UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: MARCH 31, 2006
|_| 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.
(Name of Small Business Issuer in its Charter)
--------------------------------------
DELAWARE 22-3720962
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
55 MADISON AVENUE, SUITE 300, MORRISTOWN, NEW JERSEY 07960
(Address of principal executive offices)
(973) 290-0080
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. |_|
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Issuer's revenues for the fiscal year ended March 31, 2006 were $16,794,865.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer based on a price of $10.55 per share, as of June
23, 2006, the closing price of such common equity on the Nasdaq National Market,
was approximately $197,391,787. For purposes of the foregoing calculation, all
directors, officers and shareholders who beneficially own 10% of the shares of
such common equity have been deemed to be affiliates, but the Company disclaims
that any of such persons are affiliates.
As of June 23, 2006, 22,141,572 shares of Class A Common Stock, $0.001 par
value, and 825,811 shares of Class B Common Stock, $0.001 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 9, 10, 11, 12, 13, and 14 of Form 10-KSB
is incorporated by reference into Part III hereof from the registrant's Proxy
Statement for the 2006 Annual Meeting of Stockholders to be held on or about
September 14, 2006.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
ACCESS INTEGRATED TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
FORWARD-LOOKING STATEMENTS................................................... 3
PART I
ITEM 1. Business........................................................ 4
ITEM 2. Property........................................................ 14
ITEM 3. Legal Proceedings............................................... 15
ITEM 4. Submission of Matters to a Vote of Shareholders................. 15
PART II
ITEM 5. Market for Common Equity and Related Shareholder Matters........ 16
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 18
ITEM 7. Consolidated Financial Statements............................... 24
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 25
ITEM 8A. Controls and Procedures......................................... 25
ITEM 8B. Other Information............................................... 25
PART III
ITEM 9. Directors, Executive Officers and Control Persons;
Compliance with Section 16(a) of the Exchange Act............... 25
ITEM 10. Executive Compensation.......................................... 25
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters...................... 25
ITEM 12. Certain Relationships and Related Transactions.................. 26
ITEM 13. Exhibits........................................................ 26
ITEM 14. Principal Accountant Fees and Services.......................... 26
SIGNATURES................................................................... 27
2
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
federal securities laws. These include statements about our expectations,
beliefs, intentions or strategies for the future, which are indicated by words
or phrases such as "believes," "anticipates," "expects," "intends," "plans,"
"will," "estimates, "and similar words. Forward-looking statements are based on
current expectations and are indicated by words or phrases such as "believe,"
"expect," "may," "will," "should," "seek," "plan," "intend" or "anticipate" or
the negative thereof or comparable terminology, or by discussion of strategy.
Forward-looking statements represent as of the date of this report our judgment
relating to, among other things, future results of operations, growth plans,
sales, capital requirements and general industry and business conditions
applicable to us. Such forward-looking statements are based largely on our
current expectations and are inherently subject to risks and uncertainties. Our
actual results could differ materially from those that are anticipated or
projected as a result of certain risks and uncertainties, including, but not
limited to, a number of factors, such as:
o successful execution of our business strategy, particularly for new
endeavors;
o the performance of our targeted markets;
o competitive product and pricing pressures;
o changes in business relationships with our major customers;
o successful integration of acquired businesses;
o economic and market conditions;
o the effect of our indebtedness on our financial condition and financial
flexibility, including, but not limited to, the ability to obtain necessary
financing for our business; and
o the other risks and uncertainties that are set forth in Item 1, "Business"
and Item 6, "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
Except as otherwise required to be disclosed in periodic reports required to be
filed by public companies with the SEC pursuant to the SEC's rules, we have no
duty to update these statements, and we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks and
uncertainties, we cannot assure you that the forward-looking information
contained in this report will in fact transpire.
In this report, "AccessIT," "we," "us," "our" and the "Company" refers to Access
Integrated Technologies, Inc. and its subsidiaries unless the context otherwise
requires.
3
PART I
ITEM 1. BUSINESS
OVERVIEW
AccessIT was incorporated in Delaware on March 31, 2000. We are a leading
provider of fully managed storage, electronic delivery and software services and
technology solutions for owners and distributors of digital content to movie
theaters and other venues. To date, we have generated revenues from two primary
businesses, media services ("Media Services") and internet data center ("IDC" or
"data center") services. 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. Our
Data Center Services are comprised of three leased IDCs that provide corporate
customers with secure and fail-safe off-site locations to house their computer
and telecommunications equipment, as well as related services such as equipment
monitoring and back-up and protection of customers' data. These existing
businesses have positioned us at what we believe to be the forefront of an
emerging industry opportunity relating to the delivery and management of digital
cinema and other content to entertainment and other remote venues worldwide.
This is currently our primary strategic focus.
Digital Cinema Initiatives, LLC ("DCI") was created in March 2002 as a joint
venture of seven motion picture studios: Buena Vista Pictures Distribution
(Disney), Twentieth Century Fox Film Corporation (Fox), Metro-Goldwyn-Mayer,
Paramount Pictures, Sony Pictures Entertainment, Universal Studios, and Warner
Bros. Studios. The primary purpose of DCI was to recommend uniform industry-wide
specifications for digital cinema, in order to provide real benefits to theater
audiences, theater owners, filmmakers and distributors. In June 2005, DCI
announced recommendations regarding the final overall system requirements and
specifications for digital cinema (the "DCI Recommendations"). The DCI
Recommendations define technical specifications and requirements recommended for
the mastering of, distribution of, and theatrical playback of digital cinema
content. AccessIT's processes and Systems (as defined below) operate in
accordance with the DCI Recommendations.
In June 2005, in anticipation of the DCI Recommendations, we entered into a
digital cinema framework agreement (the "Framework Agreement") with Christie
Digital Systems USA, Inc. ("Christie") through our then-newly formed indirectly
wholly-owned subsidiary, Christie/AIX, Inc. ("Christie/AIX") to purchase
Christie's digital cinema projection systems (the "Systems") at agreed-upon
prices to be installed nationwide (our "Digital Cinema Roll-Out").
Distributors can send us digital cinema movie content or alternative digital
content as a digital cinema distribution master ("DCDM"), which the distributors
developed under the DCI Recommendations and are encrypted and transported to
exhibitors.
We believe our Digital Cinema Roll-Out requires four key components:
1. Distribution management software
2. Exhibition management software
3. Managed digital media delivery
4. A common platform to make hardware and software work together
Each of these four key components are provided within our Media Services and
Data Center Services.
MEDIA SERVICES
The Media Services segment of our business consists of two units: the Digital
Media Delivery Services and Exhibition and Distribution Management Software.
Digital Media Delivery Services is comprised of FiberSat Global Services, Inc.
d/b/a AccessIT Satellite and Support Services, ("AccessIT Satellite"), Access
Digital Media, Inc. ("AccessDM"), ADM Cinema Corporation ("ADM Cinema") d/b/a
the Pavilion Theatre (the "Pavilion Theatre") and Christie/AIX. Exhibition and
Distribution Management Software is comprised of Hollywood Software, Inc. d/b/a
AccessIT Software ("AccessIT SW") and certain software provided by AccessDM. As
of March 31, 2006, AccessDM and AccessIT Satellite will together be known as our
Digital Media Services Division ("DMS").
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DIGITAL MEDIA DELIVERY SERVICES
OPERATIONS OF: SERVICES PROVIDED:
----------------------------- --------------------------------------------
DMS Stores and distributes digital content to
movie theaters 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 recovery services for
content owners.
----------------------------- --------------------------------------------
Pavilion Theatre A fully functioning nine-screen movie
theatre and showcase to demonstrate and test
our integrated digital cinema solutions.
----------------------------- --------------------------------------------
Christie/AIX Financing vehicle and administrator for our
Digital Cinema Roll-Out to motion picture
exhibitors, collects virtual print fees
("VPFs") from motion picture studios and
other content providers.
----------------------------- --------------------------------------------
In March 2004, AccessDM acquired certain digital cinema related assets of the
Boeing Company (the "Boeing Digital Asset Acquisition").
In November 2004, we acquired certain assets and liabilities of FiberSat Global
Services, LLC (the "FiberSat Acquisition").
In February 2005, through ADM Cinema, we acquired substantially all of the
assets of the Pavilion Theatre located in the Park Slope section of Brooklyn,
New York from Pritchard Square Cinema, LLC (the "Pavilion Theatre Acquisition").
In June 2005, we formed Christie/AIX to purchase Systems for our Digital Cinema
Roll-Out, under the Framework Agreement with Christie. In September 2005,
pursuant to a second amendment to the Framework Agreement, Christie and
Christie/AIX agreed to extend the number of Systems which may be ordered to
4,000 Systems.
Each System, purchased from Christie, consists of a Digital Light Processor (or
DLP) Cinema(TM) 2K projector, capable of both 2-D and 3-D display, a digital
cinema server, and such other components and software and any applicable
upgrades along with a central library server, with our Theatre Command Center
software installed, connecting all Systems within a theatre complex, together
with a storage array, computer rack, uninterrupted power source, main switch and
patch panel.
PRODUCTS
Current proprietary software of DMS for digital media delivery consists of the
following:
PROPRIETARY SOFTWARE
PRODUCT: PURPOSE:
---------------------------- ---------------------------------------------
Digital Express e-Courier Provides worldwide delivery of digital
Services (SM) content, including movies, advertisements
and alternative content such as concerts,
seminars and sporting events to movie
theaters and other venues having digital
projection equipment.
---------------------------- ---------------------------------------------
The Digital Express e-Courier Services (SM) software makes interaction between
the content originator (such as the motion picture studio) and the exhibitor
easier:
o Programming is viewed, booked, scheduled and electronically delivered
through Digital Express e-Courier Services (SM).
o Once received, DCDMs are prepared for distribution employing wrapper
technology, including the application of an additional layer of Advanced
Encryption Standard encryption, for added security.
o We maintain digital content storage and support services at our IDCs, which
are equipped with state-of-the-art EMC Symmetrix and StorageTek hardware,
standby power supplies and environmental controls that provide fail-safe,
uninterrupted service.
o Through our IDCs, we provide digital content delivery via multiple tier-1
carriers utilizing both terrestrial (copper and fiber networks) as well as
satellite links, which ensures cost-effective and reliable on-time delivery
of all digital content, regardless of size or number of remote
destinations.
o Designed to provide transparent control over the delivery process, Digital
Express e-Courier Services(SM) provides comprehensive, real-time monitoring
capabilities including a fully customizable, automatic event notification
system, delivering important status information to customers through a
variety of connected devices including cell phones, e-mail or pagers.
5
Current licensed software of Christie/AIX consists of the following:
LICENSED PRODUCT: PURPOSE:
----------------------------- ---------------------------------------------
Cinefence o Detection of audio and video watermarks
in content distributed through digital
cinema.
----------------------------- ---------------------------------------------
In February 2006, Christie/AIX entered into an agreement with Philips
Electronics Nederland B.V. ("Philips") for a non-exclusive, worldwide right to
use software license for Philips' software Cinefence (the "Cinefence License").
The Cinefence License is for an initial period of twelve years and renews
automatically each year unless terminated by either party upon written notice.
Cinefence is a watermarking detector for the detection of audio and video
watermarks in content distributed through digital cinema.
MARKET OPPORTUNITY
According to the Motion Picture Association, on average, there were
approximately 530 new movie releases for each of the past two years. The average
major movie is released to approximately 4,000 screens in the United States and
8,000 screens worldwide. According to the National Association of Theatre
Owners, there are approximately 105,000 screens worldwide that play major movie
releases, with approximately 36,000 screens located in the United States.
We believe that:
o the demand for digital content delivery will increase as the movie,
advertising and entertainment industries continue to convert to a digital
format in order to achieve cost savings, greater flexibility and/or
improved image quality;
o digital content delivery eventually will replace, or at least become more
prevalent than, the current method used for film delivery since existing
film delivery generally involves the time-consuming, somewhat expensive and
cumbersome process of receiving bulk printed film, rebuilding the film into
shipping reels, packaging the film reels into canisters and physically
delivering the film reels by traditional ground modes of transportation to
movie theaters;
o the expanding use of digital content delivery will lead to an increasing
need for digital content delivery services, as the movie exhibition
industry now has the capability to present advertisements, trailers and
alternative entertainment in a digital format and in a commercially viable
manner;
o motion picture exhibitors may be able to profit from the presentation of
new and/or additional advertising in their movie theaters and that
alternative entertainment at movie theaters may both expand their hours of
operation and increase their occupancy rates;
o the demand for our digital content delivery services is directly related to
the number of movie releases each year, the number of movie screens those
movies are shown on and the transition to digital presentations in those
movie theatres;
o the cost to deliver digital movies to movie theatres will be much less than
the cost to print and deliver analog movie prints, and such lesser cost
will provide the economic model to drive the conversion from analog to
digital cinema (according to Nash Information Services, LLC., the average
film print costs $2,000 per print); and
o illegal off-the-screen recording of movies with handheld camcorders now
costs the movie exhibition industry an estimated $3.5 billion annually.
To date, in connection with our Digital Cinema Roll-Out, we have entered into
digital cinema deployment agreements with six motion picture studios for the
distribution of digital movie releases to motion picture exhibitors equipped
with Systems, and providing for payment of virtual print fees to Christie/AIX.
As of March 31, 2006, we have entered into master license agreements with six
motion picture exhibitors for the placement of Systems in movie theatres
covering a total of 2,531 screens (includes screens at AccessIT's Pavilion
Theatre) and we have installed 210 Systems. It is our intention to complete the
first 2,000 to 2,500 System installations by April 2007 and complete all 4,000
System installations by October 31, 2007. Christie/AIX incorporates Cinefence
into the Systems deployed with motion picture exhibitors participating in our
Digital Cinema Roll-Out.
INTELLECTUAL PROPERTY
AccessDM has received United States service mark registration for the following:
Digital Express e-Courier Services (SM) and "The courier for the Digital
Era"(SM).
6
AccessDM has applied for service mark registrations in respect of the name
AccessDM, Access Digital Media and "Theatre Command Center". As of March 31,
2006, AccessDM has not yet received United States service mark registration for
these service marks.
CUSTOMERS
The Digital Media Delivery Service businesses currently provide services mainly
to the general public, the broadcast and cable television and communications
industries and motion picture studios. For the fiscal year ended March 31, 2006,
the Pavilion Theatre's customers (the general public) and DMS comprised of 74%
and 24% of the Digital Media Delivery Service revenues, respectively. Three
customers, Globecomm Network Services Corporation, LATV, LLC. and McKibben
Consulting, each represented 10% or more of DMS' revenues and together generated
58% of DMS revenues. We do not have any other relationships with these
customers. These three customer contracts are due to expire in fiscal year 2007
and we have not received any indication whether these contracts will be renewed.
COMPETITION
Companies that have developed forms of digital content delivery to entertainment
venues and include:
o Technicolor Digital Cinema, an affiliate of the Thomson Company, which has
developed distribution technology and support services for the physical
delivery of digital movies to motion picture exhibitors;
o National CineMedia, LLC ("NCM"), a venture of AMC, Cinemark USA, Inc. and
Regal, which have joined to work on the development of a digital cinema
business plan, primarily concentrated on in-theatre advertising, business
meetings and non-feature film content distribution; and
o DELUXE Laboratories, a wholly owned subsidiary of the Rank Group Plc, which
has developed distribution technology and support services for the physical
delivery of digital movies to motion picture exhibitors.
These competitors have significantly greater financial, marketing and managerial
resources than we do, have generated greater revenue and are better known than
we are. However, we believe that DMS, through its technology and management
experience, its development of software capable of delivering digital content
worldwide, its development of the Theatre Command Center software, and the
complement of AccessIT SW's software, differentiate us from our competitors by
providing a competitive alternative to their forms of digital content delivery.
We expect to co-market our Digital Media Delivery Services to the current and
prospective customers of AccessIT SW, using marketing and sales efforts and
resources of both companies, which would enable owners of digital content to
securely deliver such digital content to their customers and, thereafter, to
manage and track data regarding the presentation of the digital content,
including different forms of audio and/or visual entertainment. As the digital
content industry continues to develop, we may engage in other marketing methods,
such as advertising and service bundling, and may hire additional sales
personnel.
SEASONALITY
Digital Media Delivery Service revenues derived from our Pavilion Theatre and
from the collection of VPFs from motion picture studios are seasonal, coinciding
with the timing of releases of movies by the motion picture studios. Generally,
motion picture studios release the most marketable movies during the summer and
the holiday season. The unexpected emergence of a hit movie during other periods
can alter the traditional trend. The timing of movie releases can have a
significant effect on our results of operations, and the results of one quarter
are not necessarily indicative of results for the next quarter or any other
quarter. The seasonality of motion picture exhibition, however, has become less
pronounced as the motion picture studios are releasing movies somewhat more
evenly throughout the year.
GOVERNMENT REGULATION
The distribution of movies is in large part regulated by federal and state
antitrust laws and has been the subject of numerous antitrust cases. Motion
picture studios offer and license movies to motion picture exhibitors, on a
movie-by-movie and theatre-by-theatre basis. Consequently, motion picture
exhibitors cannot assure themselves of a supply of movies by entering into
long-term arrangements with motion picture studios, but must negotiate for
licenses on a movie-by-movie basis. AccessIT Satellite maintains a Federal
Communications Commission ("FCC") broadcast license related to our satellite
transmission of content and should we violate any FCC laws, we may be subject to
fines and or forfeiture of our broadcast license.
Our Pavilion Theatre must comply with Title III of the Americans with
Disabilities Act of 1990 (the "ADA") to the extent that such property is "public
accommodations" and/or "commercial facilities" as defined by the ADA. Compliance
7
with the ADA requires that public accommodations "reasonably accommodate"
individuals with disabilities and that new construction or alterations made to
"commercial facilities" conform to accessibility guidelines unless "structurally
impracticable" for new construction or technically infeasible for alterations.
Non-compliance with the ADA could result in the imposition of injunctive relief,
fines, award of damages to private litigants and additional capital expenditures
to remedy such non-compliance. We believe that we are in substantial compliance
with all current applicable regulations relating to accommodations for the
disabled and we intend to comply with future regulations in that regard.
Our Digital Media Delivery Service businesses are also subject to federal, state
and local laws governing such matters as wages, working conditions, citizenship
and health and sanitation requirements. We believe that we are in substantial
compliance with all of such laws.
The nature of our Digital Media Delivery Service businesses does not subject us
to environmental laws in any material manner.
EXHIBITION AND DISTRIBUTION MANAGEMENT SOFTWARE
OPERATIONS OF: SERVICES PROVIDED:
----------------------------- --------------------------------------------
AccessIT SW Develops and licenses software to the
motion picture distribution and exhibition
industries, provides services as an
Application Service Provider ("ASP
Service"), and provides software
enhancements and consulting services.
----------------------------- --------------------------------------------
DMS Provides software for in-theatre management
of movies and other content.
----------------------------- --------------------------------------------
In November 2003, we acquired all of the capital stock of AccessIT SW, a leading
provider of proprietary transactional support software and consulting services
for distributors and exhibitors of filmed entertainment in the United States and
Canada (the "AccessIT SW Acquisition").
PRODUCTS
AccessIT SW provides proprietary software applications and services to support
customers of varying sizes, through software licenses, its ASP Service in which
it hosts the application in one of our IDCs and client access via the Internet
and provides outsourced film distribution services, called IndieDirect. Current
proprietary software of AccessIT SW consists of the following:
PROPRIETARY SOFTWARE
PRODUCT: PURPOSE:
----------------------------- ---------------------------------------------
Theatrical Distribution Enables United States motion picture studios
System ("TDS") to plan, book and account for movie releases
and to collect and analyze related financial
operations data and interfaces with DMS'
Digital Express e-Courier Services (SM)
software.
----------------------------- ---------------------------------------------
Theatrical Distribution Enables international motion picture studios
System (Global)("TDSg") to plan, book and account for movie releases
and to collect and analyze related financial
operations data and interfaces with DMS'
Digital Express e-Courier Services (SM)
software.
----------------------------- ---------------------------------------------
Exhibition Management Manages all key aspects of film planning,
System(TM) ("EMS(TM)") scheduling, booking and motion picture
studios payment for exhibitors.
----------------------------- ---------------------------------------------
EMSa Web-enabled version of EMS(TM).
----------------------------- ---------------------------------------------
Motion Picture Planning Plans and initiates movie release strategies
System ("MPPS") using various movie criteria and historical
performance data.
----------------------------- ---------------------------------------------
Media Manager System Facilitates the planning and tracking of
("MMS") newspaper advertising campaigns.
----------------------------- ---------------------------------------------
Digi-Central Online marketplace in which buyers can
search for available digital content,
initiate transactions and coordinate
delivery via DMS.
----------------------------- ---------------------------------------------
DISTRIBUTED SOFTWARE PURPOSE:
PRODUCT:
----------------------------- ---------------------------------------------
Vista Cinema Software Theatre ticketing software.
("Vista")
----------------------------- ---------------------------------------------
8
Current proprietary software of DMS for exhibition management consists of the
following:
PROPRIETARY SOFTWARE
PRODUCT: PURPOSE:
----------------------------- ---------------------------------------------
Theatre Command Center Provides in-theatre management for use by
("TCC") digitally-equipped movie theaters and
interfaces with DMS' DigitalExpress e-Courier
Services (SM) software.
----------------------------- ---------------------------------------------
EXHIBITION MANAGEMENT
We believe that our EMS(TM) system is one of the most powerful and comprehensive
systems available to manage all key elements of motion picture exhibition. This
fully supported solution can exchange information with every financial,
ticketing, point-of-sale, distributor and data system to eliminate manual
processes. Also, EMS(TM) is designed to create innovative revenue opportunities
for motion picture exhibitors from the presentation of new and/or additional
advertising and alternative entertainment in their movie theaters due to the
expanding use of digital content delivery.
Our TCC system, provides in-theatre management for digitally-equipped movie
theaters, enabling one to control all the screens in a movie theatre, manage
content and version review, show building, program scheduling and encryption
security key management from a central terminal, whether located in the
projection booth, the theatre manager's office or both.
DOMESTIC THEATRICAL DISTRIBUTION MANAGEMENT
AccessIT SW's TDS product is currently licensed to several motion picture
studios, including 20th Century Fox, the Weinstein Company, Paramount Pictures
and Universal Studios. These studios comprised approximately 33.4%, 11.5%, 8.0%
and 5.2%, respectively, of AccessIT SW's revenues for the fiscal year ended
March 31, 2006. Several distributors utilize AccessIT SW's products through its
ASP Service, including IFC Films, Newmarket Films, Magnolia Pictures, Gold
Circle Films, Maple Pictures and IFS. In addition, AccessIT SW licenses to
customers other distribution-related software, including MPPS and MMS, which
further automate and manage related aspects of movie distribution, including
advertising, strategic theater selection and competitive release planning.
AccessIT SW also provides outsourced movie distribution services, specifically
for independent film distributors and producers, through IndieDirect. The
IndieDirect staff uses the TDS distribution software to provide back office
movie booking, tracking, reporting, settlement, and receivables management
services.
INTERNATIONAL THEATRICAL DISTRIBUTION MANAGEMENT
In 2004, AccessIT SW began developing TDSg, an international version of our
successful TDS application, to support worldwide movie distribution and has the
capability to run either from a single central location or multiple locations.
In December 2004, AccessIT SW signed an agreement to license TDSg to 20th
Century Fox, who will implement the software in fourteen overseas territories,
encompassing eighteen foreign offices, over approximately eighteen months. As
with our North American TDS solution, the TDSg system seamlessly integrates with
AccessIT's digital content delivery services, significantly enhancing our
international market opportunities.
DISTRIBUTED SOFTWARE
AccessIT SW also distributes Vista, a theatre ticketing solution, developed by
Vista Entertainment Solutions Limited ("Vista Entertainment") which is based in
New Zealand. AccessIT SW is currently the only United States-based distributor
of Vista to the United States theatre market. Under our distribution agreement
with Vista Entertainment, AccessIT SW earns a percentage of license fees,
maintenance fees and consulting fees generated from each Vista product we sell.
RESEARCH AND DEVELOPMENT
Research and development was $666 thousand and $300 thousand for the fiscal
years ended March 31, 2005 and 2006, respectively, and was comprised mainly of
personnel costs and third party contracted services attributable to research and
development efforts at AccessIT SW related to the development of our digital
software applications and various product enhancements to TDS and EMS(TM).
9
MARKET OPPORTUNITY
The customers for AccessIT SW's existing software and consulting services
consist principally of worldwide motion picture studios and North American
motion picture exhibitor chains. Upon the completion of TDSg, our international
version of TDS, we will have the ability to support worldwide movie
distribution.
We believe that:
o AccessIT SW's products are becoming the industry standard method by which
motion picture studios and exhibitors plan, manage and monitor operations
and data regarding the presentation of theatrical entertainment. Based upon
certain industry figures, distributors using AccessIT SW's TDS software,
cumulatively managed 39.6% and 44.2% of the 2004 and 2005 United States
theater box office revenues, respectively);
o by adapting this system to serve the expanding digital entertainment
industry, AccessIT SW's products and services will be accepted as an
important component in the digital content delivery and management
business;
o the continued transition to digital content delivery will require a high
degree of coordination among content providers, customers and intermediary
service providers;
o producing, buying and delivering media content through worldwide
distribution channels is a highly fragmented and inefficient process; and
o technologies created by AccessIT SW and the continuing development of and
general transition to digital forms of media will help the digital content
delivery and management business become increasingly streamlined, automated
and enhanced.
INTELLECTUAL PROPERTY
AccessIT SW currently has intellectual property consisting of:
o licensable software products, including TDS, TDSg, EMS(TM), MPPS and the
MMS;
o domain names, including EPayTV.com, EpayTV.net, HollywoodSoftware.com,
HollywoodSoftware.net, Indie-Coop.com, Indie-Coop.net, Indiedirect.com,
IPayTV.com; PersonalEDI.com, RightsMart.com, RightsMart.net,
TheatricalDistribution.com and Vistapos.com;
o unregistered trademarks and service marks, including Coop Advertising
V1.04, EMS ASP, Exhibitor Management System, Hollywood SW, Inc.,
HollywoodSoftware.com, Indie Co-op, Media Manager, On-Line Release
Schedule, RightsMart, TDS and TheatricalDistribution.com; and
o logos, including those in respect of Hollywood SW, TDS and EMS(TM).
CUSTOMERS
Exhibition and Distribution Management Software customers are principally
worldwide motion picture studios. For the fiscal year ended March 31, 2006, two
customers, Twentieth Century Fox and the Weinstein Company, each represented 10%
or more of Exhibition and Distribution Management Software revenues and together
generated 45% of AccessIT SW's revenues. We do not have any other relationships
with these customers. We expect to continue to conduct business with both of
these customers in fiscal year 2007.
COMPETITION
Within the major motion picture studios and exhibition circuits, AccessIT SW's
principal competitors for its products are in-house development teams, which
generally are assisted by outside contractors and other third-parties. Most
motion picture studios that do not use the TDS software use their own in-house
developed systems. Internationally, AccessIT SW is aware of one vendor based in
the Netherlands providing similar software on a smaller scale. AccessIT SW's
movie exhibition product, EMS(TM), competes principally with customized
solutions developed by the large exhibition circuits and at least one other
competitor that has been targeting mid- to small-sized motion picture
exhibitors. We believe that AccessIT SW, through its technology and management
experience, may differentiate itself by providing a competitive alternative to
their forms of digital content delivery and management business.
10
GOVERNMENT REGULATION
Except for the requirement of compliance with United States export controls
relating to the export of high technology products, we are not subject to
government approval procedures or other regulations for the licensing of our
exhibition and distribution management software products.
Our Exhibition and Distribution Management Software businesses are also subject
to federal, state and local laws governing such matters as wages, working
conditions, citizenship and health and sanitation requirements. We believe that
we are in substantial compliance with all of such laws.
The nature of our Exhibition and Distribution Management Software business does
not subject us to environmental laws in any material manner.
DATA CENTER SERVICES
The Data Center Services segment of our business consists of two units: our IDCs
or Data Centers and Managed Services.
OPERATIONS OF: SERVICES PROVIDED:
----------------------------- --------------------------------------------
AccessIT Provides services through its three IDCs
including the license of data center space,
provision of power, data connections to
other businesses, and the installation of
equipment.
----------------------------- --------------------------------------------
Managed Services Provides information technology consulting
services and managed network monitoring
services through its Global Network
Command Center ("GNCC").
----------------------------- --------------------------------------------
In January 2004, we acquired Core Technology Services, Inc. ("Managed
Services"), a managed service provider of information technologies (the "Managed
Services Acquisition") which operates a 24x7 GNCC, capable of running the
networks and systems of large corporate clients. The four largest customers of
Managed Services accounted for approximately 64% of its revenues. The service
capabilities of Managed Services have been integrated with our IDCs.
In January 2006, we purchased certain web hosting assets which have been
integrated into the operations of Managed Services.
DATA CENTERS
We currently operate three IDCs, one in New Jersey and two in New York City. We
have exited six other leased IDCs in which KMC Telecom ("KMC") was the sole or
the primary IDC customer because KMC did not renew its contracts, which expired
on December 31, 2005. These six IDC leases expired between December 31, 2005 and
April 30, 2006 and were intended to terminate in conjunction with the associated
KMC contracts. In addition, we maintain an IDC in Chatsworth, California that is
dedicated to AccessIT's delivery of movies and other digital content to motion
picture exhibitors worldwide. Our IDCs are leased facilities through which we,
for monthly and variable fees, provide our customers with:
o secure and fail-safe locations for their computer and telecommunications
equipment by using back-up power generators as well as back-up battery
power and specialized air conditioning systems;
o voice and data transmission services from a choice of network providers;
o computer and telecommunications equipment monitoring services; and
o storage, back-up and protection services for their programs and data,
including our AccessStorage-On-Demand managed storage services to store and
copy data.
We provide our customers with flexible space in our IDCs to house data and voice
transmission equipment, as well as their computer equipment. Our customers may
choose from a variety of space offerings, including a single-locking cabinet, a
private cage (under 500 square feet) or a private suite (over 500 square feet).
IDC services require an initial installation fee and a monthly charge based on
the size of the space selected by the customer.
We also offer additional services for which our customers pay additional monthly
service charges. These services include:
o additional power availability;
o access to our IDC staff for a variety of tasks such as equipment rebooting,
power cycling, card swapping and performing emergency equipment
replacements;
11
o the ability to connect cables (both fiber and copper) directly to another
IDC customer for voice and data transmission services; and
o the ability to use our risers, which are pipes used to connect cables (both
fiber optic and copper) from our customers' computer equipment to other
companies' computer equipment located outside of our IDCs but within the
buildings that our IDCs are located.
We provide IDC services under agreements generally having terms of one to ten
years. As of March 31, 2006, we had 68 contracts, with 58 separate customers,
each requiring payment of monthly fees, with a weighted average remaining term
of 9 months.
MARKET OPPORTUNITY
We believe that:
o the overall market for IDC services has been largely driven by the rapid
growth in Internet usage and a significant shift by companies to
outsourcing or engaging third parties to provide their data center
services, as these services distract them from their core businesses and
require significant investment; and
o the demand for services that store data will continue to grow as a result
of companies limited data center floor space, limited qualified staff
resources, budgeting constraints, regulatory requirements and disaster
recovery requirements.
CUSTOMERS
Our IDC customers include major and mid-level networks and ISPs, various users
of network services, traditional voice and data transmission providers, long
distance carriers and commercial businesses. For the fiscal year ended March 31,
2006, two customers each represented 10% or more of Data Center Service
revenues, KMC and AT&T, which together generated 44% of our Data Center Service
revenues. We do not have any relationship with these customers other than as
customers. KMC did not renew its contracts, which expired on December 31, 2005.
Additionally, we have two other large data center customer contracts that will
expire before July 1, 2006, which currently provide approximately $105 thousand
of monthly revenue. We anticipate that these contracts will not be renewed,
however, we anticipate entering into new contracts for IDC and Managed Services
business to partially offset these non-renewed contracts.
MANAGED SERVICES
We believe that the breadth of services in the IDCs is a critical competitive
advantage. We have developed two distinct Managed Services offerings, Network
and Systems Management and Managed Storage Services.
NETWORK AND SYSTEMS MANAGEMENT
We offer our customers the economies of scale of the GNCC with an advanced
engineering staff. Our network and systems management services include:
o network architecture and design;
o systems and network monitoring and management;
o data and voice integration;
o project management;
o auditing and assessment;
o on site support for hardware installation and repair, software installation
and update and a 24x7 user help desk;
o a 24x7 Citrix server farm (a collection of computer servers); and
o fully managed web hosting.
12
MANAGED STORAGE SERVICES
Our managed storage services, known as AccessStorage-on-Demand, include:
o hardware and software from such industry leaders as EMC Symmetrix,
StorageTek and Veritas;
o pricing on a per-gigabyte of usage basis which provides customers with
reliable primary data storage that is connected to their computers;
o the latest storage area network ("SAN") technology and SAN monitoring by
our GNCC; and
o a disaster recovery plan for customers that have their computers located
within one of our IDCs by providing them with a tape back-up copy of their
data that may then be sent to the customer's computer if the customer's
data is lost, damaged or inaccessible.
All managed storage services are available separately or may be bundled together
with other services. Monthly pricing is based on the type of storage (tape or
disk), the capacity used and the level of accessibility required.
MARKET OPPORTUNITY
We believe that:
o this low-cost and customizable alternative to designing, implementing, and
maintaining a large scale network infrastructure enables our clients to
focus on information technology business development, rather than the
underlying communications infrastructure; and
o our ability to offer clients the benefits of a SAN storage system at a
fraction of the cost of building it themselves, allows our clients to focus
on their core business.
INTELLECTUAL PROPERTY
AccessIT has received United States service mark registration for the following
service marks: Access Integrated Technologies, AccessSecure; AccessSafe;
AccessBackup; AccessBusiness Continuance; AccessVault; AccessContent;
AccessColocenter; AccessDataVault; AccessColo; and AccessStore.
CUSTOMERS
Our Managed Services customers mainly include those of our IDCs and the motion
picture studio customers of our Media Services. For the fiscal year ended March
31, 2006, two customers, Rothschild, Inc. and the Weinstein Company, each
represented 10% or more of Managed Service revenues and together generated 47%
of our Managed Service revenues. We do not have any other relationships with
these customers. We expect to continue to conduct business with both of these
customers in fiscal 2007.
COMPETITION
Our Data Center Services compete with traditional colocation providers, who are
carrier-owned or have agreements with specific carriers, as well as neutral
colocation providers, who offer a wide variety of carriers, ISPs and web hosting
facilities. There are also many data centers owned and operated by smaller data
center companies, landlords and communications carriers. The larger data center
operators, with data centers in the New York-New Jersey area, include Switch and
Data, Inc., Equinix, Inc., Globix Corporation and AboveNet, Inc. Many data
center operators offer managed services to clients who co-locate servers in the
operator owned data center. Our focus is on delivery of managed services inside
our IDCs as a lead product for primary data center services and to also offer
those services to clients who have servers outside our IDCs allowing us to offer
remote server and network monitoring, server and network management and disaster
recovery services.
The competitors mentioned above have greater financial, technical, marketing and
managerial resources than we do. These competitors also generate greater revenue
and are better known than we are. However, we believe that our data center
services, by offering IDCs along with related data center services, may
differentiate us from the above companies by providing a competitive bundled
solution.
13
GOVERNMENT REGULATION
Our Data Center Services businesses are also subject to federal, state and local
laws governing such matters as wages, working conditions, citizenship and health
and sanitation requirements. We believe that we are in substantial compliance
with all of such laws.
The nature of our Data Center Services business does not subject us to
environmental laws in any material manner.
EMPLOYEES
As of March 31, 2006, we had 140 employees, of which 54, working primarily at
the Pavilion Theatre, are part-time and 86 are full-time. Of our full-time
employees, 13 are in sales and marketing, 39 are in operations, 12 are in
research and development and technical services, and 22 are in finance and
administration. The Pavilion Theatre has a collective bargaining agreement with
one union which covers three union projectionists, one of whom is a full-time
employee. Such agreement has expired and has not yet been renewed.
ITEM 2. PROPERTY
Our businesses operated from the following leased properties at March 31, 2006.
MEDIA SERVICES
Square
Operations of: Location: Facility Type: Expires: Feet:
--------------------- --------------------------- --------------------- --------------- ------------
DMS Chatsworth, California Administrative March 13,455
offices, technical 2012 (3)
operations center,
and warehouse (1)
--------------------- --------------------------- --------------------- --------------- ------------
Pavilion Theatre Brooklyn Borough of New Nine-screen movie July 31,120
York City theatre 2022 (4)
--------------------- --------------------------- --------------------- --------------- ------------
Christie/AIX (2)
--------------------- --------------------------- --------------------- --------------- ------------
AccessIT SW Auburn Hills, Michigan Administrative October 2010 1,203
offices (5)
--------------------------- --------------------- --------------- ------------
Hollywood, California Administrative December 2010 7,412
offices (6)
--------------------- --------------------------- --------------------- --------------- ------------
DATA CENTER SERVICES
Square
Operations of: Location: Facility Type: Expires: Feet:
--------------------- --------------------------- --------------------- ---------------- -----------
AccessIT Jersey City, New Jersey IDC facility May 12,198
2009 (7)
--------------------------- --------------------- ---------------- -----------
Manhattan Borough of New IDC facility July 11,450
York City 2010 (8)
--------------------------- --------------------- ---------------- -----------
Brooklyn Borough of New IDC facility July 30,520
York City 2015 (7)
--------------------- --------------------------- --------------------- ---------------- -----------
Managed Services (9)
--------------------- --------------------------- --------------------- ---------------- -----------
CORPORATE
Square
Operations of: Location: Facility Type: Expires: Feet:
--------------------- --------------------------- --------------------- ---------------- -----------
AccessIT Morristown, New Jersey Executive offices May 5,237
2009 (10)
(1) Location contains a data center which we use as a dedicated digital content
delivery site.
(2) Employees share office space with AccessIT SW in Hollywood, California.
14
(3) Lease, expiring March 2007, was renewed in March 2006 for an additional
five-year term, with an option to renew for an additional five years with
six months prior written notice at the then prevailing market rental rate.
(4) Lease has options to renew for two additional ten-year terms and contains a
provision for the payment of additional rent if box office revenues exceed
certain levels.
(5) Lease has an option to renew for up to an additional five years with 180
days prior written notice at 95% of the then prevailing market rental rate.
(6) An amendment to the lease for an additional 1,122 square feet was completed
in January 2006 and has an option to renew for one additional three-year
term with nine months prior written notice at the then prevailing market
rental rate.
(7) There is no lease renewal provision.
(8) Lease has options to renew for two additional five-year terms with twelve
months prior written notice at the then prevailing market rental rate.
(9) Operations of Managed Services work out of AccessIT's leased IDC's.
(10) Lease has an option to renew for one additional four-year term with seven
months prior written notice at the then prevailing market rental rate.
We believe that we have sufficient space to conduct our business for the
foreseeable future. All of our leased properties are, in the opinion of our
management, in satisfactory condition and adequately covered by insurance. In
April 2006, we leased an additional space in Los Angeles, California on a
month-to-month basis which expires April 2007.
We do not own any real estate or invest in real estate or related investments.
ITEM 3. LEGAL PROCEEDINGS
On July 2, 2004, we received notice that certain creditors of NorVergence, Inc.
("NorVergence"), one of our IDC customers, filed an involuntary bankruptcy
petition against NorVergence. On July 14, 2004, NorVergence agreed to the entry
of an order granting relief under Chapter 11 of the United States Bankruptcy
Code and then converted the Chapter 11 reorganization to Chapter 7 liquidation.
We have a first security interest in NorVergence's accounts receivable.
On January 26, 2005, the U.S. Bankruptcy Court for the District of New Jersey in
the matter of NorVergence, approved a motion for the trustee to pay us $121
thousand for past due amounts owed to us by NorVergence. We received such
payment from the trustee in February 2005. Additionally, we were granted the
right to pursue collection of NorVergence's customer accounts receivable and in
settlement of the Company's claim, for deferred and future payments due from
NorVergence, we will retain any amounts collected. As of March 31, 2006, we have
collected approximately $37 thousand of our claim against NorVergence's customer
accounts receivable.
We do not believe we will be able to recover any material additional amounts
from our claim against NorVergence's customer accounts receivable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
CLASS A COMMON STOCK
Until the close of business on April 17, 2006, our Class A common stock ("Class
A Common Stock") traded publicly on the American Stock Exchange ("AMEX") under
the trading symbol "AIX". The following table shows the high and low sales
prices per share of our Class A Common Stock as reported by the AMEX for the
periods indicated:
For the fiscal years ended March 31,
-------------------------------------------------------------
2005 2006
---------------------------- --------------------------
HIGH LOW HIGH LOW
------------ ------------ ---------- ------------
April 1 - June 30........................ $5.20 $4.10 $10.01 $5.46
July 1 -September 30..................... $5.15 $3.20 $14.20 $9.06
October 1 - December 31.................. $4.17 $3.75 $11.55 $6.60
January 1 - March 31..................... $7.15 $3.25 $14.25 $10.15
Effective April 18, 2006, the Company's Class A Common Stock began trading
publicly on the Nasdaq National Market ("NASDAQ") under the trading symbol
"AIXD". The last reported closing price per share of our Class A Common Stock as
reorted by NASDAQ on June 23, 2006 was $10.55 per share. As of June 23, 2006,
there were approximately 111 holders of record of our Class A Common Stock.
CLASS B COMMON STOCK
There is no public trading market for our Class B common stock ("Class B Common
Stock"). Each outstanding share of Class B Common Stock may be converted into
one share of Class A Common Stock at any time, and from time to time, at the
option of the holder. As of June 23, 2006, there was one holder of our Class B
Common Stock.
DIVIDEND POLICY
We have never paid any cash dividends on our Class A Common Stock or Class B
Common Stock (together the "Common Stock") and do not anticipate paying any on
our Common Stock in the foreseeable future. Any future payment of dividends on
our Common Stock will be in the sole discretion of our board of directors (the
"Board").
EQUITY COMPENSATION PLANS
The following table sets forth certain information, as of March 31, 2006,
regarding the shares of AccessIT's Class A Common Stock and AccessDM's common
stock authorized for issuance under their respective equity compensation plans.
Weighted average
Number of shares of of exercise
common stock issuable price of Number of shares of common
upon exercise of outstanding stock remaining available
Plan outstanding options options for future issuance
-------------------------------- ----------------------- ------------------ ----------------------------
AccessIT Amended and Restated
2000 Stock Option Plan ("the
Plan") approved by shareholders..... 1,100,000 (1)(2) $6.61 -- (2)
AccessIT compensation plans
not approved by shareholders........ N/A N/A N/A
AccessDM compensation plan
approved by AccessDM's
shareholders........................ 1,055,000 (3)(5) $0.95 (4) 945,000 (3)
AccessDM compensation plans
not approved by AccessDM's
shareholders........................ N/A N/A N/A
16
(1) Shares of AccessIT Class A Common Stock.
(2) The issuance of an additional 371,747 stock options is subject to
shareholder approval at the Company's 2006 Annual Meeting of Stockholders
to be held on or about September 14, 2006.
(3) Shares of AccessDM common stock.
(4) 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.
(5) As of March 31, 2006, there were 3,750,000 shares of AccessDM's common
stock issued and outstanding.
ACCESSIT STOCK OPTION PLAN
Our Board adopted the Plan, on June 1, 2000 and, in July 2000, our shareholders
approved the Plan by written consent. Under the Plan, we may grant both
incentive and non-statutory stock options to our employees, non-employee
directors and consultants. The primary purpose of the Plan is to enable us to
attract, retain and motivate our employees, non-employee directors and
consultants. On June 9, 2005, the Board approved the expansion of the Plan from
850,000 to 1,100,000 options, which was approved by the shareholders at the
Company's 2005Annual Meeting held on September 15, 2005. As of March 31, 2006,
the number of stock options granted under the Plan exceeded the Plan's approved
limit of 1,100,000 options. The Company intends to obtain shareholder approval
to expand the Plan at the Company's 2006 Annual Meeting of Stockholders to be
held on or about September 14, 2006.
Under the Plan, no participant may be granted incentive stock options ("ISOs")
with an aggregate fair market value, as of the date on which such options were
granted, of more than $100,000 becoming exercisable for the first time in any
given calendar year. Stock options granted under the Plan expire ten years
following the date of grant (or such shorter period of time as may be provided
in a stock option agreement or five years in the case of ISOs granted to
shareholders who own greater than 10% of the total combined voting power of the
Company) and are subject to restrictions on transfer. Stock options granted
under the Plan vest generally over periods up to three years. The Plan is
administered by our Board.
The Plan provides for the granting of ISOs with exercise prices of not less than
100% of the fair market value of our Class A Common Stock on the date of grant.
ISOs granted to shareholders of more than 10% of the total combined voting power
of our Company must have exercise prices of not less than 110% of the fair
market value of our Class A Common Stock on the date of grant. ISOs and
non-statutory stock options granted under the Plan are subject to vesting
provisions, and exercise is subject to the continuous service of the
participant. The exercise prices and vesting periods (if any) for non-statutory
options are set at the discretion of our Board. Upon a change of control of the
Company, all stock options (incentive and non-statutory) that have not
previously vested will vest immediately and become fully exercisable. In
connection with the grants of stock options under the Plan, we and the
participants have executed stock option agreements setting forth the terms of
the grants.
ACCESSDM STOCK OPTION PLAN
AccessDM's Board adopted its stock option plan ("the AccessDM Plan") on May 13,
2003 and its shareholders approved the AccessDM Plan on May 13, 2003. Under the
AccessDM Plan, AccessDM grants stock options to its employees, non-employee
directors and consultants. The AccessDM Plan authorizes up to 2,000,000 shares
of AccessDM common stock for issuance upon the exercise of options granted under
the AccessDM Plan. As of March 31, 2006, AccessDM has issued options to purchase
1,055,000 of its shares to employees, and there were options to purchase 945,000
shares of AccessDM common stock available for grant under the AccessDM Plan.
Under the AccessDM Plan, stock options covering no more than 500,000 shares may
be granted to any participant in any single calendar year and no participant may
be granted ISOs with an aggregate fair market value, as of the date on which
such options were granted, of more than $100,000 becoming exercisable for the
first time in any given calendar year. Stock options granted under the AccessDM
Plan expire ten years following the date of grant (or such shorter period of
time as may be provided in a stock option agreement or five years in the case of
ISOs granted to shareholders who own greater than 10% of the total combined
voting power of AccessDM and are subject to restrictions on transfer. Stock
options granted under the AccessDM Plan vest generally over periods up to three
years. The AccessDM Plan is administered by AccessDM's Board.
The AccessDM Plan provides for the granting of ISOs with exercise prices of not
less than 100% of the fair market value of AccessDM's common stock on the date
of grant. ISOs granted to holders of more than 10% of the total combined voting
power of AccessDM must have exercise prices of not less than 110% of the fair
market value of AccessDM common stock on the date of grant. ISOs and
non-statutory stock options granted under the AccessDM Plan are subject to
vesting provisions, and exercise is subject to the continuous service of the
participants. The exercise prices and vesting periods (if any) for non-statutory
options are set at the discretion of AccessDM's Board. Upon a change of control
of AccessDM, all stock options (incentive and non-statutory) that have not
17
previously vested will vest immediately and become fully exercisable. In
connection with the grants of stock options under the AccessDM Plan, AccessDM
and the participants have executed stock option agreements setting forth the
terms of the grants.
SALES OF UNREGISTERED SECURITIES
All of our equity securities sold by us during the fiscal year ended March 31,
2006, that were not registered under the Securities Act of 1933, as amended
(the" Securities Act"), have been previously reported in our quarterly reports
on Form 10-QSB and current reports on Form 8-K.
PURCHASE OF EQUITY SECURITIES
There were no purchases of shares of our Class A Common Stock made by us or on
our behalf during the three months ended March 31, 2006. We do not anticipate
purchasing any shares of our Class A Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
AccessIT was incorporated in Delaware on March 31, 2000. We are a leading
provider of fully managed storage, electronic delivery and software services and
technology solutions for owners and distributors of digital content to movie
theaters and other venues. To date, we have generated revenues from two primary
businesses, media services ("Media Services") and internet data center ("IDC" or
"data center") services. 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. Our
Data Center Services are comprised of three leased IDCs that provide corporate
customers with secure and fail-safe off-site locations to house their computer
and telecommunications equipment, as well as related services such as equipment
monitoring and back-up and protection of customers' data. These existing
businesses have positioned us at what we believe to be the forefront of an
emerging industry opportunity relating to the delivery and management of digital
cinema and other content to entertainment and other remote venues worldwide.
This is currently our primary strategic focus.
Our primary business focus is to create a secure, managed and complete digital
cinema system that consists of software to book, track and perform record
keeping functions for digital content in theatres, electronically deliver
digital content to multiple locations primarily via satellite and provide the
content management software for in-theatre playback systems for the digital
cinema marketplace. This digital cinema system is intended to use all of our
businesses.
We have two reportable segments: Media Services, which represents the operations
of AccessIT SW, AccessIT Satellite, AccessDM, the Pavilion Theatre and
Christie/AIX, and Data Center Services, which consists of the operations of our
three IDCs and the operations of Managed Services. Revenues for our reportable
segments were ($ in thousands):
Fiscal years ending March 31,
-------------------------------------------
2005 2006
--------------------- -----------------------
Revenues:
Media Services $4,043 38% $9,909 59%
Data Center Services 6,608 62% 6,886 41%
------------- --------------
Total Consolidated $10,651 $16,795
============= ==============
In November 2005, we received notification from KMC that they would not renew
the contracts for six out of seven IDC sites which were licensed by KMC, which
contracts expired on December 31, 2005. In addition, certain other data center
customer contracts will expire over the next several months, and we have not yet
received indications of whether or on which terms these contracts will be
renewed. Through December 31, 2005, the average monthly revenue from KMC for the
expired contracts was approximately $144 thousand. Additionally, we have two
other large data center customer contracts that will expire before July 1, 2006,
which currently provide approximately $105 thousand of total monthly revenue. We
anticipate that these contracts will not be renewed, however, we anticipate
entering into new contracts for IDC and Managed Services business to partially
offset these non-renewed contracts.
In connection with the expiration of the six KMC contracts, we have exited the
six leased IDC's in which KMC was the sole or primary IDC customer. These six
leases expired between December 31, 2005 and April 30, 2006 and were intended to
18
terminate in conjunction with the associated KMC contract. We did not incur any
significant costs in connection with the exit from the six IDC's.
We have incurred net losses of $6.8 million and $16.8 million in the fiscal
years ended March 31, 2005 and 2006, respectively, and we have an accumulated
deficit of $38.3 million as of March 31, 2006. We anticipate that, with our
recent acquisitions and the operations of AccessDM and Christie/AIX, our results
of operations will improve. As we grow, we expect our operating costs and
general and administrative expenses will also increase for the foreseeable
future, but as a lower percentage of revenue. In order to achieve and sustain
profitable operations, we will need to generate more revenues than we have in
prior years and we may need to obtain additional financing.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2005 AND 2006
The following table sets forth, for the period indicated, the comparative
changes to amounts included in our consolidated statements of operations.
Summary Operating Results
($ in thousands) For the Fiscal Years Ended March 31,
----------------------------------------------
Increase/(Decrease)
---------------------
2005 2006 $ %
-------- -------- -------- ---------
Revenues:
Media services ........................... $ 4,043 $ 9,909 $ 5,866 145%
Data center services ..................... 6,608 6,886 278 4%
-------- -------- -------- --------
Total revenues ............................. 10,651 16,795 6,144 58%
Costs of revenues (exclusive of
depreciation and amortization):
Media services ........................... 1,696 6,738 5,042 297%
Data center services ..................... 4,115 4,812 697 17%
-------- -------- -------- --------
Total costs of revenues .................... 5,811 11,550 5,739 99%
-------- -------- -------- --------
Gross profit (exclusive of
depreciation and amortization): ........... 4,840 5,245 405 8%
Costs and expenses:
Selling, general and administrative ...... 5,607 8,972 3,365 60%
Provision for doubtful accounts .......... 640 186 (454) (71)%
Research and development ................. 666 300 (366) (55)%
Non-cash stock-based compensation ........ 4 -- (4) (100)%
Depreciation and amortization ............ 3,623 5,001 1,378 38%
Interest expense ......................... 605 2,152 1,547 256%
Non-cash interest expense ................ 832 1,407 575 69%
Debt conversion expense................... -- 6,269 6,269 --
Minority interest in loss of subsidiary .. (10) -- 10 100%
-------- -------- -------- --------
Total costs and expenses ................... 11,967 24,287 12,320 103%
Other income:
Interest income .......................... 5 316 311 6,220%
Other income, net ........................ 23 1,603 1,580 6,870%
Income tax benefit ....................... 311 311 -- 0%
-------- -------- -------- --------
Total other income ......................... 339 2,230 1,891 558%
-------- -------- -------- --------
Net loss ................................... $ (6,788) $(16,812) $(10,024) 148%
======== ======== ======== ========
19
TOTAL REVENUES
Total revenues were $10.7 million and $16.8 million for the fiscal years ended
March 31, 2005 and 2006, respectively, an increase of $6.1 million or 58%. The
increase was primarily in the Media Services segment, driven largely by box
office and concession sales of the Pavilion Theatre which was acquired in
February 2005 and was part of AccessIT for less than two months during the
fiscal year ended March 31, 2005, data and Internet transmission and encryption
services of AccessIT Satellite which was acquired in November 2004, TDSg license
fees of AccessIT SW and existing Media Services operations. The increase in Data
Center Services was primarily attributable to increased Managed Services
revenue.
COSTS OF REVENUES
Total costs of revenues were $5.8 million and $11.5 million for the fiscal years
ended March 31, 2005 and 2006, respectively, an increase of $5.7 million or 99%.
The increase was in Media Services most of which was attributable to film rent,
concession expenses, payroll and other operating costs of the Pavilion Theatre,
which was acquired in February 2005 and was part of AccessIT for less than two
months during the fiscal year ended March 31, 2005, payroll and other operating
costs of AccessIT Satellite which was acquired in November 2004 and software
amortization and staffing costs for additional resources hired at AccessIT SW.
The remaining increase in cost of revenues was attributable to higher data
circuit expenses combined with additional personnel and other operating costs
required to support the additional customers of our Data Center Services
business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general and administrative expenses were $5.6 million and $9.0
million for the fiscal years ended March 31, 2005 and 2006, respectively, an
increase of $3.4 million or 60%. The increase was primarily due to increased
company-wide staffing costs, including the acquisitions of the Pavilion Theatre
and AccessIT Satellite and the creation of Christie/AIX to support the digital
cinema business. We also added personnel at AccessIT SW and in our corporate
offices, primarily in the areas of finance, administration and software
development. As of March 31, 2005 and 2006 we had 93 and 140 employees,
respectively, of which 34 and 54 were part-time employees, respectively.
DEPRECIATION AND AMORTIZATION EXPENSE
Total depreciation and amortization expense was $3.6 million and $5.0 million
for the fiscal years ended March 31, 2005 and 2006, respectively, an increase of
$1.4 million or 38%. The increase was attributable to the depreciation and
amortization of the assets from the acquisitions of the Pavilion Theatre and
AccessIT Satellite and various other asset additions to support the digital
cinema business.
INTEREST EXPENSE
Total interest expense was $0.6 million and $2.1 million for the fiscal years
ended March 31, 2005 and 2006, respectively, an increase of $1.5 million or
256%. The increase was attributable to the capital lease associated with the
operations of the Pavilion Theatre, the write-off of the remaining unamortized
debt issuance costs of the Convertible Debentures which were converted into
shares of Class A Common Stock in August 2005 (see Note 7), partially offset by
reduced interest expense resulting from the conversion of all the 6% Convertible
Notes into shares of Class A Common Stock in September 2005 (see Note 7).
NON-CASH INTEREST EXPENSE
Total non-cash interest expense was $0.8 million and $1.4 million for the fiscal
years ended March 31, 2005 and 2006, respectively, an increase of $0.6 million
or 69%. The increase was due to the accretion of the remaining debt issuance
discount resulting from the Convertible Debentures Warrants which were exercised
into shares of Class A Common Stock in August 2005.
DEBT CONVERSION EXPENSE
Total debt conversion expense was $0 and $6.3 million for the fiscal years ended
March 31, 2005 and 2006, respectively. The increase represents the value of the
New Shares, the New Warrants, the Placement Agent Shares and professional fees
incurred in connection with the Conversion Agreement in August 2005 (see Note
7).
20
OTHER INCOME, NET
Total other income, net was $23 thousand and $1.6 million for the fiscal years
ended March 31, 2005 and 2006, respectively. The increase represents the
decreased fair value of the New Warrants, reduced by the increased fair value of
July 2005 Private Placement Warrants (see Note 9).
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. In March 2006, Christie/AIX received a commitment from General
Electric Capital Corporation ("GE Capital") (see Note 8) to underwrite up to
$217.0 million of a senior secured financing, consisting of a $217.0 million
Senior Secured Multi Draw Term Loan (the "Facility") and based upon the terms of
the commitment, it is anticipated that the Facility would be due May 2013.
Proceeds from the Facility will be used for the purchase and installation of up
to 70% of the cost of Systems in connection with our Digital Cinema Roll-Out.
The remaining cost would be funded from other sources of capital. The commitment
is subject to the completion of a definitive credit agreement on terms
acceptable to all parties.
In July 2005, we received gross proceeds of $18.1 million from the July 2005
Private Placement. We are using the net proceeds of $16.7 million, primarily to
fund the capital investments in connection with our Digital Cinema Roll-Out and
for working capital and general corporate purposes.
In December 2005, the Company filed a shelf registration statement on Form S-3
with the SEC (the "Shelf"), which was declared effective on January 13, 2006.
The Shelf provided that the Company may offer and sell in one or more offerings
up to $75.0 million of any combination of the following securities: Class A
Common Stock, preferred stock in one or more series and warrants to purchase
common stock or preferred stock. We intend to use the proceeds from sales of
securities under this shelf registration for the purchase, installation and
maintenance of Systems by Christie/AIX in connection with our Digital Cinema
Roll-Out, and for general working capital and corporate purposes, including,
from time to time, extinguishment of corporate debt and acquisitions in line
with our corporate business plan.
In January 2006, in connection with the Shelf, the Company entered into: (1) a
placement agency agreement to issue and sell up to 1,145,000 registered shares
of Class A Common Stock at a price to the public of $10.70 per share to certain
institutional and other accredited investors, and (2) a purchase agreement with
an underwriter for 355,000 registered shares of Class A Common Stock at a price
to the public of $10.70 per share (together the "January 2006 Offering") for
gross aggregate proceeds of $16.1 million. The offering and sale of the
1,500,000 shares was completed on January 25, 2006. The Company intends to use
the estimated net proceeds of approximately $14.5 million, for the purchase,
installation and maintenance of Systems by Christie/AIX in connection with our
Digital Cinema Roll-Out and for general corporate purposes. The securities were
offered by the Company pursuant to the Shelf.
In March 2006, in connection with the Shelf, the Company entered into a purchase
agreement with two underwriters for 5,126,086 registered shares of Class A
Common Stock at a price to the public of $10.00 per share (the "March 2006
Offering") for gross proceeds of $51.3 million, which was completed on March 17,
2006. The Company granted the underwriters a 30-day option to purchase up to an
additional 768,913 shares of Class A Common Stock at a price to the public of
$10.00 per share (the "March 2006 Second Offering") to cover over-allotments,
which was exercised by the underwriters on March 21, 2006 for gross proceeds of
$7.7 million and was completed on March 24, 2006. The Company intends to use the
estimated net proceeds from the March 2006 Offering and the March 2006 Second
Offering of approximately $54.8 million, for the purchase, installation and
maintenance of Systems by Christie/AIX in connection with our Digital Cinema
Roll-Out and for general corporate purposes. The securities were offered by the
Company pursuant to the Shelf.
As a result of the January 2006 Offering, the March 2006 Offering and the March
2006 Second Offering, substantially all of the Shelf amount of $75.0 million has
been utilized. The de minimus remainder has been withdrawn.
As of March 31, 2006, we have paid $21.1 million for Systems ordered in
connection with our Digital Cinema Roll-Out.
As of March 31, 2006, we had cash, cash equivalents and investments of $60.6
million and our working capital was $48.9 million.
Operating activities used net cash of $3.3 million and $5.3 million for the
fiscal years ended March 31, 2005 and 2006, respectively. The increase in cash
used by operating activities was primarily due to an increased net loss from
21
operations and increased prepaids and other current assets offset by the change
in accounts payable and accrued expenses along with adjustments not requiring
cash, specifically depreciation and amortization, non-cash interest expense and
debt conversion expense.
Investing activities used net cash of $5.9 million and $51.1 million for the
fiscal years ended March 31, 2005 and 2006, respectively. The increase was due
to additional computer related equipment and other assets, primarily in
connection with our Digital Cinema Roll-Out and the purchase of
available-for-sale securities. We anticipate that we will experience an increase
in our capital expenditures consistent with the anticipated growth in our
operations, infrastructure and personnel mainly in the support of our Digital
Cinema Roll-Out.
Financing activities provided net cash of $11.6 million for the fiscal year
ended March 31, 2005 primarily due to the June 2004 Private Placement and the
November 2004 Private Placement, less repayments of notes payable and capital
lease obligations. Net cash provided by financing activities of $88.2 million
for the fiscal year ended March 31, 2006 was primarily due to the net proceeds
from the July 2005 Private Placement, January 2006 Offering, the March 2006
Offering and the March 2006 Second Offering and various warrants exercised,
offset slightly by the repayments of notes payable and capital lease
obligations. We have acquired property and equipment under non-cancelable
long-term capital lease obligations that expire at various dates through July
2022. As of March 31, 2006, we had outstanding capital lease obligations of $6.1
million. Our capital lease obligations are at the following locations and in the
following principal amounts ($ in thousands):
Outstanding Capital
Location Purpose of capital lease Lease Obligation
--------------------- -------------------------------------- -------------------
The Pavilion Theatre For building, land and improvements $6,041
Corporate Office For telephone equipment 21
Managed Services For computer equipment used in IDC's 5
-------------------
$6,067
===================
As of March 31, 2006, minimum future capital lease payments (including interest)
totaled $18.7 million, are due as follows ($ in thousands):
Fiscal years ending March 31,
---------------------------------------------------
2007................................. $ 1,137
2008................................. 1,128
2009................................. 1,128
2010................................. 1,128
2011................................. 1,128
Thereafter........................... 13,012
-------
$18,661
=======
The Company's businesses operate from leased properties under non-cancelable
operating lease agreements (see Item 2. Properties). The Company accounts for
rent abatements and increasing base rentals using the straight-line method over
the life of the lease. The difference between the straight-line rent expense and
the amount paid is recorded as a deferred rent liability. As of March 31, 2006,
obligations under non-cancelable operating leases totaled $15.0 million, are due
as follows ($ in thousands):
Fiscal years ending March 31,
---------------------------------------------------
2007................................. $ 2,675
2008................................. 2,732
2009................................. 2,770
2010................................. 2,270
2011................................. 1,377
Thereafter........................... 3,223
-------
$15,047
=======
Total rent expense was $2.2 million and $2.6 million for the fiscal years ended
March 31, 2005 and 2006, respectively.
As of March 31, 2006, purchase obligations for Systems ordered in connection
with our Digital Cinema Roll-Out, and not included in our consolidated financial
statements totaled $25.1 million.
22
Management expects that we will continue to generate losses for the foreseeable
future due to depreciation and amortization, interest on Systems purchased under
our senior credit facility (see Note 8), software development, the continued
efforts related to the identification of acquisition targets, marketing and
promotional activities and the development of relationships with other
businesses. Certain of these costs could be reduced if working capital
decreased. We may attempt to raise additional capital from various sources for
future acquisitions or for working capital as necessary, but there is no
assurance that such financing will be completed as contemplated or under terms
acceptable to us, or our existing shareholders. Failure to generate additional
revenues, raise additional capital 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.
Our management believes that the net proceeds generated by our recent financing
transactions, in January 2006 and March 2006, combined with our cash on hand and
cash receipts from existing operations, will be sufficient to permit us meet our
obligations through March 31, 2007.
SEASONALITY
Media services revenues derived from our Pavilion Theatre and from the
collection of VPFs from motion picture studios are usually seasonal, coinciding
with the timing of releases of movies by the motion picture studios. Generally,
motion picture studios release the most marketable movies during the summer and
the holiday season. The unexpected emergence of a hit movie during other periods
can alter the traditional trend. The timing of movie releases can have a
significant effect on our results of operations, and the results of one quarter
are not necessarily indicative of results for the next quarter or any other
quarter. We believe the seasonality of motion picture exhibition, however, is
becoming less pronounced as the motion picture studios are releasing movies
somewhat more evenly throughout the year.
SUBSEQUENT EVENTS
In April 2006, we issued 23,445 shares of unregistered Class A Common Stock, in
connection with our purchase in January 2006 of the domain name, website,
customer list and the IP address space of Ezzi.net and certain data center
related computer equipment of R & S International, Inc. (together the "Access
Digital Server Assets").
In May 2006 and June 2006, we ordered additional Systems from Christie for an
estimated aggregate total purchase price of approximately $34.6 million.
In June 2006, the Company through its indirectly wholly-owned subsidiary, PLX
Acquisition Corp., purchased substantially all the assets of PLX Systems Inc.
("PLX"). PLX provides the essential technology, expertise and core competencies
in intellectual property ("IP") rights and royalty management, expanding the
Company's ability to bring new forms of content to movie-goers in addition to
supporting IP license contract management, royalty processing, revenue reporting
and billing. The purchase price, including estimated transaction costs, was
approximately $1.6 million.
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements.
23
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
ACCESS INTEGRATED TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm................... F-1
Consolidated Balance Sheets at March 31, 2005 and 2006.................... F-2
Consolidated Statements of Operations for the fiscal years ended
March 31, 2005 and 2006................................................... F-3
Consolidated Statements of Cash Flows for the fiscal years ended
March 31, 2005 and 2006 .................................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years
ended March 31, 2005 and 2006 ............................................ F-5
Notes to Consolidated Financial Statements ............................... F-7
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Access Integrated Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Access
Integrated Technologies, Inc. and subsidiaries (the "Company") as of March 31,
2006 and 2005 and the related consolidated statements of operations, cash flows
and stockholders' equity for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Access Integrated
Technologies, Inc. and subsidiaries as of March 31, 2006 and 2005, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
/s/ Eisner LLP
Florham Park, New Jersey
June 1, 2006
F-1
ACCESS INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
March 31,
-----------------------------------
2005 2006
-------------- -------------
ASSETS
Current assets
Cash and cash equivalents...................................................... $4,779 $36,641
Investment securities.......................................................... -- 24,000
Accounts receivable, net....................................................... 947 1,593
Prepaid and other current assets............................................... 762 700
Note receivable, current portion............................................... -- 43
Unbilled revenue............................................................... 550 1,492
-------------- -------------
Total current assets 7,038 64,469
Property and equipment, net.................................................... 14,261 44,551
Intangible assets, net......................................................... 3,337 2,056
Capitalized software costs, net................................................ 1,622 1,680
Goodwill....................................................................... 10,363 9,310
Deferred costs................................................................. 726 148
Note receivable, net of current portion........................................ -- 1,122
Unbilled revenue, net of current portion....................................... 69 42
Security deposits.............................................................. 361 389
Restricted cash................................................................ -- 180
-------------- -------------
Total assets $37,777 $123,947
============== =============
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses.......................................... $2,415 $13,282
Current portion of notes payable............................................... 1,415 1,203
Current portion of customer security deposits.................................. 116 176
Current portion of capital leases.............................................. 432 89
Current portion of deferred revenue............................................ 884 768
Current portion of deferred rent expense....................................... 42 100
-------------- -------------
Total current liabilities 5,304 15,618
Notes payable, net of current portion.......................................... 12,682 1,948
Customer security deposits, net of current portion............................. 161 40
Deferred revenue, net of current portion....................................... 95 66
Capital leases, net of current portion......................................... 6,058 5,978
Deferred rent expense, net of current portion.................................. 970 918
Deferred tax liability......................................................... 1,210 898
-------------- -------------
Total liabilities 26,480 25,466
-------------- -------------
Commitments and contingencies (Note 10)
Redeemable Class A common stock, 53,534 and 0 shares issued and
outstanding at March 31, 2005 and March 31, 2006, respectively............ 250 --
Stockholders' Equity
Class A common stock, $0.001 par value per share; 40,000,000 shares
authorized; 9,433,328 and 22,059,567 shares issued and 9,381,888 and
22,008,127 shares outstanding at March 31, 2005 and March 31,
2006, respectively........................................................ 9 22
Class B common stock, $0.001 par value per share; 15,000,000 shares
authorized; 965,811 and 925,811 shares issued and outstanding, at
March 31, 2005 and March 31, 2006, respectively........................... 1 1
Additional paid-in capital................................................... 32,696 136,929
Treasury stock, at cost; 51,440 shares....................................... (172) (172)
Accumulated deficit.......................................................... (21,487) (38,299)
-------------- -------------
Total stockholders' equity 11,047 98,481
-------------- -------------
Total liabilities, redeemable stock and stockholders' equity $37,777 $123,947
============== =============
See accompanying notes to Consolidated Financial Statements
F-2
ACCESS INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data)
For the Fiscal Years Ended
March 31,
----------------------------------
2005 2006
-------------- --------------
Revenues:
Media services................................................. $4,043 $9,909
Data center services........................................... 6,608 6,886
-------------- --------------
Total revenues 10,651 16,795
Costs of revenues (exclusive of depreciation and amortization):
Media services................................................. 1,696 6,738
Data center services........................................... 4,115 4,812
-------------- --------------
Total costs of revenues 5,811 11,550
-------------- --------------
Gross profit (exclusive of depreciation and amortization): 4,840 5,245
Operating expenses:
Selling, general and administrative............................ 5,607 8,972
Provision for doubtful accounts................................ 640 186
Research and development....................................... 666 300
Non-cash stock-based compensation.............................. 4 --
Depreciation and amortization.................................. 3,623 5,001
-------------- --------------
Total operating expenses 10,540 14,459
-------------- --------------
Loss before other income (expense) (5,700) (9,214)
Interest income................................................ 5 316
Interest expense............................................... (605) (2,152)
Non-cash interest expense...................................... (832) (1,407)
Debt conversion expense........................................ -- (6,269)
Other income, net.............................................. 23 1,603
-------------- --------------
Loss before income tax benefit and minority interest (7,109) (17,123)
Income tax benefit............................................. 311 311
-------------- --------------
Net loss before minority interest in subsidiary (6,798) (16,812)
Minority interest in loss of subsidiary........................ 10 --
-------------- --------------
Net loss $(6,788) $(16,812)
============== ==============
Net loss per common share:
Basic and diluted.............................................. $(0.70) $(1.19)
============== ==============
Weighted average number of common shares outstanding:
Basic and diluted.............................................. 9,668,876 14,086,001
============== ==============
See accompanying notes to Consolidated Financial Statements
F-3
ACCESS INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the fiscal years ended
March 31,
----------------------------------------------
2005 2006
-------------------- -------------------
Cash flows from operating activities
Net loss $(6,788) $(16,812)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization....................................... 3,623 5,001
Amortization of software development costs.......................... 369 547
Amortization of deferred tax liability.............................. (311) (311)
Provision for doubtful accounts..................................... 550 186
Non-cash stock-based compensation................................... 4 --
Non-cash interest expense 832 1,407
Minority interest................................................... (10) --
Net fair value change of Class A common stock warrants.............. (91) (1,660)
Debt conversion expense............................................. -- 6,269
Debt issuance costs included in interest expense.................... -- 730
Changes in operating assets and liabilities:
Accounts receivable................................................. (455) (832)
Prepaids and other current assets................................... (422) (111)
Unbilled revenue................................................... (252) (915)
Other assets........................................................ (782) (218)
Accounts payable and accrued expenses............................... 387 1,662
Other liabilities................................................... 88 (200)
-------------------- -------------------
Net cash used in operating activities (3,258) (5,257)
Cash flows from investing activities
Purchases of property and equipment................................. (1,932) (26,065)
Purchases of intangible assets...................................... (38) (21)
Additions to capitalized software costs............................. (561) (606)
Acquisition of FiberSat Global Services LLC, net of cash acquired... (508) --
Acquisition of the Pavilion Theatre, net of cash acquired........... (2,886) --
Purchase of available-for-sale securities........................... -- (24,000)
Restricted short-term investment.................................... -- (180)
Note receivable for digital projections............................. -- (231)
-------------------- -------------------
Net cash used in investing activities (5,925) (51,103)
Cash flows from financing activities
Net proceeds from issuance of notes payable and warrants............ 7,600 --
Repayment of notes payable.......................................... (579) (1,697)
Principal payments on capital leases................................ (284) (424)
Repurchase of Class A common stock.................................. (172) --
Net proceeds from issuance of Class A common stock.................. 5,067 90,343
-------------------- -------------------
Net cash provided by financing activities 11,632 88,222
-------------------- -------------------
Net increase in cash and cash equivalents 2,449 31,862
Cash and cash equivalents at beginning of period 2,330 4,779
-------------------- --------------------
Cash and cash equivalents at end of period $4,779 $36,641
==================== ===================
See accompanying notes to Consolidated Financial Statements
F-4
ACCESS INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Class A Class B Treasury Total
Common Stock Common Stock Stock Additional Stock-
--------------- ---------------- ------------- Paid-In Accumulated holders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
--------- ------ --------- ------ ------- ------ ---------- ----------- --------
Balances as of March 31, 2004 7,281,730 $7 1,005,811 $1 -- $-- $24,271 $(14,699) $ 9,580
Issuance of common stock, net .............. 1,500,298 2 -- -- -- -- 4,951 -- 4,953
Purchase of treasury stock ................. -- -- -- -- (51,440) (172) -- -- (172)
Issuance of common stock in
exchange for AccessDM common stock ........ 31,300 -- -- -- -- -- -- -- --
Issuance of common stock in connection with
the FiberSat Acquisition ................... 540,000 -- -- -- -- -- 1,624 -- 1,624
Issuance of common stock for goods and
services ................................... -- -- -- -- -- -- 4 -- 4
Issuance of warrants attached to convertible
notes payable .............................. -- -- -- -- -- -- 1,109 -- 1,109
Beneficial conversion feature on convertible
notes payable .............................. -- -- -- -- -- -- 605 -- 605
Conversion of Class B shares to Class A .... 40,000 -- (40,000) -- -- -- -- -- --
Issuance of common stock in connection with
the Pavilion Theatre Acquisition ........... 40,000 -- -- -- -- -- 132 -- 132
Net loss ................................... -- -- -- -- -- -- -- (6,788) (6,788)
--------- ------ --------- ------ ------- ------ ---------- ----------- --------
Balances as of March 31, 2005 9,433,328 $9 965,811 $1 (51,440) $(172) $32,696 $(21,487) $ 11,047
See accompanying notes to Consolidated Financial Statements
F-5
ACCESS INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Class A Class B Treasury Total
Common Stock Common Stock Stock Additional Stock-
---------------- ----------------- --------------- Paid-In Accumulated holders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
--------- ------ --------- ------ ------- ------ ---------- ----------- --------
Balances as of March 31, 2005 9,433,328 $9 965,811 $1 (51,440) $(172) $32,696 $(21,487) $11,047
Issuance of common stock in connection with
exercise of warrants and stock options...... 395,305 -- -- -- -- -- 1,801 -- 1,801
Issuance of common stock in connection with
the July 2005 Private Placement............. 1,909,115 2 -- -- -- -- 16,719 -- 16,721
Issuance of common stock in connection with
the January 2006 Offering.................. 1,500,000 2 -- -- -- -- 14,495 -- 14,497
Issuance of common stock in connection with
the March 2006 Offering and the March 2006
Second Offering........................... 5,894,999 6 -- -- -- -- 54,753 -- 54,759
Issuance of common stock in lieu of
redeeming the Boeing Shares................. 53,534 -- -- -- -- -- 250 -- 250
Issuance of common stock in payment of
interest on Convertible Debentures.......... 17,758 -- -- -- -- -- 146 -- 146
Issuance of common stock in connection with
the conversion of the Convertible
Debentures................................ 2,507,657 3 -- -- -- -- 11,040 -- 11,043
Issuance of common stock in connection with
the conversion of the 6% Convertible Notes.. 307,871 -- -- -- -- -- 1,699 -- 1,699
Conversion of Class B shares to Class A..... 40,000 -- (40,000) -- -- -- -- -- --
Transfer to equity of liability relating to
warrants upon registration effectiveness.... -- -- -- -- -- -- 3,330 -- 3,330
Net loss.................................... -- -- -- -- -- -- -- (16,812) (16,812)
--------- ------ --------- ------ ------- ------ ---------- ----------- --------
Balances as of March 31, 2006 22,059,567 $22 925,811 $1 (51,440) $(172) $136,929 $(38,299) $98,481
========== ====== ========= ====== ======= ====== ========== =========== ========
See accompanying notes to Consolidated Financial Statements
F-6
ACCESS INTEGRATED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2005 AND 2006
($ in thousands, except for per share data)
1. NATURE OF OPERATIONS
AccessIT was incorporated in Delaware on March 31, 2000. We are a leading
provider of fully managed storage, electronic delivery and software services and
technology solutions for owners and distributors of digital content to movie
theaters and other venues. The terms "Company", "we," "us," and "our" refer to
AccessIT and its subsidiaries unless the context otherwise requires. To date, we
have generated revenues from two primary businesses, media services ("Media
Services") and internet data center ("IDC" or "data center") services. Our Media
Services business provides software, services and technology solutions to the
television and motion picture industries, primarily to facilitate the transition
from analog (film) to digital cinema. Our Data Center Services are comprised of
three leased IDCs that provide corporate customers with secure and fail-safe
off-site locations to house their computer and telecommunications equipment, as
well as related services such as equipment monitoring and back-up and protection
of customers' data. These existing businesses have positioned us at what we
believe to be the forefront of an emerging industry opportunity relating to the
delivery and management of digital cinema and other content to entertainment and
other remote venues worldwide. This is currently our primary strategic focus.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
For the fiscal years ended March 31, 2005 and 2006, the Company incurred net
losses of $6,788 and $16,812 respectively, and cash used in operating activities
of $3,258 and $5,257, respectively. In addition, the Company has an accumulated
deficit of $38,299 as of March 31, 2006. At March 31, 2006, the Company also has
debt service requirements (including interest) of $2,504. Management expects
that the Company will continue to generate losses for the foreseeable future.
Certain of these costs could be reduced if working capital decreased. Based on
the Company's cash position at March 31, 2006, and expected cash flows from
operations; management believes that the Company has the ability to meet its
obligations through March 31, 2007. The Company may attempt to raise additional
capital from various sources for future acquisitions, equipment requirements
related to our Digital Cinema Roll-Out or for working capital as necessary.
There is no assurance that such financing will be completed as contemplated or
under terms acceptable to the Company or its existing shareholders. Failure to
generate additional revenues, raise additional capital or manage discretionary
spending could have a material adverse effect on the Company's ability to
continue as a going concern and to achieve its intended business objectives. The
accompanying consolidated financial statements do not reflect any adjustments
which may result from the outcome of such uncertainties.
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") for
financial information and in accordance with Regulation S-B. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
Our consolidated financial statements include the accounts of AccessIT, DMS,
AccessIT SW, Managed Services, the Pavilion Theatre and Christie/AIX. We have
eliminated all intercompany transactions and balances.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. The Company's most
significant estimates related to software revenue recognition, capitalization of
software development costs, amortization and impairment testing of intangible
assets and depreciation of fixed assets. On an on-going basis, we evaluate our
estimates, including those related to the carrying values of our fixed assets
and intangible assets, the valuation of deferred tax liabilities, and the
valuation of assets acquired and liabilities assumed in purchase business
combinations. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances made,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates under different
assumptions or conditions.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be "cash equivalents." The carrying amount of the
Company's cash equivalents approximates fair value due to the short maturities
of these investments and consists primarily of money market funds and other
overnight investments. The Company maintains cash deposits with major banks,
F-7
which from time to time may exceed federally insured limits. The Company
periodically assesses the financial condition of the institutions and believes
that the risk of any loss is minimal.
INVESTMENT SECURITIES
The items classified as investment securities are principally auction rate
perpetual preferred securities. The Company classifies all investment securities
as available-for-sale. Securities accounted for as available-for-sale are
required to be reported at fair value with unrealized gains and losses, net of
taxes, excluded from net income and shown separately as a component of
accumulated other comprehensive income within stockholders' equity. The
securities that the Company has classified as available-for-sale generally trade
at par and as a result typically do not have any realized or unrealized gains or
losses.
PROPERTY AND EQUIPMENT
Property and equipment are stated at original cost, less accumulated
depreciation. Depreciation expense is computed using the straight-line method
over the estimated useful lives of the respective assets as follows:
Computer equipment.......................... 3-5 years
Digital cinema projection systems........... 10 years
Machinery and equipment..................... 3-10 years
Furniture and fixtures...................... 3-6 years
Leasehold improvements and assets under capital leases are being amortized over
the shorter of the lease term or the estimated useful life of the underlying
assets ranging from two to 17 years. Maintenance and repair costs are charged to
expense as incurred. Major renewals, betterments and additions are capitalized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include cash
and cash equivalents, investment securities, accounts receivable, accounts
payable, accrued expenses and other obligations, approximate their fair value
due to the short-term maturities of the related instruments. The Company's
customer base is primarily composed of businesses throughout the United States.
The Company routinely assesses the financial strength of its customers and the
status of its accounts receivable and, based upon factors surrounding the credit
risk, establishes an allowance, if required, for uncollectible accounts and, as
a result, believes that its accounts receivable credit risk exposure beyond such
allowance is limited. Based on borrowing rates currently available to the
Company for loans with similar terms, the carrying value of notes payable and
capital lease obligations approximates fair value.
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 expected future
undiscounted cash flows are less than the carrying amount of the assets, a loss
is recognized for the difference between the fair value (computed based upon the
expected future undiscounted cash flows) and the carrying value of the assets.
BUSINESS COMBINATIONS AND INTANGIBLE ASSETS
We have adopted Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" ("SFAS No. 141") and SFAS No. 142, "Goodwill and other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires all business
combinations to be accounted for using the purchase method of accounting and
that certain intangible assets acquired in a business combination must be
recognized as assets separate from goodwill. SFAS No. 142 addresses the
recognition and measurement of goodwill and other intangible assets subsequent
to their acquisition. SFAS No. 142 also addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination,
whether acquired individually or with a group of other assets. This statement
provides that intangible assets with indefinite lives and goodwill will not be
amortized but will be tested at least annually for impairment. If impairment is
indicated, then the asset will be written down to its fair value, typically
based upon its future expected discounted cash flows. As of March 31, 2006, our
finite-lived intangible assets consisted of customer agreements, covenants not
to compete, Federal Communications Commission licenses (for satellite
transmission services), trade names and trademarks, and a liquor license (for
the Pavilion Theatre) which are estimated to have useful lives ranging from two
to ten years. In addition, we have recorded goodwill in connection with the
acquisitions of AccessIT SW, Managed Services, AccessIT Satellite, and the
Pavilion Theatre. Goodwill related to the acquisition of the Pavilion Theatre
F-8
was reduced in September 2005 in connection with the early retirement of the
outstanding note payable (see Note 7).
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. We have not sold, leased or licensed software
developed for internal use to our customers and we have no intention of doing so
in the future.
SOFTWARE TO BE SOLD, LICENSED OR OTHERWISE MARKETED
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 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 periodically using the
greater of revenues during the period compared to the total estimated revenues
to be earned or on a straight-line basis over estimated lives ranging from three
to five years. The Company reviews capitalized software costs for impairment on
a periodic basis. To the extent that the carrying amount exceeds the estimated
net realizable value of the capitalized software cost, an impairment charge is
recorded. No impairment charge was recorded for the fiscal years ended March 31,
2005 and 2006, respectively. Amortization of capitalized software development
costs, included in costs of revenues, for the fiscal years ended March 31, 2005
and 2006 amounted to $369 and $547, 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. As of March 31, 2006, unbilled receivables under
such customized software development contracts aggregated $1,492.
REVENUE RECOGNITION
MEDIA SERVICES
Our Media Services revenues are generated as follows:
OPERATIONS OF: REVENUES CONSIST OF: ACCOUNTED FOR IN ACCORDANCE WITH:
----------------------------------------------------------------------------------------------------------
AccessIT SW (1) software licensing, including SOP 97-2, "Software Revenue
customer licenses and ASP Recognition"
Service agreements,
----------------------------------------------------------------------------------
(2) software maintenance Staff Accounting Bulletin ("SAB") No. 104
contracts, and "Revenue Recognition in Financial
(3) professional consulting Statements" ("SAB No. 104").
services, which includes
systems implementation,
training, custom software
development services and
other professional services
----------------------------------------------------------------------------------------------------------
DMS (1) satellite delivery revenues, SAB No. 104
(2) data encryption and
preparation fee revenues,
(3) landing fees for
delivery to each movie
theatre,
(4) satellite network
monitoring and
(5) maintenance fees
----------------------------------------------------------------------------------------------------------
F-9
OPERATIONS OF: REVENUES CONSIST OF: ACCOUNTED FOR IN ACCORDANCE WITH:
----------------------------------------------------------------------------------------------------------
Pavilion Theatre (1) movie theatre admission SAB No. 104
revenues and
(2) concession food and beverage revenues
----------------------------------------------------------------------------------------------------------
Christie/AIX (1) virtual print fees and other SAB No. 104
fees
----------------------------------------------------------------------------------------------------------
Software licensing revenue is recognized when the following criteria are met:
(a) persuasive evidence of an arrangement exists, (b) delivery has occurred and
no significant obligations remain, (c) the fee is fixed or determinable and (d)
collection is determined to be probable. Significant upfront fees are received
in addition to periodic amounts upon achievement of contractual events for
licensing of the Company's products. Such amounts are deferred until the revenue
recognition criteria have been met, which typically occurs upon delivery and
acceptance.
Revenues relating to customized software development contracts are recognized on
a percentage-of-completion method of accounting.
Deferred revenue is recorded in cases where: (1) a portion or the entire
contract amount cannot be recognized as revenue, due to non-delivery or
acceptance of licensed software or custom programming, (2) incomplete
implementation of ASP Service arrangements, or (3) unexpired pro-rata periods of
maintenance, minimum ASP Service fees or website subscription fees. As license
fees, maintenance fees, minimum ASP Service fees and website subscription fees
are often paid in advance, a portion of this revenue is deferred until the
contract ends. Such amounts are classified as deferred revenue and are
recognized as revenue in accordance with the Company's revenue recognition
policies described above.
DATA CENTER SERVICES
Our Data Center Services revenues are generated as follows:
OPERATIONS OF: REVENUES CONSIST OF: ACCOUNTED FOR IN ACCORDANCE WITH:
----------------------------------------------------------------------------------------------------------
AccessIT (1) license fees for data center SAB No. 104
space,
(2) riser access charges,
(3) electric and cross connect
fees, and
(4) non-recurring installation
and consulting fees
----------------------------------------------------------------------------------------------------------
Managed Services (1) network monitoring, SAB No. 104
(2) maintenance fees, and
(3) non-recurring installation
and consulting fees
----------------------------------------------------------------------------------------------------------
AccessIT's revenues are recognized ratably over the term of the contract,
generally one to nine years. Certain customer contracts contain periodic
increases in the amount of license fees for data center space to be paid, and
are recognized as license fee revenues on a straight-line basis over the term of
the contracts. Installation fees are recognized on a time and materials basis in
the period in which the services were provided and represent the culmination of
the earnings process as no significant obligations remain. Amounts collected
prior to satisfying revenue recognition criteria are classified as deferred
revenue. Amounts satisfying revenue recognition criteria prior to billing are
classified as unbilled revenue. 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 which are recognized on a time and materials basis as
revenues, in the period in which the services were provided.
RESEARCH AND DEVELOPMENT
Research and development expenses were $666 and $300, respectively, for the
fiscal years ended March 31, 2005 and 2006 and were comprised mainly of
personnel costs and third party contracted services attributable to research and
development efforts at AccessIT SW related to the development of our digital
software applications and various product enhancements to TDS and EMS(TM).
F-10
INCOME TAXES
The Company accounts for income taxes under the SFAS No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that included the
enactment date.
NET LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS
Computations of basic and diluted net loss per share of the Company's Common
Stock have been made in accordance with SFAS No. 128, "Earnings Per Share".
Basic and diluted net losses per share have been calculated as follows:
Basic and diluted net loss per share = Net loss
-----------------------------------------
Weighted average number of common shares
outstanding during the period
Shares issued and reacquired during the period are weighted for the portion of
the period that they were outstanding.
The Company has incurred net losses for the fiscal years ended March 31, 2005
and 2006 and, therefore, the impact of dilutive potential common shares from
outstanding stock options, warrants (prior to the application of the treasury
stock method), and convertible notes (on an as-converted basis) were excluded
from the computation as it would be anti-dilutive. Potentially dilutive shares
excluded from the computations aggregated 3,922,661 and 2,712,993 for the fiscal
years ended March 31, 2005 and 2006, respectively.
STOCK-BASED COMPENSATION
The Company has two stock-based employee compensation plans, which are described
more fully in Note 9. The Company accounts for its stock-based employee
compensation plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
Opinion No. 25"), and related interpretations. As such, non-cash stock-based
compensation expense is recorded on the date of the stock option grant, only if
the current fair value of the underlying common stock exceeds the exercise price
of the stock option. The Company has adopted the disclosure standards of SFAS
No. 148 "Accounting for Stock-Based Compensation - Transaction and Disclosures",
which amends SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), which requires the Company to provide pro forma net loss and earnings per
share disclosures for stock option grants made in 1995 and future years as if
the fair-value based method of accounting for stock options as defined in SFAS
No. 123 had been applied.
The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair-value recognition provisions of SFAS No. 123 to
stock-based compensation:
As of March 31,
--------------------------
2005 2006
------------- -----------
Net loss as reported............................... $(6,788) $(16,812)
Add: Non-cash stock-based compensation
expense included in net loss...... ............ 4 --
Less: Non-cash stock-based compensation expense
determined under fair-value based
method......................................... (647) (4,866)
-------------- -----------
Pro forma net loss $(7,431) $(21,678)
============== ===========
Basic and diluted net loss per share:
As reported................................... $(0.70) $(1.19)
Pro forma..................................... $(0.77) $(1.54)
F-11
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:
As of March 31,
---------------------------
2005 2006
-------------- ----------
Weighted-average risk-free interest rate........... 4.3% 4.2%
Dividend yield..................................... -- --
Expected life (years).............................. 10 10
Weighted-average expected volatility............... 110% 88.4%
Effective March 8, 2006, the compensation committee of our Board approved the
acceleration of the vesting of all unvested stock options awarded under our
stock incentive plans. The primary purpose of the acceleration was to eliminate
the impact of $3,098 of future non-cash stock-based compensation expense, of
which $1,410 is related to stock options held by our executive officers and
members of the Board, that would have been recognized over the next three years
as the stock options vested as a result of adopting SFAS No. 123 (revised 2004),
"Share-Based Payment", which is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123(R)"). This amount was instead reflected
in the pro forma footnote disclosure above for the fiscal year ended March 31,
2006, as permitted under the transitional guidance provided by SFAS No. 123(R).
We will not be required to recognize future compensation expense for the
accelerated stock options under SFAS No. 123(R) unless further modifications are
made to the stock options, which are not anticipated.
3. ACQUISITIONS
On January 1, 2006, the Company purchased the domain name, website, customer
list and the IP address space of Ezzi.net and certain data center related
computer equipment of R & S International, Inc. (together the "Access Digital
Server Assets"). The Access Digital Server Assets were acquired to complement
our existing Data Center Services business and are primarily used for web
hosting applications. The purchase price included a cash payment of $140 and
23,445 shares of unregistered Class A Common Stock to be issued in April 2006.
Based on targeted cash flows associated with the Access Digital Server Assets
through March 31, 2008, the Company may be required to make additional payments
up to the maximum sum of $900. The Company is in the process of evaluating the
net tangible and intangible assets acquired.
4. CONSOLIDATED BALANCE SHEET COMPONENTS
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Bank balances............................. $4,779 $3,574
Money market funds........................ -- 33,067
------------- ------------
Total cash and cash equivalents $4,779 $36,641
============= ============
As of March 31, 2005 and 2006, cost approximated fair value of cash and cash
equivalents.
INVESTMENTS
Investments consisted of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Available-for-sale securities ............. $-- $24,000
============= ============
As of March 31, 2006, cost approximated fair value of investments.
F-12
RESTRICTED CASH
The Company had $0 and $180 of restricted cash as of March 31, 2005 and 2006,
respectively, in the form of a bank certificate of deposit underlying an
outstanding bank standby letter of credit for an office space lease for AccessIT
SW.
ACCOUNTS RECEIVABLE
Accounts receivable, net consisted of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Trade receivables.......................... $1,695 $1,697
Allowance for doubtful accounts............ (131) (104)
Advance billings........................... (617) --
------------- ------------
Total accounts receivable, net $947 $1,593
============= ============
Advance billings represent the amount of customer billings for revenues not yet
earned. In December 2005, KMC did not renew any of their IDC contracts. In March
2006, the Company and KMC agreed to a payment of $65 to satisfy the net amount
due to the Company of $164.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Prepaid insurance.......................... $215 $228
Customer deposits.......................... 10 --
Deferred costs, current.................... 321 --
Concession - inventory..................... 5 12
Other current assets....................... 211 460
------------- ------------
Total prepaid expenses and other current assets $762 $700
============= ============
PROPERTY AND EQUIPMENT, NET
Property and equipment, net was comprised of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Land....................................... $1,500 $1,500
Building and improvements.................. 4,600 4,600
Leasehold improvements..................... 4,158 4,726
Computer equipment and software............ 2,642 4,793
Digital cinema projection systems.......... - 29,230
Machinery and equipment.................... 5,254 7,248
Furniture and fixtures..................... 474 511
------------ ------------
18,628 52,608
Less - accumulated depreciation............ (4,367) (8,057)
------------ ------------
Total property and equipment, net $14,261 $44,551
============ ============
Land and building and improvements represent the Company's capital lease for the
Pavilion Theater. Leasehold improvements consist primarily of costs incurred in
F-13
the construction of the Company's IDCs and from the Managed Services
Acquisition. Computer equipment and software consists primarily of software used
in the Company's Managed Storage Services business, the Cinefence License, and
from the AccessIT SW, Managed Services and Boeing Digital Asset Acquisitions.
Digital cinema projection systems consist entirely of equipment purchased in
connection with our Digital Cinema Roll-Out. Machinery and equipment consists
primarily of costs incurred for equipment used at the IDCs, and from the Boeing
Digital Asset and FiberSat Acquisitions. For the fiscal years ended March 31,
2005 and 2006, depreciation expense amounted to $2,105 and $3,693, respectively.
INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Trademarks................................. $68 $79
Corporate trade names...................... 180 180
Customer contracts......................... 4,236 4,239
Covenants not to compete................... 1,909 1,910
------------- ------------
6,393 6,408
Less - accumulated amortization............ (3,056) (4,352)
------------- ------------
Total intangible assets, net $3,337 $2,056
============= ============
For the fiscal years ended March 31, 2005 and 2006, amortization expense
amounted to $1,518 and $1,308, respectively. The change in customer contracts
and covenants not to compete of $4, related to additional earn-out in connection
with the Boeing Digital Asset Acquisition. The Boeing Company is entitled to an
additional earn-out of 20% of gross revenues generated from assets of the Boeing
Digital Asset Acquisition through March 2008. For the fiscal years ended March
31, 2005 and 2006, the Boeing Company was entitled to an additional earn-out $58
and $21, respectively.
CAPITALIZED SOFTWARE COST, NET
Capitalized software costs, net consisted of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Capitalized software....................... $2,109 $2,715
Less - accumulated amortization............ (487) (1,035)
------------- ------------
Total capitalized software costs, net $1,622 $1,680
============= ============
For the years ended March 31, 2005 and 2006, amortization of software costs,
which is included in costs of revenues, amounted to $369 and $547, respectively.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Accounts payable.......................... $1,118 $7,523
Accrued compensation and benefits......... 392 597
Accrued taxes payable..................... 9 32
Interest payable.......................... 134 39
Accrued other expenses.................... 762 5,091
------------- ------------
Total accounts payable and accrued expenses $2,415 $13,282
============= ============
Included in accounts payable and accrued other expenses is $4,778 and $3,146,
respectively, for digital cinema projection systems ordered from Christie in
connection with our Digital Cinema Roll-Out. In addition, included in accrued
other expenses is $934 for installation costs from Christie.
F-14
5. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 153, "Exchange of Non-Monetary Assets, an Amendment of APB Opinion No.
29" ("SFAS 153"). SFAS 153 addresses the measurement of exchanges of
non-monetary assets and redefines the scope of transactions that should be
measured on the fair value of the assets exchanged. The provisions of this
statement are effective for non-monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The effective date for the Company to
adopt SFAS 153 due to its fiscal reporting first interim or annual reporting
period is April 1, 2006. The Company adopted SFAS 153 on April 1, 2006 and does
not anticipate that its adoption will have a material effect on its financial
position or results of operations.
In December 2004, the FASB issued SFAS 123(R) which revises the original
guidance contained in SFAS 123 and supersedes APB No. 25, and its related
implementation guidance. Under SFAS 123(R), the Company will be 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 reward (usually the vesting period). Pro forma disclosure is no longer an
alternative.
SFAS 123(R) permits the Company to adopt its requirements using one of two
methods:
1. A "modified prospective" method in which non-cash stock-based
compensation cost is recognized beginning with the April 1, 2006
adoption date (a) based on the requirements of SFAS 123(R) for all
share-based payments granted after April 1, 2006 and (b) based on the
requirements of SFAS 123 for all awards granted to employees prior to
April 1, 2006 that remain unvested on the adoption date.
2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on the amounts previously recognized under
SFAS 123 for purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year of adoption.
The company adopted SFAS 123(R) on April 1, 2006 using the modified prospective
method.
As permitted by SFAS 123, until March 31, 2006, the Company accounted for
share-based payments to employees using APB No. 25's intrinsic value method and,
as such, generally recognized no non-cash stock-based compensation expense on
grants of employee stock options. Accordingly, the adoption of SFAS 123(R) may
have a significant impact on the Company's results of operations, although it
will have no impact on its overall financial position. The impact of adoption of
SFAS 123(R) cannot be predicted at this time because it will depend on the
future levels of share-based grants. However, had we adopted SFAS 123(R) in
prior periods, the impact of SFAS 123(R) would have approximated the impact of
SFAS 123 as described in the disclosure of pro forma net loss above (see Note
2).
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," ("SFAS 154"). SFAS 154 establishes, unless impracticable,
retrospective application as the required method for reporting a change in
accounting principle in the absence of explicit transition requirements specific
to the newly adopted accounting principle. The statement also addresses the
reporting of a correction of error by restating previously issued financial
statements. SFAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The Company
adopted SFAS 154 on April 1, 2006 and does not anticipate that its adoption will
have a material effect on its financial position or results of operations. In
February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments" ("SFAS 155"). SFAS 155 amends FASB Statements No. 133 and
No. 140. SFAS 155 permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips are
not subject to the requirements of Statement No. 133, establishes a requirement
to evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives and amends Statement No. 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity's first fiscal year that begins after
September 15, 2006. The Company does not believe it will be affected by the
adoption of SFAS 155.
In March 2006, the FASB issued SFAS No. 156 "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140" ("SFAS 156"). SFAS
156 requires recognition of servicing assets and servicing liabilities whenever
it becomes obligated to service a financial asset by entering into a servicing
contract upon: (1) a transfer of the servicer's assets that meets the
requirements for sale accounting; (2) a transfer of the servicer's assets to a
special purpose vehicle in a guaranteed mortgage securitization if the
transferor retains all resulting securities and classifies them as
available-for-sale or trading securities; or (3) an acquisition of financial
F-15
asset servicing obligations not related to financial assets of the servicer or
its affiliates. In such circumstances, SFAS No. 156 requires, if practicable, an
entity to measure the servicing assets and liabilities at fair value.
Thereafter, an entity may value the assets using either (1) the current
amortization method, with fair value assessment of impairment or increased
obligation as of each reporting date, or (2) a new fair value method, with
servicing assets and liabilities measured at fair value on each reporting date
and changes in fair value in earnings reported for the period in which they
occur. SFAS 156 must be adopted as of the beginning of an entity's first fiscal
year that begins after September 15, 2006. Earlier adoption is permitted if an
entity has not yet issued financial statements (including interim statements)
for any fiscal year period. The Company does not believe it will be affected by
the adoption of SFAS 156.
6. NOTES RECEIVABLE
Notes receivable consisted of the following:
As of March 31, 2005 As of March 31, 2006
------------------------------ -------------------------
Current Long Term Current Long Term
Note Receivable (as defined below) Portion Portion Portion Portion
---------------------------------------- -------------- ------------ ------------ ----------
Exhibitor Note.......................... $-- $-- $43 $188
Exhibitor Install Note.................. -- -- -- 934
-------------- ------------ ------------ ---------
$-- $-- $43 $1,122
============== ============ ============ =========
In March 2006, in connection with our Digital Cinema Roll-Out, 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.
In connection with our Digital Cinema Roll-Out, Christie/AIX agreed to provide
financing to certain motion picture exhibitors upon the billing to the motion
picture exhibitors by Christie for the installation costs associated with the
placement of the Systems in movie theatres. At March 31, 2006, the Company
issued an 8% note receivable for $934 (the "Exhibitor Install Note") to a
certain motion picture exhibitor. Under the Exhibitor Install Note, the motion
picture exhibitors would be required to make monthly interest only payments
through October 2007 and quarterly principal and interest payments thereafter.
The aggregate principal repayments to the Company on notes receivables are
scheduled to be as follows:
For the twelve months ending March 31,
-------------------------------------------------
2007................................. $43
2008................................. 84
2009................................. 116
2010................................. 125
2011................................. 114
Thereafter........................... 683
--------
$1,165
--------
7. NOTES PAYABLE
Notes payable consisted of the following:
As of March 31, 2005 As of March 31, 2006
------------------------------ -------------------------
Current Long Term Current Long Term
Note Payable (as defined below) Portion Portion Portion Portion
---------------------------------------- -------------- ------------ ------------ ----------
HS Notes................................ $ 696 $ 1,796 $ 753 $1,187
6% Convertible Notes.................... 70 1,666 -- --
Remaining 5-Year Notes.................. 29 71 -- --
Boeing Note............................. 450 1,081 450 761
Pavilion Note........................... 170 1,549 -- --
Convertible Debentures.................. -- 6,519 -- --
-------------- ------------ ------------ ---------
$1,415 $12,682 $1,203 $1,948
============== ============ ============ =========
F-16
In November 2003, the Company issued two 5-year, 8% notes payable aggregating
$3,000 (the "HS Notes") to the founders of AccessIT SW as part of the purchase
price for AccessIT SW. During the fiscal years ended March 31, 2005 and 2006,
the Company repaid principal of $512 and $552 on the HS Notes. As of March 31,
2006, the outstanding principal balance of the HS Notes was $1,940.
In March 2004, the Company completed an exchange (the "Exchange Offer") of its
previously issued 5-year 8% notes (the "5-Year Notes") totaling $4,405 for
either: (1) 6% convertible notes (the "6% Convertible Notes") or (2) Class A
Common Stock. Pursuant to the Exchange Offer, the Company issued 6% Convertible
Notes with an aggregate principal amount of $1,736 to several investors, of
which $1,400 was payable to certain officers and directors of the Company. The
6% Convertible Notes were convertible into 307,871 shares of its Class A Common
Stock: (1) at any time up to the maturity date at each holder's option or (2)
automatically upon the date that the average closing price on the American Stock
Exchange ("AMEX") of the Class A Common Stock for thirty consecutive trading
days has been equal to or greater than $12.00. In September 2005, the AMEX
30-day average closing price of the Company's Class A Common Stock exceeded
$12.00, and therefore, the Company converted all of the 6% Convertible Notes
into 307,871 shares of Class A Common Stock, of which 248,282 shares of Class A
Common Stock were issued to certain officers and directors of the Company.
Accordingly, the outstanding principal amount of the 6% Convertible Notes of
$1,699, net of $32 of unamortized debt issuance costs, was credited to
additional paid-in capital. As of March 31, 2006, there were no 6% Convertible
Notes outstanding.
The holders of all the HS Notes and certain holders of 5-Year Notes, with an
aggregate outstanding principal amount of $220 (the "Remaining 5-Year Notes") at
the time of the Exchange Offer, elected not to participate in the Exchange
Offer. Through September 2005, we made early principal repayments totaling $138
on the Remaining 5-Year Notes and scheduled principal payments of $12 on the
Remaining 5-Year Notes. As of March 31, 2006, there were no Remaining 5-Year
Notes outstanding.
In March 2004, in connection with the Boeing Digital Asset Acquisition, the
Company issued a 4-year, non-interest bearing note payable with a face amount of
$1,800 (the "Boeing Note"). The estimated fair value of the Boeing Note was
determined to be $1,367 on the closing date. Interest is being imputed, at a
rate of 12%, over the term of the Boeing Note, and is being charged to non-cash
interest expense. During the fiscal years ended March 31, 2005 and 2006,
principal repayments of $0 and $450, respectively, were made and non-cash
interest expense resulting from the Boeing Note was $164 and $130, respectively.
As of March 31, 2006, the outstanding balance of the Boeing Note, including
imputed interest, was $1,211.
In February 2005, in connection with the Pavilion Theatre Acquisition, ADM
Cinema issued to the seller a 5-year, 8% note payable for $1,700 (the "Pavilion
Note"). Quarterly principal payments of $42 were to be made over the next five
years, with a balloon repayment of $893. In September 2005, the Company and the
seller agreed to an early repayment of the Pavilion Note in exchange for a lump
sum payment of $500. Accordingly, the Company decreased goodwill by $1,057 and
there was no Pavilion Note outstanding as of March 31, 2006.
In February 2005, the Company issued 7% convertible debentures (the "Convertible
Debentures") and warrants (the "Convertible Debentures Warrants") to a group of
institutional investors for aggregate proceeds of $7,600. The Convertible
Debentures had a 4-year term, with one third of the unconverted principal
balance repayable in twelve equal monthly installments beginning three years
after the closing. The remaining unconverted principal balance was repayable at
maturity. The Company had the option to pay the interest in cash or, if certain
conditions were met, by issuing shares of its Class A Common Stock. Through
September 2005, the Company issued 17,758 shares of Class A Common Stock as
payment of interest, in lieu of cash, based on 93% of the AMEX 5-day average
closing price of the Company's Class A Common Stock preceding the interest due
date. The Convertible Debentures were initially convertible into 1,867,322
shares Class A Common Stock, based upon a conversion price of $4.07 per share
subject to adjustments from time to time. In addition, there was a beneficial
conversion feature of $605, which the Company recorded to non-cash interest
expense during the fiscal year ended March 31, 2005. The offering of the
Convertible Debentures and the Convertible Debentures Warrants was exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), under Section 4(2) of the Securities Act and Rule 506
promulgated thereunder. The Company agreed to register the resale of the shares
of Class A Common Stock underlying the Convertible Debentures with the SEC. The
Company filed a Form S-3 on March 11, 2005, which was declared effective by the
SEC on March 21, 2005.
In August 2005, the Company reached an agreement (the "Conversion Agreement")
with the investors holding the Convertible Debentures and Convertible Debenture
Warrants for the investors to: (1) convert all of their Convertible Debentures
into 1,867,322 shares of Class A Common Stock; and (2) exercise all their
Convertible Debenture Warrants for $2,487 into 560,196 shares of Class A Common
Stock, and for the Company to: (1) issue to the investors 760,196 warrants to
purchase Class A Common Stock at an exercise price of $11.39 per share (the "New
Warrants"); and (2) issue to the investors 71,359 shares of Class A Common Stock
(the "New Shares"). Because the issuance of the New Warrants and New Shares,
when combined with the shares of Class A Common Stock underlying the Convertible
Debentures and the Convertible Debentures Warrants, exceeded 20% of the
F-17
Company's then-outstanding shares of Class A Common Stock, under the AMEX's
rules, shareholder approval was required to be obtained. The Company obtained
such shareholder approval by written consent of a majority of the holders of
Common Stock and a Schedule 14(C) Information Statement was required, and was
filed with the SEC on October 6, 2005. The Company was required to register the
resale of the New Shares and the Class A Common Stock underlying the New
Warrants on Form S-3 with the SEC. The Company filed a Form S-3 on November 16,
2005, which was declared effective by the SEC on December 2, 2005.
The Company accounted for the Conversion Agreement under the provisions of SFAS
No. 84, "Induced Conversions of Convertible Debt", which requires the value of
the New Warrants and the New Shares to be recorded as an expense. The New
Warrants were valued by an independent appraiser at a value of $4,990, and the
New Shares were valued at $906, based on the AMEX closing price of the Company's
Class A Common Stock on August 26, 2005, the date the Conversion Agreement was
finalized. The value of the New Warrants plus $200 for professional fees and the
value of the New Shares were charged to debt conversion expense. Additionally,
the Company issued 8,780 shares to the placement agent (the "Placement Agent
Shares") involved in the Conversion Agreement, which were valued at $112, based
on the AMEX closing price of the Company's Class A Common Stock on August 26,
2005. The value of the Placement Agent Shares was charged to debt conversion
expense. The remaining accretion on the debt issuance discount of the
Convertible Debentures Warrants of $999 was charged to non-cash interest
expense, and the remaining unamortized debt issuance costs of $730 were charged
to interest expense. As a result of the Conversion Agreement, there were no
Convertible Debentures outstanding as of March 31, 2006.
The aggregate principal repayments on the Company's notes payable are scheduled
to be as follows:
For the twelve months ending March 31,
--------------------------------------
2007........................ $ 1,203
2008........................ 1,108
2009........................ 840
2010........................ --
2011........................ --
Thereafter.................. --
-------
$ 3,151
=======
8. SENIOR CREDIT FACILITY
In March 2006, Christie/AIX received a commitment from General Electric Capital
Corporation to underwrite up to $217 million of a senior secured financing,
consisting of a $217 million Senior Secured Multi Draw Term Loan (the
"Facility") and based upon the terms of the commitment, it is anticipated that
the Facility would be due May 2013. Proceeds from the Facility will be used for
the purchase and installation of up to 70% of the cost of digital cinema
projection systems in connection with our Digital Cinema Roll-Out. The remaining
cost would be funded from other sources of capital. The commitment is subject to
the completion of a definitive credit agreement on terms acceptable to all
parties.
Based upon the terms of the commitment, it is anticipated that principal on the
Facility would be payable monthly beginning in May 2009. At the Company's
option, the interest rate will be based on the London Interbank Offered Rate
(LIBOR) plus a range of margin rates or at the published prime rate plus a range
of margin rates. The Company would be required to obtain interest rate
protection through an interest rate agreement by May 2008, for an amount not
less than 50% of the Facility outstanding.
As of March 31, 2006, the Facility had not been finalized.
9. STOCKHOLDERS' EQUITY
CAPITAL STOCK
In March 2004, in connection with the Boeing Digital Asset Acquisition, the
Company issued 53,534 unregistered shares of Class A Common Stock (the "Boeing
Shares") to the Boeing Company ("Boeing"), as part of the purchase price. At any
time during the ninety day period beginning March 29, 2005 to June 29, 2005,
Boeing had the option to sell the Boeing Shares to the Company in exchange for
$250 in cash, which the Company classified under commitments and contingencies.
The ninety day period expired on June 29, 2005, and Boeing did not require the
Company to repurchase the Boeing Shares. Accordingly, the amount of $250 was
credited to additional paid-in capital.
In June 2004, the Company issued in a private placement (the "June 2004 Private
Placement") 1,217,500 unregistered shares of Class A Common Stock at a sale
F-18
price of $4.00 per share and warrants to the investors for gross proceeds of
$4,870. The total net proceeds to the Company of $4,044, including fees and
expenses to subsequently register the securities, were used for capital
investments and for working capital. The Company agreed to register the resale
of the shares of Class A Common Stock issued with the SEC. The Company filed a
Form SB-2 on July 2, 2004, which was declared effective by the SEC on July 20,
2004.
In August 2004, the Company's Board authorized the repurchase of up to 100,000
shares of Class A Common Stock, which may be purchased at prevailing prices from
time-to-time in the open market depending on market conditions and other
factors. As of March 31, 2006, 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 November 2004, the Company entered into a stock purchase agreement (the
"November 2004 Private Placement") with accredited investors in a private
placement to issue and sell 282,776 shares of Class A Common Stock at $3.89 per
share to the investors for gross proceeds of $1,100. These shares carried
piggyback and demand registration rights, at the sole expense of the investor.
The total net proceeds to the Company of $1,023 were used for the FiberSat
Acquisition and for working capital. The investors exercised their piggyback
registration rights and the Company registered the resale of the 282,776 shares
of Class A Common Stock by filing a Form S-3 on March 11, 2005, which was
declared effective by the SEC on March 21, 2005.
In November 2004, the Company issued 540,000 shares of Class A Common Stock in
connection with the FiberSat Acquisition, as part of the purchase price. The
Company agreed to register the resale of 405,525 of the shares issued in
connection with the FiberSat Acquisition with the SEC. The Company filed a Form
S-3 on March 11, 2005, which was declared effective by the SEC on March 21,
2005. The Company agreed to register the resale of an additional 99,475 shares
issued in connection with the FiberSat Acquisition with the SEC. The Company
filed a Form S-3 on November 16, 2005, which was declared effective by the SEC
on December 2, 2005.
In February 2005, the Company issued 40,000 unregistered shares of Class A
Common Stock in connection with the Pavilion Theatre Acquisition as part of the
purchase price. As of March 31, 2006, the Company has not registered the resale
of these shares issued in connection with the Pavilion Theatre Acquisition under
any registration statement filed with the SEC.
In July 2005, the Company entered into a purchase agreement with certain
institutional and other accredited investors in a private placement (the "July
2005 Private Placement") to issue and sell 1,909,115 unregistered shares of
Class A Common Stock at a sale price of $9.50 per share and warrants to the
investors for gross proceeds of $18,137. The Company agreed to register the
resale of the shares of Class A Common Stock issued with the SEC. The Company
filed a Form S-3 on August 18, 2005, which was declared effective by the SEC on
August 31, 2005.
In August 2005, in connection with the Conversion Agreement (see Note 7), all
Convertible Debentures Warrants were exercised for $2,487 and the Company issued
560,196 shares of Class A Common Stock. The Company also issued 71,359 New
Shares to the investors, and another 8,780 Placement Agent Shares. The Company
was required to register the resale of the shares of the Class A Common Stock
underlying the Convertible Debentures Warrants with the SEC. The Company filed a
Form S-3 on March 11, 2005, which was declared effective by the SEC on March 21,
2005. The Company was also required to register the New Shares and the Placement
Agent Shares on Form S-3 with the SEC. The Company filed a Form S-3 on November
16, 2005, which was declared effective by the SEC on December 2, 2005.
In September 2005, in connection with the Exchange Offer completed in March 2004
(see Note 7), the AMEX 30-day average closing price of the Company's Class A
Common Stock exceeded $12.00, and therefore, the Company converted all of the 6%
Convertible Notes into 307,871 shares of Class A Common Stock, of which 248,282
shares of Class A Common Stock were issued to certain officers and directors of
the Company. The Company registered the resale of 59,589 of these shares of
Class A Common Stock on Form S-3 with the SEC. The Company filed a Form S-3 on
November 16, 2005, which was declared effective by the SEC on December 2, 2005.
In December 2005, the Company filed a shelf registration statement on Form S-3
with the SEC (the "Shelf"), which was declared effective on January 13, 2006.
The Shelf provided that the Company may offer and sell in one or more offerings
up to $75,000 of any combination of the following securities: Class A Common
Stock, preferred stock in one or more series and warrants to purchase Common
Stock or preferred stock.
In January 2006, in connection with the Shelf, the Company entered into: (1) a
placement agency agreement to issue and sell up to 1,145,000 registered shares
of Class A Common Stock at a price to the public of $10.70 per share to certain
institutional and other accredited investors, and (2) a purchase agreement with
an underwriter for 355,000 registered shares of Class A Common Stock at a price
to the public of $10.70 per share (together the "January 2006 Offering") for
gross aggregate proceeds of $16,050. The offering and sale of the 1,500,000
shares was completed on January 25, 2006. The securities were offered by the
Company, pursuant to the Shelf.
F-19
In March 2006, in connection with the Shelf, the Company entered into a purchase
agreement with two underwriters for 5,126,086 registered shares of Class A
Common Stock at a price to the public of $10.00 per share (the "March 2006
Offering") for gross proceeds of $51,261, which was completed on March 17, 2006.
The Company granted the underwriters a 30-day option to purchase up to an
additional 768,913 shares of Class A Common Stock at a price to the public of
$10.00 per share (the "March 2006 Second Offering") to cover over-allotments,
which was exercised by the underwriters on March 21, 2006 for gross proceeds of
$7,689 and was completed on March 24, 2006. The securities were offered by the
Company, pursuant to the Shelf.
As a result of the January 2006 Offering, the March 2006 Offering and the March
2006 Second Offering, substantially all of the Shelf amount of $75.0 million has
been utilized. The de minimus remainder has been withdrawn.
STOCK OPTION PLAN
AccessIT's stock option plan ("the Plan") currently provides for the issuance of
up to 1,100,000 options to purchase shares of Class A Common Stock to employees,
outside directors and consultants. On June 9, 2005, the Company's Board approved
the expansion of the Plan from 850,000 to 1,100,000 options, which was approved
by the shareholders at the Company's 2005 Annual Meeting held on September 15,
2005. The Company intends to obtain shareholder approval to expand the Plan at
the Company's 2006 Annual Meeting of Stockholders to be held on or about
September 14, 2006.
The Plan provides for the granting of incentive stock options ("ISOs") with
exercise prices not less than the fair market value of our Class A Common Stock
on the date of grant. ISOs granted to shareholders of more than 10% of the total
combined voting power of our Company must have exercise prices of at least 110%
of the fair market value of our Class A Common Stock on the date of grant. ISOs
and non-statutory stock options granted under the Plan are subject to vesting
provisions, and exercise is subject to the continuous service of the
participant. The exercise prices and vesting periods (if any) for non-statutory
options are set at the discretion of our Board. Upon a change of control of the
Company, all stock options (incentive and non-statutory) that have not
previously vested will vest immediately and become fully exercisable. In
connection with the grants of stock options under the Plan, the Company and the
participants have executed stock option agreements setting forth the terms of
the grants.
During the fiscal year ended March 31, 2006, under the Plan, the Company granted
378,753 stock options to its employees and 40,000 stock options to four
non-employee members of our Board, all at an exercise price range from $5.70 to
$13.30 per share.
The following table summarizes the activity of the Plan:
Weighted
Average
Shares Under Exercise Price
Option Per Share
-------------- ----------------
Balance at March 31, 2004............. 520,564 $6.12
Granted............................... 251,667 4.21
Exercised............................. -- --
Cancelled............................. (9,334) 5.27
-------------- ----------------
Balance at March 31, 2005............. 762,897 $5.50
Granted............................... 418,753 (1) 8.70
Exercised............................. (8,567) 4.91
Cancelled............................. (73,083) 8.48
-------------- ----------------
Balance at March 31, 2006 1,100,000 (1) $6.61
============== ================
(1) The issuance of an additional 371,747 stock options is subject to
shareholder approval at the Company's 2006 Annual Meeting of Stockholders
to be held on or about September 14, 2006.
F-20
An analysis of all options outstanding under the Plan as of March 31, 2006 is
presented below:
Weighted
Average
Weighted Weighted Exercise
Average Average Price of
Options Remaining Exercise Options Options
Range of Prices Outstanding Life in Years Price Exercisable Exercisable
-------------------- ---------------- -------------- ------------- ---------------- --------------
$2.50 - $4.81 204,250 6.3 $3.43 204,250 $3.43
$5.00 - $6.40 420,000 6.5 $5.25 420,000 $5.25
$7.04 - $9.98 285,897 6.9 $7.95 285,897 $7.95
$10.07 - $13.30 189,853 6.4 $11.02 189,853 $11.02
---------------- -------------- ------------- ---------------- --------------
1,100,000 (1) 6.5 $6.61 1,100,000 (1) $6.61
================ ============== ============= ================ ==============
(1) The issuance of an additional 371,747 stock options is subject to
shareholder approval at the Company's 2006 Annual Meeting of Stockholders
to be held on or about September 14, 2006.
As of March 31, 2006, AccessDM's separate stock option plan currently provides
for the issuance of up to 2,000,000 options to purchase shares of AccessDM
common stock to employees. During the fiscal year ended March 31, 2006, AccessDM
issued options to purchase 50,000 shares of AccessDM common stock to an employee
at an exercise price to be determined following an appraisal of such options.
Weighted
Average
Shares Under Exercise Price
Option Per Share
-------------- ----------------
Balance at March 31, 2004....... 1,000,000 $0.20
Granted......................... 5,000 0.25
Exercised....................... -- --
Cancelled....................... -- --
-------------- ----------------
Balance at March 31, 2005....... 1,005,000 $0.20
Granted......................... 50,000 $15.88
Exercised....................... -- --
Cancelled....................... -- --
-------------- ----------------
Balance at March 31, 2006 1,055,000(2) $0.95(1)
============== ================
(1) Since there is no public trading market for AccessDM's common stock, the
fair market value of AccessDM's common stock on the date of grant is
determined by an appraisal of such options.
(2) As of March 31, 2006, there were 3,750,000 shares of AccessDM's common
stock issued and outstanding.
In May 2003, AccessDM adopted the 2003 Stock Option Plan (the "AccessDM Plan")
under which ISOs and nonstatutory stock options may be granted to employees,
outside directors, and consultants. The purpose of the AccessDM Plan is to
enable AccessDM to attract, retain and motivate employees, directors, advisors
and consultants. AccessDM reserved a total of 2,000,000 shares of AccessDM's
common stock for issuance upon the exercise of stock options granted in
accordance with the AccessDM Plan. Options granted under the AccessDM Plan
expire ten years following the date of grant (five years for shareholders who
own greater than 10% of the outstanding stock) and are subject to limitations on
transfer. Options granted under the AccessDM Plan vest generally over three-year
periods. The AccessDM Plan is administered by AccessDM's Board.
The AccessDM Plan provides for the granting of ISOs with exercise prices not
less than the fair market value of AccessDM's common stock on the date of grant.
ISOs granted to shareholders of more than 10% of the total combined voting power
of AccessDM must have exercise prices of at least 110% of the fair market value
of AccessDM common stock on the date of grant. ISOs and non-statutory stock
options granted under the AccessDM Plan are subject to vesting provisions, and
exercise is subject to the continuous service of the participants. The exercise
prices and vesting periods (if any) for non-statutory options are set at the
discretion of AccessDM's Board. Upon a change of control of AccessDM, all stock
options (incentive and non-statutory) that have not previously vested will vest
immediately and become fully exercisable. In connection with the grants of stock
options under the AccessDM Plan, AccessDM and the participants have executed
stock option agreements setting forth the terms of the grants.
F-21
NON-EMPLOYEE STOCK-BASED COMPENSATION
The Company uses the fair value method to value options granted to
non-employees. In connection with our grant of stock options to non-employees,
the Company recorded $4 and $0 for the fiscal years ended March 31, 2005 and
2006, respectively, to non-cash stock-based compensation expense on an
accelerated basis.
The Company's calculations for non-employee stock option grants were made using
the Black-Scholes option-pricing model with the following weighted average
assumptions for the fiscal year ended March 31, 2005:
Weighted-average risk-free interest rate.......... 5.9%
Dividend yield.................................... --
Expected life (years)............................. 10
Weighted-average expected volatility.............. 110%
WARRANTS
Warrants outstanding consisted of the following:
As of March 31,
---------------------------
Outstanding Warrant (as defined below) 2005 2006
-------------------------------------- ------------- ------------
Underwriter Warrants..................... 120,000 3,775
June 2004 Private Placement Warrants..... 304,375 --
Convertible Debenture Warrants........... 560,196 --
July 2005 Private Placement Warrants..... -- 477,275
New Warrants (see Note 7)................ -- 760,196
------------- -----------
984,571 1,241,246
============= ============
In November 2003, in connection with the Company's initial public offering, the
Company issued to the underwriter, warrants to purchase up to 120,000 shares of
Class A Common Stock at an exercise price of $6.25 per share (the "Underwriter
Warrants"). The Underwriter Warrants were immediately exercisable and expire on
November 7, 2007. The exercise price is subject to adjustment in certain
circumstances, and in 2004 the exercise price was adjusted to $6.03 per share.
During the twelve months ended March 31, 2006, 49,085 Underwriter Warrants were
exercised for an aggregate of $296 and the Company issued 49,085 shares of Class
A Common Stock. In addition, 67,140 Underwriter Warrants were exercised on a
cashless basis, which resulted in the issuance of 33,278 shares of Class A
Common Stock. As of March 31, 2006, 3,775 Underwriter Warrants remained
outstanding.
In connection with the issuance of the 5-Year Notes, the Company issued to the
holders of the 5-Year Notes warrants to purchase 440,500 shares of Class A
Common Stock (the "5-Year Notes Warrants"). The 5-Year Notes Warrants were
issued and were ascribed an estimated fair value of $2,202, which was recognized
as issuance cost and therefore was charged against the carrying value of the
related 5-Year Notes. During the fiscal years ended March 31, 2005, and 2006 a
total of $17 and $43, respectively, was amortized to non-cash interest expense
to accrete the remaining value of the 5-Year Notes Warrants to their face value
over their expected term. In July 2005, in connection with the early repayment
of the Remaining 5-Year Notes, the remaining value of the 5-Year Notes Warrants
totaling $43 was amortized to non-cash interest expense.
In June 2004, in connection with the June 2004 Private Placement, the Company
issued to the investors and to the placement agent warrants to purchase an
aggregate of 304,375 shares of Class A Common Stock at an exercise price of
$4.80 per share (the "June 2004 Private Placement Warrants"). The Company agreed
to register the resale of the shares of the Class A Common Stock underlying the
June 2004 Private Placement Warrants with the SEC. The Company filed a Form SB-2
on July 2, 2004, which was declared effective by the SEC on July 20, 2004.
During the fiscal year ended March 31, 2006, all of the June 2004 Private
Placement Warrants were exercised for $1,461 in cash, and the Company issued
304,375 shares of Class A Common Stock. As of March 31, 2006, there were no June
2004 Private Placement Warrants outstanding.
In February 2005, in connection with the issuance of the Convertible Debentures
(see Note 7), the Company issued warrants to purchase a total of 560,196 shares
of Class A Common Stock, at an initial exercise price of $4.44 per share (the
"Convertible Debentures Warrants"), which were subject to adjustments from time
to time. Upon the redemption of the Convertible Debentures, the Company may
issue additional warrants to purchase shares of Class A Common Stock. The
Convertible Debenture Warrants were exercisable beginning on September 9, 2005
for a period of five years thereafter. Based on a valuation from an independent
appraiser, the Convertible Debenture Warrants were assigned an estimated fair
F-22
value of $1,109, which is accounted for as a debt issuance discount and is being
accreted to non-cash interest expense. The Company agreed to register the Class
A Common Stock underlying the Convertible Debentures Warrants with the SEC. The
Company filed a Form S-3 on March 11, 2005, and the Form S-3 was declared
effective by the SEC on March 21, 2005. In August 2005, in connection with the
Conversion Agreement (see Note 7), all the Convertible Debenture Warrants were
exercised for $2,487 and the Company issued 560,196 shares of Class A Common
Stock. As of March 31, 2006, there were no Convertible Debenture Warrants
outstanding.
In July 2005, in connection with the July 2005 Private Placement, the Company
issued warrants to purchase 477,275 shares of Class A Common Stock at an
exercise price of $11.00 per share (the "July 2005 Private Placement Warrants").
The July 2005 Private Placement Warrants are exercisable beginning on February
18, 2006 for a period of five years thereafter. The July 2005 Private Placement
Warrants are callable by the Company, provided that the closing price of the
Company's Class A Common Stock is $22.00 per share, 200% of the applicable
exercise price, for twenty consecutive trading days. The Company agreed to
register the resale of the shares of the Class A Common Stock underlying the
July 2005 Private Placement Warrants with the SEC. The Company filed a Form S-3
on August 18, 2005, which was declared effective by the SEC on August 31, 2005.
As of March 31, 2006, 477,275 July 2005 Private Placements Warrants remained
outstanding.
In accordance with EITF 00-19, "Accounting for Derivative Financial Instruments
Indexed To, and Potentially Settled In, a Company's Own Stock" ("EITF 00-19"),
and the terms of the July 2005 Private Placement Warrants, the fair value of the
July 2005 Private Placement Warrants were initially accounted for as a
liability, with an offsetting reduction to the carrying value of the Common
Stock. Such liability was reclassified to equity as of the August 31, 2005
effective date of the Form S-3.
The fair value of the July 2005 Private Placement Warrants was estimated to be
$800 on the closing date of the transaction, using the Black-Scholes
option-pricing model with the following assumptions: no dividends, risk-free
interest rate of 3.84%, the contractual life of 5-years and volatility of 55%.
In September 2005, the fair value of the July 2005 Private Placement Warrants
was re-measured and estimated to be $1,050. The increase in the fair value of
$250 was recorded as other expense.
In August 2005, in connection with the Conversion Agreement (see Note 7), all
Convertible Debentures Warrants were exercised for $2,487 and the Company issued
560,196 shares of Class A Common Stock and the Company issued to the investors
the New Warrants to purchase 760,196 shares of Class A Common Stock at an
exercise price of $11.39 per share. The Company was required to register the
resale of the shares of the Class A Common Stock underlying the Convertible
Debentures Warrants with the SEC. The Company filed a Form S-3 on March 11,
2005, which was declared effective by the SEC on March 21, 2005. The New
Warrants were immediately exercisable upon issuance and for a period of five
years thereafter. The Company was required to register the resale of the shares
of Class A Common Stock underlying the New Warrants with the SEC. The Company
filed a Form S-3 on November 16, 2005, which was declared effective by the SEC
on December 2, 2005. As of March 31, 2006, 760,196 New Warrants remained
outstanding.
In accordance with EITF 00-19, and the terms of the New Warrants, the fair value
of the New Warrants was initially accounted for as a liability, with an
offsetting reduction to the carrying value of the Common Stock. Such liability
was reclassified to equity as of the December 2, 2005 effective date of the Form
S-3.The fair value of the New Warrants was estimated to be $4,990 on the closing
date of the transaction, using the Black-Scholes option-pricing model with the
following assumptions: no dividends, risk-free interest rate of 4.01%, a
contractual life of 5-years and volatility of 56%. At September 30, 2005, the
fair value of the New Warrants was re-measured and estimated to be $3,490. The
decrease in the fair value of $1,500 was recorded as other income. At December
2, 2005, the fair value of the New Warrants was re-measured and estimated to be
$3,080. The decrease in the fair value of $410 was recorded as other income.
10. COMMITMENTS AND CONTINGENCIES
In June 2005, the Company entered into a digital cinema framework agreement (the
"Framework Agreement") with Christie Digital Systems USA, Inc. ("Christie")
through our then-newly formed indirectly wholly-owned subsidiary, Christie/AIX,
Inc. ("Christie/AIX"), whereby, among other things (1) Christie/AIX would seek
to raise financing to purchase 200 of Christie's digital cinema projection
systems (the "Systems") at agreed-upon prices; and (2) Christie/AIX would then
seek to raise additional debt and/or equity financing to purchase an additional
2,300 Systems at agreed-upon prices. The Framework Agreement allows Christie/AIX
to terminate the agreement for several reasons, including failure to: (1)
execute definitive agreements with certain film distributors by August 31, 2005
to pay virtual print fees to Christie/AIX for deliveries of digital films made
to the Systems, and (2) execute agreements with certain exhibitors by August 31,
2005 to license the Systems or to house them in the exhibitor locations.
In August 2005, an amendment to the Framework Agreement extended the termination
provisions through September 30, 2005.
F-23
In September 2005, pursuant to a second amendment to the Framework Agreement,
Christie and Christie/AIX agreed to eliminate such termination provisions,
except to allow for termination in the event that financing cannot be obtained
to purchase the Systems. Additionally, the parties agreed to extend the number
of systems which may be ordered to 4,000 Systems.
Through March 31, 2006, in connection with our Digital Cinema Roll-Out, we have
entered into digital cinema deployment agreements with five motion picture
studios, for the distribution of digital movie releases to motion picture
exhibitors equipped with Systems, and providing for payment of virtual print
fees to Christie/AIX. As of March 31, 2006, we have entered into master license
agreements with six motion picture exhibitors for the placement of Systems in
movie theatres covering a total of 2,531 screens (includes screens at AccessIT's
Pavilion Theatre) and we have installed 210 Systems.
As of March 31, 2006, Christie/AIX has ordered 700 of the Systems from Christie.
As of March 31, 2006, the Company has paid $21,057 towards Systems ordered in
connection with our Digital Cinema Roll-Out. Christie/AIX has agreed to provide
financing to certain motion picture exhibitors upon the billing to the motion
picture exhibitors by Christie for the installation costs associated with the
placement of the Systems in movie theatres. The motion picture exhibitors would
be required to make monthly interest only payments through October 2007 and
quarterly principal and interest payments thereafter. Under a master license
agreement with a certain motion picture exhibitor, the Company has agreed to pay
the installation costs associated with the placement of the Systems in movie
theatres directly to Christie on behalf of the motion picture exhibitor, up to
$14,550, which is expected to be paid over the next two years.
As of March 31, 2006, purchase obligations for the 700 Systems ordered, but not
delivered, in connection with our Digital Cinema Roll-Out, and not included in
our consolidated financial statements totaled $25,070.
In November 2005, the Company received notification from KMC Telecom ("KMC")
that they would not renew the contracts for six out of seven current IDC sites
which were licensed by KMC, which contracts expired on December 31, 2005. From
inception through November 3, 2003, the Company had derived all of its revenues
from monthly license fees and fees from other ancillary services provided by our
IDCs, including fees from various services under the colocation space contract
with KMC. In addition, certain other data center customer contracts will expire
over the next several months, and the Company has not yet received indications
of whether and on which terms these contracts will be renewed. Through December
31, 2005, the average monthly revenue from KMC for the expired contracts was
approximately $144. Additionally, the Company has two other large data center
customer contracts that will expire before July 1, 2006, which currently provide
approximately $105 of total monthly revenue.
In connection with the expiration of the six KMC contracts, the Company has
exited these six leased IDCs in which KMC was the sole or the primary IDC
customer. These six leases expire between December 31, 2005 and April 30, 2006
and were intended to terminate in conjunction with the associated KMC contract.
Although there are no assurances, management believes the Company will not incur
any significant costs in connection with the exit from the six IDCs. As of March
31, 2006, the Company had security deposits totaling $30 relating to these six
leased IDCs.
LEASES
We have acquired property and equipment under non-cancelable long-term capital
lease obligations that expire at various dates through July 2022. As of March
31, 2006, we had outstanding capital lease obligations of $6,067. Our capital
lease obligations are at the following locations and in the following principal
amounts:
Outstanding Capital
Location Purpose of capital lease Lease Obligation
---------------------------- ----------------------------------------- ----------------------
The Pavilion Theatre For building, land and improvements $6,041
Corporate Office For telephone equipment 21
Managed Services For computer equipment used in IDC's 5
----------------------
$6,067
======================
F-24
As of March 31, 2006, minimum future capital lease payments (including interest)
totaled $18,661, are due as follows:
Fiscal years ending March 31,
-----------------------------
2007................ $ 1,137
2008................ 1,128
2009................ 1,128
2010................ 1,128
2011................ 1,128
Thereafter.......... 13,012
-------
$18,661
=======
Assets recorded under capitalized lease agreements included in property and
equipment consists of the following:
As of March 31,
---------------------------
2005 2006
------------- ------------
Land.................................. $1,500 $1,500
Building.............................. 4,600 4,600
Computer equipment.................... 70 70
Machinery and equipment............... 1,062 1,062
------------- -----------
7,232 7,232
Less: accumulated amortization........ (691) (1,131)
------------- -----------
Net assets under capital lease $6,541 $6,101
============= ===========
The Company's businesses operate from leased properties under non-cancelable
operating lease agreements (see Item 2. Properties). The Company accounts for
rent abatements and increasing base rentals using the straight-line method over
the life of the lease. The difference between the straight-line rent expense and
the amount paid is recorded as a deferred rent liability. As of March 31, 2006,
obligations under non-cancelable operating leases totaled $15,047, are due as
follows:
Fiscal years ending March 31,
-----------------------------
2007................ $ 2,675
2008................ 2,732
2009................ 2,770
2010................ 2,270
2011................ 1,377
Thereafter.......... 3,223
-------
$15,047
=======
Total rent expense was $2,192 and $2,615 for the fiscal years ended March 31,
2005 and 2006, respectively.
11. SUPPLEMENTAL CASH FLOW DISCLOSURE
For the fiscal years ended
March 31,
--------------------------
2005 2006
------------ ----------
Interest paid ....................................... $ 556 $1,461
Assets acquired under capital leases................. $6,542 $ --
Issuance of note for the Pavilion Theatre
Acquisition......................................... $9,300 $ --
Reduction of goodwill and other assets relating
to the early cancellation of the Pavilion Note ..... $ -- $1,232
Issuance of Class A Common Stock for conversion
of 6% Convertible Notes ............................ $ -- $1,699
Issuance of Class A Common Stock for conversion
of Convertible Debentures .......................... $ -- $7,600
F-25
For the fiscal years ended
March 31,
--------------------------
2005 2006
------------ ----------
Issuance of Class A Common Stock in lieu of
redeeming the Boeing Shares ........................ $ -- $ 250
Transfer to equity of liability relating to
warrants upon registration statement
effectiveness ...................................... $ -- $4,130
Equipment in accounts payable and accrued
expenses purchased from Christie ................... $ -- $7,924
Note receivable in accounts payable and accrued
expenses for installation costs from Christie ...... $ -- $ 934
12. SEGMENT INFORMATION
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
Company has two reportable segments: Media Services and Data Center Services.
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.
The Media Services segment consists of the following:
OPERATIONS OF: PRODUCTS AND SERVICES PROVIDED:
---------------------------------------------------------------------------
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 theaters 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 recovery services for
content owners.
---------------------------------------------------------------------------
Pavilion Theatre A fully functioning nine-screen movie
theatre and showcase to demonstrate
our integrated digital cinema solutions.
---------------------------------------------------------------------------
Christie/AIX Financing vehicle and administrator for
our Digital Cinema Roll-Out to motion
picture exhibitors, collects VPFs from
motion picture studios.
---------------------------------------------------------------------------
The Data Center Services segment consists of the following:
OPERATIONS OF: PRODUCTS AND SERVICES PROVIDED:
---------------------------------------------------------------------------
AccessIT Provides services through its three IDCs
including the license of data center
space, provision of power, data
connections to other businesses, and the
installation of equipment.
---------------------------------------------------------------------------
Managed Services Provides information technology
consulting services and managed network
monitoring services through its global
network command center.
---------------------------------------------------------------------------
F-26
Information related to the segments of the Company and its subsidiaries is
detailed below:
For the fiscal years ended
March 31,
---------------------------
2005 2006
-------------- -----------
Media Services:
Loss before interest, taxes,
depreciation and amortization ............. $ (246) $ (741)
Depreciation and amortization ............... 1,715 3,424
-------- ---------
Loss before other expense ................... $ (1,961) $ (4,165)
Data Center Services:
Income before interest, taxes,
depreciation and amortization ............. $ 1,651 $ 1,724
Depreciation and amortization ............... 1,807 1,502
-------- ---------
(Loss) income before other expense .......... $ (156) $ 222
Corporate:
Loss before interest, taxes,
depreciation and amortization ............. $ (3,482) $ (5,196)
Depreciation and amortization ............... 101 75
-------- ---------
Loss before other expense ................... $ (3,583) $ (5,271)
Total Consolidated:
Loss before interest, taxes,
depreciation and amortization ............. $ (2,077) $ (4,213)
Depreciation and amortization ............... 3,623 5,001
-------- ---------
Loss before other expense $ (5,700) $ (9,214)
======== =========
As of March 31,
---------------------------
2005 2006
-------------- -----------
Assets:
Media Services .............................. $ 27,029 $ 55,818
Data Center Services ........................ 5,302 6,920
Corporate ................................... 5,446 61,209
-------- ---------
Total Consolidated Assets $ 37,777 $ 123,947
======== =========
13. RELATED PARTY TRANSACTIONS
In connection with the Exchange Offer completed in March 2004 (see Note 7), the
Company issued 6% Convertible Notes with a principal amount of $1,736 to several
investors, of which $1,400 is payable to certain officers and directors of the
Company. In September 2005, the AMEX 30-day average closing price of the
Company's Class A Common Stock exceeded $12.00, and therefore, the Company
converted all of the 6% Convertible Notes into 307,871 shares of Class A Common
Stock, of which 248,282 shares of Class A Common Stock were issued to certain
officers and directors of the Company. The Company registered the resale of only
59,589 of theses shares of Class A Common Stock on Form S-3 with the SEC. The
Company filed a Form S-3 on November 16, 2005, which was declared effective by
the SEC on December 2, 2005.
A non-employee officer of Christie/AIX is also an officer of Christie, from whom
Christie/AIX purchases the Systems for our Digital Cinema Roll-Out. Purchases of
such Systems from Christie for the fiscal years ended March 31, 2005 and 2006
totaled $0 and $21,057, respectively. This individual is not compensated by
Christie/AIX.
F-27
14. INCOME TAXES
The benefit from income taxes consisted of the following:
As of March 31,
--------------------
2005 2006
--------- --------
Current ............................................. $ -- $ --
Deferred ............................................ 311 311
-------- --------
Total income tax benefit $ 311 $ 311
======== ========
Net deferred tax liabilities consisted of the following:
As of March 31,
--------------------
2005 2006
--------- --------
Deferred tax assets:
Net operating loss carryforwards ................ $ 5,689 $ 9,086
Depreciation and amortization ................... 854 1,017
Deferred rent expense ........................... 435 395
Stock based compensation ........................ 201 201
Revenue deferral ................................ 115 466
Other ........................................... 129 206
-------- --------
Total deferred tax assets $ 7,423 $ 11,371
Deferred tax liabilities:
Intangibles...................................... $ (1,497) $ (1,186)
-------- --------
Total deferred tax liabilities $ (1,497) $ (1,186)
-------- --------
Net deferred tax assets before valuation allowance .. $ 5,926 $ 10,185
Valuation allowance.................................. (7,136) (11,083)
-------- --------
Net deferred tax liabilities $ (1,210) $ (898)
======== ========
The Company has provided a valuation allowance for either all or most of its
deferred tax assets since realization of future benefits from deductible
temporary differences and net operating loss carryovers cannot be sufficiently
assured at March 31, 2005 or March 31, 2006. The change in the valuation
allowance in the current year was $3,947.
As of March 31, 2006, the Company has federal and state net operating loss
carryforwards of approximately $21,900 available to reduce future taxable
income. The federal net operating loss carryforwards will begin to expire in
2020. Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may result in a limitation on the amount of
net operating loss carryforwards that can be used in future years. Depending on
a variety of factors this limitation, if applicable, could cause a portion
and/or all of these net operating losses to expire before utilization occurs.
The differences between the United States statutory federal tax rate and the
Company's effective tax rate are as follows:
As of March 31,
--------------------
2005 2006
--------- --------
Tax benefit at the U.S. statutory federal tax rate ....... (34.0)% (34.0)%
State tax benefit ........................................ (0.3) (0.0)
Change in valuation allowance ............................ 24.4 17.1
Disallowed interest ...................................... 4.5 2.8
Debt conversion expense .................................. -- 11.9
Other .................................................... 1.1 0.5
-------- --------
Effective tax rate (4.3)% (1.7)%
======== ========
15. SUBSEQUENT EVENTS
In April 2006, the Company issued 23,445 shares of unregistered Class A Common
Stock, in connection with our purchase the Access Digital Server Assets (see
Note 3).
F-28
In May 2006 and June 2006, the Company ordered additional Systems from Christie
for an estimated aggregate total purchase price of approximately $34,628.
In June 2006, the Company through its indirectly wholly-owned subsidiary, PLX
Acquisition Corp., purchased substantially all the assets of PLX Systems Inc.
("PLX"). PLX provides the essential technology, expertise and core competencies
in intellectual property ("IP") rights and royalty management, expanding the
Company's ability to bring new forms of content to movie-goers in addition to
supporting IP license contract management, royalty processing, revenue reporting
and billing. The purchase price, including estimated transaction costs, was
approximately $1.6 million.
F-29
PART II. OTHER INFORMATION
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. 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 13(a)-15 and 15(d)-15 of the
Exchange Act). Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the SEC.
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.
ITEM 8B. OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
Except as set forth below, the information required by this item will appear in
AccessIT's Proxy Statement for our 2006 Annual Meeting of Stockholders to be
held on or about September 14, 2006, which will be filed pursuant to Regulation
14A under the Exchange Act and is incorporated by reference in this report
pursuant to General Instruction E(3) of Form 10-KSB (other than the portions
thereof not deemed to be "filed" for the purpose of Section 18 of the Exchange
Act).
CODE OF ETHICS
We have adopted a code of ethics applicable to all members of the Board,
executive officers and employees. Such code of ethics is available on our
Internet website, www.accessitx.com. We intend to disclose any amendment to, or
waiver of, a provision of our code of ethics by filing a Form 8-K with the SEC.
ITEM 10. EXECUTIVE COMPENSATION
Information required by this item will appear in AccessIT's Proxy Statement and
is incorporated by reference in this report pursuant to General Instruction E(3)
of Form 10-KSB (other than the portions thereof not deemed to be "filed" for the
purpose of Section 18 of the Exchange Act).
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Except as set forth below, the information required by this item will appear in
AccessIT's Proxy Statement and is incorporated by reference in this report
pursuant to General Instruction E(3) of Form 10-KSB (other than the portions
thereof not deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934).
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Information required by this item can be found in an earlier discussion (see
Part II Item 5 under EQUITY COMPENSATION PLANS).
25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will appear in AccessIT's Proxy Statement and
is incorporated by reference in this report pursuant to General Instruction E(3)
of Form 10-KSB (other than the portions thereof not deemed to be "filed" for the
purpose of Section 18 of the Exchange Act).
ITEM 13. EXHIBITS
The exhibits are listed in the Exhibit Index beginning on page 29 herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item will appear in AccessIT's Proxy Statement and
is incorporated by reference in this report pursuant to General Instruction E(3)
of Form 10-KSB (other than the portions thereof not deemed to be "filed" for the
purpose of Section 18 of the Exchange Act).
26
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCESS INTEGRATED TECHNOLOGIES, INC.
Date: 06/29/06 BY:/s/ A. Dale Mayo
----------------------- ----------------------------------------
A. Dale Mayo
President and Chief Executive Officer
and Chairman of the Board of Directors
(Principal Executive Officer)
Date: 06/29/06 BY:/s/ Brian D. Pflug
----------------------- ----------------------------------------
Brian D. Pflug
Senior Vice President - Accounting
& Finance
(Principal Financial Officer)
27
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby constitutes and appoints A. Dale Mayo and Gary S. Loffredo, and
each of them individually, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to (i)
act on, sign and file with the Securities and Exchange Commission any and all
amendments to this Report together with all schedules and exhibits thereto, (ii)
act on, sign and file with the Securities and Exchange Commission any and all
exhibits to this Report and any and all exhibits and schedules thereto, (iii)
act on, sign and file any and all such certificates, notices, communications,
reports, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith and (iv) take any and all such actions which
may be necessary or appropriate in connection therewith, granting unto such
agents, proxies and attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing necessary or
appropriate to be done, as fully for all intents and purposes as he or she might
or could do in person, and hereby approving, ratifying and confirming all that
such agents, proxies and attorneys-in-fact, any of them or any of his, her or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE(S) TITLE(S) DATE
/s/ A. Dale Mayo President, Chief Executive Officer 06/29/06
---------------------- and Chairman of the Board of Directors -------------
A. Dale Mayo
/s/ Kevin J. Farrell Senior Vice President - Facilities 06/27/06
---------------------- and Director -------------
Kevin J. Farrell
/s/ Gary S. Loffredo Senior Vice President - General 06/29/06
---------------------- Counsel, Secretary and Director --------------
Gary S. Loffredo
/s/ Brian D. Pflug Senior Vice President - Accounting 06/29/06
---------------------- and Finance --------------
Brian D. Pflug
/s/ Wayne L. Clevenger 06/29/06
---------------------- Director ---------------
Wayne L. Clevenger
---------------------- Director ---------------
Gerald C. Crotty
/s/ Robert Davidoff Director 06/29/06
---------------------- ---------------
Robert Davidoff
/s/ Matthew W. Finlay 06/29/06
---------------------- Director ---------------
Matthew W. Finlay
/s/ Brett E. Marks 06/29/06
---------------------- Director ---------------
Brett E. Marks
/s/ Robert E. Mulholland Director 06/27/06
---------------------- ----------------
Robert E. Mulholland
28
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
1.1 -- Form of Underwriting Agreement between the Company and the underwriter
to the Company's November 10, 2003 Public Offering. (1)
1.2 -- Purchase Agreement dated January 17, 2006, by and between the Company
and Craig-Hallum Capital Group LLC. (21)
1.3 -- Purchase Agreement, dated March 13, 2006, by and between the Company,
Roth Capital Partners LLC and Craig-Hallum Capital Group LLC. (23)
2.1 -- Stock Purchase Agreement, dated July 17, 2003, between the Company and
Hollywood Software, Inc. and its stockholders. (2)
2.2 -- Exchange Agreement, dated as of September 17, 2003, between the Company
and MidMark Equity Partners II, L.P. (3)
2.3 -- Amendment No. 1 to Stock Purchase Agreement, dated as of November 3,
2003, between and among the Company, Hollywood Software, Inc., the
selling stockholders and Joseph Gunnar & Co., LLC. (1)
2.4 -- Stock Purchase Agreement, dated as of December 22, 2003, among the
Company, Concurrent Technologies, Inc. and Erik B. Levitt. (4)
2.5 -- Asset Purchase Agreement, dated as of March 29, 2004, between the
Company and The Boeing Company. (5)
2.6 -- Form of Exchange Agreement (debt for equity), dated as of March 24,
2004, between the Company and each Investor taking part in the
March 24, 2004 exchange offering. (6)
2.7 -- Form of Exchange Agreement (debt for debt), dated as of March 24, 2004,
between the Company and each investor taking part in the March 24,
2004 exchange offering. (6)
2.8 -- Securities Purchase Agreement, dated as of June 2, 2004, among the
Company and certain investors. (7)
2.9 -- Asset Purchase Agreement, dated as of October 19, 2004, among the
Company, FiberSat Global Services, Inc., FiberSat Global Services
LLC, Richard Wolfe, Ravi Patel, McKebben Communications, Globecomm
Systems, Inc., Timothy Novoselski, Scott Smith and Farina. (11)
2.10 -- Asset Purchase Agreement, dated as of December 23, 2004, among ADM
Cinema Corporation, Pritchard Square Cinema, LLC and Norman Adie. (13)
2.11 -- Stock Purchase Agreement, dated as of October 26, 2004, among the
Company and the purchasers identified therein. (13)
2.12 -- Securities Purchase Agreement, dated as of February 9, 2005, among the
Company and certain investors. (12)
2.13 -- Securities Purchase Agreement, dated as of July 19, 2005, among the
Company and certain purchasers. (17)
2.14 -- Letter Agreement, dated August 29, 2005, among the Company and certain
purchasers.*
3.1 -- Fourth Amended and Restated Certificate of Incorporation of the Company.
(4)
3.2 -- Bylaws of the Company. (2)
4.1 -- Form of Warrant Agreement (with Warrant Certificates) between the
Company and the lead underwriter. (1)
4.2 -- Specimen certificate representing Class A common stock. (1)
4.3 -- Promissory note issued by the Company to ColoSolutions, Inc., dated
November 27, 2002. (2)
4.4 -- Promissory note issued by the Company to holders of ten-year warrants.
(2)
4.5 -- Form of note to be issued by the Company to the selling stockholders of
Hollywood Software, Inc. (2)
29
4.6 -- Form of Pledge and Security Agreement between the Company, the selling
stockholders of Hollywood Software, Inc. and the pledge agent. (2)
4.7 -- Promissory note dated November 3, 2003 issued by the Company to David
Gajda. (1)
4.8 -- Promissory note dated November 3, 2003 issued by the Company to Robert
Jackovich. (1)
4.9 -- Pledge and Security Agreement, dated as of November 3, 2003, between the
Company and the selling stockholders of Hollywood Software, Inc. (1)
4.10 -- Registration Rights Agreement, dated as of January 9, 2004, between the
Company and Erik B. Levitt. (4)
4.11 -- Promissory note dated March 29, 2004 issued by the Company to The Boeing
Company. (5)
4.12 -- Registration Rights Agreement, dated as of March 29, 2004, between the
Company and The Boeing Company. (5)
4.13 -- Form of Subordinated Convertible Promissory Note, dated March 24, 2004,
issued by the Company to each investor taking part in the March 24,
2004 exchange offering. (6)
4.14 -- Form of Registration Rights Agreement, dated as of March 24, 2004,
between the Company and each investor taking part in the March 24,
2004 exchange offering. (6)
4.15 -- Form of Warrant, dated June 2004, issued to purchasers pursuant to
Securities Purchase Agreement, dated as of June 1, 2004, among the
Company and certain investors. (7)
4.16 -- Form of Warrant, dated June 2004, issued to placement agent in
connection with Securities Purchase Agreement, dated as of June 1,
2004, among the Company and certain investors. (7)
4.17 -- Registration Rights Agreement, dated as of June 2004, among the Company
and certain investors. (7)
4.18 -- Promissory Note, dated November 14, 2003, issued by the Company to David
Gajda. (8)
4.19 -- Promissory Note, dated November 14, 2003, issued by the Company to
Robert Jackovich.(8)
4.20 -- Registration Rights Agreement, dated as of November 8, 2004, among the
Company and certain investors. (13)
4.21 -- Form of Subsidiary Guarantee to be entered into by certain subsidiaries
of the Company pursuant to the Securities Purchase Agreement, dated as
of February 9, 2005 among the Company and the several investors party
thereto.(12)
4.22 -- Form of Debenture to be issued to the purchasers pursuant to the
Securities Purchase Agreement, dated as of February 9, 2005 among
the Company and the several investors party thereto. (12)
4.23 -- Form of Warrant to be issued to the purchasers pursuant to the
Securities Purchase Agreement, dated as of February 9, 2005 among
the Company and the several investors party thereto. (12)
4.24 -- Form of Registration Rights Agreement, among the registrant and certain
investors pursuant to the Securities Purchase Agreement, dated as
of February 9, 2005 among the Company and the several investors party
thereto.(12)
4.25 -- Form of Warrant, dated July 19, 2005, issued to purchasers pursuant to
Securities Purchase Agreement, dated as of July 19, 2005, among the
Company and certain purchasers. (17)
4.26 -- Registration Rights Agreement, dated as of July 19, 2005 among the
Company and certain purchasers. (17)
4.27 -- Form of Warrant issued to purchasers pursuant to a letter agreement.
(19)
4.28 -- Registration Rights Agreement, dated as of November 16, 2005, among the
Company and certain purchasers. (19)
10.1 -- Amended and Restated Employment Agreement, dated as of December 15,
2005, between the Company and A. Dale Mayo. (20)
10.2 -- Employment Agreement, dated as of April 10, 2000, between the Company
and Kevin Farrell. (2)
10.3 -- Form of Employment Agreements between Hollywood Software, Inc. and David
Gajda/Robert Jackovich. (2)
10.4 -- First Amended and Restated 2000 Stock Option Plan of the Company. (2)
30
10.5 -- Amendment No. 1 to the First Amended and Restated 2000 Stock Option Plan
of the Company. (3)
10.6 -- Amendment No. 2 to the First Amended and Restated 2000 Stock Option Plan
of the Company. (15)
10.7 -- Amendment No. 3 to the First Amended and Restated 2000 Stock Option Plan
of the Company. (22)
10.8 -- Form of Stock Option Agreement. (15)
10.9 -- Asset Purchase Agreement, dated as of November 16, 2001, between the
Company and BridgePoint International (USA), Inc. (2)
10.10 -- Asset Purchase Agreement, dated as of October 10, 2002, between the
Company, R.E. Stafford, Inc. d/b/a ColoSolutions and Cob Solutions
Global Services, Inc. (2)
10.11 -- Services Distribution Agreement, dated July 17, 2001, between the
Company and Managed Storage International, Inc. (2)
10.12 -- License Agreement between the Company and AT&T Corp., dated July 31,
2001. (2)
10.13 -- Master Agreement for Colocation Space between the Company (by
assignment from Cob Solutions Global Services, Inc.) and KMC Telecom VI
LLC dated April II, 2002. (2)
10.14 -- License Agreement between the Company (by assignment from Bridgepoint
International (USA), Inc.) and Zone Telecom, Inc. dated February 27,
2001.(2)
10.15 -- Lease Agreement, dated as of May 23, 2000, between the Company
(formerly Fibertech & Wireless, Inc.) and 55 Madison Associates, LLC.
(2)
10.16 -- Agreement of Lease, dated as of July 18, 2000, between the Company and
1-10 Industry Associates, LLC. (2)
10.17 -- Lease Agreement, dated as of August 28, 2000, between the Company
(formerly Fibertech & Wireless, Inc.) and RFG Co. Ltd. (2)
10.18 -- Letter Amendment to the Lease Agreement, dated August 28, 2000, between
the Company (formerly Fibertech & Wireless, Inc.) and RFG Co. Ltd. (2)
10.19 -- First Amendment to the Lease, dated August 28, 2000 between the Company
(formerly Fibertech & Wireless, Inc.) and RFG Co.Ltd. dated October 27,
2000. (2)
10.20 -- Agreement of Lease, dated as of January 18, 2000, between the Company
(by assignment from BridgePoint International (Canada), Inc.) and
75 Broad, LLC. (2)
10.21 -- Additional Space and Lease Modification to the Agreement of Lease,
dated as of January 18, 2000, between the Company (by assignment
from BridgePoint International (Canada), Inc.) and 75 Broad, LLC
dated May 16, 2000. (2)
10.22 -- Second Additional Space and Lease Modification to the Agreement of
Lease, dated as of January 18, 2000, between the Company (by
assignment from BridgePoint International (Canada), Inc.) and
75 Broad, LLC dated August 15, 2000. (2)
10.23 -- Lease Agreement, dated as of January 17, 2001, as amended, between the
Company (by assignment from R. E. Stafford, Inc. d/b/a ColoSolutions)
and Union National Plaza I, Inc. (2)
10.24 -- Lease Agreement, dated as of February 6, 2001, between the Company (by
assignment from R. E. Stafford, Inc. d/b/a ColoSolutions) and
Granite -- Wall Street Limited Partnership (successor in interest to
Duffy Wall Street L.L.C.). (2)
10.25 -- Indenture Agreement, dated as of May 22, 2001, between the Company (by
assignment from R.E. Stafford, Inc. d/b/a ColoSolutions) and Research
Boulevard Partnership.(2)
10.26 -- Lease Agreement, dated as of January 22, 2001, between the Company (by
assignment from ColoSolutions L.L.C.) and 340 Associates, L.L.C. (2)
10.27 -- Lease Agreement, dated as of September 29, 2002, between the Company
(by assignment from R.E. Stafford, Inc. d/b/a ColoSolutions) and Jerry
J. Howard and Eddy D. Howard. (2)
10.28 -- Office Lease, dated as of February 22, 2001, between the Company (by
assignment from R. E. Stafford, Inc. d/b/a ColoSolutions) and One
Liberty Place, L.C. (2)
31
10.29 -- Commercial Property Lease between Hollywood Software, Inc. and
Hollywood Media Center, LLC, dated January 1, 2000. (2)
10.30 -- Lease, dated as of February 1, 1999, between Hollywood Software, Inc.
and Spieker Properties, L. P. (2)
10.31 -- First Amendment to Lease, dated as of February 1, 1999, between
Hollywood Software, Inc. and Spieker Properties, L.P. dated May 10,
2000.(2)
10.32 -- Second Amendment to Lease, dated as of February 1, 1999, between
Hollywood Software, Inc. and Spieker Properties, L.P. dated February
16, 2001. (2)
10.33 -- Third Amendment to Lease, dated as of February 1, 1999, between
Hollywood Software, Inc. and EOP-BREA Park Centre, L.P. (successor
in interest to Spieker Properties, L.P.), dated June 27, 2002. (2)
10.34 -- Consulting Agreement between the Company (formerly Fibertech &
Wireless, Inc.) and Harvey Marks dated June 2000. (2)
10.35 -- Independent Contractor Agreement, dated July31, 2003, between the
Company and Kevin Booth. (2)
10.36 -- Universal Transport Exchange License and Option Agreement, dated August
13, 2003, by and between the Company and Universal Access, Inc. (3)
10.37 -- Employment Agreement, dated as of January 9, 2004, between the Company
and Erik B. Levitt. (4)
10.38 -- Confidentiality, Inventions and Noncompete Agreement, dated as of
January 9, 2004, between the Company and Erik B. Levitt. (4)
10.39 -- Employment Agreement, dated as of November 21, 2003, between the
Company and Russell Wintner. (8)
10.40 -- Lease Agreement, dated as of August 9, 2002, by and between OLP
Brooklyn Pavilion LLC and Pritchard Square Cinema LLC.*
10.41 -- First Amendment to Contract of Sale and Lease Agreement, dated as of
August 9, 2002, by and among Pritchard Square LLC, OLP Brooklyn
Pavilion LLC and Pritchard Square Cinema, LLC.*
10.42 -- Second Amendment to Contract of Sale and Lease Agreement, dated as of
April 2, 2003, by and among Pritchard Square LLC, OLP Brooklyn Pavilion
LLC and Pritchard Square Cinema, LLC.*
10.43 -- Third Amendment to Contract of Sale and Lease Agreement, dated as of
November 1, 2003, by and among Pritchard Square LLC, OLP Brooklyn
Pavilion LLC and Pritchard Square Cinema, LLC.*
10.44 -- Fourth Amendment to Lease Agreement, dated as of February 11, 2005,
between ADM Cinema Corporation and OLP Brooklyn Pavilion LLC. (16)
10.45 -- Amended and Restated Digital Cinema Framework Agreement, dated as of
September 30, 2005, by and among Access Digital Media, Inc., Christie/
AIX, Inc. and Christie Digital Systems USA, Inc. (18)
10.46 -- Digital Cinema Deployment Agreement, dated September 14, 2005, by and
among Buena Vista Pictures Distribution, Christie/AIX, Inc. and
Christie Digital Systems USA, Inc. (18)
10.47 -- Digital Cinema Deployment Agreement, dated October 12, 2005, by and
between Twentieth Century Fox Film Corporation and Christie/AIX, Inc.
(18)
10.48 -- Placement Agency Agreement, dated as of January 17, 2006, by and
between the Company and Craig-Hallum Capital Group LLC. (21)
10.49 -- Digital Cinema Agreement, dated as of October 20, 2005, by and between
Universal City Studios, LLP and Christie/AIX, Inc. (22)
10.50 -- Master License Agreement, dated as of December, 2005, by and between
Christie/AIX, Inc. and Carmike Cinemas, Inc. (22)
16.1 -- Letter from PricewaterhouseCoopers LLP, dated September 10, 2004
regarding change in certifying accountants. (13)
21.1 -- List of Subsidiaries.*
23.1 -- Consent of Eisner LLP.*
24.1 -- Powers of Attorney.* (Contained on signature page)
32
31.1 -- Officer's Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 -- Officer's Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
* Filed herewith.
Documents Incorporated Herein by Reference:
(1) Previously filed with the Securities and Exchange Commission on November 4,
2003 as an exhibit to the Company's Amendment No. 3 to Registration Statement on
Form SB-2 (File No. 333-107711).
(2) Previously filed with the Securities and Exchange Commission on August 6,
2003 as an exhibit to the Company's Registration Statement on Form SB-2 (File
No. 333-107711).
(3) Previously filed with the Securities and Exchange Commission on September
22, 2003 as an exhibit to the Company's Amendment No. 1 to Registration
Statement on Form SB-2 (File No. 333-107711).
(4) Previously filed with the Securities and Exchange Commission on February 17,
2004 as an exhibit to the Company's Form 10-QSB for the quarter ended December
31, 2003 (File No. 001-31810).
(5) Previously filed with the Securities and Exchange Commission on April 2,
2004 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(6) Previously filed with the Securities and Exchange Commission on April 29,
2004 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(7) Previously filed with the Securities and Exchange Commission on June 2, 2004
as an exhibit to the Company's Form 8-K (File No. 001-31810).
(8) Previously filed with the Securities and Exchange Commission on June 25,
2004 as an exhibit to the Company's Form 10-KSB for the fiscal year ended March
31, 2004 (File No. 001-31810).
(9) Previously filed with the Securities and Exchange Commission on July 2, 2004
as an exhibit to the Company's Registration Statement on Form SB-2 (File No.
333-117115).
(10) Previously filed with the Securities and Exchange Commission on September
14, 2004 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(11) Previously filed with the Securities and Exchange Commission on November 8,
2004 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(12) Previously filed with the Securities and Exchange Commission on February
10, 2005 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(13) Previously filed with the Securities and Exchange Commission on February
14, 2005 as an exhibit to the Company's Form 10-QSB for the quarter ended
December 31, 2004 (File No. 001-31810).
(14) Previously filed with the Securities and Exchange Commission on March 14,
2005 as an exhibit to the Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (File No. 333-117115).
33
(15) Previously filed with the Securities and Exchange Commission on April 25,
2005 as an exhibit to the Company's Registration Statement on Form S-8 (File No.
333-124290).
(16) Previously filed with the Securities and Exchanged Commission on April 29,
2005 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(17) Previously filed with the Securities and Exchange Commission on July 22,
2005 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(18) Previously filed with the Securities and Exchange Commission on November
14, 2005 as an exhibit to the Company's Form 10-QSB for the quarter ended
September 30, 2005 (File No. 001-31810).
(19) Previously filed with the Securities and Exchange Commission on November
16, 2005 as an exhibit to the Company's Registration Statement on Form S-3 (File
No. 333-129747).
(20) Previously filed with the Securities and Exchange Commission on December
21, 2005, as an exhibit to the Company's Form 8-K (File No. 001-31810).
(21) Previously filed with the Securities and Exchange Commission on January 19,
2006 as an exhibit to the Company's 8-K (File No. 001-31810).
(22) Previously filed with the Securities and Exchange Commission on February
13, 2006 as an exhibit to the Company's 10-QSB (File No. 001-31810).
(23) Previously filed with the Securities and Exchange Commission on March 15,
2006 as an exhibit to the Company's 8-K (File No. 001-31810).
34