrants, the fair value of
the New Warrants was initially accounted for as a liability, with an offsetting
reduction to the carrying value of the Common Stock.   Such
liability was reclassified to equity as of the December 2, 2005 effective date
of the Form S-3.The fair value of the New Warrants was estimated to be $4,990 on
the closing date of the transaction, using the Black-Scholes option-pricing
model with the following assumptions: no dividends, risk-free interest rate of
4.01%, a contractual life of 5-years and volatility of 56%. At September 30,
2005, the fair value of the New Warrants was re-measured and estimated to be
$3,490. The decrease in the fair value of $1,500 was recorded as other
income.   At December 2, 2005, the fair value of the New Warrants
was re-measured and estimated to be $3,080 and the decrease in the fair value of
$410 was recorded as other income.
 
 8.
              
              COMMITMENTS
      AND CONTINGENCIES
 
 Pursuant
to a digital cinema framework agreement and related supply agreement, as
amended, entered into with Christie through the Company’s indirect wholly-owned
subsidiary, AccessIT DC, in June 2005, AccessIT DC may order up to 4,000 Systems
from Christie (the “Phase I Deployment”).
 
 In
connection with AccessIT DC’s Phase I Deployment, the Company entered into
digital cinema deployment agreements with seven motion picture studios and a
digital cinema agreement with one alternative content provider for the
distribution of digital movie releases and alternate content to motion picture
exhibitors equipped with Systems, and providing for payment of VPFs and ACFs to
AccessIT DC.  AccessIT DC also entered into master license agreements
with sixteen motion picture exhibitors for the placement of Systems in movie
theatres (including screens at AccessIT’s Pavilion Theatre).  In
December 2007, AccessIT DC completed its Phase I Deployment with 3,723 Systems
installed.
 
 As of
March 31, 2008, the Company has paid approximately $278,500 towards Systems
ordered and installation costs incurred in connection with AccessIT DC’s Phase I
Deployment.AccessIT DC has 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 the Systems in movie theatres (see Note 5).  The
motion picture exhibitors were required to make monthly interest only payments
through October 2007 and are required to make quarterly principal and interest
payments thereafter.
 
 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.
  F-34
  
 LEASES
 
 The
Company has acquired property and equipment under a non-cancelable long-term
capital lease obligation that expires in July 2022. As of March 31, 2008, the
Company had an outstanding capital lease obligation of $5,903. The Company’s
capital lease obligation is at the following location and in the following
principal amount:
 Location
              
              
              
              Purpose
      of capital lease
              
              
              
              Outstanding
                Capital
                Lease
                ObligationThe
      Pavilion Theatre
              
              
              
              For
      building, land and improvements
              
              
              
              $
              5,903
 
 As of
March 31, 2008, minimum future capital lease payments (including interest)
totaled $16,396, are due as follows:
 
 For
      the fiscal years ending March 31,2009
              $
              1,1282010
              
              1,1282011
              
              1,1282012
              
              1,1282013
              
              1,132Thereafter
              
              10,75216,396Less:
      interest
              
              (10,493
              )Outstanding
      capital lease obligation
              $
              5,903
 
 Assets
recorded under capitalized lease agreements included in property and equipment
consists of the following:
 
 As
      of March 31,2007
              
              
              2008Land
              
              $
              1,500
              
              
              $
              1,500Building
              
              
              4,600
              
              
              
              4,600Computer
      equipment
              
              
              22
              
              
              
              —Machinery
      and equipment
              
              
              380
              
              
              
              —6,502
              
              
              
              6,100Less:
      accumulated depreciation
              
              
              (1,180
              )
              
              
              (1,136
              )Net
      assets under capital lease
              
              $
              5,322
              
              
              $
              4,964
 
 Depreciation
expense on assets under capitalized lease agreements was $439, $383 and $359 for
the fiscal years ended March 31, 2006, 2007 and 2008, respectively.
 
 The
Company’s businesses operate from leased properties under non-cancelable
operating lease agreements (see Item 2. Properties).  As of March 31,
2008, obligations under non-cancelable operating leases totaled $11,217,
including $8,474 for the IDCs currently being operated by FiberMedia, are due as
follows:
 
 For
      the fiscal years ending March 31,2009
              
              $
              3,3432010
              
              
              2,5282011
              
              
              1,6062012
              
              
              1,0352013
              
              
              712Thereafter
              
              
              1,993$
              11,217
 
 
 Total
rent expense was $2,615, $2,970 and $3,174 for the fiscal years ended March 31,
2006, 2007 and 2008, respectively.
 
  F-35
  9.
              
              SUPPLEMENTAL
      CASH FLOW DISCLOSURE
 
 For
      the fiscal years ended March 31,2006
              
              
              2007
              
              
              2008Interest
      paid
              
              $
              1,461
              
              
              $
              5,475
              
              
              $
              19,339Reduction
      of goodwill and other assets relating to the early cancellation of the
      Pavilion Note
              
              $
              1,232
              
              
              $
              —
              
              
              $
              —Issuance
      of Class A Common Stock for conversion of 6% Convertible
      Notes
              
              $
              1,699
              
              
              $
              —
              
              
              $
              —Issuance
      of Class A Common Stock for conversion of Convertible
      Debentures
              
              $
              7,600
              
              
              $
              —
              
              
              $
              —Issuance
      of Class A Common Stock in lieu of redeeming the Boeing
      Shares
              
              $
              250
              
              
              $
              —
              
              
              $
              —Transfer
      to equity of liability relating to warrants upon registration statement
      effectiveness
              
              $
              4,130
              
              
              $
              —
              
              
              $
              —Equipment
      in accounts payable and accrued expenses purchased from
      Christie
              
              $
              7,924
              
              
              $
              19,677
              
              
              $
              19,734Note
      receivable in accounts payable and accrued expenses for installation costs
      from Christie
              
              $
              934
              
              
              $
              —
              
              
              $
              —Reduction
      of goodwill related to the Pavilion Theatre
              
              $
              —
              
              
              $
              107
              
              
              $
              —Deposits
      applied to equipment purchased from Christie
              
              $
              —
              
              
              $
              37,047
              
              
              $
              24,763Issuance
      of Class A Common Stock for purchase of Access Digital Server
      Assets
              
              $
              —
              
              
              $
              308
              
              
              $
              —Liabilities
      assumed in the PLX Acquisition
              
              $
              —
              
              
              $
              140
              
              
              $
              —Issuance
      of Class A Common Stock for the ACS Acquisition
              
              $
              —
              
              
              $
              10,000
              
              
              $
              —Liabilities
      assumed in the ACS Acquisition
              
              $
              —
              
              
              $
              14,719
              
              
              $
              —Issuance
      of debt for the ACS Acquisition
              
              $
              —
              
              
              $
              5,204
              
              
              $
              —Refinance
      of Excel Credit Facility
              
              $
              —
              
              
              $
              6,114
              
              
              $
              —Issuance
      of Class A Common Stock for the Bigger Picture
      Acquisition
              
              $
              —
              
              
              $
              3,924
              
              
              $
              —Liabilities
      assumed in the Bigger Picture Acquisition
              
              $
              —
              
              
              $
              2,284
              
              
              $
              —Issuance
      of Class A Common Stock as additional purchase price for Managed
      Services
              
              $
              —
              
              
              $
              30
              
              
              $
              —Additional
      purchase price in accounts payable and accrued expenses for Managed
      Services
              
              $
              —
              
              
              $
              168
              
              
              $
              —Reduction
      of HS Note for the issuance of Class A Common Stock
              
              $
              —
              
              
              $
              150
              
              
              $
              —Issuance
      of Class A Common Stock as additional
                purchase
      price for ACS
              
              $
              —
              
              
              $
              —
              
              
              $
              1,000Issuance
      of Class A Common Stock as additional
                purchase
      price for Managed Services
              
              $
              —
              
              
              $
              —
              
              
              $
              29Note
      payable issued for customer contract
              
              $
              —
              
              
              $
              —
              
              
              $
              75Repayment
      of One Year Senior Notes
              
              $
              —
              
              
              $
              —
              
              
              $
              18,000Legal
      fees from the holders of the 2007 Senior Notes
                included
      in debt issuance costs
              
              $
              —
              
              
              $
              —
              
              
              $
              109Additional
      purchase price in accounts payable and accrued expenses for Access Digital
      Server Assets
              
              $
              —
              
              
              $
              —
              
              
              $
              129
 
 10.
              SEGMENT
      INFORMATION
 
 Segment
information has been prepared in accordance with SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information.” As discussed in Note
1, beginning April 1, 2007, the Company made changes to its organizational
structure that impacted the Company’s reportable segments. The Media Services
segment was reorganized. The Company has realigned its focus and its business is
now comprised of three primary reportable segments: Media Services, Content
& Entertainment and Other. The segments were determined based on the
products and services provided by each segment. 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.
 
  F-36
  The Media
Services segment consists of the following:
 
 Operations
      of:
              
              Products
      and services provided:AccessIT DC
      and its subsidiary, Phase 2 Corporation
              ·
              Financing
      vehicles and administrators for the Company’s 3,723 digital cinema
      projection systems (the “Systems”) installed nationwide in
      AccessIT DC’s Phase I Deployment and our second digital cinema
      deployment (the “Phase II Deployment”) to motion picture
      exhibitors·
              Collect
      virtual print fees (“VPFs”) from motion picture studios and distributors
      and alternative content fees (“ACFs”)  from alternative content
      providersAccessIT
      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 servicesDMS
              ·
              Stores
      and 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 ownersManaged
      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 solutionsACS
              ·
              Provides
      cinema advertising services and entertainmentThe
      Bigger Picture
              ·
              Acquires,
      distributes and provides the marketing for programs of alternative content
      to theatrical exhibitors
 
 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
 
 Since May
1, 2007, the Company’s IDCs have been operated by FiberMedia pursuant to a
master collocation agreement.  Although the Company is still the
lessee of the IDCs, substantially all of the revenues and expenses are being
realized by FiberMedia and not the Company.
  F-37
  
 
 Information
related to the segments of the Company and its subsidiaries is detailed
below:
 
 As
      of March 31, 2007Media
      Services
              
              
              Content
      & Entertainment
              
              
              
              
              Other
              
              
              Corporate
              
              
              
              
              
              ConsolidatedTotal
      intangible assets, net
              
              $
              1,443
              
              $
              17,984
              
              
              
              $
              —
              
              $
              5
              
              
              
              
              $
              19,432Total
      goodwill
              
              $
              4,529
              
              $
              8,720
              
              
              
              $
              —
              
              $
              —
              
              
              
              
              $
              13,249Total
      assets
              
              $
              243,186
              
              $
              48,707
              
              
              
              $
              1,239
              
              $
              8,595
              
              
              
              
              $
              301,727
 
 
 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
 
 11.
              RELATED
      PARTY TRANSACTIONS
 
 A
non-employee officer of AccessIT DC is also an officer of Christie, from whom
AccessIT DC purchases the Systems for AccessIT DC’s Phase I
Deployment.  Payments for such Systems to Christie for the fiscal
years ended March 31, 2006, 2007 and 2008 totaled $21,057, $143,839 and
$113,598, respectively.  This individual was not compensated by
AccessIT DC and since May 2007, the individual was no longer an officer of
AccessIT DC.
 
 In
connection with the Bigger Picture Acquisition, The Bigger Picture entered into
a services agreement with SD Entertainment, Inc. (“SDE”) to provide certain
services and other resources.  An employee officer of The Bigger
Picture is also an officer of SDE.  Payments for such services to SDE
for the fiscal year ended March 31, 2008 totaled $260.
 
 12.
              INCOME
      TAXES
 
 The
Company did not record any current or deferred income tax benefit from income
taxes in the fiscal years ended March 31, 2007 and 2008.
 
 Net
deferred tax liabilities consisted of the following:
 
 As
      of March 31,2007
              
              
              2008Deferred
      tax assets:Net
      operating loss carryforwards
              
              $
              25,603
              
              
              $
              40,989Stock
      based compensation
              
              
              1,015
              
              
              
              1,094Revenue
      deferral
              
              
              936
              
              
              
              700Other
              
              
              2,242
              
              
              
              1,103Total
      deferred tax assets before valuation allowance
              
              
              29,796
              
              
              
              43,886Less:
      Valuation allowance
              
              
              (17,099
              )
              
              
              (29,361
              )Total
      deferred tax assets after valuation allowance
              
              $
              12,697
              
              
              $
              14,525Deferred
      tax liabilities:Depreciation
      and amortization
              
              $
              (6,252
              )
              
              $
              (9,341
              )Intangibles
              
              
              (6,410
              )
              
              
              (5,167
              )Other
              
              
              (35
              )
              
              
              (17
              )Total
      deferred tax liabilities
              
              
              (12,697
              )
              
              
              (14,525
              )Net
      deferred tax liabilities
              
              $
              —
              
              
              $
              —
 
 The
Company has provided a valuation allowance equal to its net deferred tax assets
for the fiscal years ended March 31, 2007 and 2008.  The Company is
required to recognize all or a portion of its deferred tax assets if it believes
that it is more likely than
  F-38
  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 $6,914 and
$12,262 during the fiscal years ended March 31, 2007 and 2008,
respectively.  The increase of the valuation allowance of $6,914 for
the year ended March 31, 2007 is net of a decrease to the valuation allowance of
$1,964.  The decrease to the valuation allowance of $1,964 resulted
from net taxable temporary differences acquired from ACS, including future
intangible asset amortization.  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, 2008, the Company had Federal and state net operating loss carryforwards of
approximately $102,000 available to reduce future taxable income.  The
federal net operating loss carryforwards will begin to expire in
2020.  The Company also has a charitable contribution carryforward of
approximately $325 thousand at March 31, 2008, available to offset future
federal and state taxable income, but limited to 10% of such income. 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:
 
 As
      of March 31,2007
              
              
              2008Provision
      at the U.S. statutory federal tax rate
              
              
              34.0
              %
              
              
              34.0
              %State
      income taxes, net of federal benefit
              
              
              6.8
              
              
              
              6.7Change
      in valuation allowance
              
              
              (38.4
              )
              
              
              (34.4
              )Disallowed
      interest
              
              
              (2.5
              )
              
              
              (6.7
              )Non-deductible
      equity compensation
              
              
              (1.2
              )
              
              
              (0.4
              )Other
              
              
              1.3
              
              
              
              0.8Income
      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 as of April 1, 2007 or during the year ended March 31,
2008.
 
 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 2008
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 2008 tax years generally remain open for
examination by most of the tax authorities under a four year statute of
limitations.
 
 13.
              QUARTERLY
      FINANCIAL DATA (Unaudited) ($ in thousands, except per share
      data)
 
 For
      the Quarter EndedFiscal
      year 2007
              
              6/30/2006
              
              
              9/30/2006
              
              
              12/31/2006
              
              
              3/31/2007Revenues
              
              $
              5,576
              
              
              $
              9,965
              
              
              $
              14,224
              
              
              $
              17,345Gross
      Margin
              
              $
              2,154
              
              
              $
              4,771
              
              
              $
              7,641
              
              
              $
              10,330Net
      Loss
              
              $
              (2,602
              )
              
              $
              (6,096
              )
              
              $
              (6,239
              )
              
              $
              (11,062
              )Basic
      and diluted net loss per share
              
              $
              (0.11
              )
              
              $
              (0.26
              )
              
              $
              (0.26
              )
              
              $
              (0.46
              )Shares
      used in computing basic and diluted net loss per
    share
              
              
              22,960,108
              
              
              
              23,613,396
              
              
              
              23,932,736
              
              
              
              24,362,925
   F-39
  
 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
  
 
 14.
              VALUATION
      AND QUALIFYING ACCOUNTS
 
 
 Balance
      at Beginning of Period
              
              
              Additions
      to Bad Debt Expense
              
              
              Other
      Additions (1)
              
              
              Deductions
      (2)
              
              
              Balance
      at End of PeriodFor
      the Fiscal Year Ended March 31, 2008:Reserve
      for doubtful accounts
              
              $
              1,332
              
              
              $
              1,396
              
              
              $
              —
              
              
              $
              422
              
              
              $
              2,306For
      the Fiscal Year Ended March 31, 2007:Reserve
      for doubtful accounts
              
              $
              104
              
              
              $
              848
              
              
              $
              522
              
              
              $
              142
              
              
              $
              1,332For
      the Fiscal Year Ended March 31, 2006:Reserve
      for doubtful accounts
              
              $
              131
              
              
              $
              186
              
              
              $
              —
              
              
              $
              213
              
              
              $
              104
 
 (1)          Primarily
represents allowance for doubtful accounts related to the PLX
Acquisition.
 (2)          Represents
write-offs of specific accounts receivable.
 
 15.
              SUBSEQUENT
      EVENTS
 
 In April
2008, AccessIT DC entered into an Interest Rate Swap also known as a "synthetic
fixed rate financing" for 90% of the amounts outstanding under the GE Credit
Facility at a fixed rate of 7.3%, to hedge AccessIT DC’s exposure to increases
in interest rate under the GE Credit Facility. GE Corporate Financial Services
arranged the transaction, which will take effect commencing August 1, 2008 as
required by the GE Credit Facility.
 
 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 the subsequent performance of the business
acquired.
 
 In April
2008, in connection with the acquisition of the Access Digital Server Assets,
the Company issued 30,000 shares of unregistered Class A Common Stock as
additional purchase price based on the subsequent performance.
 
 In May
2008, the Company filed a registration statement on Form S-3 to register an
additional 500,000 shares of Class A Common Stock for future interest payments
on the 2007 Senior Notes.
 
 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 $2,000, repayments over a 47 month period, and interest at an annual
rate of 8.25%.
 
 Subsequent
to March 31, 2008, under the Plan (see Note 7), the Company granted 5,500 stock
options to employees at an exercise price ranging from $3.87 to $5.49 per share.
In addition, the Company granted 620,250 restricted stock units (“RSUs”) to
employees and 103,450 RSUs to five non-employee members of the Company’s
Board.  Each RSU represents a contingent right to receive one share of
Class A Common Stock, based on a three year vesting period, however, the Company
has the discretion to settle in shares of Class A Common Stock or cash or a
combination thereof.
 
 
  F-40
  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.
 
 
 There was
no change in our internal control over financial reporting during our most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial
reporting.
 
 Management's
Report on Internal Control Over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Our system of internal control over financial reporting is
designed 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. Our internal 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 our
      assets;
 ·
              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 are being made only in accordance
      with authorizations of our management and our directors;
    and
 ·
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of our assets that could
      have a material effect on the financial
  statements.
 
 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.
 
 Our
management conducted an assessment of the effectiveness of the system of
internal control over financial reporting as of March 31, 2008 based on the
framework in Internal
Control-Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on that assessment, our
management concluded that our system of internal control over financial
reporting was effective as of March 31, 2008. The effectiveness of our internal
control over financial reporting has been audited by Eisner LLP, our independent
registered public accounting firm, as stated in their report which is included
herein.
 
 ITEM
      9B.
              OTHER
      INFORMATION
 
 None.
 
  34
  PART
III
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
 
 Except as
set forth below, the information required by this item will appear in AccessIT’s
Proxy Statement for our 2008 Annual Meeting of Stockholders to be held on or
about September 4, 2008, 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.accessitx.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 AccessIT’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 AccessIT’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 AccessIT’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 AccessIT’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 32 herein.
 (a)(2)
Financial Statement Schedules
 None.
 
 (a)(3)
Exhibits
 The
exhibits are listed in the Exhibit Index beginning on page 37
herein.
 
 
  35
  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
      16, 2008
              
              By:
              /s/
      A. Dale MayoA.
      Dale Mayo
                President
      and Chief Executive Officer and Chairman of the Board of
      Directors
                (Principal
      Executive Officer)Date:
              June
      16, 2008
              
              By:
              /s/
      Brian D. PflugBrian
      D. Pflug
                Senior
      Vice President – Accounting & Finance
                (Principal
      Financial & Accounting Officer)
 
 
  36
  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
      16, 2008A.
      Dale Mayo
              
              and
      Chairman of the Board of Directors
                (Principal
      Executive Officer)/s/Kevin J. Farrell
              
              Senior
      Vice President - Facilities
              June
      16, 2008Kevin
      J. Farrell
              
              and
      Director/s/
      Gary S. Loffredo
              
              Senior
      Vice President - General Counsel,
              June
      16, 2008Gary
      S. Loffredo
              
              Secretary
      and Director/s/
      Brian D. Pflug
              
              Senior
      Vice President - Accounting
              June
      16, 2008Brian
      D. Pflug
              
              and
      Finance
                (Principal
      Financial & Accounting Officer)/s/
      Wayne L. Clevenger
              
              Director
              June
      16, 2008Wayne
      L. Clevenger/s/
      Gerald C. Crotty
              
              Director
              June
      16, 2008Gerald
      C. Crotty/s/
      Robert Davidoff
              
              Director
              June
      16, 2008Robert
      Davidoff/s/
      Matthew W. Finlay
              
              Director
              June
      16, 2008Matthew
      W. Finlay/s/
      Robert E. Mulholland
              
              Director
              June
      16, 2008Robert
      E. Mulholland
 
  37
  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
              --
              Stock
      Purchase Agreement, dated as of December 22, 2003, among the Company, Core
      Technologies, Inc. and Erik B. Levitt. (4)2.5
              --
              Securities
      Purchase Agreement, dated August 24, 2007, by and among the Company and
      certain purchasers.  (25)2.6
              --
              [Intentionally
      omitted]2.7
              --
              [Intentionally
      omitted]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. (8)2.10
              --
              Asset
      Purchase Agreement, dated as of December 23, 2004, among ADM Cinema
      Corporation, Pritchard Square Cinema, LLC and Norman Adie.
      (10)2.11
              --
              [Intentionally
      omitted]2.12
              --
              Securities
      Purchase Agreement, dated as of February 9, 2005, among the Company and
      certain investors. (9)2.13
              --
              Securities
      Purchase Agreement, dated as of July 19, 2005, among the Company and
      certain purchasers. (13)2.14
              --
              Letter
      Agreement, dated August 29, 2005, among the Company and certain
      purchasers. (19)2.15
              --
              Securities
      Purchase Agreement, dated October 5, 2006, by and among the Company and
      certain purchasers. (20)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. (22)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.
    (22)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. (24)3.1
              --
              Fourth
      Amended and Restated Certificate of Incorporation of the Company.
      (4)3.2
              --
              Bylaws
      of the Company. (2)4.1
              --
              Form
      of Warrant Agreement (with Warrant Certificates) between the Company and
      the lead underwriter. (1)4.2
              --
              Specimen
      certificate representing Class A common stock.
  (1)
  38
  
 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.  (25)4.4
              --
              Registration
      Rights Agreement, dated August 24, 2007 by and among the Company and
      certain purchasers.  (25)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. (25)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. (25)4.8
              --
              [Intentionally
      omitted]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
              --
              [Intentionally
      omitted]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
              --
              Registration
      Rights Agreement, dated as of June 2004, among the Company and certain
      investors. (6)4.18
              --
              Promissory
      Note, dated November 14, 2003, issued by the Company to David Gajda.
      (7)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. (24)4.18.2
              --
              Letter
      Agreement dated May 16, 2007 between the Company and David Gajda.
      (24)4.19
              --
              Promissory
      Note, dated November 14, 2003, issued by the Company to Robert
      Jackovich.(7)4.20
              --
              [Intentionally
      omitted]4.21
              --
              Form
      of Subsidiary Guarantee to be entered  into by certain
      subsidiaries of the Company pursuant to the Securities Purchase Agreement,
      dated as of February 9, 2005 among the Company and the several investors
      party thereto. (9)4.22
              --
              [Intentionally
      omitted]4.23
              --
              [Intentionally
      omitted]4.24
              --
              Form
      of Registration Rights Agreement, among the registrant and certain
      investors pursuant to the Securities Purchase Agreement, dated as of
      February 9, 2005 among the Company and the several investors party
      thereto. (9)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. (13)4.26
              --
              Registration
      Rights Agreement, dated as of July 19, 2005 among the Company and certain
      purchasers. (13)4.27
              --
              Form
      of Warrant issued to purchasers pursuant to a letter agreement.
      (15)4.28
              --
              Registration
      Rights Agreement, dated as of November 16, 2005, among the Company and
      certain purchasers. (15)4.29
              --
              Form
      of Note to be issued to purchasers pursuant to the Securities Purchase
      Agreement, dated October 5, 2006, by and among the Company and certain
      purchasers. (20)
  39
  
 4.30
              --
              Amendment
      No. 1, dated February 9, 2007, to the Notes issued to purchasers pursuant
      to the Securities Purchase Agreement, dated October 5, 2006, by and
      certain purchasers. (23)4.30
              --
              Registration
      Rights Agreement, dated October 5, 2006, by and among the Company and
      certain purchasers. (20)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.
  (22)4.32
              --
              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 $4,000,000.00.
  (22)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.
      (22)4.34
              --
              Registration
      Rights Agreement, dated as of July 31, by and among Access Integrated
      Technologies, Inc. and the stockholders signatory thereto.
      (22)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. (22)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.
      (22)4.37
              --
              Form
      of Revolving Note, dated as of December 29, 2005, executed by UniqueScreen
      Media, Inc. and Excel Bank Minnesota. (22)4.38
              --
              Security
      Agreement, dated as of December 29, 2005, by and between UniqueScreen
      Media, Inc. and Excel Bank Minnesota. (22)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. (24)10.1
              --
              Amended
      and Restated Employment Agreement, dated as of December 15, 2005, between
      the Company and A. Dale Mayo. (16)10.1.1
              --
              Amended
      and Restated Employment Agreement, dated March 31, 2008, between the
      Company and A. Dale Mayo.  (28)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.
      (26)10.4.1
              --
              Amendment
      dated May 9, 2008 to the Second Amended and Restated 2000 Equity Incentive
      Plan of the Company. (30)10.4.2
              --
              Form
      of Notice of Restricted Stock Award (26)10.4.3
              --
              Form
      of Non-Qualified Stock Option Agreement (28)10.4.4
              --
              Form
      of Restricted Stock Unit Agreement (employees) (30)10.4.5
              --
              Form
      of Stock Option Agreement. (11)10.4.6
              --
              Form
      of Restricted Stock Unit Agreement (directors) (30)10.5
              --
              [Intentionally
      omitted]10.6
              --
              [Intentionally
      omitted]10.7
              --
              [Intentionally
      omitted]10.8
              --
              [Intentionally
      omitted]10.9
              --
              [Intentionally
      omitted]10.10
              --
              [Intentionally
      omitted]
  40
  
 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)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]
  41
  
 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
              --
              Employment
      Agreement, dated as of January 9, 2004, between the Company and Erik B.
      Levitt. (4)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.  (7)10.40
              --
              Lease
      Agreement, dated as of August 9, 2002, by and between OLP Brooklyn
      Pavilion LLC and Pritchard Square Cinema LLC. (19)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. (19)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. (19)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. (19)10.40.4
              --
              Fourth
      Amendment to Lease Agreement, dated as of February 11, 2005, between ADM
      Cinema Corporation and OLP Brooklyn Pavilion
      LLC.  (12)10.41
              --
              2002
      ISDA Master Agreement between HSBC Bank USA, National Association and
      Christie/AIX, Inc., dated as of April 2, 2008. (29)10.42
              --
              Schedule
      to the ISDA Master Agreement between HSBC Bank USA, National Association
      and Christie/AIX, Inc., dated as of April 2, 2008. (29)10.43
              --
              Swap
      Transaction Confirmation from HSBC Bank USA, National Association to
      Christie/AIX, Inc., dated as of April 2, 2008. (29)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. (14)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. (14)10.47
              --
              Digital
      Cinema Deployment Agreement, dated October 12, 2005, by and between
      Twentieth Century Fox Film Corporation and Christie/AIX, Inc.
      (14)10.48
              --
              Placement
      Agency Agreement, dated as of January 17, 2006, by and between the Company
      and Craig-Hallum Capital Group LLC. (17)10.49
              --
              Digital
      Cinema Agreement, dated as of October 20, 2005, by and between Universal
      City Studios, LLP and Christie/AIX, Inc. (18)10.50
              --
              Master
      License Agreement, dated as of December, 2005, by and between
      Christie/AIX, Inc. and Carmike Cinemas, Inc. (18)10.51
              --
              Subsidiary
      Guaranty in favor of the holders of certain notes, dated October 5, 2006,
      by Access Digital Media, Inc., Core Technology Services, Inc., Hollywood
      Software, Inc., FiberSat Global Services Inc. and PLX Acquisition Corp.
      (20)10.51.1
              --
              Subsidiary
      Guaranty Supplement, dated as of January, 2007, made by Vistachiara
      Productions, Inc., in favor of and for the benefit of certain purchasers.
      (24)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.
      (21)
  42
  
 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. (21)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. (21)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.
      (22)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.
      (22)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.
      (24)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.  (27)10.54
              --
              Credit
      Agreement, dated as of December 29, 2005, by and between UniqueScreen
      Media, Inc. and Excel Bank Minnesota, as amended on March 10, 2006 and
      July 25, 2006. (22)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 2, 2004 as
an exhibit to the Company’s Form 8-K (File No. 001-31810).
   43
  (7)
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).
  (8)
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).
  (9)
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).
  (10)
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).
  (11)
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).
  (12)
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).
  (13)
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).
  (14)
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).
  (15)
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).
  (16)
Previously filed with the Securities and Exchange Commission on December 21,
2005, as an exhibit to the Company’s Form 8-K (File No. 001-31810).
  (17)
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).
  (18)
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).
  (19)
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).
  (20)  Previously
filed with the Securities and Exchange Commission on October 6, 2006 as an
exhibit to the Company’s Form 8-K (File No. 000-51910).
  (21)
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).
  (22)  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).
  (23)
Previously filed with the Securities and Exchange Commission on May 16, 2007 as
an exhibit to Amendment No. 1 to the Company’s Registration Statement on Form
S-3 (Reg. No. 333-14241).
  (24)
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).
  (25)
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).
  (26)
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).
   44
  (27)
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).
  (28)
Previously filed with the Securities and Exchange Commission on March 31, 2008
as an exhibit to the Company’s Form 8-K (File No. 000-51910).
  (29)
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).
  (30)
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).
  45