Cineverse Corp. - Quarter Report: 2008 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended: September 30, 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)
Indicate
by check mark whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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
o
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o (Do not check if a
smaller reporting company)
|
Smaller reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
|
Yes
o No
x
|
As
of November 6, 2008, 26,832,651 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.
|
ACCESS
INTEGRATED TECHNOLOGIES, INC.
CONTENTS
TO FORM 10-Q
PART
I --
|
FINANCIAL
INFORMATION
|
Page
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
Condensed
Consolidated Balance Sheets at March 31, 2008 and September 30, 2008
(Unaudited)
|
1
|
|
Unaudited
Condensed Consolidated Statements of Operations for the Three and Six
Months ended September 30, 2007 and 2008
|
3
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows for the Six Months ended
September 30, 2007 and 2008
|
4
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
39
|
Item
4.
|
Controls
and Procedures
|
40
|
PART
II --
|
OTHER
INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
40
|
Item
1A.
|
Risk
Factors
|
40
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
42
|
Item
3.
|
Defaults
Upon Senior Securities
|
43
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
43
|
Item
5.
|
Other
Information
|
44
|
Item
6.
|
Exhibits
|
44
|
Signatures
|
45
|
|
Exhibit
Index
|
46
|
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS (UNAUDITED)
ACCESS
INTEGRATED TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except for share data)
March
31,
2008
|
September
30,
2008
|
|||||||
ASSETS
|
(Unaudited)
|
|||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 29,655 | $ | 23,147 | ||||
Accounts
receivable, net
|
21,494 | 17,309 | ||||||
Unbilled
revenue, current portion
|
6,393 | 5,263 | ||||||
Deferred
costs, current portion
|
3,859 | 3,807 | ||||||
Prepaid
and other current assets
|
1,316 | 2,851 | ||||||
Note
receivable, current portion
|
158 | 280 | ||||||
Total
current assets
|
62,875 | 52,657 | ||||||
Property
and equipment, net
|
269,031 | 254,265 | ||||||
Intangible
assets, net
|
13,592 | 11,744 | ||||||
Capitalized
software costs, net
|
2,777 | 2,898 | ||||||
Goodwill
|
14,549 | 14,549 | ||||||
Deferred
costs, net of current portion
|
6,595 | 5,360 | ||||||
Unbilled
revenue, net of current portion
|
2,075 | 1,887 | ||||||
Note
receivable, net of current portion
|
1,220 | 1,037 | ||||||
Security
deposits
|
408 | 425 | ||||||
Accounts
receivable, net of current portion
|
299 | 299 | ||||||
Restricted
cash
|
255 | 255 | ||||||
Fair
value of interest rate swap
|
— | 1,565 | ||||||
Total
assets
|
$ | 373,676 | $ | 346,941 |
See
accompanying notes to Unaudited Condensed Consolidated Financial
Statements
1
ACCESS
INTEGRATED TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except for share data)
(continued)
March
31,
2008
|
September
30,
2008
|
|||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
(Unaudited)
|
|||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 25,213 | $ | 11,335 | ||||
Current
portion of notes payable
|
16,998 | 24,320 | ||||||
Current
portion of deferred revenue
|
6,204 | 5,797 | ||||||
Current
portion of customer security deposits
|
333 | 354 | ||||||
Current
portion of capital leases
|
89 | 123 | ||||||
Total
current liabilities
|
48,837 | 41,929 | ||||||
Notes
payable, net of current portion
|
250,689 | 238,609 | ||||||
Capital
leases, net of current portion
|
5,814 | 5,819 | ||||||
Deferred
revenue, net of current portion
|
283 | 283 | ||||||
Customer
security deposits, net of current portion
|
46 | 34 | ||||||
Total
liabilities
|
305,669 | 286,674 | ||||||
Commitments
and contingencies (see Note 7)
|
||||||||
Stockholders’
Equity
|
||||||||
Class
A common stock, $0.001 par value per share; 40,000,000 and 65,000,000
shares authorized at March 31, 2008 and September 30, 2008, respectively;
26,143,612 and 26,884,091 shares issued and 26,092,172 and 26,832,651
shares outstanding at March 31, 2008 and September 30, 2008,
respectively
|
26 | 27 | ||||||
Class
B common stock, $0.001 par value per share; 15,000,000 shares authorized;
733,811 shares issued and outstanding at March 31, 2008 and September 30,
2008, respectively
|
1 | 1 | ||||||
Additional
paid-in capital
|
168,844 | 171,684 | ||||||
Treasury
stock, at cost; 51,440 Class A shares
|
(172 | ) | (172 | ) | ||||
Accumulated
deficit
|
(100,692 | ) | (111,273 | ) | ||||
Total
stockholders’ equity
|
68,007 | 60,267 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 373,676 | $ | 346,941 |
See
accompanying notes to Unaudited Condensed Consolidated Financial
Statements
2
ACCESS
INTEGRATED TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except for share and per share data)
(Unaudited)
For
the Three Months Ended
September
30,
|
For
the Six Months Ended
September
30,
|
|||||||||||||||
2007
|
2008
|
2007
|
2008
|
|||||||||||||
Revenues
|
$
|
19,466
|
$
|
21,849
|
$
|
37,612
|
$
|
42,419
|
||||||||
Costs
and Expenses:
|
||||||||||||||||
Direct
operating (exclusive of depreciation and amortization shown
below)
|
6,984
|
6,732
|
13,190
|
12,529
|
||||||||||||
Selling,
general and administrative
|
5,479
|
4,187
|
11,037
|
9,020
|
||||||||||||
Provision
for doubtful accounts
|
184
|
145
|
370
|
173
|
||||||||||||
Research
and development
|
100
|
93
|
323
|
100
|
||||||||||||
Stock-based
compensation
|
112
|
200
|
199
|
358
|
||||||||||||
Depreciation
of property and equipment
|
6,805
|
8,133
|
12,930
|
16,268
|
||||||||||||
Amortization
of intangible assets
|
1,069
|
901
|
2,139
|
1,848
|
||||||||||||
Total
operating expenses
|
20,733
|
20,391
|
40,188
|
40,296
|
||||||||||||
(Loss)
income from operations
|
(1,267
|
)
|
1,458
|
(2,576
|
)
|
2,123
|
||||||||||
Interest
income
|
405
|
99
|
726
|
223
|
||||||||||||
Interest
expense
|
(7,083
|
)
|
(6,990
|
)
|
(12,827
|
)
|
(14,166
|
)
|
||||||||
Debt
refinancing expense
|
(1,122
|
)
|
—
|
(1,122
|
)
|
—
|
||||||||||
Other
expense, net
|
(190
|
)
|
(176
|
)
|
(301
|
)
|
(326
|
)
|
||||||||
Change
in fair value of interest rate swap
|
—
|
(687
|
)
|
—
|
1,565
|
|||||||||||
Net
loss
|
$
|
(9,257
|
)
|
$
|
(6,296
|
)
|
$
|
(16,100
|
)
|
$
|
(10,581
|
)
|
||||
Net
loss per Class A and Class B common share - basic and
diluted
|
$
|
(0.37
|
)
|
$
|
(0.23
|
)
|
$
|
(0.64
|
)
|
$
|
(0.39
|
)
|
||||
Weighted
average number of Class A and Class B common shares
outstanding:
|
||||||||||||||||
Basic
and diluted
|
25,338,550
|
27,536,371
|
25,050,081
|
27,202,593
|
See
accompanying notes to Unaudited Condensed Consolidated Financial
Statements
3
ACCESS
INTEGRATED TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands) (Unaudited)
For
the Six Months Ended
September
30,
|
||||||||
2007
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | (16,100 | ) | $ | (10,581 | ) | ||
Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities:
|
||||||||
Loss
on disposal of property and equipment
|
47 | 79 | ||||||
Depreciation
of property and equipment and amortization of intangible
assets
|
15,069 | 18,116 | ||||||
Amortization
of software development costs
|
295 | 387 | ||||||
Amortization
of debt issuance costs included in interest expense
|
718 | 749 | ||||||
Provision
for doubtful accounts
|
370 | 173 | ||||||
Stock-based
compensation
|
199 | 358 | ||||||
Non-cash
interest expense
|
2,181 | 3,018 | ||||||
Debt
refinancing expense
|
1,122 | — | ||||||
Change
in fair value of interest rate swap
|
— | (1,565 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(1,921 | ) | 4,012 | |||||
Unbilled
revenue
|
(3,554 | ) | 1,318 | |||||
Prepaids
and other current assets
|
(282 | ) | (1,535 | ) | ||||
Other
assets
|
(82 | ) | 150 | |||||
Accounts
payable and accrued expenses
|
(1,633 | ) | 943 | |||||
Deferred
revenue
|
1,566 | (407 | ) | |||||
Other
liabilities
|
209 | 9 | ||||||
Net
cash (used in) provided by operating activities
|
(1,796 | ) | 15,224 | |||||
Cash
flows from investing activities
|
||||||||
Purchases
of property and equipment
|
(43,656 | ) | (16,008 | ) | ||||
Deposits
paid for property and equipment
|
(14,600 | ) | — | |||||
Additions
to capitalized software costs
|
(537 | ) | (508 | ) | ||||
Acquisition
of UniqueScreen Media, Inc.
|
(121 | ) | — | |||||
Acquisition
of The Bigger Picture
|
(15 | ) | — | |||||
Additional
purchase price for EZZI.net
|
(35 | ) | — | |||||
Maturities
and sales of available-for-sale securities
|
4,000 | — | ||||||
Purchase
of available-for-sale securities
|
(4,000 | ) | — | |||||
Net
cash used in investing activities
|
(58,964 | ) | (16,516 | ) | ||||
Cash
flows from financing activities
|
||||||||
Repayment
of notes payable
|
(11,762 | ) | (1,100 | ) | ||||
Proceeds
from notes payable
|
51,491 | 200 | ||||||
Repayment
of credit facilities
|
— | (3,858 | ) | |||||
Proceeds
from credit facilities
|
46,247 | — | ||||||
Payments
of debt issuance costs
|
(2,208 | ) | (368 | ) | ||||
Principal
payments on capital leases
|
(36 | ) | (53 | ) | ||||
Costs
associated with issuance of Class A common stock
|
(30 | ) | (37 | ) | ||||
Net
proceeds from issuance of Class A common stock
|
35 | — | ||||||
Net
cash provided by (used in) financing activities
|
83,737 | (5,216 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
22,977 | (6,508 | ) | |||||
Cash
and cash equivalents at beginning of period
|
29,376 | 29,655 | ||||||
Cash
and cash equivalents at end of period
|
$ | 52,353 | $ | 23,147 |
See
accompanying notes to Unaudited Condensed Consolidated Financial
Statements
4
ACCESS
INTEGRATED TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
($ in
thousands, except for per share data)
1.
|
NATURE
OF OPERATIONS
|
Access
Integrated Technologies, Inc. (“AccessIT”, and collectively with its
subsidiaries, 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. The Company has
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 industry 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 provides hosting services
and network access for other web hosting services (“Access Digital Server
Assets”). Additional information related to the Company’s reporting
segments can be found in Note 9.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
BASIS
OF PRESENTATION AND CONSOLIDATION
The
Company has incurred net losses historically and through the current period, and
until recently, has used cash in operating activities, and has an accumulated
deficit of $111,273 as of September 30, 2008. The Company also has significant
contractual obligations related to its debt for the fiscal year 2009 and beyond.
Management expects that the Company will continue to generate net losses for the
foreseeable future. Certain of the Company’s costs could be reduced if the
Company’s working capital requirements increased. Based on the Company’s cash
position at September 30, 2008, and expected cash flows from operations,
management believes that the Company has the ability to meet its obligations
through September 30, 2009. The Company is seeking to raise additional capital
to refinance certain outstanding debt, and also for equipment requirements
related to the Company’s second digital cinema deployment (the “Phase II
Deployment”) or for working capital as necessary. Although the Company has
recently entered into certain agreements related to the Phase II Deployment (see
Note 10), there is no assurance that such financings 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 unaudited condensed consolidated financial
statements do not reflect any adjustments which may result from the Company’s
inability to continue as a going concern.
The
unaudited condensed consolidated financial statements were prepared following
the interim reporting requirements of the Securities and Exchange Commission
(“SEC”). As permitted under those rules, annual footnotes or other
financial information that are normally required by accounting principles
generally accepted in the United States of America (“GAAP”), have been condensed
or omitted. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included.
The
Company’s unaudited condensed 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 DC Corp”). AccessDM and AccessIT Satellite are together referred to as
the Digital Media Services Division (“DMS”). All intercompany transactions and
balances have been eliminated.
5
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
unaudited condensed consolidated financial statements and accompanying notes. On
an on-going basis, the Company evaluates its estimates, including those related
to the carrying values of its long-lived assets, intangible assets and goodwill,
the valuation of deferred tax assets, the valuation of assets acquired and
liabilities assumed in purchase business combinations, stock-based compensation
expense, revenue recognition and capitalization of software development costs.
The Company bases its estimates on historical experience and on various other
assumptions that the Company believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results could differ materially from these estimates under
different assumptions or conditions.
The
results of operations for the respective interim periods are not necessarily
indicative of the results to be expected for the full year. The accompanying
unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in AccessIT’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2008 filed with the SEC on June 16, 2008 and as amended on June
26, 2008 and on September 11, 2008 (the “Form 10-K”).
REVENUE
RECOGNITION
Media
Services
Media
Services revenues are generated as follows:
Revenues
consist of:
|
Accounted
for in accordance with:
|
|
Virtual
print fees (“VPFs”) and alternative content fees (“ACFs”).
|
Staff
Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition in Financial
Statements” (“SAB No. 104”).
|
|
Software
multi-element licensing arrangements, software maintenance contracts, and
professional consulting services, which includes systems implementation,
training, and other professional services, delivery revenues via satellite
and hard drive, data encryption and preparation fee revenues, satellite
network monitoring and maintenance fees.
|
Statement
of Position (“SOP”) 97-2, “Software Revenue
Recognition”
|
|
Custom
software development services.
|
SOP
81-1, “Accounting for Performance of Construction-Type and Certain
Production-Type Contracts” (“SOP 81-1”)
|
|
Customer
licenses and application service provider (“ASP Service”)
agreements.
|
SAB
No. 104
|
VPFs are
earned pursuant to contracts with movie studios and distributors, whereby
amounts are payable to AccessIT DC according to a fixed fee schedule, when
movies distributed by the studio are displayed on screens utilizing the
Company’s digital cinema equipment (the “Systems”) installed in movie
theatres. AccessIT DC is entitled to one VPF for every movie title
displayed per System. The amount of VPF revenue is therefore dependent on the
number of movie titles released and displayed on the Systems in any given
accounting period. VPF revenue is recognized in the period in which the movie
first opens for general audience viewing in that digitally-equipped movie
theatre, as AccessIT DC's performance obligation has been substantially met at
that time.
ACFs are
earned pursuant to contracts with movie exhibitors, whereby amounts are payable
to AccessIT DC, generally as a percentage of the applicable box office revenue
derived from the exhibitor’s showing of content other than feature films, such
as concerts and sporting events (typically referred to as “alternative
content”). ACF revenue is recognized in the period in which the
alternative content opens for audience viewing.
For
software multi-element licensing arrangements that do not require significant
production, modification or customization of the licensed software, revenue is
recognized for the various elements as follows: Revenue for the licensed
software element is recognized upon delivery and acceptance of the licensed
software product, as that represents the culmination of the earnings process and
the Company has no further obligations to the customer, relative to the software
license. Revenue earned from consulting services is recognized upon the
performance and
6
completion
of these services. Revenue earned from annual software maintenance is recognized
ratably over the maintenance term (typically one year).
Revenues
relating to customized software development contracts are recognized on a
percentage-of-completion method of accounting in accordance with SOP
81-1.
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.
Managed
Services’ revenues, which consist of monthly recurring billings pursuant to
network monitoring and maintenance contracts, are recognized as revenues in the
month earned, and other non-recurring billings are recognized on a time and
materials basis as revenues in the period in which the services were
provided.
Content
& Entertainment
Content
& Entertainment revenues are generated as follows:
Revenues
consist of:
|
Accounted
for in accordance with:
|
|
Movie
theatre admission and concession revenues.
|
SAB
No. 104
|
|
Cinema
advertising service revenues and distribution fee
revenues.
|
SOP
00-2, “Accounting by Producers or Distributors of Films” (“SOP
00-2”)
|
Movie
theatre admission and concession revenues are generated at the Company’s
nine-screen digital movie theatre, the Pavilion Theatre. Movie theatre admission
revenues are recognized on the date of sale, as the related movie is viewed on
that date and the Company’s performance obligation is met at that time.
Concession revenues consist of food and beverage sales and are also recognized
on the date of purchase.
ACS has
contracts with exhibitors to display pre-show advertisements on their screens,
in exchange for certain fees paid to the exhibitors. ACS then contracts with
businesses of various types to place their advertisements in select theatre
locations, designs the advertisement, and places it on-screen for specific
periods of time, generally ranging from three to twelve
months. Cinema advertising service revenue, and the associated direct
selling, production and support cost, is recognized on a straight-line basis
over the period the related in-theatre advertising is displayed, pursuant to the
specific terms of each advertising contract. ACS has the right to receive or
bill the entire amount of the advertising contract upon execution, and therefore
such amount is recorded as a receivable at the time of execution, and all
related advertising revenue and all direct costs actually incurred are deferred
until such time as the a in-theatre advertising is
displayed.
The right
to sell and display such advertising, or other in-theatre programs, products and
services, is based upon advertising contracts with exhibitors which stipulate
payment terms to such exhibitors for this right. Payment terms generally consist
of either fixed annual payments or annual minimum guarantee payments, plus a
revenue share of the excess of a percentage of advertising revenue over the
minimum guarantee, if any. The Company recognizes the cost of fixed
and minimum guarantee payments on a straight-line basis over each advertising
contract year, and the revenue share cost, if any, in accordance with the terms
of the advertising contract.
Distribution
fee revenue is recognized for the theatrical distribution of third party feature
films and alternative content at the time of exhibition based on the Bigger
Picture’s participation in box office receipts. The Bigger Picture
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.
7
Other
Other
revenues, attributable to the Access Digital Server Assets, were generated as
follows:
Revenues
consist of:
|
Accounted
for in accordance with:
|
|
Hosting
and network access fees.
|
SAB
No. 104
|
Since May
1, 2007, the Company’s internet data centers (“IDCs”) have been operated by
FiberMedia AIT, LLC and Telesource Group, Inc. (together, “FiberMedia”),
unrelated third parties, pursuant to a master collocation
agreement. Although the Company is still the lessee of the IDCs,
substantially all of the revenues and expenses were being realized by FiberMedia
and not the Company and effective May 1, 2008, 100% of the revenues and expenses
are being realized by FiberMedia.
DEFERRED
COSTS
Deferred
costs primarily consist of the unamortized debt issuance costs related to the
credit facility with General Electric Capital Corporation (“GECC”) and the
$55,000 of 10% Senior Notes issued in August 2007 (see Note 5), which are
amortized on a straight-line basis over the term of the respective debt.
Also included in deferred costs is advertising production, post production and
technical support costs related to developing and displaying advertising, which
are capitalized and amortized on a straight-line basis over the same period as
the related cinema advertising revenues are recognized.
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 6. Effective April 1, 2006, the Company adopted Statement of
Financial Accounting Standards (“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.
For the
three months ended September 30, 2007 and 2008, the Company recorded stock-based
compensation expense of $112 and $200, respectively, and $199 and $358, for the
six months ended September 30, 2007 and 2008, respectively. The
Company has estimated that the stock-based compensation expense related to
current outstanding stock options, using a Black-Scholes option valuation model,
and current outstanding restricted stock will be approximately $1,000 in fiscal
2009, which includes the awards which were subject to shareholder approval of
the increase in the size of AccessIT’s equity incentive
plan. Shareholder approval was obtained at the Company’s 2008 Annual
Meeting of Stockholders held on September 4, 2008 (see Note 6).
The
weighted-average grant-date fair value of options granted during the six months
ended September 30, 2007 and 2008 was $4.91 and $0.58, respectively. The total
intrinsic value of options exercised during the six months ended September 30,
2007 and 2008 was approximately $25 and $0, respectively. There were
no options exercised during the six months ended September 30,
2008.
8
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 Three Months Ended September 30
|
For
the Six Months Ended September 30,
|
|||||||||||||||
2007
|
2008
|
2007
|
2008
|
|||||||||||||
Range
of risk-free interest rates
|
4.4-5.1 | % | 2.7-4.4 | % | 4.3-5.2 | % | 2.5-5.2 | % | ||||||||
Dividend
yield
|
— | — | — | — | ||||||||||||
Expected
life (years)
|
10 | 5 | 10 | 5 | ||||||||||||
Range
of expected volatilities
|
52.6-53.1 | % | 52.6-58.7 | % | 52.6-57.1 | % | 52.5-58.7 | % |
The
risk-free interest rate used in the Black-Scholes option pricing model for
options granted under the AccessIT’s equity incentive plan is the historical
yield on U.S. Treasury securities with equivalent remaining
lives. The Company does not currently anticipate paying any cash
dividends in the foreseeable future. Consequently, an expected dividend yield of
zero is used in the Black-Scholes option pricing model. The Company estimates
the expected life of options granted under the Company’s stock option plans
using both exercise behavior and post-vesting termination behavior, as well as
consideration of outstanding options. The Company estimates expected volatility
for options granted under the AccessIT’s equity incentive plan based on a
measure of historical volatility in the trading market for the Company’s shares
of Class A Common Stock.
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 six months ended September
30, 2007 and 2008, respectively. Amortization of capitalized software
development costs, included in direct operating costs, for the three and six
months ended September 30, 2008 amounted to $193 and $387,
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. At
September 30, 2007 and 2008, unbilled receivables under such customized software
development contracts aggregated $1,406 and $985, respectively, which is
included in unbilled revenue in the consolidated balance sheets.
9
BUSINESS
COMBINATIONS
The
Company adopted SFAS No. 141, “Business Combinations” (“SFAS No. 141”) which
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. During the six months ended September 30, 2008, the Company
did not enter into any business combinations.
GOODWILL
AND INTANGIBLE ASSETS
The
Company adopted SFAS No. 142, “Goodwill and other Intangible Assets” (“SFAS No.
142”) which addresses the recognition and measurement of goodwill and other
intangible assets subsequent to their acquisition. Carrying values of
goodwill and other intangible assets with indefinite lives are reviewed for
possible impairment in accordance with SFAS No. 142. The Company tests its
goodwill for impairment in accordance with the applicable accounting literature
annually and in interim periods if certain events occur indicating that the
carrying value of goodwill may be impaired. The Company reviews the value of our
fixed assets and intangible assets in accordance with SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets” whenever events or changes
in business circumstances indicate that the carrying amount of the assets may
not be fully recoverable or that the useful lives of these assets are no longer
appropriate. The Company estimates the fair value of goodwill and intangible
assets resulting from business combinations, by reference to estimates of the
discounted future cash flows of the associated products and services and by
referencing the market multiples of identified peer group companies. It is
possible that the estimates and assumptions used in assessing the carrying value
of these assets, such as future sales and expense levels, may need to be
reevaluated in the case of continued market deterioration, which could result in
impairment of these assets. During the six months ended September 30,
2007 and 2008, no impairment charge was recorded.
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. 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.
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. During the six months ended September 30, 2008, no impairment
charge for long-lived assets was recorded.
NET
LOSS PER SHARE
Computations
of basic and diluted net loss per share of the Company’s Class A common stock
(“Class A Common Stock”) and Class B common stock (“Class B Common Stock”, and
together with the Class A Common Stock, the “Common Stock”) have been made in
accordance with SFAS No. 128, “Earnings Per Share”. Basic and diluted net loss
per share have been calculated as follows:
Basic
and diluted net loss per share =
|
Net
loss
|
|
Weighted
average number of Common Stock
outstanding
during the period
|
Shares
issued and reacquired during the period are weighted for the portion of the
period that they are outstanding.
The
Company has incurred net losses for each of the three and six months ended
September 30, 2007 and 2008 and, therefore, the impact of dilutive potential
common shares from outstanding stock options, warrants, restricted
stock,
10
and
restricted stock units, totaling 2,873,943 shares and 4,360,882 shares as of
September 30, 2007 and 2008, respectively, were excluded from the computation as
it would be anti-dilutive.
ACCOUNTING
FOR DERIVATIVES
In April
2008, the Company executed an interest rate swap agreement (the “Interest Rate
Swap”) (see Note 5) to limit the Company’s exposure to changes in interest
rates. The Interest Rate Swap is a derivative financial instrument,
which the Company accounts for pursuant to Statement of Financial Accounting
Standards (“SFAS”) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended and interpreted ("SFAS No. 133"). SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and requires that all derivatives be recorded at fair value on the balance
sheet. Changes in fair value of derivative financial instruments are
either recognized in other comprehensive income (a component of stockholders'
equity) or net income depending on whether the derivative is being used to hedge
changes in cash flows or fair value. The Company has determined that
changes in value of its Interest Rate Swap should be recorded as a component of
net income or loss (see Note 5).
Fair
Value of Financial Instruments
On April
1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157),
for financial assets and liabilities. The statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The fair value measurement disclosures are
grouped into three levels based on valuation factors:
·
|
Level
1 – quoted prices in active markets for identical
investments
|
·
|
Level
2 – other significant observable inputs (including quoted prices for
similar investments, market corroborated inputs,
etc.)
|
·
|
Level
3 – significant unobservable inputs (including the Company’s own
assumptions in determining the fair value of
investments)
|
Assets
and liabilities measured at fair value on a recurring basis use the market
approach, where prices and other relevant information is generated by market
transactions involving identical or comparable assets or
liabilities.
The
following table summarizes the levels of fair value measurements of the
Company’s financial assets:
Financial
Assets at Fair Value
as
of September 30, 2008
|
|||||||||||||
Level
1
|
Level
2
|
Level
3
|
|||||||||||
Cash
and cash equivalents
|
$ | 23,147 | $ | — | $ | — | |||||||
Interest
rate swap
|
— | 1,565 | — | ||||||||||
Total
|
$ | 23,147 | $ | 1,565 | $ | — |
3.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
In
September 2006, the Financial Accounting Standards Board (“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. 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
11
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.
Relative
to SFAS 157, the FASB issued FASB Staff Positions (“FSP”) FAS 157-1 and FSP FAS
157-2. FSP FAS 157-1 amends SFAS 157 to exclude SFAS No. 13, “Accounting
for Leases” (SFAS 13), and its related interpretive accounting pronouncements
that address leasing transactions, while FSP FAS 157-2 delays the effective date
of the application of SFAS 157 to fiscal years beginning after November 15,
2008 for all nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.
The Company adopted SFAS 157 as of
April 1,
2008, with the exception
of the application of the statement to non-recurring nonfinancial assets and
nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial
liabilities for which the Company has not applied the provisions of SFAS 157
include those measured at fair value in goodwill impairment testing, indefinite
lived intangible assets measured at fair value for impairment testing, and those
non-recurring nonfinancial assets and nonfinancial liabilities initially
measured at fair value in a business combination. The adoption of
SFAS 157 did not have a material impact the Company’s consolidated
financial statements (see Note 2).
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 has adopted
SFAS 159 and has elected not to measure any additional financial instruments and
other items at fair value.
In
December 2007, the FASB released SFAS No. 141(R), “Business Combinations
(revised 2007)” (“SFAS 141(R)”), which changes many well-established business
combination accounting practices and significantly affects how acquisition
transactions are reflected in the financial statements. Additionally, SFAS
141(R) will affect how companies negotiate and structure transactions, model
financial projections of acquisitions and communicate to stakeholders. SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. SFAS 141(R) will have
an impact on the Company’s consolidated financial statements related to any
future acquisitions.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160 establishes 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 161 changes 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
12
effective
date. The Company will be required to adopt FSP FAS 142-3 to intangible assets
acquired beginning with the first quarter of fiscal 2010.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,” (“SFAS 162”). SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” The Company
does not believe that SFAS 162 will have a material impact on its consolidated
financial statements.
In
October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS
157-3”). FSP FAS 157-3 clarifies the application of SFAS No. 157 in a
market that is not active. FSP FAS 157-3 is effective upon issuance, including
prior periods for which financial statements have not been issued. Revisions
resulting from a change in the valuation technique or its application should be
accounted for as a change in accounting estimate following the guidance in FASB
Statement No. 154, “Accounting Changes and Error Corrections.” FSP FAS
157-3 is effective for the financial statements included in the Company’s
quarterly report for the period ended September 30, 2008, and application
of FSP FAS 157-3 had no impact on the Company’s condensed consolidated financial
statements.
4.
|
NOTES
RECEIVABLE
|
Notes
receivable consisted of the following:
As
of March 31, 2008
|
As
of September 30, 2008
|
|||||||||||||||
Note
Receivable (as defined below)
|
Current
Portion
|
Long
Term Portion
|
Current
Portion
|
Long
Term Portion
|
||||||||||||
Exhibitor
Note
|
$ | 50 | $ | 91 | $ | 52 | $ | 64 | ||||||||
Exhibitor
Install Notes
|
95 | 1,002 | 115 | 952 | ||||||||||||
TIS
Note
|
— | 100 | 100 | — | ||||||||||||
Other
|
13 | 27 | 13 | 21 | ||||||||||||
$ | 158 | $ | 1,220 | $ | 280 | $ | 1,037 |
In March
2006, in connection with AccessIT DC’s Phase I Deployment (see Note 7), 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
September 30, 2008, the outstanding balance of the Exhibitor Note was
$116.
In
connection with AccessIT DC’s Phase I Deployment (see Note 7), the Company
agreed to provide financing to certain motion picture exhibitors upon the
billing to the motion picture exhibitors by Christie Digital Systems USA, Inc.
(“Christie”) for the installation costs associated with the placement of digital
cinema projection systems (the “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 September 30, 2008, the aggregate outstanding
balance of the Exhibitor Install Notes was $1,067.
Prior to
the Company’s acquisition of ACS, 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 September 30, 2008, the
outstanding balance of the TIS Note was $100.
The
Company has not experienced a default by any party to any of their obligations
in connection with any of the above notes.
13
5.
|
DEBT
AND CREDIT FACILITIES
|
Notes
payable consisted of the following:
As
of March 31, 2008
|
As
of September 30, 2008
|
|||||||||||||||
Note
Payable (as defined below)
|
Current
Portion
|
Long
Term Portion
|
Current
Portion
|
Long
Term Portion
|
||||||||||||
HS
Notes
|
$ | 540 | $ | — | $ | 191 | $ | — | ||||||||
Boeing
Note
|
450 | — | — | — | ||||||||||||
First
ACS Note
|
414 | 221 | 431 | — | ||||||||||||
SilverScreen
Note
|
113 | 20 | 77 | — | ||||||||||||
Vendor
Note *
|
— | 9,600 | — | 9,600 | ||||||||||||
2007
Senior Notes
|
— | 55,000 | — | 55,000 | ||||||||||||
Other
|
50 | — | 15 | — | ||||||||||||
GE
Credit Facility *
|
15,431 | 185,848 | 23,566 | 173,855 | ||||||||||||
NEC
Facility
|
— | — | 40 | 154 | ||||||||||||
$ | 16,998 | $ | 250,689 | $ | 24,320 | $ | 238,609 |
* The
Vendor Note and the GE Credit Facility are not guaranteed by the Company or its
other subsidiaries, other than AccessIT DC.
In
November 2003, the Company issued two 5-year, 8% notes payable aggregating
$3,000 (the “HS Notes”) to the founders of AccessIT SW as part of the purchase
price for AccessIT SW. In March 2007, one of the holders of the HS
Notes agreed to reduce their note by $150 for 30,000 shares of unregistered
Class A Common Stock and forego $150 of principal payments at the end of their
note term. During the six months ended September 30, 2008, the
Company repaid principal of $349 on the HS Notes. As of September 30,
2008, the outstanding principal balance of the HS Notes was $191.
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 was being imputed, at a
rate of 12%, over the term of the Boeing Note, and was charged to non-cash
interest expense. In April 2008, the Company repaid principal of $450 and the
Boeing Note was repaid in full.
In July
2006, in connection with the acquisition of ACS, 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. During the six
months ended September 30, 2008, the Company repaid principal of $204 on the
First ACS Note. As of September 30, 2008, the outstanding principal
balance of the First ACS Note was $431.
Prior to
the Company’s acquisition of ACS, 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
part of the purchase price for SilverScreen. The SilverScreen Note is payable in
equal monthly installments until May 2009. During the six months
ended September 30, 2008, the Company repaid principal of $56 on the
SilverScreen Note. As of September 30, 2008, the outstanding
principal balance of the SilverScreen Note was $77.
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 was one year and could be
extended for up to two 90-day periods at the discretion of the Company if
certain market conditions were met. Interest on the One Year Senior Notes would
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 would issue shares of Class
A
14
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.
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, AccessIT DC obtained $9,600 of vendor financing (the “Vendor Note”) for
equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note bears
interest at 11% and may be prepaid without penalty. Interest is due
semi-annually commencing February 2008. The balance of the Vendor
Note, together with all unpaid interest is due on the maturity date of August 1,
2016. The Vendor Note is not guaranteed by the Company or its other
subsidiaries, other than AccessIT DC. As of September 30, 2008, the
outstanding principal balance of the Vendor Note was $9,600.
In August
2007, the Company entered into a securities purchase agreement (the “Purchase
Agreement”) with the purchasers party thereto (the “Purchasers”) pursuant to
which the Company issued 10% Senior Notes (the “2007 Senior Notes”) in the
aggregate principal amount of $55,000 (the “August 2007 Private Placement”). The
term of the 2007 Senior Notes is three years which may be extended for one 6
month period at the discretion of the Company if certain conditions are
met. Interest on the 2007 Senior Notes is payable on a quarterly
basis in cash or, at the Company’s option and subject to certain conditions, in
shares of its Class A Common Stock (“Interest Shares”). In addition, each
quarter, the Company issues shares of Class A Common Stock to the Purchasers as
payment of additional interest owed under the 2007 Senior Notes based on a
formula (“Additional Interest”). The Company may prepay the 2007
Senior Notes in whole or in part following the first anniversary of issuance of
the 2007 Senior Notes, subject to a penalty of 2% of the principal if the 2007
Senior Notes are prepaid prior to the two year anniversary of the issuance and a
penalty of 1% of the principal if the 2007 Senior Notes are prepaid thereafter,
and subject to paying the number of shares as Additional Interest that would be
due through the end of the term of the 2007 Senior Notes. The net
proceeds of approximately $53,200 from the August 2007 Private Placement were
used for expansion of digital cinema rollout plans, to pay off the existing
obligations under the $22,000 of One Year Senior Notes, to pay off certain other
outstanding debt obligations, for investment in Systems and for working capital
and other general corporate purposes. The Purchase Agreement also requires the
2007 Senior Notes to be guaranteed by each of the Company’s existing and,
subject to certain exceptions, future subsidiaries (the “Guarantors”), other
than AccessIT DC and its respective subsidiaries. Accordingly, each of the
Guarantors entered into a subsidiary guaranty (the “Subsidiary Guaranty”) with
the Purchasers pursuant to which it guaranteed the obligations of the Company
under the 2007 Senior Notes. The Company also entered into a
Registration Rights Agreement with the Purchasers pursuant to which the Company
agreed to register the resale of any shares of its Class A Common Stock issued
pursuant to the 2007 Senior Notes at any time and from time to
time. As of December 31, 2007, all shares issued to the holders of
the 2007 Senior Notes have been registered for resale (see Note
6). Under the 2007 Senior Notes the Company agreed (i) to
limit its total indebtedness to an aggregate of $315,000 unless certain
conditions are met, however, these conditions have been met and the $315,000
limit no longer applies 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. Interest expense on the
2007 Senior Notes for the three and six months ended September 30, 2008 amounted
to $1,375 and $2,717, respectively. As of September 30, 2008, the
outstanding principal balance of the 2007 Senior Notes was $55,000.
CREDIT
FACILITIES
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 were used for the
purchase and installation of up to 70% of the aggregate purchase price,
including all costs, fees or other expenses associated with the purchase
acquisition, receipt, delivery, construction and installation of Systems in
connection with AccessIT DC’s Phase I Deployment (see Note 7) and to pay
transaction fees and expenses related to the GE Credit Facility, and for certain
other specified purposes. The remaining cost of the Systems has been 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
15
Eurodollar
rate, plus a margin ranging from 2.75% to 4.50%, depending on, among other
things, the type of rate chosen, the amount of equity contributed into AccessIT
DC and the total debt of AccessIT DC. Under the GE Credit Facility, AccessIT DC
must pay interest only through July 31, 2008. Beginning August 31, 2008, in
addition to the interest payments, AccessIT DC must repay approximately 71.5% of
the principal amount of the borrowings over a five-year period with a balloon
payment for the balance of the principal amount, together with all unpaid
interest on such borrowings and any fees incurred by AccessIT DC pursuant to the
GE Credit Facility on the maturity date of August 1, 2013. In addition, AccessIT
DC may prepay borrowings under the GE Credit Facility in whole or in part, after
July 31, 2007 and before August 1, 2010, subject to paying certain prepayment
penalties ranging from 3% to 1%, depending on when the prepayment is made. The
GE Credit Facility is required to be guaranteed by each of AccessIT DC’s
existing and future direct and indirect domestic subsidiaries (the “Guarantors”)
and secured by a first priority perfected security interest on all of the
collective assets of AccessIT DC and the Guarantors, including real estate owned
or leased, and all capital stock or other equity interests in AccessIT DC and
its subsidiaries, subject to specified exceptions. The GE Credit Facility is not
guaranteed by the Company or its other subsidiaries, other than AccessIT DC.
During the six months ended September 30, 2008, the Company repaid principal of
$3,858 on the GE Credit Facility. As of September 30, 2008, the
outstanding principal balance of the GE Credit Facility was $197,421 at a
weighted average interest rate of 7.3%.
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 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.
At
September 30, 2008, the Company was in compliance with these
covenants.
In April
2008, AccessIT DC executed the Interest Rate Swap, otherwise known as an
“arranged hedge transaction” or "synthetic fixed rate financing" with a
counterparty for a notional amount of approximately 90% of the amounts
outstanding under the GE Credit Facility or an initial amount of $180,000. Under
the Interest Rate Swap, AccessIT DC will effectively pay a fixed rate of 7.3%,
to guard against AccessIT DC’s exposure to increases in the variable interest
rate under the GE Credit Facility. GE Corporate Financial Services arranged the
transaction, which took effect commencing August 1, 2008 as required by the GE
Credit Facility and will remain in effect until August 2010. As
principal repayments of the GE Credit Facility occur, the notional amount will
decrease by a pro rata amount, such that approximately 90% of the remaining
principal amount will be covered by the Interest Rate Swap at any
time.
The
Interest Rate Swap did not qualify as a fair value hedge under SFAS No. 133,
since the terms of the GE Credit Facility and the Interest Rate Swap agreement
did not fully agree at inception. Accordingly, all changes in the
fair value of the Interest Rate Swap will be recorded to results of operations
each period starting in April 2008. Upon any refinance of the GE Credit Facility
or other early termination or at the maturity date of the Interest Rate Swap,
the fair value of the Interest Rate Swap, whether favorable to the Company or
not, would be settled in cash with the counter party. As of September
30, 2008, the fair value of the Interest Rate Swap was $1,565 and a loss of $687
was recorded in the consolidated statement of operations for the three months
ended September 30, 2008.
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 CineLiveTM product
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%. As of September 30, 2008, AccessDM has borrowed $200 and the
equipment purchased therewith is included in property and equipment within the
condensed consolidated balance sheets as of September 30, 2008. As of
September 30, 2008, the outstanding principal balance of the NEC Credit Facility
was $194.
16
6.
|
STOCKHOLDERS’
EQUITY
|
CAPITAL
STOCK
In August
2004, the Company’s Board authorized the repurchase of up to 100,000 shares of
Class A Common Stock, which may be purchased at prevailing prices from
time-to-time in the open market depending on market conditions and other
factors. As of September 30, 2008, the Company has repurchased 51,440
shares of Class A Common Stock for an aggregate purchase price of $172,
including fees, which have been recorded as treasury stock.
In April
2007, in connection with the acquisition of 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 5). The Company agreed to register the resale of these
shares of Class A Common Stock with the SEC. The Company filed a registration
statement on Form S-3 on July 27, 2007, which was declared effective by the SEC
on August 9, 2007.
In July
2007, in connection with the acquisition of 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 5) for interest due up
through the date refinanced. The Company issued an additional 104,971
shares of Class A Common Stock as an inducement for certain holders of the One
Year Senior Notes to invest in the August 2007 Private Placement and $686 was
recorded as debt refinancing expense for the value of such
shares. The Company agreed to register the resale of all 210,686
shares of Class A Common Stock with the SEC. The Company filed a registration
statement on Form S-3 on September 26, 2007, which was declared effective by the
SEC on November 2, 2007.
Pursuant
to the 2007 Senior Notes, in August 2007 the Company issued 715,000 shares of
Class A Common Stock (the “Advance Additional Interest Shares”) covering the
first 12 months of Additional Interest (see Note 5). The Company
registered the resale of these shares of Class A Common Stock and also
registered 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
three months ended September 30, 2007 and 2008, the Company recorded $0 and
$401, respectively, of interest expense in connection with the Advance
Additional Interest Shares.
Commencing
with the quarter ended December 31, 2008 and through the maturity of the 2007
Senior Notes in the quarter ended September 30, 2010, the Company is obligated
to issue a minimum of 132,000 shares 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 and is recording that amount over the 36 month term of the 2007 Senior
Notes. For the three months ended September 30, 2007 and 2008, the
Company recorded $0 and $437, respectively, to interest expense in connection
with the Minimum Additional Interest Shares.
In
December 2007, March 2008 and June 2008, the Company issued 345,944, 548,572 and
635,847 shares of Class A Common Stock, respectively, as Interest Shares
pursuant to the 2007 Senior Notes (see Note 5), which were part of the 1,249,875
shares previously registered for resale on the registration statement on Form
S-3 filed on September 26, 2007, which was declared effective by the SEC on
November 2, 2007 and part of an additional 500,000 shares that were registered
on the registration statement on Form S-3 to register the resale by selling
stockholders of an additional 500,000 shares of Class A Common
Stock for future interest payments on the 2007 Senior Notes, which was filed on
May 6, 2008, and was declared effective by the SEC on June 30,
2008. An additional 750,000 shares were included on the
registration statement on Form S-3 to register the resale by selling
stockholders of an
17
additional
750,000 shares of Class A Common Stock for future interest payments on the 2007
Senior Notes, which was filed on September 12, 2008. For the six
months ended September 30, 2007 and 2008, the Company recorded $360 and $1,342,
respectively, as non-cash interest expense in connection with the Interest
Shares.
In April
2008, in connection with the acquisition of Managed Services in January 2004,
the Company issued 15,219 shares of unregistered Class A Common Stock as
additional purchase price based on subsequent performance of the business
acquired. The value of such shares was accrued for in the fiscal year
ended March 31, 2008. No additional purchase price will be payable in
connection with the acquisition of Managed Services.
In April
2008, in connection with the acquisition of the Access Digital Server Assets by
the Company in January 2006, the Company issued 30,000 shares of unregistered
Class A Common Stock as additional purchase price based on subsequent
performance. The value of such shares was accrued for in the fiscal
year ended March 31, 2008. No additional purchase price will be
payable in connection with the acquisition of the Access Digital Server
Assets.
In
connection with the acquisition of The Bigger Picture in January 2007, The
Bigger Picture entered into a services agreement (the “SD Services Agreement”)
with SD Entertainment, Inc. (“SDE”) to provide certain services, such as the
provision of shared office space and certain shared administrative
personnel. The SD Services Agreement is on a month-to-month term and
requires the Company to pay approximately $17 per month, of which 70% may be
paid periodically in the form of AccessIT Class A Common Stock, at the Company’s
option. In June 2008 and September 2008, the Company issued 24,579
and 22,010 shares of unregistered Class A Common Stock with a value of $60 and
$33, respectively, to SDE as partial payment for such services and
resources.
In
September 2008, the Company amended its Fourth Amended and Restated Certificate
of Incorporation to designate as Class A Common Stock the 25,000,000
shares of undesignated common stock.
In
September 2008, the Company issued 12,824 shares of Class A Common Stock for
restricted stock awards that vested.
ACCESSIT
EQUITY INCENTIVE PLAN
Stock
Options
AccessIT’s
equity incentive plan (“the Plan”) provides for the issuance of options and
other equity-based awards to purchase up to 2,200,000 shares of Class A Common
Stock to employees, outside directors and consultants. The Company obtained
shareholder approval to expand the size of the Plan to 3,700,000 shares of Class
A Common Stock at the Company’s 2008 Annual Meeting of Stockholders held on
September 4, 2008.
During
the six months ended September 30, 2008, under the Plan, the Company granted
stock options to purchase 5,500 and 320,003 shares of its Class A Common Stock
to its employees at an exercise price of $3.87 and $3.25 per share,
respectively. As of September 30, 2008, the weighted average exercise
price for outstanding stock options is $6.13 and the weighted average remaining
contractual life is 7 years.
The
following table summarizes the activity of the Plan:
Shares
Under Option
|
Weighted
Average Fair Value Per Share
|
||
Balance
at March 31, 2008
|
2,076,569
|
(1)
|
$4.77
|
Granted
|
325,503
|
(2)
|
.58
|
Exercised
|
—
|
—
|
|
Forfeited
|
(67,750)
|
6.80
|
|
Balance
at September 30, 2008
|
2,334,322
|
$4.13
|
(1)
|
As
of March 31, 2008, there were 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 was obtained at
the Company’s 2008 Annual Meeting of Stockholders held on September 4,
2008.
|
18
(2)
|
Includes
an additional 320,003 stock options granted in March 2008 which were
subject to shareholder approval. Shareholder approval was
obtained at the Company’s 2008 Annual Meeting of Stockholders, held on
September 4, 2008.
|
Restricted
Stock Awards
The Plan
also provides for the issuance of restricted stock awards. During the
six months ended September 30, 2008, the Company granted 723,700 restricted
stock units. The Company may pay such restricted stock units upon
vesting in cash or shares of Class A Common Stock or a combination thereof at
the Company’s discretion.
The
following table summarizes the activity of the Plan related to restricted stock
awards:
Restricted
Stock Awards
|
Weighted
Average Fair
Value
Per Share
|
||
Balance
at March 31, 2008
|
102,614
|
$3.78
|
|
Granted
|
723,700
|
(1)
|
1.66
|
Vested
|
(12,824
|
)
|
5.56
|
Forfeitures
|
(14,401
|
)
|
2.85
|
Balance
at September 30, 2008
|
799,089
|
$1.85
|
(1)
|
Represents
restricted stock units awarded in May 2008 which were subject to
shareholder approval. Shareholder approval was obtained at the
Company’s 2008 Annual Meeting of Stockholders, held on September 4,
2008.
|
ACCESSDM
STOCK OPTION PLAN
AccessDM’s
separate stock option plan (the “AccessDM Plan”) provides for the issuance of
options to purchase up to 2,000,000 shares of AccessDM common stock to
employees. During the six months ended September 30, 2008, there were no
AccessDM options granted. As of September 30, 2008, the weighted
average exercise price for outstanding stock options is $0.95 and the weighted
average remaining contractual life is 5.3 years.
The
following table summarizes the activity of the AccessDM Plan:
Shares
Under
Option
|
Weighted
Average
Fair
Value
Per
Share
|
|||
Balance
at March 31, 2008
|
1,055,000
|
(2)
|
$0.71
|
(1)
|
Granted
|
—
|
—
|
||
Exercised
|
—
|
—
|
||
Forfeited
|
—
|
—
|
||
Balance
at September 30, 2008
|
1,055,000
|
(2)
|
$0.71
|
(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 September 30, 2008, there were 50,000,000 shares of AccessDM’s common
stock authorized and 19,213,758 shares of AccessDM’s common stock issued
and outstanding.
|
WARRANTS
Warrants
outstanding consisted of the following:
Outstanding
Warrant (as defined below)
|
March
31,
2008
|
September
30,
2008
|
||||||
July
2005 Private Placement Warrants
|
467,275 | 467,275 | ||||||
August
2005 Warrants
|
760,196 | 760,196 | ||||||
1,227,471 | 1,227,471 |
19
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
Private Placement Warrants were 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 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. As of September 30, 2008,
467,275 July 2005 Private Placements Warrants remained outstanding.
In August
2005, in connection with a conversion agreement, certain warrants were exercised
for $2,487 and the Company issued to the investors 560,196 shares of Class A
Common Stock and warrants to purchase 760,196 shares of Class A Common Stock at
an exercise price of $11.39 per share (the “August 2005 Warrants”). The August
2005 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 August 2005 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 September 30, 2008, all 760,196 of the
August 2005 Warrants remained outstanding.
7.
|
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 was able to order up to 4,000
Systems from Christie (the “Phase I Deployment”).
In
connection with AccessIT DC’s Phase I Deployment, the Company has entered into
digital cinema deployment agreements with nine 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
September 30, 2008, the Company has approximately $1,400, included in accounts
payable and accrued expenses, remaining to pay towards Systems installed and
related installation costs in connection with AccessIT DC’s Phase I
Deployment. AccessIT DC provided 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 4).
Our
subsidiary, ADM Cinema Corporation (“ADM Cinema”), was named as a defendant
in an action filed
on May 19, 2008 in the Supreme Court of the State of New York, County of Kings
by Pavilion on the Park, LLC (“Landlord”). Landlord is the owner of
the premises located at 188 Prospect Park West, Brooklyn, New York, known as the
Pavilion Theatre. Pursuant to the relevant lease, ADM Cinema leases
the Pavilion Theatre from Landlord and operates it as a movie
theatre.
In the
complaint, Landlord alleges that ADM Cinema has violated its obligations under
Article 12 of the lease in that ADM Cinema failed to comply with an Order of the
Fire Department of the City of New York issued on September 24, 2007 calling for
the installation of a sprinkler system in the Pavilion Theatre and that such
violation constitutes an event of default under the lease. Landlord
seeks to terminate the lease and evict ADM Cinema from the premises and to
recover its attorneys’ fees and damages for ADM Cinema’s alleged “holding over”
by remaining on the premises. We believe that we have meritorious defenses
against these claims and we intend to defend our position vigorously. However,
if we do not prevail, any significant loss resulting in eviction may have a
material effect on our business, results of operations and cash
flows.
20
8.
|
SUPPLEMENTAL
CASH FLOW DISCLOSURE
|
For
the Six Months ended
September
30,
|
||||||||
2007
|
2008
|
|||||||
Supplemental
disclosure:
|
||||||||
Interest
paid
|
$ | 9,190 | $ | 9,413 | ||||
Noncash
Investing and Financing Activities:
|
||||||||
Equipment
purchased from Christie included in accounts payable and accrued expenses
at end of period
|
$ | 18,208 | $ | 1,414 | ||||
Deposits
applied to equipment purchased from Christie
|
$ | 21,840 | $ | — | ||||
Issuance
of Class A Common Stock as additional purchase price for
ACS
|
$ | 1,000 | $ | — | ||||
Issuance
of Class A Common Stock as additional purchase price for Managed
Services
|
$ | 29 | $ | 82 | ||||
Note
payable issued for customer contract
|
$ | 75 | $ | — | ||||
One
Year Senior Notes refinanced into 2007 Senior Notes
|
$ | 18,000 | $ | — | ||||
Legal
fees from the holders of the Three Year Senior Notes included in debt
issuance costs
|
$ | 109 | $ | — | ||||
Issuance
of Class A Common Stock as additional purchase price for Access Digital
Server Assets
|
$ | — | $ | 129 | ||||
Issuance
of Class A Common Stock to SDE as payment for services
and resources
|
$ | — | $ | 93 | ||||
Assets
acquired under capital lease
|
$ | — | $ | 92 |
For the
six months ended September 30, 2007 and 2008, included in purchases of property
and equipment on the condensed consolidated statements of cash flows are
payments made on prior period accounts payable and accrued expenses related to
equipment additions of $19,239 and $14,518, respectively.
9.
|
SEGMENT
INFORMATION
|
Segment
information has been prepared in accordance with SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information.” The Company is
comprised of three 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.
21
The Media
Services segment consists of the following:
Operations
of:
|
Products
and services provided:
|
|
AccessIT DC
and Access Digital Cinema Phase 2 Corp. (“Phase 2 DC
Corp”)
|
Financing
vehicles and administrators for the Company’s 3,723 Systems installed
nationwide in AccessIT DC’s Phase I Deployment and AccessIT DC’s
second digital cinema deployment (the “Phase II Deployment”) to motion
picture exhibitors.
Collect
VPFs from motion picture studios and distributors and ACFs from
alternative content providers and movie exhibitors.
|
|
AccessIT
SW
|
Develops
and licenses software to the theatrical distribution and exhibition
industries, provides ASP Service, and provides software enhancements and
consulting services.
|
|
DMS
|
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, video
network origination and management services and a virtual booking center
to outsource the booking and scheduling of satellite and fiber networks
and provides forensic watermark detection services for motion picture
studios and forensic recovery services for content
owners.
|
|
Managed
Services
|
Provides
information technology consulting services and managed network monitoring
services through its global network command
center.
|
The
Content & Entertainment segment consists of the following:
Operations
of:
|
Products
and services provided:
|
|
Pavilion
Theatre
|
A
nine-screen digital movie theatre and showcase to demonstrate the
Company’s integrated digital cinema solutions.
|
|
ACS
|
Provides
cinema advertising services and entertainment.
|
|
The
Bigger Picture
|
Acquires,
distributes and provides the marketing for programs of alternative content
to movie exhibitors.
|
The Other
segment consists of the following:
Operations
of:
|
Products
and services provided:
|
|
Access
Digital Server Assets
|
Provides
hosting services and provides network access for other web hosting
services.
|
Since May
1, 2007, the Company’s IDCs have been operated by FiberMedia, consisting of
unrelated third parties, pursuant to a master collocation
agreement. Although the Company is still the lessee of the IDCs,
substantially all of the revenues and expenses were being realized by FiberMedia
and not the Company and effective May 1, 2008,
100% of
the revenues and expenses are being realized by FiberMedia.
Information
related to the segments of the Company and its subsidiaries is detailed
below:
22
As
of March 31, 2008
|
||||||||||||||||||||
Media
Services
|
Content
& Entertainment
|
Other
|
Corporate
|
Consolidated
|
||||||||||||||||
Total
intangible assets, net
|
$ | 666 | $ | 12,924 | $ | — | $ | 2 | $ | 13,592 | ||||||||||
Total
goodwill
|
$ | 4,529 | $ | 9,856 | $ | 164 | $ | — | $ | 14,549 | ||||||||||
Total
assets
|
$ | 315,588 | $ | 39,755 | $ | 1,136 | $ | 17,197 | $ | 373,676 |
As
of September 30, 2008
|
||||||||||||||||||||
Media
Services
|
Content
& Entertainment
|
Other
|
Corporate
|
Consolidated
|
||||||||||||||||
Total
intangible assets, net
|
$ | 322 | $ | 11,421 | $ | — | $ | 1 | $ | 11,744 | ||||||||||
Total
goodwill
|
$ | 4,529 | $ | 9,856 | $ | 164 | $ | — | $ | 14,549 | ||||||||||
Total
assets
|
$ | 298,403 | $ | 37,406 | $ | 780 | $ | 10,352 | $ | 346,941 |
Capital
Expenditures
|
Media
Services
|
Content
& Entertainment
|
Other
|
Corporate
|
Consolidated
|
|||||||||||||||
For
the six months ended September 30, 2007
|
$ | 43,202 | $ | 443 | $ | 7 | $ | 4 | $ | 43,656 | ||||||||||
For
the six months ended September 30, 2008
|
$ | 15,774 | $ | 210 | $ | 3 | $ | 21 | $ | 16,008 |
23
For
the Three Months Ended September 30, 2007
|
||||||||||||||||||||
Media
Services
|
Content
& Entertainment
|
Other
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
from external customers
|
$ | 11,943 | $ | 7,200 | $ | 323 | $ | — | $ | 19,466 | ||||||||||
Intersegment
revenues
|
189 | — | — | — | 189 | |||||||||||||||
Total
segment revenues
|
12,132 | 7,200 | 323 | — | 19,655 | |||||||||||||||
Less
:Intersegment revenues
|
(189 | ) | — | — | — | (189 | ) | |||||||||||||
Total
consolidated revenues
|
$ | 11,943 | $ | 7,200 | $ | 323 | $ | — | $ | 19,466 | ||||||||||
Direct
operating (exclusive of depreciation and amortization shown
below)
|
2,298 | 4,477 | 209 | — | 6,984 | |||||||||||||||
Selling,
general and administrative
|
1,482 | 2,347 | 50 | 1,600 | 5,479 | |||||||||||||||
Provision
for doubtful accounts
|
39 | 145 | — | — | 184 | |||||||||||||||
Research
and development
|
100 | — | — | — | 100 | |||||||||||||||
Stock-based
compensation
|
44 | 27 | — | 41 | 112 | |||||||||||||||
Depreciation
of property and equipment
|
6,248 | 435 | 105 | 17 | 6,805 | |||||||||||||||
Amortization
of intangible assets
|
192 | 876 | — | 1 | 1,069 | |||||||||||||||
Total
operating expenses
|
10,403 | 8,307 | 364 | 1,659 | 20,733 | |||||||||||||||
Income
(loss) from operations
|
$ | 1,540 | $ | (1,107 | ) | $ | (41 | ) | $ | (1,659 | ) | $ | (1,267 | ) | ||||||
Interest
income
|
249 | 1 | — | 155 | 405 | |||||||||||||||
Interest
expense
|
(4,837 | ) | (358 | ) | — | (1,888 | ) | (7,083 | ) | |||||||||||
Debt
refinancing expense
|
— | — | — | (1,122 | ) | (1,122 | ) | |||||||||||||
Other
expense, net
|
(99 | ) | (19 | ) | — | (72 | ) | (190 | ) | |||||||||||
Net
loss
|
$ | (3,147 | ) | $ | (1,483 | ) | $ | (41 | ) | $ | (4,586 | ) | $ | (9,257 | ) |
24
For
the Three Months Ended September 30, 2008
|
||||||||||||||||||||
Media
Services
|
Content
& Entertainment
|
Other
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
from external customers
|
$ | 15,699 | $ | 5,828 | $ | 322 | $ | — | $ | 21,849 | ||||||||||
Intersegment
revenues
|
225 | 6 | — | — | 231 | |||||||||||||||
Total
segment revenues
|
15,924 | 5,834 | 322 | — | 22,080 | |||||||||||||||
Less
:Intersegment revenues
|
(225 | ) | (6 | ) | — | — | (231 | ) | ||||||||||||
Total
consolidated revenues
|
$ | 15,699 | $ | 5,828 | $ | 322 | $ | — | $ | 21,849 | ||||||||||
Direct
operating (exclusive of depreciation and amortization shown
below)
|
2,455 | 4,036 | 241 | — | 6,732 | |||||||||||||||
Selling,
general and administrative
|
780 | 1,696 | 55 | 1,656 | 4,187 | |||||||||||||||
Provision
for doubtful accounts
|
30 | 115 | — | — | 145 | |||||||||||||||
Research
and development
|
93 | — | — | — | 93 | |||||||||||||||
Stock-based
compensation
|
42 | 23 | — | 135 | 200 | |||||||||||||||
Depreciation
of property and equipment
|
7,656 | 395 | 65 | 17 | 8,133 | |||||||||||||||
Amortization
of intangible assets
|
172 | 728 | — | 1 | 901 | |||||||||||||||
Total
operating expenses
|
11,228 | 6,993 | 361 | 1,809 | 20,391 | |||||||||||||||
Income
(loss) from operations
|
$ | 4,471 | $ | (1,165 | ) | $ | (39 | ) | $ | (1,809 | ) | $ | 1,458 | |||||||
Interest
income
|
43 | 1 | — | 55 | 99 | |||||||||||||||
Interest
expense
|
(4,319 | ) | (264 | ) | — | (2,407 | ) | (6,990 | ) | |||||||||||
Other
expense, net
|
(61 | ) | (73 | ) | — | (42 | ) | (176 | ) | |||||||||||
Change
in fair value of interest rate swap
|
(687 | ) | — | — | — | (687 | ) | |||||||||||||
Net
loss
|
$ | (553 | ) | $ | (1,501 | ) | $ | (39 | ) | $ | (4,203 | ) | $ | (6,296 | ) |
25
For
the Six Months Ended September 30, 2007
|
||||||||||||||||||||
Media
Services
|
Content
& Entertainment
|
Other
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
from external customers
|
$ | 22,956 | $ | 14,002 | $ | 654 | $ | — | $ | 37,612 | ||||||||||
Intersegment
revenues
|
366 | — | — | — | 366 | |||||||||||||||
Total
segment revenues
|
23,322 | 14,002 | 654 | — | 37,978 | |||||||||||||||
Less
:Intersegment revenues
|
(366 | ) | — | — | — | (366 | ) | |||||||||||||
Total
consolidated revenues
|
$ | 22,956 | $ | 14,002 | $ | 654 | $ | — | $ | 37,612 | ||||||||||
Direct
operating (exclusive of depreciation and amortization shown
below)
|
4,186 | 8,605 | 399 | — | 13,190 | |||||||||||||||
Selling,
general and administrative
|
2,957 | 4,944 | 97 | 3,039 | 11,037 | |||||||||||||||
Provision
for doubtful accounts
|
47 | 323 | — | — | 370 | |||||||||||||||
Research
and development
|
323 | — | — | — | 323 | |||||||||||||||
Stock-based
compensation
|
96 | 42 | — | 61 | 199 | |||||||||||||||
Depreciation
of property and equipment
|
11,819 | 866 | 210 | 35 | 12,930 | |||||||||||||||
Amortization
of intangible assets
|
385 | 1,752 | — | 2 | 2,139 | |||||||||||||||
Total
operating expenses
|
19,813 | 16,532 | 706 | 3,137 | 40,188 | |||||||||||||||
Income
(loss) from operations
|
$ | 3,143 | $ | (2,530 | ) | $ | (52 | ) | $ | (3,137 | ) | $ | (2,576 | ) | ||||||
Interest
income
|
510 | 2 | — | 214 | 726 | |||||||||||||||
Interest
expense
|
(8,823 | ) | (765 | ) | — | (3,239 | ) | (12,827 | ) | |||||||||||
Debt
refinancing expense
|
— | — | — | (1,122 | ) | (1,122 | ) | |||||||||||||
Other
expense, net
|
(88 | ) | (56 | ) | — | (157 | ) | (301 | ) | |||||||||||
Net
loss
|
$ | (5,258 | ) | $ | (3,349 | ) | $ | (52 | ) | $ | (7,441 | ) | $ | (16,100 | ) |
26
For
the Six Months Ended September 30, 2008
|
||||||||||||||||||||
Media
Services
|
Content
& Entertainment
|
Other
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
from external customers
|
$ | 30,351 | $ | 11,418 | $ | 650 | $ | — | $ | 42,419 | ||||||||||
Intersegment
revenues
|
462 | 21 | — | — | 483 | |||||||||||||||
Total
segment revenues
|
30,813 | 11,439 | 650 | — | 42,902 | |||||||||||||||
Less
:Intersegment revenues
|
(462 | ) | (21 | ) | — | — | (483 | ) | ||||||||||||
Total
consolidated revenues
|
$ | 30,351 | $ | 11,418 | $ | 650 | $ | — | $ | 42,419 | ||||||||||
Direct
operating (exclusive of depreciation and amortization shown
below)
|
4,400 | 7,670 | 459 | — | 12,529 | |||||||||||||||
Selling,
general and administrative
|
1,934 | 3,647 | 110 | 3,329 | 9,020 | |||||||||||||||
Provision
for doubtful accounts
|
(50 | ) | 223 | — | — | 173 | ||||||||||||||
Research
and development
|
100 | — | — | — | 100 | |||||||||||||||
Stock-based
compensation
|
68 | 44 | — | 246 | 358 | |||||||||||||||
Depreciation
of property and equipment
|
15,287 | 816 | 132 | 33 | 16,268 | |||||||||||||||
Amortization
of intangible assets
|
344 | 1,503 | — | 1 | 1,848 | |||||||||||||||
Total
operating expenses
|
22,083 | 13,903 | 701 | 3,609 | 40,296 | |||||||||||||||
Income
(loss) from operations
|
$ | 8,268 | $ | (2,485 | ) | $ | (51 | ) | $ | (3,609 | ) | $ | 2,123 | |||||||
Interest
income
|
98 | 2 | — | 123 | 223 | |||||||||||||||
Interest
expense
|
(8,856 | ) | (528 | ) | — | (4,782 | ) | (14,166 | ) | |||||||||||
Other
expense, net
|
(142 | ) | (80 | ) | — | (104 | ) | (326 | ) | |||||||||||
Change
in fair value of interest rate swap
|
1,565 | — | — | — | 1,565 | |||||||||||||||
Net
(loss) income
|
$ | 933 | $ | (3,091 | ) | $ | (51 | ) | $ | (8,372 | ) | $ | (10,581 | ) |
10.
SUBSEQUENT EVENTS
In
October 2008, in connection with the planned Phase II Deployment, the Company’s
wholly-owned subsidiary, Phase 2 DC Corp., entered into a digital cinema
deployment agreement with a fifth motion picture studio, whereby the motion
picture studio will provide digital content to the Company’s Systems and will
pay VPFs. Also in October 2008 and November 2008, the Company entered into
master license agreements with three exhibitors covering a total of 493 screens,
whereby the exhibitors agreed to the placement of Systems as part of the Phase
II Deployment. Installation of Systems in the Phase II Deployment is still
contingent upon the completion of appropriate vendor supply agreements and
financing for the purchase of Systems.
In
October 2008, AccessDM borrowed an additional $257 under the NEC Credit Facility
(see Note 5) to fund the purchase and installation of additional equipment to
enable the exhibition of 3-D live events in movie theatres as part of the
Company’s CineLiveTM product
offering.
In
November 2008, in connection with the planned Phase II Deployment, the Company’s
wholly-owned subsidiary, Phase 2 DC Corp., entered into a supply agreement with
Christie, for the purchase of up to 10,000 Systems from Christie at agreed upon
pricing, as part of the Phase II Deployment.
In
November 2008, in connection with the planned Phase II Deployment, the Company’s
wholly-owned subsidiary, Phase 2 DC Corp., entered into a supply agreement with
Barco, for the purchase of up to 5,000 Systems from Barco at agreed upon
pricing, as part of the Phase II Deployment.
27
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
following is a discussion of the historical results of operations and financial
condition of Access Integrated Technologies, Inc. (the “Company”) and factors
affecting the Company’s financial resources. This discussion should be read in
conjunction with the condensed consolidated financial statements, including the
notes thereto, set forth herein under Item 1 “Financial Statements” and the
Form 10-K.
This
report contains forward-looking statements within the meaning of the federal
securities laws. These include statements about our expectations, beliefs,
intentions or strategies for the future, which are indicated by words or phrases
such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,”
“estimates,“ and similar words. Forward-looking statements represent, as of the
date of this report, our judgment relating to, among other things, future
results of operations, growth plans, sales, capital requirements and general
industry and business conditions applicable to us. These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties, assumptions and other factors, some of which
are beyond the Company’s control that could cause actual results to differ
materially from those expressed or implied by such forward-looking
statements. Additional information regarding risks to the Company can
be found below (see Part II Item 1A under Risk Factors).
In this
report, “AccessIT,” “we,” “us,” “our” and the “Company” refers to Access
Integrated Technologies, Inc. and its subsidiaries unless the context otherwise
requires.
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. We have 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
industry 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 provides hosting services and network
access for other web hosting services (“Access Digital Server
Assets”). Additional information related to the Company’s reporting
segments can be found in Note 9 to the Company's Unaudited Condensed
Consolidated Financial Statements.
We have
three reportable segments: Media Services, Content &
Entertainment and Other. The Media Services segment of our business is comprised
of FiberSat Global Services, Inc. d/b/a AccessIT Satellite and Support Services,
(“AccessIT Satellite”), Access Digital Media, Inc. (“AccessDM” and, together
with AccessIT Satellite, “DMS”), Christie/AIX, Inc. (“AccessIT DC”), PLX
Acquisition Corp., Core Technology Services, Inc. (“Managed Services”) and
Access Digital Cinema Phase 2 Corp. (“Phase 2 DC Corp”). The Content
& Entertainment segment of our business is comprised of ADM Cinema
Corporation (“ADM Cinema”) d/b/a the Pavilion Theatre (the “Pavilion Theatre”),
UniqueScreen Media, Inc. d/b/a AccessIT Advertising and Creative Services
(“ACS”) and Vistachiara Productions, Inc. d/b/a The Bigger Picture (“The Bigger
Picture”). Our Other segment consists of the operations of our Access Digital
Server Assets. In the past our Other segment included the operations
of our internet data centers (“IDCs”). However, since May 2007, the
IDCs have been operated by FiberMedia, consisting of unrelated third parties,
and substantially all of the revenues and expenses were being realized by
FiberMedia and not the Company and effective May 1, 2008, 100% of the revenues
and expenses are being realized by FiberMedia.
28
The
following organizational chart provides a graphic representation of our business
and our three reporting segments:
![](https://www.sec.gov/Archives/edgar/data/0001173204/000093244008000768/form10q_13171690.gif)
We have
incurred net losses historically and through the current period, and until
recently, have used cash in operating activities, and have an accumulated
deficit of $111.3 million as of September 30, 2008. We also have significant
contractual obligations related to our debt for the fiscal year 2009 and beyond.
We expect to continue generating net losses for the foreseeable future. Certain
of our costs could be reduced if our working capital requirements increased.
Based on our cash position at September 30, 2008, and expected cash flows from
operations, we believe that we have the ability to meet our obligations through
September 30, 2009. We are seeking to raise additional capital to refinance
certain outstanding debt, and also for equipment requirements related to the
Christie/AIX, Inc. d/b/a AccessIT Digital Cinema (“AccessIT DC”) second digital
cinema deployment (the “Phase II Deployment”) or for working capital as
necessary. Although we have recently entered into certain agreements related to
the Phase II Deployment (see Note 10), there is no assurance that such
financings will be completed as contemplated or under terms acceptable to us or
our existing shareholders. Failure to generate additional revenues, raise
additional capital or manage discretionary spending could have a material
adverse effect on our ability to continue as a going concern and to achieve our
intended business objectives. The accompanying unaudited condensed consolidated
financial statements do not reflect any adjustments which may result from our
inability to continue as a going concern.
Results
of Operations for the Three Months Ended September 30, 2007 and
2008
Revenues
For
the Three Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Revenues:
|
||||||||||||
Media
Services
|
$ | 11,943 | $ | 15,699 | 31 | % | ||||||
Content
& Entertainment
|
7,200 | 5,828 | (19 | )% | ||||||||
Other
|
323 | 322 | — | |||||||||
$ | 19,466 | $ | 21,849 | 12 | % |
Revenues
increased $2.4 million or 12%. The increase in revenues was primarily
due to a 41% increase in VPF revenues, in the Media Service segment,
attributable to the increased number of Systems installed in movie theatres,
following the completion of our Phase I Deployment. We experienced an
88% increase in revenues from delivery of movies to digitally equipped theatres,
due to the increase in the number of such theatres over the last
year. The
29
gains
were partially offset by a 25% decline in in-theatre advertising revenues, in
the Content & Entertainment segment, mostly attributable to the elimination
of various under performing customer contracts, offset by a 168% increase in
distribution revenues by The Bigger Picture. We also experienced a
decline in software revenues, due to one-time license fees from our Theatre
Command Center software realized during the Phase I Deployment. We
expect these software license fees to resume upon either the anticipated Phase
II Deployment, or an international deployment of Systems. There were 3,259
Systems installed at September 30, 2007 compared to 3,723 Systems installed at
September 30, 2008. We expect revenues to generally remain near
current levels until there is an increase in the number of Systems deployed from
our anticipated Phase II Deployment. Such revenues will be generated
primarily from VPFs and, to a lesser degree, other revenue sources including
content delivery and distribution of alternative content generated from Systems
installed at exhibitors in digitally equipped movie theatres.
Direct Operating
Expenses
For
the Three Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Direct
operating expenses:
|
||||||||||||
Media
Services
|
$ | 2,298 | $ | 2,455 | 7 | % | ||||||
Content
& Entertainment
|
4,477 | 4,036 | (10 | )% | ||||||||
Other
|
209 | 241 | 15 | % | ||||||||
$ | 6,984 | $ | 6,732 | (4 | )% |
Direct
operating expenses decreased $0.3 million or 4%. The decrease was
primarily related to reduced staffing levels and reduced minimum guaranteed
obligations under theatre advertising agreements with exhibitors for displaying
cinema advertising and reduced film rent expense for the Pavilion Theatre in the
Content & Entertainment segment, offset by increased property tax expense
related to the 3,723 Systems installed. We expect direct operating expenses to
decrease as compared to prior periods.
Selling, General and
Administrative Expenses
For
the Three Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Selling,
general and administrative expenses:
|
||||||||||||
Media
Services
|
$ | 1,482 | $ | 780 | (47 | )% | ||||||
Content
& Entertainment
|
2,347 | 1,696 | (28 | )% | ||||||||
Other
|
50 | 55 | 10 | % | ||||||||
Corporate
|
1,600 | 1,656 | 4 | % | ||||||||
$ | 5,479 | $ | 4,187 | (24 | )% |
Selling,
general and administrative expenses decreased $1.3 million or
24%. The decrease was primarily related to reduced staffing levels in
both the Media Services segment and the Content & Entertainment segment.
Following the completion of our Phase I Deployment, overall headcount reductions
have now stabilized. As of September 30, 2007 and 2008 we had 319 and
252 employees, respectively, of which 37 and 42, respectively, were part-time
employees and 69 and 39, respectively, were salespersons. Due to
reduced headcount levels primarily from the consolidation of sales territories
in ACS, resulting in a reduced sales and administrative work force within the
Content & Entertainment segment, we expect selling, general and
administrative expenses to stabilize as compared to prior periods until a Phase
II Deployment begins.
30
Depreciation Expense on
Property and Equipment
For
the Three Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Depreciation
expense:
|
||||||||||||
Media
Services
|
$ | 6,248 | $ | 7,656 | 23 | % | ||||||
Content
& Entertainment
|
435 | 395 | (9 | )% | ||||||||
Other
|
105 | 65 | (38 | )% | ||||||||
Corporate
|
17 | 17 | — | |||||||||
$ | 6,805 | $ | 8,133 | 20 | % |
Depreciation
expense increased $1.3 million or 20%. 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 gross property and
equipment increased by $36.0 million between September 30, 2007 and September
30, 2008.
Interest
expense
For
the Three Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Interest
expense:
|
||||||||||||
Media
Services
|
$ | 4,837 | $ | 4,319 | (11 | )% | ||||||
Content
& Entertainment
|
358 | 264 | (26 | )% | ||||||||
Corporate
|
1,888 | 2,407 | 27 | % | ||||||||
$ | 7,083 | $ | 6,990 | (1 | )% |
Interest
expense decreased $0.1 million or 1%. Total interest expense included $6.0
million and $6.2 million of interest paid and accrued along with non-cash
interest expense of $1.1 million and $0.8 million for the three months
ended September 30, 2007 and 2008, respectively. The decrease in
interest paid and accrued within the Media Services segment relates to the
reduced interest rate on the GE Credit Facility in part due to the Interest Rate
Swap executed in April 2008, along with less interest related to the reduced
outstanding principal balance of the GE Credit Facility. The decrease
in interest expense within the Content & Entertainment segment related to
reduced interest expense due to the repayment of an ACS term note with a portion
of the proceeds from the 2007 Senior Notes in August 2007 (see Note
5). The increase in interest expense within Corporate relates to the
interest on the 2007 Senior Notes offset by the elimination of interest expense
on the $22.0 million of One Year Senior Notes, which were also repaid with the
proceeds from the $55.0 million of Three Year Senior Notes in August
2007.
The
decrease in non-cash interest was due to the value of the shares issued as
payment of interest on the $22.0 million of One Year Senior Notes during the
three months ended September 30, 2007, which were repaid with the proceeds from
the $55.0 million of Three Year Senior Notes in August 2007. Interest
for the three months ended September 30, 2008 was paid in
cash. Non-cash interest could 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.
As a
result of the completion of our Phase I Deployment, and the continued payments
of principal related to the GE Credit Facility, and subject to any Phase II
Deployment related borrowings, we expect our interest expense to
stabilize.
Debt refinancing
expense
During
the three months ended September 30, 2007, the Company 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 (see Note
6) as an inducement for them to enter into a securities purchase agreement for
the 2007 Senior Notes with the Company in August 2007.
31
Change in fair value of
interest rate swap
The
change in fair value of interest rate swap resulted in a loss of $0.7 million
for the three months ended September 30, 2008. This represents the
Interest Rate Swap executed in April 2008 related to the GE Credit Facility (see
Note 5).
Results
of Operations for the Six Months Ended September 30, 2007 and 2008
Revenues
For
the Six Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Revenues:
|
||||||||||||
Media
Services
|
$ | 22,956 | $ | 30,351 | 32 | % | ||||||
Content
& Entertainment
|
14,002 | 11,418 | (18 | )% | ||||||||
Other
|
654 | 650 | (1 | )% | ||||||||
$ | 37,612 | $ | 42,419 | 13 | % |
Revenues
increased $4.8 million or 13%. The increase in revenues was primarily
due to a 41% increase in VPF revenues, in the Media Service segment,
attributable to the increased number of Systems installed in movie theatres,
following the completion of our Phase I Deployment. We experienced a
57% increase in revenues from delivery of movies to digitally equipped theatres,
due to the increase in the number of such theatres over the last
year. The gains were partially offset by a 24% decline in in-theatre
advertising revenues, in the Content & Entertainment segment, mostly
attributable to the elimination of various under performing customer contracts,
offset by a 17% increase in distribution revenues by The Bigger
Picture. We also experienced a decline in software revenues, due to
one-time license fees from our Theatre Command Center software realized during
the Phase I Deployment. We expect these software license fees to
resume upon either a Phase II Deployment, or an international deployment of
Systems. There were 3,259 Systems installed at September 30, 2007 compared to
3,723 Systems installed at September 30, 2008. We expect revenues to
generally remain near current levels until there is an increase in the number of
Systems deployed from our anticipated Phase II Deployment, due to the resultant
VPFs and other revenue sources including content delivery and distribution of
alternative content generated from digitally equipped movie
theatres.
Direct Operating
Expenses
For
the Six Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Direct
operating expenses:
|
||||||||||||
Media
Services
|
$ | 4,186 | $ | 4,400 | 5 | % | ||||||
Content
& Entertainment
|
8,605 | 7,670 | (11 | )% | ||||||||
Other
|
399 | 459 | 15 | % | ||||||||
$ | 13,190 | $ | 12,529 | (5 | )% |
Direct
operating expenses decreased $0.7 million or 5%. The decrease was
primarily related to reduced staffing levels and reduced minimum guaranteed
obligations under theatre advertising agreements with exhibitors for displaying
cinema advertising in the Content & Entertainment segment. We expect direct
operating expenses to decrease as compared to prior periods.
32
Selling, General and
Administrative Expenses
For
the Six Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Selling,
general and administrative expenses:
|
||||||||||||
Media
Services
|
$ | 2,957 | $ | 1,934 | (35 | )% | ||||||
Content
& Entertainment
|
4,944 | 3,647 | (26 | )% | ||||||||
Other
|
97 | 110 | 13 | % | ||||||||
Corporate
|
3,039 | 3,329 | 10 | % | ||||||||
$ | 11,037 | $ | 9,020 | (18 | )% |
Selling,
general and administrative expenses decreased $2.0 million or
18%. The decrease was primarily related to reduced staffing levels in
both the Media Services segment and the Content & Entertainment segment,
offset by increased professional fees within Corporate. Following the completion
of our Phase I Deployment, overall headcount reductions have now
stabilized. As of September 30, 2007 and 2008 we had 319 and 252
employees, respectively, of which 37 and 42, respectively, were part-time
employees and 69 and 39, respectively, were salespersons. Due to
reduced headcount levels primarily from the consolidation of sales territories
in ACS, resulting in a reduced sales and administrative work force within the
Content & Entertainment segment, we expect selling, general and
administrative expenses to stabilize as compared to prior periods until a Phase
II Deployment begins.
Depreciation Expense on
Property and Equipment
For
the Six Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Depreciation
expense:
|
||||||||||||
Media
Services
|
$ | 11,819 | $ | 15,287 | 29 | % | ||||||
Content
& Entertainment
|
866 | 816 | (6 | )% | ||||||||
Other
|
210 | 132 | (37 | )% | ||||||||
Corporate
|
35 | 33 | (6 | )% | ||||||||
$ | 12,930 | $ | 16,268 | 26 | % |
Depreciation
expense increased $3.3 million or 26%. 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 gross property and
equipment increased by $36.0 million between September 30, 2007 and September
30, 2008.
Interest
expense
For
the Six Months Ended September 30,
|
||||||||||||
($
in thousands)
|
2007
|
2008
|
Change
|
|||||||||
Interest
expense:
|
||||||||||||
Media
Services
|
$ | 8,823 | $ | 8,856 | 0 | % | ||||||
Content
& Entertainment
|
765 | 528 | (31 | )% | ||||||||
Corporate
|
3,239 | 4,782 | 47 | % | ||||||||
$ | 12,827 | $ | 14,166 | 10 | % |
Interest
expense increased $1.3 million or 10%. Total interest expense included $10.6
million and $11.2 million of interest paid and accrued along with non-cash
interest expense of $2.2 million and $3.0 million for the six months ended
September 30, 2007 and 2008, respectively. The increase in interest
paid and accrued within the Media Services segment relates to increased interest
for the $9.6 million of vendor financing partially offset by the reduced
interest rate on the GE Credit Facility in part due to the Interest Rate Swap
executed in April 2008, along with less interest related to the reduced
outstanding principal balance of the GE Credit Facility. The decrease
in interest expense within the Content & Entertainment segment related to
reduced interest due to the repayment of an ACS term note with a portion of the
proceeds from the 2007 Senior Notes in August 2007. The increase in
interest expense within Corporate relates to the interest on the 2007 Senior
Notes offset by the elimination of interest
33
expense
on the $22.0 million of One Year Senior Notes, which were also repaid with the
proceeds from the $55.0 million of Three Year Senior Notes in August
2007.
The
increase in non-cash interest was due to the value of the shares issued as
payment of interest on the $55.0 million of 2007 Senior Notes, offset by reduced
non-cash interest for the value of the shares issued as payment of interest on
the $22.0 million of One Year Senior Notes, which were repaid with the proceeds
from the $55.0 million of Three Year 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.
As a
result of the completion of our Phase I Deployment and the continued payments of
principal related to the GE Credit Facility, and subjec to any Phase II
Deployment related borrowings, we expect our interest expense to
stabilize.
Debt refinancing
expense
During
the six months ended September 30, 2007, the Company 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 (see Note
6) as an inducement for them to enter into a securities purchase agreement for
the 2007 Senior Notes with the Company in August 2007.
Change in fair value of
interest rate swap
The
change in fair value of the interest rate swap was $1.6 million for the six
months ended September 30, 2008. This represents AccessIT DC’s
unrealized gain from the change in the fair value of the Interest Rate Swap
executed in April 2008 related to the GE Credit Facility (see Note
5).
Recent
Accounting Pronouncements
|
In
September 2006, the Financial Accounting Standards Board (“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. 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.
Relative
to SFAS 157, the FASB issued FASB Staff Positions (“FSP”) FAS 157-1 and FSP FAS
157-2. FSP FAS 157-1 amends SFAS 157 to exclude SFAS No. 13, “Accounting
for Leases” (SFAS 13), and its related interpretive accounting pronouncements
that address leasing transactions, while FSP FAS 157-2 delays the effective date
of the application of SFAS 157 to fiscal years beginning after November 15,
2008 for all nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.
The Company adopted SFAS 157 as of
April 1,
2008, with the exception
of the application of the statement to non-recurring nonfinancial assets and
nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial
liabilities for which the Company has not applied the provisions of SFAS 157
include those measured at fair value in goodwill impairment testing, indefinite
lived intangible assets measured at fair value for impairment testing, and those
non-recurring nonfinancial assets and nonfinancial liabilities initially
measured at fair value in a business combination. The adoption of
SFAS 157 did not have a material impact the Company’s consolidated
financial statements.
34
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 has adopted
SFAS 159 and has elected not to measure any additional financial instruments and
other items at fair value.
In
December 2007, the FASB released SFAS No. 141(R), “Business Combinations
(revised 2007)” (“SFAS 141(R)”), which changes many well-established business
combination accounting practices and significantly affects how acquisition
transactions are reflected in the financial statements. Additionally, SFAS
141(R) will affect how companies negotiate and structure transactions, model
financial projections of acquisitions and communicate to stakeholders. SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. SFAS 141(R) will have
an impact on the Company’s consolidated financial statements related to any
future acquisitions.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160 establishes 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 161 changes 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.
The Company will be required to adopt FSP FAS 142-3 to intangible assets
acquired beginning with the first quarter of fiscal 2010.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,” (“SFAS 162”). SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” The Company
does not believe that SFAS 162 will have a material impact on its consolidated
financial statements.
In
October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS
157-3”). FSP FAS 157-3 clarifies the application of SFAS No. 157 in a
market that is not active. FSP FAS 157-3 is effective upon issuance, including
prior periods for which financial statements have not been issued. Revisions
resulting from a change in the valuation technique or its application should be
accounted for as a change in accounting estimate following the guidance in FASB
Statement No. 154, “Accounting Changes and Error Corrections.” FSP FAS
157-3 is effective for the financial statements included in the Company’s
quarterly report for the period ended September 30, 2008, and application
of FSP FAS 157-3 had no impact on the Company’s condensed consolidated financial
statements.
35
Liquidity
and Capital Resources
We have
incurred operating losses in each year since we commenced our operations. Since
our inception, we have financed our operations substantially through the private
placement of shares of our common and preferred stock, the issuance of
promissory notes, our initial public offering and subsequent private and public
offerings, notes payable and common stock used to fund various
acquisitions.
Our
business is primarily driven by the emerging digital cinema marketplace and the
primary revenue driver will be the increasing number of digitally equipped
screens. There are approximately 38,000 domestic (United States and Canada)
movie theatre screens and approximately 107,000 screens
worldwide. Approximately 5,200 of the domestic screens are equipped
with digital cinema technology, and 3,723 of those screens contain our Systems
and software. We anticipate the vast majority of the industry’s screens to be
converted to digital in the next 5-7 years, and we have announced plans to
convert up to an additional 10,000 domestic screens to digital in our Phase II
Deployment over the next three years. For those screens that are deployed by us,
the primary revenue source will be VPFs, with the number of digital movies shown
per screen, per year will be the key factor for earnings and measuring the VPFs,
since the studios pay such fees on a per movie, per screen basis. For
all new digital screens, whether or not deployed by us, the opportunity for
other forms of revenue also increases. We may generate additional software
license fee revenues (mainly the Theatre Command Center software which is used
by exhibitors to aid in the operation of their systems), ACFs (such as concerts
and sporting events) and fees from the delivery of content via satellite or hard
drive, may also result. In all cases, the number of
digitally-equipped screens in the marketplace is the primary determinant of our
potential revenue streams, although the emerging presence of competitors for
software and content distribution and delivery may limit this
opportunity.
In August
2006, AccessIT DC entered into a credit agreement (the “Credit Agreement”) with
General Electric Capital Corporation (“GECC”), as administrative agent and
collateral agent for the lenders party thereto, and one or more lenders party
thereto. As of September 30, 2008, the outstanding principal balance
of the GE Credit Facility was $197.4 million at a weighted average interest rate
of 7.3%. We do not intend to make any further borrowings under the GE Credit
Facility. The Credit Agreement contains certain restrictive covenants
that restrict AccessIT DC and its subsidiaries from making certain capital
expenditures, incurring other indebtedness, engaging in a new line of business,
selling certain assets, acquiring, consolidating with, or merging with or into
other companies and entering into transactions with affiliates. The
GE Credit Facility is not guaranteed by the Company or its other subsidiaries,
other than AccessIT DC.
In August
2007, AccessIT DC received $9.6 million of vendor financing (the “Vendor Note”)
for equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note bears
interest at 11% and may be prepaid without penalty. Interest is due
semi-annually commencing February 2008. The balance of the Vendor
Note, together with all unpaid interest is due on the maturity date of August 1,
2016. The Vendor Note is not guaranteed by the Company or its other
subsidiaries, other than AccessIT DC. As of September 30, 2008, the
outstanding principal balance of the Vendor Note was $9.6 million.
In August
2007, we entered into a securities purchase agreement (the “Purchase Agreement”)
with the purchasers party thereto (the “Purchasers”) pursuant to which we issued
10% Senior Notes (the “2007 Senior Notes”) in the aggregate principal amount of
$55.0 million (the “August 2007 Private Placement”) and received net proceeds of
approximately $53.0 million. The term of the 2007 Senior Notes is three years
which may be extended for one 6 month period at our discretion if certain
conditions are met. Interest on the 2007 Senior Notes will be paid on
a quarterly basis in cash or, at our option and subject to certain conditions,
in shares of its Class A Common Stock (“Interest Shares”). In addition, each
quarter, we will issue shares of Class A Common Stock to the Purchasers as
payment of additional interest owed under the 2007 Senior Notes based on a
formula (“Additional Interest”). We may prepay the 2007 Senior Notes
in whole or in part following the first anniversary of issuance of the 2007
Senior Notes, subject to a penalty of 2% of the principal if the 2007 Senior
Notes are prepaid prior to the two year anniversary of the issuance and a
penalty of 1% of the principal if the 2007 Senior Notes are prepaid thereafter,
and subject to paying the number of shares as Additional Interest that would be
due through the end of the term of the 2007 Senior Notes. The
Purchase Agreement also requires the 2007 Senior Notes to be guaranteed by each
of our existing and, subject to certain exceptions, future subsidiaries (the
“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
36
time to
time. As of September 30, 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 our total indebtedness
to an aggregate of $315.0 million unless certain conditions are met, however,
these conditions have been met and the $315.0 million limit no longer applies
and (ii) not to, and not to cause our subsidiaries (except for AccessIT DC and
its subsidiaries) to, incur indebtedness, with certain exceptions, including an
exception for $10.0 million; provided that no more than $5.0 million of such
indebtedness is incurred by AccessDM or AccessIT Satellite or any of their
respective subsidiaries except as incurred by AccessDM pursuant to a guaranty
entered into in accordance with the GE Credit Facility (see
below). Additionally, under the 2007 Senior Notes, AccessIT DC and
its subsidiaries may incur additional indebtedness in connection with the
deployment of Systems beyond our initial rollout of up to 4,000 Systems, if
certain conditions are met. As of September 30, 2008, the outstanding
principal balance of the 2007 Senior Notes was $55.0 million.
As of
September 30, 2008, AccessIT DC has approximately $1.4 million, included in
accounts payable and accrued expenses, remaining to pay for Systems installed
and related installation costs in connection with AccessIT DC’s Phase I
Deployment.
As of
September 30, 2008, we had cash and cash equivalents of $23.1 million and our
working capital was $10.7 million.
Operating
activities used net cash of $1.8 million for the six months ended September 30,
2007, and provided net cash of $15.2 million for the six months ended September
30, 2008. The increase in cash provided by operating activities was
primarily due to the decreased net loss, an increase of non-cash depreciation
and amortization along with improved collections of outstanding accounts
receivable, reduced payments for accounts payable and accrued expenses and a
reduction of unbilled revenues offset by increased prepaid expenses and deferred
revenues.
Investing
activities used net cash of $59.0 million and $16.5 million for the six months
ended September 30, 2007 and 2008, respectively. The decrease was due to reduced
payments for purchases of and deposits paid for property and equipment, as our
Phase I Deployment was completed during the quarter ended December 2007. 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 begins, we would expect an increase in capital
expenditures resulting in an increase in cash used by investing
activities.
Financing
activities provided net cash of $83.7 million for the six months ended September
30, 2007 due to the proceeds from the 2007 Senior Notes, the GE Credit Facility
and the Christie Note. Financing activities used net cash of $5.2
million for the six months ended September 30, 2008 due to principal repayments
on various notes payable, mainly $3.9 million on the GE Credit
Facility. Financing activities are expected to continue using net
cash for principal repayments on the GE Credit Facility, which began in August
2008. Although we have engaged a third-party investment banking firm
to assist us in seeking to refinance the GE Credit Facility and to finance the
planned Phase II Deployment, the terms of any such refinancing or financing have
not yet been determined. If and when a Phase II Deployment begins, we
expect an increase in cash provided by financing activities for borrowings
under a financing that we intend to enter into in connection with the
Phase II Deployment. Our Phase II Deployment would require the
purchase of up to 10,000 digital cinema projection systems, which together with
installation and related costs, could aggregate approximately $700
million. The cost of such equipment is expected to be funded with a
combination of long term debt and payments from exhibitors and other third
parties. The Company is currently pursuing various financing options
with private parties in connection with the proposed Phase II
Deployment. If the Company is not successful in securing funding for
its Phase II Deployment from lenders, exhibitors and hardware vendors, such
deployment would have to be delayed and thereby significantly reduce revenue
growth. We believe that the cash on hand and cash receipts from
existing operations will be sufficient to permit us to meet our debt service
requirements through September 30, 2009.
We have
contractual obligations that include long-term debt consisting of notes payable,
a revolving credit facility, non-cancelable long-term capital lease obligations
for the Pavilion Theatre and computer network equipment for ACS, non-cancelable
operating leases consisting of real estate leases and minimum guaranteed
obligations under theatre advertising agreements between ACS and exhibitors for
displaying cinema advertising.
37
The
following table summarizes our significant contractual obligations as of
September 30, 2008 and each corresponding period thereafter ($ in
thousands):
Contractual
Obligations
|
Total
|
2009
|
2010
&
2011
|
2012
&
2013
|
Thereafter
|
|||||||||||||||
Long-term
debt (1)
|
$ | 73,827 | $ | 1,840 | $ | 57,244 | $ | 2,151 | $ | 12,592 | ||||||||||
Credit
facilities (2)
|
245,189 | 37,241 | 77,030 | 130,918 | — | |||||||||||||||
Capital
lease obligations
|
15,928 | 1,164 | 2,316 | 2,272 | 10,176 | |||||||||||||||
Total
debt-related obligations, including interest
|
$ | 334,944 | $ | 40,245 | $ | 136,590 | $ | 135,341 | $ | 22,768 | ||||||||||
Operating
lease obligations (3)
|
$ | 9,538 | $ | 2,995 | $ | 3,338 | $ | 1,568 | $ | 1,637 | ||||||||||
ACS
Theatre agreements
|
22,979 | 4,745 | 5,614 | 4,539 | 8,081 | |||||||||||||||
Total
obligations to be included in operating expenses
|
$ | 32,517 | $ | 7,740 | $ | 8,952 | $ | 6,107 | $ | 9,718 | ||||||||||
Purchase
obligations
|
826 | 826 | — | — | — | |||||||||||||||
Grand
Total
|
$ | 368,287 | $ | 48,811 | $ | 145,542 | $ | 141,448 | $ | 32,486 |
(1)
|
Excludes
interest on the 2007 Senior Notes to be paid on a quarterly basis that may
be paid, at the Company’s option and subject to certain conditions, in
shares of our Class A Common Stock. Interest expense on the
2007 Senior Notes for the three and six months ended September 30, 2008
amounted to $1.4 million and $2.7 million,
respectively. The outstanding principal amount of
$55.0 million for the 2007 Senior Notes is due August 2010, but may be
extended for one 6 month period at the discretion of the Company to
February 2011, if certain conditions are met. Includes the
amounts due under the Vendor Note, of which the outstanding principal
amount of $9.6 million is not guaranteed by the Company or its other
subsidiaries, other than AccessIT
DC.
|
(2)
|
Represents
the amounts due under the GE Credit Facility which is not guaranteed by
the Company or its other subsidiaries, other than AccessIT
DC.
|
(3)
|
Includes
operating lease agreements for the IDCs now operated by FiberMedia,
consisting of unrelated third parties (see Note 9), which total aggregates
to $7.4 million. The Company will attempt to obtain landlord
consents to assign each facility lease to FiberMedia. Excludes
the reimbursement of operating leases which FiberMedia is required to
pay. Until such landlord consents are obtained, the Company
will remain as the lessee.
|
We have
incurred net losses historically and through the current period, and until
recently, have used cash in operating activities, and have an accumulated
deficit of $111.3 million as of September 30, 2008. We also have significant
contractual obligations related to our debt for the fiscal year 2009 and beyond.
We expect to continue generating net losses for the foreseeable future. Certain
of our costs could be reduced if our working capital requirements increased.
Based on our cash position at September 30, 2008, and expected cash flows from
operations, we believe that we have the ability to meet our obligations through
September 30, 2009. We are seeking to raise additional capital to refinance
certain outstanding debt, and also for equipment requirements related to our
second digital cinema deployment (the “Phase II Deployment”) or for working
capital as necessary. Although we have recently entered into certain agreements
with studios and exhibitors related to the Phase II Deployment (see Note 10),
there is no assurance that such financings will be completed as contemplated or
under terms acceptable to us or our existing shareholders. Failure to generate
additional revenues, raise additional capital or manage discretionary spending
could have a material adverse effect on our ability to continue as a going
concern and to achieve our intended business objectives. The accompanying
unaudited condensed consolidated financial statements do not reflect any
adjustments which may result from our inability to continue as a going
concern.
Our
management believes that the cash on hand and cash receipts from existing
operations will be sufficient to permit us to meet our obligations through
September 30, 2009.
38
Seasonality
Media
Services revenues derived from the collection of VPFs from motion picture
studios and Content & Entertainment 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. 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
October 2008, in connection with the planned Phase II Deployment, the Company’s
wholly-owned subsidiary, Phase 2 DC Corp., entered into a digital cinema
deployment agreement with a fifth motion picture studio, whereby the motion
picture studio will provide digital content to the Company’s Systems, and will
pay VPFs. Also in October 2008 and November 2008, the Company entered into
master license agreements with three exhibitors covering a total of 493 screens,
whereby the exhibitors agreed to the placement of Systems as part of the Phase
II Deployment. Installation of Systems in the Phase II Deployment is still
contingent upon the completion of appropriate vendor supply agreements and
financing for the purchase of Systems.
In
October 2008, AccessDM borrowed an additional $0.3 million under the NEC Credit
Facility (see Note 5) to fund the purchase and installation of additional
equipment to enable the exhibition of 3-D live events in movie theatres as part
of the Company’s CineLiveTM product
offering.
In
November 2008, in connection with the planned Phase II Deployment, the Company’s
wholly-owned subsidiary, Phase 2 DC Corp., entered into a supply agreement with
Christie, for the purchase of up to 10,000 Systems from Christie at agreed upon
pricing, as part of the Phase II Deployment.
In
November 2008, in connection with the planned Phase II Deployment, the Company’s
wholly-owned subsidiary, Phase 2 DC Corp., entered into a supply agreement with
Barco, for the purchase of up to 5,000 Systems from Barco at agreed upon
pricing, as part of the Phase II Deployment.
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
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
exposure to market 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 September 30, 2008, the outstanding principal balance of
the GE Credit Facility was $197.4 million at a weighted average interest rate of
7.3%.
Interest
to be paid by us on our GE Credit Facility is the only debt with a floating
interest rate. In April 2008, the Company executed an Interest Rate Swap whereby
we fixed a portion (90%) of our interest with respect to the GE Credit Facility
at 7.3%. The Interest Rate Swap will remain in effect until August 2010.
Additionally, at September 30, 2008, the remaining portion of the GE Credit
Facility that is subject to variable interest rates is approximately $19.7
million. Therefore, every 1% increase or decrease in interest rates would cause
our annual interest expense to increase or decrease by $0.2
million.
39
Our
customer base is primarily composed of businesses throughout the United
States. We routinely assess the financial strength of our customers
and the status of our accounts receivable and, based upon factors surrounding
the credit risk, we establish an allowance, if required, for uncollectible
accounts and, as a result, we believe that our accounts receivable credit risk
exposure beyond such allowance is limited.
All sales
and purchases are denominated in U.S. dollars.
ITEM
4. 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”)). Our disclosure controls and procedures
are designed to provide reasonable assurance of achieving our objectives and our
principal executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective at that reasonable assurance
level.
In
designing and evaluating our disclosure controls and procedures, management
recognizes that any controls, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance of achieving the desired
control objectives. Due to the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and instances of fraud,
if any, within the Company have been detected.
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.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Our
subsidiary, ADM Cinema Corporation (“ADM Cinema”), was named as a defendant
in an action filed
on May 19, 2008 in the Supreme Court of the State of New York, County of Kings
by Pavilion on the Park, LLC (“Landlord”). Landlord is the owner of
the premises located at 188 Prospect Park West, Brooklyn, New York, known as the
Pavilion Theatre. Pursuant to the relevant lease, ADM Cinema leases
the Pavilion Theatre from Landlord and operates it as a movie
theatre.
In the
complaint, Landlord alleges that ADM Cinema has violated its obligations under
Article 12 of the lease in that ADM Cinema failed to comply with an Order of the
Fire Department of the City of New York issued on September 24, 2007 calling for
the installation of a sprinkler system in the Pavilion Theatre and that such
violation constitutes an event of default under the lease. Landlord
seeks to terminate the lease and evict ADM Cinema from the premises and to
recover its attorneys’ fees and damages for ADM Cinema’s alleged “holding over”
by remaining on the premises. We believe that we have meritorious defenses
against these claims and we intend to defend our position vigorously. However,
if we do not prevail, any significant loss resulting in eviction may have a
material effect on our business, results of operations and cash
flows.
ITEM
1A. RISK FACTORS
The information regarding certain
factors which could materially affect our business, financial condition or
future results set forth under Item 1A. “Risk Factors” in the Form
10-K, should be carefully
reviewed and considered. There have been no material changes from the factors
disclosed in the Form 10-K for the fiscal year ended March 31, 2008, other than as set forth
below, although we may disclose changes to
such factors or disclose additional factors from time to time in our future
filings with the SEC.
New
technologies may make our Digital Cinema Assets less desirable to motion picture
studios or exhibitors of digital content and result in decreasing
revenues.
The
demand for our Systems and other assets in connection with our digital cinema
business (collectively, our “Digital Cinema Assets”) may be affected by future
advances in technology and changes in customer demands. We cannot
assure you that there will be continued demand for our Digital Cinema
Assets. Our profitability depends
40
largely
upon the continued use of digital presentations at theatres. Although
we have entered into long term agreements with major motion picture studios and
independent studios (the “Studio Agreements”), there can be no assurance that
these studios will continue to distribute digital content to movie
theatres. If the development of digital presentations and changes in
the way digital files are delivered does not continue or technology is used that
is not compatible with our Systems, there may be no viable market for our
Systems. Any reduction in the use of our Systems resulting from the
development and deployment of new technology may negatively impact our revenues
and the value of our Systems.
We
have concentration in our business with respect to our major motion picture
studio customers, and the loss of one or more of our largest studio customers
could have a material adverse effect on us.
Our
Studio Agreements account for a significant portion of our
revenues. Together these studios generated 94.2%, 47.4%, 65.3% and
82.8% of AccessIT DC’s, AccessIT SW’s, AccessDM’s and the Media Service
segment’s revenues, respectively, for the six months ended September 30,
2008.
The
Studio Agreements are critical to our business. If some of the Studio
Agreements were terminated prior to the end of their terms or found to be
unenforceable, or if our Systems are not upgraded or enhanced as necessary, or
if we had a material failure of our Systems, it may have a material adverse
effect on our revenue, profitability, financial condition and cash
flows. The Studio Agreements also generally provide that the VPF
rates and other material terms of the agreements may not be more favorable to
one studio as compared to the others.
Termination
of the MLAs could damage our revenue and profitability.
The
master license agreements with each of our licensed exhibitors (the “MLAs”) are
critical to our business. The MLAs each have a term which expires in 2020 and
provide the exhibitor with an option to purchase our Systems or to renew for
successive one year periods up to ten years thereafter. The MLAs also require
our suppliers to upgrade our Systems when technology necessary for compliance
with DCI Specification becomes commercially available and we may determine to
enhance the Systems which may require additional capital
expenditures. If any one of the MLAs were terminated prior to the end
of its term, not renewed at its expiration or found to be unenforceable, or if
our Systems are not upgraded or enhanced as necessary, it would have a material
adverse effect on our revenue, profitability, financial condition and cash
flows.
We
have concentration in our business with respect to our major licensed
exhibitors, and the loss of one or more of our largest exhibitors could have a
material adverse effect on us.
Over 60%
of our Systems are in theatres owned or operated by one large
exhibitor. The loss of this exhibitor or another of our major
licensed exhibitors could have a negative impact on the aggregate receipt of VPF
revenues as a result of the loss of any associated MLAs. Although we
do not receive revenues from licensed exhibitors and we have attempted to limit
our licenses to only those theatres which we believe are successful, each MLA
with our licensed exhibitors is important, depending on the number of screens,
to our business since our VPF revenues are generated based on screen turnover at
theatres. If the MLA with a significant exhibitor was terminated
prior to the end of its term, it would have a material adverse effect on our
revenue, profitability, financial condition and cash flows. There can
be no guarantee that the MLAs with our licensed exhibitors will not be
terminated prior to the end of its term.
An
increase in the use of alternative film distribution channels and other
competing forms of entertainment could drive down movie theatre attendance,
which, if causing significant theatre closures or a substantial decline in
motion picture production, may lead to reductions in our revenues.
Various
exhibitor chains which are the Company’s distributors face competition for
patrons from a number of alternative motion picture distribution channels, such
as DVD, network and syndicated television, video on-demand, pay-per-view
television and downloading utilizing the internet. These exhibitor
chains also compete with other forms of entertainment competing for patrons’
leisure time and disposable income such as concerts, amusement parks and
sporting events. An increase in popularity of these alternative film
distribution channels and competing forms of entertainment could drive down
movie theatre attendance and potentially cause certain of our exhibitors to
close their theatres for extended periods of time. Significant
theatre closures could in turn have a negative impact on the aggregate receipt
of our VPF revenues, which in turn may have a material adverse effect on our
business and ability to service our debt.
41
An
increase in the use of alternative film distribution channels could also cause
the overall production of motion pictures to decline, which, if substantial,
could have an adverse effect on the businesses of the major studios with which
we have Studio Agreements. A decline in the businesses of the major
studios could in turn force the termination of certain Studio Agreements prior
to the end of their terms. The Studio Agreements with each of the major studios
are critical to our business, and their early termination may have a material
adverse effect on our revenue, profitability, financial condition and cash
flows.
Our
revenues and earnings are subject to market downturns.
Our
revenues and earnings may fluctuate significantly in the
future. General economic or other conditions could cause a downturn
in the market for our Systems or technology. The recent financial
disruption affecting the banking system and financial markets and the concern as
to whether investment banks and other financial institutions will continue
operations in the foreseeable future have resulted in a tightening in the credit
markets, a low level of liquidity in many financial markets and extreme
volatility in fixed income, credit and equity markets. The credit
crisis may result in our inability to refinance our outstanding debt obligations
or to finance our Phase 2 Deployment. The recent credit crisis may
also result in the inability of our studios, exhibitors or other customers to
obtain credit to finance operations; a slowdown in global economies which could
result in lower consumer demand for films; counterparty failures negatively
impacting our Interest Rate Swap; or increased impairments of our
assets. The current volatility in the financial markets and overall
economic uncertainty increase the risk of substantial quarterly and annual
fluctuations in our earnings. Any of these factors could have a
material adverse affect on our business, results of operations and could result
in significant additional dilution to shareholders.
Economic
conditions could materially adversely affect the Company.
The
Company’s operations and performance could be influenced by worldwide economic
conditions. Uncertainty about current global economic conditions
poses a risk as consumers and businesses may postpone spending in response to
tighter credit, negative financial news and/or declines in income or asset
values, which could have a material negative effect on the demand for the
Company’s products and services. Other factors that could influence
demand include continuing increases in fuel and other energy costs, conditions
in the residential real estate and mortgage markets, labor and healthcare costs,
access to credit, consumer confidence, and other macroeconomic factors affecting
consumer spending behavior. These and other economic factors could
have a material adverse effect on demand for the Company’s products and services
and on the Company’s financial condition and operating
results. Uncertainty about current global economic conditions could
also continue to increase the volatility of the Company’s stock
price.
The
continued threat of terrorism and ongoing military and other actions may result
in decreases in our net income, revenue and assets under management and may
adversely affect our business
The
continued threat of terrorism, both within the United States of America and
abroad, and the ongoing military and other actions and heightened security
measures in response to these types of threats, may cause significant volatility
and declines in the capital markets in the United States of America, Europe and
elsewhere, loss of life, property damage, additional disruptions to commerce and
reduced economic activity. An actual terrorist attack could cause
losses from a decrease in our business.
The war
on terrorism, the threat of additional terrorist attacks, the political and the
economic uncertainties that may result and other unforeseen events may impose
additional risks upon and adversely affect the cinema industry and our
business. We cannot offer assurances that the threats of future
terrorist-like events in the United States of America and abroad or military
actions by the United States of America will not have a material adverse effect
on our business, financial condition or results of operations.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
In
connection with the acquisition of The Bigger Picture in January 2007, The
Bigger Picture entered into a services agreement with SD Entertainment, Inc.
(“SDE”) to provide certain services, such as the provision of shared office
space and certain shared administrative personnel. In September 2008,
we issued 22,010 shares of unregistered Class A Common Stock to SDE as partial
payment for such services and resources. There was no underwriter
associated with this privately negotiated transaction. These shares
were issued in reliance upon applicable exemptions from registration under
Section 4(2) of the Securities Act.
42
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our
Annual Meeting of stockholders was held on September 4, 2008. Proxies for the
meeting were solicited pursuant to Regulation 14A under the Exchange
Act. There was no solicitation of proxies in opposition to
management’s nominees as listed in the proxy statement and all of management’s
nominees were elected to our Board of Directors. Details of the
voting are provided below:
Proposal
1:
To elect
nine (8) members of the Company’s Board of Directors to serve until the 2009
Annual Meeting of Stockholders (or until successors are elected or directors
resign or are removed).
Votes
For
|
Votes
Withheld
|
||
A.
Dale Mayo
|
20,175,780
|
341,374
|
|
Kevin
J. Farrell
|
20,044,480
|
472,674
|
|
Gary
S. Loffredo
|
19,966,318
|
550,836
|
|
Wayne
L. Clevenger
|
20,077,286
|
439,868
|
|
Gerald
C. Crotty
|
20,378,424
|
138,730
|
|
Robert
Davidoff
|
20,379,324
|
137,830
|
|
Matthew
W. Finlay
|
20,409,156
|
107,998
|
|
Robert
E. Mulholland
|
20,383,324
|
133,830
|
43
Proposal
2:
To
amend the Company’s Fourth Amended and Restated Certificate of
Incorporation to designate as Class A all authorized common stock that is
not currently designated as either Class A or Class B.
|
Votes
For
19,925,817
|
Votes
Against
573,548
|
Abstentions
17,786
|
Broker Non-Vote
0
|
Proposal
3:
To
increase the number of shares of Class A Common Stock authorized to be
issued in payment of interest under the Company’s 2007 Senior
Notes.
|
Votes
For
11,305,093
|
Votes
Against
445,195
|
Abstentions
6,355
|
Broker Non-Vote
8,760,511
|
Proposal
4:
To
amend the Company’s Second Amended and Restated 2000 Equity Incentive Plan
to increase the total number of shares of Class A Common Stock available
for issuance thereunder from 2,200,000 to 3,700,000.
|
Votes
For
9,009,506
|
Votes
Against
2,740,782
|
Abstentions
6,355
|
Broker Non-Vote
8,760,511
|
Proposal
5:
To
ratify the appointment of Eisner LLP as our independent auditors for the
fiscal year ending March 31, 2009.
|
Votes
For
20,435,020
|
Votes
Against
16,691
|
Abstentions
65,442
|
Broker Non-Vote
0
|
ITEM
5. OTHER INFORMATION
We
received a comment letter dated August 6, 2008 from the SEC relating to the Form
10-K, as amended, our Form 8-K filed on June 12, 2008 and our definitive proxy
statement filed on July 28, 2008. We filed our response with the SEC
on September 5, 2008.
We
received a subsequent comment letter dated September 26, 2008 from the SEC
relating to the Form 10-K, as amended, and our Form 10-Q filed on August 11,
2008. We filed our response with the SEC on October 21,
2008.
ITEM
6. EXHIBITS
The
exhibits are listed in the Exhibit Index on page 46 herein.
44
SIGNATURES
In
accordance with the requirements 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.
(Registrant)
Date:
|
November 7, 2008 |
By:
|
/s/ A. Dale Mayo | |
A.
Dale Mayo
President
and Chief Executive Officer and Director
(Principal
Executive Officer)
|
||||
Date:
|
November 7, 2008 |
By:
|
/s/ Brian D. Pflug | |
Brian
D. Pflug
Senior
Vice President – Accounting & Finance
(Principal
Financial Officer)
|
45
EXHIBIT
INDEX
Exhibit
Number
|
Description of Document
|
|
31.1
|
Officer’s
Certificate Pursuant to 15 U.S.C. 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. 7241, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
46