Edgar Filing: Access Integrated Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp.

form10-q_1332778.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2008

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the transition period from --- to ---

Commission File Number: 000-51910

______________________________________

Access Integrated Technologies, Inc.

(Exact Name of Registrant as Specified in its Charter)

______________________________________

Delaware	22-3720962
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

55 Madison Avenue, Suite 300, Morristown New Jersey 07960

(Address of Principal Executive Offices, Zip Code)

(973-290-0080)

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.	Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).	Yes o No x


As of February 4, 2009, 27,272,875 shares of Class A Common Stock, $0.001 par value, and 733,811 shares of Class B Common Stock, $0.001 par value, were outstanding.

ACCESS INTEGRATED TECHNOLOGIES, INC.

d/b/a CINEDIGM DIGITAL CINEMA CORP.

CONTENTS TO FORM 10-Q

PART I --	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2008	1

	Condensed Consolidated Statements of Operations for the Three and Nine Months ended December 31, 2007 and 2008	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2007 and 2008	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	42

PART II --	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Submission of Matters to a Vote of Security Holders	45

Item 6.	Exhibits	45

Signatures		46

Exhibit Index		47

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACCESS INTEGRATED TECHNOLOGIES, INC.

d/b/a CINEDIGM DIGITAL CINEMA CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)

	March 31, 2008		December 31, 2008
ASSETS			(Unaudited)

Current assets
Cash and cash equivalents	$	29,655	$	22,565
Accounts receivable, net		21,494		16,400
Unbilled revenue		6,393		5,451
Deferred costs		3,859		3,803
Prepaid and other current assets		1,316		1,986
Note receivable		158		913
Total current assets		62,875		51,118

Property and equipment, net		269,031		246,980
Intangible assets, net		13,592		11,473
Capitalized software costs, net		2,777		3,001
Goodwill		14,549		8,024
Deferred costs, net of current portion		6,595		4,712
Unbilled revenue, net of current portion		2,075		1,755
Note receivable, net of current portion		1,220		1,002
Security deposits		408		425
Accounts receivable, net of current portion		299		299
Restricted cash		255		255
Total assets	$	373,676	$	329,044

See accompanying notes to Condensed Consolidated Financial Statements

ACCESS INTEGRATED TECHNOLOGIES, INC.

d/b/a CINEDIGM DIGITAL CINEMA CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)

(continued)

	March 31, 2008			December 31, 2008
LIABILITIES AND STOCKHOLDERS’ EQUITY				(Unaudited)

Current liabilities
Accounts payable and accrued expenses	$	25,213		$	9,682
Notes payable		16,998			24,729
Deferred revenue		6,204			5,511
Customer security deposits		333			358
Capital leases		89			128
Total current liabilities		48,837			40,408

Notes payable, net of current portion		250,689			232,416
Capital leases, net of current portion		5,814			5,785
Deferred revenue, net of current portion		283			953
Customer security deposits, net of current portion		46			34
Preferred stock subscription proceeds		—			2,000
Fair value of interest rate swap		—			3,846
Total liabilities		305,669			285,442

Commitments and contingencies (see Note 7)

Stockholders’ Equity
Class A common stock, $0.001 par value per share; 40,000,000 and 65,000,000 shares authorized at March 31, 2008 and December 31, 2008, respectively; 26,143,612 and 27,104,091 shares issued and 26,092,172 and 27,052,651 shares outstanding at March 31, 2008 and December 31, 2008, respectively		26			27
Class B common stock, $0.001 par value per share; 15,000,000 shares authorized; 733,811 shares issued and outstanding at each of March 31, 2008 and December 31, 2008		1			1
Additional paid-in capital		168,844			172,460
Treasury stock, at cost; 51,440 Class A shares		(172	)		(172	)
Accumulated deficit		(100,692	)		(128,714	)
Total stockholders’ equity		68,007			43,602
Total liabilities and stockholders’ equity	$	373,676		$	329,044

See accompanying notes to Condensed Consolidated Financial Statements

ACCESS INTEGRATED TECHNOLOGIES, INC.

d/b/a CINEDIGM DIGITAL CINEMA CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share data)

(Unaudited)

	For the Three Months Ended December 31,							For the Nine Months Ended December 31,
			2007			2008			2007			2008
Revenues		$	21,480		$	22,710		$	59,092		$	65,129

Costs and Expenses:
Direct operating (exclusive of depreciation and amortization shown below)			6,608			7,068			19,798			19,597
Selling, general and administrative			6,090			4,691			17,127			13,711
Provision for doubtful accounts			321			98			691			271
Research and development			180			107			503			207
Stock-based compensation			162			295			361			653
Impairment of goodwill			—			6,525			—			6,525
Depreciation of property and equipment			8,020			8,126			20,950			24,394
Amortization of intangible assets			1,071			821			3,210			2,669
Total operating expenses			22,452			27,731			62,640			68,027
Loss from operations			(972	)		(5,021	)		(3,548	)		(2,898	)

Interest income			448			88			1,174			311
Interest expense			(7,703	)		(6,935	)		(20,530	)		(21,101	)
Debt refinancing expense			—			—			(1,122	)		—
Other expense, net			(125	)		(162	)		(426	)		(488	)
Change in fair value of interest rate swap			—			(5,411	)		—			(3,846	)
Net loss		$	(8,352	)	$	(17,441	)	$	(24,452	)	$	(28,022	)

Net loss per Class A and Class B common share - basic and diluted		$	(0.32	)	$	(0.63	)	$	(0.96	)	$	(1.03	)

Weighted average number of Class A and Class B common shares outstanding:
Basic and diluted			25,931,467			27,566,462			25,344,944			27,324,324

See accompanying notes to Condensed Consolidated Financial Statements

ACCESS INTEGRATED TECHNOLOGIES, INC.

d/b/a CINEDIGM DIGITAL CINEMA CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	For the Nine Months Ended December 31,
	2007			2008
Cash flows from operating activities
Net loss	$	(24,452	)	$	(28,022	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Loss on disposal of property and equipment		49			164
Loss on impairment of goodwill		—			6,525
Depreciation of property and equipment and amortization of intangible assets		24,160			27,063
Amortization of software development costs		448			601
Amortization of debt issuance costs included in interest expense		1,065			1,134
Provision for doubtful accounts		691			271
Stock-based compensation		361			653
Non-cash interest expense		3,882			3,937
Debt refinancing expense		1,122			—
Gain on available-for-sale securities		(53	)		—
Change in fair value of interest rate swap		—			3,846
Changes in operating assets and liabilities:
Accounts receivable		(8,097	)		4,823
Unbilled revenue		(4,457	)		1,262
Prepaids and other current assets		(499	)		(670	)
Other assets		(102	)		(434	)
Accounts payable and accrued expenses		593			472
Deferred revenue		230			(23	)
Other liabilities		210			13
Net cash (used in) provided by operating activities		(4,849	)		21,615

Cash flows from investing activities
Purchases of property and equipment		(65,653	)		(18,115	)
Deposits paid for property and equipment		(20,052	)		—
Purchases of intangible assets		—			(550	)
Additions to capitalized software costs		(704	)		(825	)
Acquisition of UniqueScreen Media, Inc.		(121	)		—
Acquisition of The Bigger Picture		(15	)		—
Additional purchase price for EZZI.net		(35	)		—
Maturities and sales of available-for-sale securities		6,053			—
Purchase of available-for-sale securities		(6,000	)		—
Restricted long-term investment		(75	)		—
Net cash used in investing activities		(86,602	)		(19,490	)

Cash flows from financing activities
Repayment of notes payable		(12,694	)		(1,434	)
Proceeds from notes payable		51,491			—
Repayment of credit facilities		—			(9,676	)
Proceeds from credit facilities		62,161			569
Payments of debt issuance costs		(3,054	)		(518	)
Principal payments on capital leases		(55	)		(83	)
Proceeds for subscription of preferred stock		—			2,000
Costs associated with issuance of Class A common stock		(33	)		(73	)
Net proceeds from issuance of Class A common stock		35			—
Net cash provided by (used in) financing activities		97,851			(9,215	)
Net increase (decrease) in cash and cash equivalents		6,400			(7,090	)
Cash and cash equivalents at beginning of period		29,376			29,655
Cash and cash equivalents at end of period	$	35,776		$	22,565

See accompanying notes to Condensed Consolidated Financial Statements

ACCESS INTEGRATED TECHNOLOGIES, INC.

d/b/a CINEDIGM DIGITAL CINEMA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

($ in thousands, except for per share data)

1.	NATURE OF OPERATIONS

Access Integrated Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp. was incorporated in Delaware on March 31, 2000 and began doing business as Cinedigm Digital Cinema Corp. on November 25, 2008 (“Cinedigm”, and collectively with its subsidiaries, the “Company”). The Company provides fully managed storage, electronic delivery and software services and technology solutions for owners and distributors of digital content to movie theatres and other venues. The Company has three primary businesses, media services (“Media Services”), media content and entertainment (“Content & Entertainment”) and other (“Other”). The Company’s Media Services business provides software, services and technology solutions to the motion picture and television industries, primarily to facilitate the conversion from analog (film) to digital cinema and positioned the Company at what the Company believes to be the forefront of an industry relating to the delivery and management of digital cinema and other content to entertainment and other remote venues worldwide. The Company’s Content & Entertainment business provides motion picture exhibition to the general public and cinema advertising and film distribution services to movie exhibitors. The Company’s Other business provides hosting services and network access for other web hosting services (“Access Digital Server Assets”). Overall, the Company’s goal is to aid in the transformation of movie theatres to entertainment centers by providing a platform of hardware, software and content choices. Additional information related to the Company’s reporting segments can be found in Note 9.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The Company has incurred net losses historically and through the current period, and until recently, has used cash in operating activities, and has an accumulated deficit of $128,714 as of December 31, 2008. The Company also has significant contractual obligations related to its debt for the remaining part of fiscal year 2009 and beyond. Management expects that the Company will continue to generate net losses for the foreseeable future. Certain of the Company’s costs could be reduced if the Company’s working capital requirements increased. Based on the Company’s cash position at December 31, 2008, and expected cash flows from operations, management believes that the Company has the ability to meet its obligations through December 31, 2009. The Company is seeking to raise additional capital to refinance certain outstanding debt, to meet equipment requirements related to the Company’s second digital cinema deployment (the “Phase II Deployment”) and for working capital as necessary. Although the Company recently entered into certain agreements related to the Phase II Deployment (see Note 7), there is no assurance that financing for the Phase II Deployment 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. The accompanying unaudited condensed consolidated financial statements do not reflect any adjustments which may result from the Company’s inability to continue as a going concern.

The condensed consolidated balance sheet as of March 31, 2008, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements were prepared following the interim reporting requirements of the Securities and Exchange Commission (“SEC”). As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The Company’s unaudited condensed consolidated financial statements include the accounts of Cinedigm, Access Digital Media, Inc. (“AccessDM”), Hollywood Software, Inc. d/b/a AccessIT Software (“AccessIT SW”), Core Technology Services, Inc. (“Managed Services”), FiberSat Global Services, Inc. d/b/a AccessIT Satellite and Support Services (“AccessIT Satellite”), ADM Cinema Corporation (“ADM Cinema”) d/b/a the Pavilion Theatre (the “Pavilion Theatre”), Christie/AIX, Inc. d/b/a AccessIT Digital Cinema (“AccessIT DC”), PLX Acquisition Corp., UniqueScreen Media, Inc. (“USM”), Vistachiara Productions, Inc. d/b/a The Bigger Picture (“The Bigger Picture”),Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”) and Access Digital Cinema Phase 2 B/AIX Corp.

(“Phase 2 B/AIX’). AccessDM and AccessIT Satellite are together referred to as the Digital Media Services Division (“DMS”). All intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. On an on-going basis, the Company evaluates its estimates, including those related to the carrying values of its long-lived assets, intangible assets and goodwill, the valuation of deferred tax assets, the valuation of assets acquired and liabilities assumed in purchase business combinations, stock-based compensation expense, revenue recognition and capitalization of software development costs. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions.

The results of operations for the respective interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Cinedigm’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008 filed with the SEC on June 16, 2008 and as amended on June 26, 2008 and on September 11, 2008 (the “Form 10-K”).

REVENUE RECOGNITION

Media Services

Media Services revenues are generated as follows:

Revenues consist of:		Accounted for in accordance with:
Virtual print fees (“VPFs”) and alternative content fees (“ACFs”).		Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition in Financial Statements” (“SAB No. 104”).
Software multi-element licensing arrangements, software maintenance contracts, and professional consulting services, which includes systems implementation, training, and other professional services, delivery revenues via satellite and hard drive, data encryption and preparation fee revenues, satellite network monitoring and maintenance fees.		Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”
Custom software development services.		SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”)
Customer licenses and application service provider (“ASP Service”) agreements.		SAB No. 104

VPFs are earned pursuant to contracts with movie studios and distributors, whereby amounts are payable to AccessIT DC and will be payable to Phase 2 DC according to a fixed fee schedule, when movies distributed by the studio are displayed on screens utilizing the Company’s digital cinema equipment (the “Systems”) installed in movie theatres. One VPF is payable for every movie title displayed per System. The amount of VPF revenue is therefore dependent on the number of movie titles released and displayed on the Systems in any given accounting period. VPF revenue is recognized in the period in which the movie first opens for general audience viewing in that digitally-equipped movie theatre, as AccessIT DC’s and Phase 2 DC’s performance obligations have been substantially met at that time.

ACFs are earned pursuant to contracts with movie exhibitors, whereby amounts are payable to AccessIT DC and will be payable to Phase 2 DC, generally as a percentage of the applicable box office revenue derived from the exhibitor’s showing of content other than feature films, such as concerts and sporting events (typically referred to as “alternative content”). ACF revenue is recognized in the period in which the alternative content opens for audience viewing.

For software multi-element licensing arrangements that do not require significant production, modification or customization of the licensed software, revenue is recognized for the various elements as follows: Revenue for the licensed software element is recognized upon delivery and acceptance of the licensed software product, as that represents the culmination of the earnings process and the Company has no further obligations to the customer, relative to the software license. Revenue earned from consulting services is recognized upon the performance and completion of these services. Revenue earned from annual software maintenance is recognized ratably over the maintenance term (typically one year).

Revenues relating to customized software development contracts are recognized on a percentage-of-completion method of accounting in accordance with SOP 81-1.

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

Managed Services’ revenues, which consist of monthly recurring billings pursuant to network monitoring and maintenance contracts, are recognized as revenues in the month earned, and other non-recurring billings are recognized on a time and materials basis as revenues in the period in which the services were provided.

Content & Entertainment

Content & Entertainment revenues are generated as follows:

Revenues consist of:		Accounted for in accordance with:
Movie theatre admission and concession revenues.		SAB No. 104
Cinema advertising service revenues and distribution fee revenues.		SOP 00-2, “Accounting by Producers or Distributors of Films” (“SOP 00-2”)
Cinema advertising barter revenues		The Emerging Issues Task Force (“EITF”) 99-17, “Accounting for Advertising Barter Transactions” (“EITF 99-17”)

Movie theatre admission and concession revenues are generated at the Company’s nine-screen digital movie theatre, the Pavilion Theatre. Movie theatre admission revenues are recognized on the date of sale, as the related movie is viewed on that date and the Company’s performance obligation is met at that time. Concession revenues consist of food and beverage sales and are also recognized on the date of purchase.

USM has contracts with exhibitors to display pre-show advertisements on their screens, in exchange for certain fees paid to the exhibitors. USM then contracts with businesses of various types to place their advertisements in select theatre locations, designs the advertisement, and places it on-screen for specific periods of time, generally ranging from three to twelve months. Cinema advertising service revenue, and the associated direct selling, production and support cost, is recognized on a straight-line basis over the period the related in-theatre advertising is displayed, pursuant to the specific terms of each advertising contract. USM has the right to receive or bill the entire amount of the advertising contract upon execution, and therefore such amount is recorded as a receivable at the time of execution, and all related advertising revenue and all direct costs actually incurred are deferred until such time as the a in-theatre advertising is displayed.

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

Distribution fee revenue is recognized for the theatrical distribution of third party feature films and alternative content at the time of exhibition based on the Bigger Picture’s participation in box office receipts. The Bigger

Picture has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature films’ or alternative content’s theatrical release date.

Barter advertising revenue is recognized for the fair value of the advertising time surrendered in exchange for alternative content. The Company includes the value of such exchanges in both Content & Entertainment’s net revenues and direct operating expenses. There may be a timing difference between the screening of alternative content and the screening of the underlying advertising used to acquire the content. In accordance with EITF 99-17, the acquisition cost is being recorded and recognized as a direct operating expense by The Bigger Picture when the alternative content is screened, and the underlying advertising is being deferred and recognized as revenue ratably over the period such advertising is screened by USM. For the nine months ended December 31, 2007 and 2008, the Company has recorded $0 and $1,152, respectively, in net revenues and direct operating expenses with no impact on net loss.

Other

Other revenues, attributable to the Access Digital Server Assets, were generated as follows:

Revenues consist of:		Accounted for in accordance with:
Hosting and network access fees.		SAB No. 104

Since May 1, 2007, the Company’s internet data centers (“IDCs”) have been operated by FiberMedia AIT, LLC and Telesource Group, Inc. (together, “FiberMedia”), unrelated third parties, pursuant to a master collocation agreement. Although the Company is still the lessee of the IDCs, substantially all of the revenues and expenses were being realized by FiberMedia and not the Company and since May 1, 2008, 100% of the revenues and expenses are being realized by FiberMedia.

DEFERRED COSTS

Deferred costs primarily consist of the unamortized debt issuance costs related to the credit facility with General Electric Capital Corporation (“GECC”) and the $55,000 of 10% Senior Notes issued in August 2007 (see Note 5), which are amortized on a straight-line basis over the term of the respective debt. Also included in deferred costs is advertising production, post production and technical support costs related to developing and displaying advertising, which are capitalized and amortized on a straight-line basis over the same period as the related cinema advertising revenues are recognized.

DIRECT OPERATING COSTS

Direct operating costs consists of facility operating costs such as rent, utilities, real estate taxes, repairs and maintenance, insurance and other related expenses, direct personnel costs, film rent expense, amortization of capitalized software development costs, exhibitors payments for displaying cinema advertising and other deferred expenses, such as advertising production, post production and technical support related to developing and displaying advertising. These other deferred expenses are capitalized and amortized on a straight-line basis over the same period as the related cinema advertising revenues are recognized.

STOCK-BASED COMPENSATION

The Company has two stock-based employee compensation plans, which are described more fully in Note 6. Effective April 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. Under SFAS 123(R), the Company is required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions) and recognize such cost in the statement of operations over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). Pro forma disclosure is no longer an alternative.

For the three months ended December 31, 2007 and 2008, the Company recorded stock-based compensation expense of $162 and $295, respectively, and $361 and $653, for the nine months ended December 31, 2007 and 2008, respectively. The Company estimated that the stock-based compensation expense related to current

outstanding stock options, using a Black-Scholes option valuation model, and current outstanding restricted stock will be approximately $950 in fiscal 2009.

The weighted-average grant-date fair value of options granted during the three months ended December 31, 2007 and 2008 was $2.56 and $0, respectively, and during the nine months ended December 31, 2007 and 2008 was $2.90 and $0.58, respectively. The total intrinsic value of options exercised during the nine months ended December 31, 2007 and 2008 was approximately $25 and $0, respectively. There were no stock options exercised during the three months and nine months ended December 31, 2008.

The Company estimated the fair value of stock options at the date of each grant using a Black-Scholes option valuation model with the following assumptions:

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2007			2008			2007			2008
Range of risk-free interest rates		3.2-4.2	%		2.5-5.2	%		3.2-5.0	%		2.5-5.2	%
Dividend yield		—			—			—			—
Expected life (years)		5			5			5			5
Range of expected volatilities		52.5-54.6	%		52.5-58.7	%		52.5-54.6	%		52.5-58.7	%

The risk-free interest rate used in the Black-Scholes option pricing model for options granted under Cinedigm’s equity incentive plan is the historical yield on U.S. Treasury securities with equivalent remaining lives. The Company does not currently anticipate paying any cash dividends on its common stock in the foreseeable future. Consequently, an expected dividend yield of zero is used in the Black-Scholes option pricing model. The Company estimates the expected life of options granted under the Company’s stock option plans using both exercise behavior and post-vesting termination behavior. The Company estimates expected volatility for options granted under Cinedigm’s equity incentive plan based on a measure of historical volatility in the trading market for the Company’s shares of Class A Common Stock.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Internal Use Software

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

Software to be Sold, Licensed or Otherwise Marketed

The Company accounts for these software development costs under SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS No. 86”). SFAS No. 86 states that software development costs that are incurred subsequent to establishing technological feasibility are capitalized until the product is available for general release. Amounts capitalized as software development costs are amortized using the greater of revenues during the period compared to the total estimated revenues to be earned or on a straight-line basis over estimated lives ranging from three to five years. The Company reviews capitalized software costs for impairment on a periodic basis. To the extent that the carrying amount exceeds the estimated net realizable value of the capitalized software cost, an impairment charge is recorded. No impairment charge was recorded for the nine months ended December 31, 2007 and 2008, respectively. Amortization of capitalized software development costs, included in direct operating costs, for the three months ended December 31, 2007 and 2008 amounted to $153 and

$214, respectively and $448 and $601 for the nine months ended December 31, 2007 and 2008, respectively. At December 31, 2007 and 2008, unbilled receivables under such customized software development contracts was $1,528 and $885, respectively, which is included in unbilled revenue in the consolidated balance sheets. During the three months ended December 31, 2008, the Company reached an agreement with a customer regarding a customized product contract whereby the Company will cease development efforts on the customized product and the customer will complete the development of the product going forward at their sole expense and deliver the completed product back to the Company. The Company will continue to own the product at all times and retains the rights to market the finished product to others. The customer agreed to make certain payments to the Company as settlement of all billed and unbilled amounts. After all such payments have been received, the Company will have approximately $400 of unbilled amounts remaining. The Company believes this amount will be recoverable from future sales of the product to other customers.

BUSINESS COMBINATIONS

The Company adopted SFAS No. 141, “Business Combinations” (“SFAS No. 141”) which requires all business combinations to be accounted for using the purchase method of accounting and that certain intangible assets acquired in a business combination must be recognized as assets separate from goodwill. During the nine months ended December 31, 2008, the Company did not enter into any business combinations.

GOODWILL AND INTANGIBLE ASSETS

The carrying value of goodwill and other intangible assets with indefinite lives are reviewed for possible impairment in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 142 addresses the recognition and measurement of goodwill and other intangible assets subsequent to their acquisition. The Company tests its goodwill for impairment annually and in interim periods if certain events occur indicating that the carrying value of goodwill may be impaired. The Company reviews possible impairment of finite lived intangible assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. The Company records goodwill and intangible assets resulting from past business combinations.

The Company’s process of evaluating goodwill for impairment involves the determination of fair value of its four goodwill reporting units: AccessIT SW, The Pavilion Theatre, USM and The Bigger Picture. Identification of reporting units is based on the criteria contained in SFAS No. 142. The Company normally conducts its annual goodwill impairment analysis during the fourth quarter of each fiscal year, measured as of March 31, unless triggering events occur which require goodwill to be tested as of an interim date. As discussed further below, the Company concluded that one or more triggering events had occurred during the three months ended December 31, 2008 and conducted impairment tests as of December 31, 2008.

Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about the Company’s strategic plans with regard to its operations. To the extent additional information arises, market conditions change or the Company’s strategies change, it is possible that the conclusion regarding whether the Company’s remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on the Company’s consolidated financial position or results of operations.

The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses our projections of financial performance for a five-year period. The most significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal value and expected future revenues and gross margins, which vary among reporting units. The discount rates utilized as of the December 31, 2008 testing date range from 16.0% - 27.5% based on the estimated market participant weighted average cost of capital (“WACC”) for each unit. The market participant based WACC for each unit gives consideration to factors including, but not limited to, capital structure, historic and projected financial performance, and size.

multiplies and the control premium. The Company has elected not to apply a control premium to the fair value conclusions for the purposes of impairment testing.

The Company then assigns a weighting to the discounted cash flows and market multiple methodologies to derive the fair value of the reporting unit. The income approach is weighted 60% to 70% and the market approach is weighted 40% to 30% to derive the fair value of the reporting unit. The weightings are evaluated each time a goodwill impairment assessment is performed and give consideration to the relative reliability of each approach at that time.

Based on the results of our impairment evaluation, the Company recorded an impairment charge of $6,525 in the quarter ended December 31, 2008 related to our content and entertainment reporting segment.

The changes in the carrying amount of goodwill for the nine months ended December 31, 2008 are as follows:

Balance at March 31, 2008	$	14,549
Goodwill impairment		(6,525	)
Balance at December 31, 2008	$	8,024

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are being amortized over the shorter of the lease term or the estimated useful life of the improvement. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation are removed from the accounts and the gain or loss is included in the statement of operations.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews the recoverability of its long-lived assets on a periodic basis in order to identify business conditions, which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If the total of expected future undiscounted cash flows is less than the total carrying value of the assets, a loss is recognized for the difference between the fair value (computed based upon the expected future discounted cash flows) and the carrying value of the assets. During the nine months ended December 31, 2007 and 2008, no impairment charge for long-lived assets was recorded.

NET LOSS PER SHARE

Computations of basic and diluted net loss per share of the Company’s Class A common stock (“Class A Common Stock”) and Class B common stock (“Class B Common Stock”, and together with the Class A Common Stock, the “Common Stock”) have been made in accordance with SFAS No. 128, “Earnings Per Share”. Basic and diluted net loss per share have been calculated as follows:

Basic and diluted net loss per share =	Net loss
	Weighted average number of Common Stock outstanding during the period

Shares issued and any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding.

The Company incurred net losses for each of the three and nine months ended December 31, 2007 and 2008 and, therefore, the impact of dilutive potential common shares from outstanding stock options, warrants, restricted stock, and restricted stock units, totaling 2,934,168 shares and 4,335,382 shares as of December 31, 2007 and 2008, respectively, were excluded from the computation as it would be anti-dilutive.

ACCOUNTING FOR DERIVATIVES

In April 2008, the Company executed an interest rate swap agreement (the “Interest Rate Swap”) (see Note 5) to limit the Company’s exposure to changes in interest rates. The Interest Rate Swap is a derivative financial instrument, which the Company accounts for pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and requires that all derivatives be recorded at fair value on the balance sheet. Changes in fair value of derivative financial instruments are either recognized in other comprehensive income (a component of stockholders' equity) or in the consolidated statement of operations depending on whether the derivative is being used to hedge changes in cash flows or fair value. The Company has determined that this is not a hedging transaction and changes in the value of its Interest Rate Swap were recorded in the consolidated statement of operations (see Note 5).

Fair Value of Financial Instruments

On April 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157), for financial assets and liabilities. The statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors:

·	Level 1 – quoted prices in active markets for identical investments

·	Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

·	Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities.

The following table summarizes the levels of fair value measurements of the Company’s financial assets:

	Financial Assets at Fair Value as of December 31, 2008
	Level 1		Level 2			Level 3
Cash and cash equivalents	$	22,565	$	—		$	—
Interest rate swap		—	$	(3,846	)		—

3.	RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 applies to derivatives and other financial instruments measured at fair value under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) at initial recognition and in all subsequent periods. Therefore, SFAS 157 nullifies the guidance in footnote 3 of the Emerging Issues Task Force (“EITF”) Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (“EITF 02-3”). SFAS 157 also amends SFAS 133 to remove the similar guidance to that in EITF 02-3, which was added by SFAS 155. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

Relative to SFAS 157, the FASB issued FASB Staff Positions (“FSP”) FAS 157-1 and FSP FAS 157-2. FSP FAS 157-1 amends SFAS 157 to exclude SFAS No. 13, “Accounting for Leases” (SFAS 13), and its related interpretive accounting pronouncements that address leasing transactions, while FSP FAS 157-2 delays the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.

The Company adopted SFAS 157 as of April 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial liabilities for which the Company has not applied the provisions of SFAS 157 include those measured at fair value in goodwill impairment testing, indefinite lived intangible assets measured at fair value for impairment testing, and those non-recurring nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination. The adoption of SFAS 157 did not have a material impact the Company’s consolidated financial statements (see Note 2).

In October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active. FSP FAS 157-3 is effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application should be accounted for as a change in accounting estimate following the guidance in FASB Statement No. 154, “Accounting Changes and Error Corrections.” FSP FAS 157-3 was effective for the financial statements included in the Company’s quarterly report for the period ended September 30, 2008, and application of FSP FAS 157-3 had no impact on the Company’s condensed consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to elect to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and early adoption is permitted provided the entity also elects to apply the provisions of SFAS 157. The Company adopted SFAS 159 on April 1, 2008 and elected not to measure any additional financial instruments and other items at fair value.

In December 2007, the FASB released SFAS No. 141(R), “Business Combinations (revised 2007)” (“SFAS 141(R)”), which changes many well-established business combination accounting practices and significantly affects how acquisition transactions are reflected in the financial statements. Additionally, SFAS 141(R) will affect how companies negotiate and structure transactions, model financial projections of acquisitions and communicate to stakeholders. SFAS 141(R) must be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141(R) will have an impact on the Company’s consolidated financial statements related to any future acquisitions.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company does not believe that SFAS 160 will have a material impact on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not believe that SFAS 161 will have a material impact on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3,”Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 applies to all recognized intangible assets and its guidance is restricted to estimating the useful life of recognized intangible assets. FSP FAS 142-3 is effective for the first fiscal period beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. The Company will be required to adopt FSP FAS 142-3 to intangible assets acquired beginning with the first quarter of fiscal 2010.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS 162 is effective 60 days following the SEC’s approval of Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not believe that SFAS 162 will have a material impact on its consolidated financial statements.

4.	NOTES RECEIVABLE

Notes receivable consisted of the following:

	As of March 31, 2008				As of December 31, 2008
Note Receivable (as defined below)	Current Portion		Long Term Portion		Current Portion		Long Term Portion
Exhibitor Note	$	50	$	91	$	53	$	51
Exhibitor Install Notes		95		1,002		116		930
TIS Note		—		100		100		—
FiberMedia Note		—		—		631		—
Other		13		27		13		21
	$	158	$	1,220	$	913	$	1,002

In March 2006, in connection with AccessIT DC’s Phase I Deployment (see Note 7), a certain motion picture exhibitor issued to the Company a 7.5% note receivable for $231 (the “Exhibitor Note”), in return for the Company’s payment for certain financed digital projectors. The Exhibitor Note requires monthly principal and interest payments through September 2010. As of December 31, 2008, the outstanding balance of the Exhibitor Note was $104.

In connection with AccessIT DC’s Phase I Deployment (see Note 7), the Company agreed to provide financing to certain motion picture exhibitors upon the billing to the motion picture exhibitors by Christie Digital Systems USA, Inc. (“Christie”) for the installation costs associated with the placement of digital cinema projection systems (the “Systems”) in movie theatres. In April 2006, certain motion picture exhibitors agreed to issue to the Company two 8% notes receivable for an aggregate of $1,287 (the “Exhibitor Install Notes”). Under the Exhibitor Install Notes, the motion picture exhibitors are required to make monthly interest only payments through October 2007 and quarterly principal and interest payments thereafter through August 2009 and August 2017, respectively. As of December 31, 2008, the aggregate outstanding balance of the Exhibitor Install Notes was $1,046.

Prior to the Company’s acquisition of USM, Theatre Information Systems, Ltd. (“TIS”), a developer of proprietary software, issued to USM a 4.5% note receivable for $100 (the “TIS Note”) to fund final modifications to certain proprietary software and the development and distribution of related marketing materials. Interest accrues monthly on the outstanding principal amount. The TIS Note and all the accrued interest is due in one lump-sum payment in April 2009. Provided that the TIS Note has not been previously repaid, the entire unpaid principal balance and any accrued but unpaid interest may, at USM’s option, be converted into a 10% limited partnership interest in TIS. As of December 31, 2008, the outstanding balance of the TIS Note was $100.

In November 2008, FiberMedia issued to the Company a 10% note receivable for $631 (the “FiberMedia Note”) related to certain expenses FiberMedia is required to repay to the Company under a master collocation agreement of the IDCs. FiberMedia is required to make monthly principal and interest payments beginning in January 2009 through July 2009. As of December 31, 2008, the aggregate outstanding balance of the FiberMedia Install Notes was $631.

The Company has not experienced a default by any party to any of their obligations in connection with any of the above notes.

5.	DEBT AND CREDIT FACILITIES

Notes payable consisted of the following:

	As of March 31, 2008				As of December 31, 2008
Note Payable (as defined below)	Current Portion		Long Term Portion		Current Portion		Long Term Portion
HS Notes	$	540	$	—	$	90	$	—
Boeing Note		450		—		—		—
First USM Note		414		221		221		—
SilverScreen Note		113		20		47		—
Vendor Note *		—		9,600		—		9,600
2007 Senior Notes		—		55,000		—		55,000
Other		50		—		15		—
GE Credit Facility *		15,431		185,848		24,195		167,440
NEC Facility		—		—		161		376
	$	16,998	$	250,689	$	24,729	$	232,416

* The Vendor Note and the GE Credit Facility are not guaranteed by the Company or its other subsidiaries, other than AccessIT DC.

In November 2003, the Company issued two 5-year, 8% notes payable aggregating $3,000 (the “HS Notes”) to the founders of AccessIT SW as part of the purchase price for AccessIT SW. In March 2007, one of the holders of the HS Notes agreed to reduce their note by $150 for 30,000 shares of unregistered Class A Common Stock and forego $150 of principal payments at the end of their note term. During the nine months ended December 31, 2008, the Company repaid principal of $450 on the HS Notes. As of December 31, 2008, the outstanding principal balance of the HS Notes was $90.

In March 2004, in connection with the Boeing Digital Asset Acquisition, the Company issued a 4-year, non-interest bearing note payable with a face amount of $1,800 (the “Boeing Note”). The estimated fair value of the Boeing Note was determined to be $1,367 on the closing date. Interest was being imputed, at a rate of 12%, over the term of the Boeing Note, and was charged to non-cash interest expense. In April 2008, the Company repaid principal of $450 and the Boeing Note was repaid in full.

In July 2006, in connection with the acquisition of USM, the Company issued an 8% note payable in the principal amount of $1,204 (the “First USM Note”) and an 8% note payable in the principal amount of $4,000 (the “Second USM Note”), both in favor of the stockholders of USM. The First USM Note is payable in twelve equal quarterly installments commencing on October 1, 2006 until July 1, 2009. The Second USM Note was payable on November 30, 2006 or earlier if certain conditions were met, and was paid by the Company in October 2006. The First USM Note may be prepaid in whole or from time to time in part without penalty provided that the Company pays all accrued and unpaid interest. During the nine months ended December 31, 2008, the Company repaid principal of $414 on the First USM Note. As of December 31, 2008, the outstanding principal balance of the First USM Note was $221.

Prior to the Company’s acquisition of USM, USM had purchased substantially all the assets of SilverScreen Advertising Incorporated (“SilverScreen”) and issued a 3-year, 4% note payable in the principal amount of $333 (the “SilverScreen Note”) as part of the purchase price for SilverScreen. The SilverScreen Note is payable in equal monthly installments until May 2009. During the nine months ended December 31, 2008, the Company repaid principal of $86 on the SilverScreen Note. As of December 31, 2008, the outstanding principal balance of the SilverScreen Note was $47.

In October 2006, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with the purchasers party thereto (the “Purchasers”) pursuant to which the Company issued 8.5% Senior Notes (the “One Year Senior Notes”) in the aggregate principal amount of $22,000 (the “October 2006 Private Placement”). The term of the One Year Senior Notes was one year and could be extended for up to two 90-day periods at the discretion of the Company if certain market conditions were met. Interest on the One Year Senior Notes would be paid on a quarterly basis in cash or, at the Company’s option and subject to certain conditions, in shares of its Class A Common Stock (“Interest Shares”). In addition, each quarter, the Company would issue shares of Class A

Common Stock to the Purchasers as payment of interest owed under the One Year Senior Notes based on a formula (“Additional Interest”). The Company also entered into a registration rights agreement with the Purchasers pursuant to which the Company agreed to register the resale of any shares of its Class A Common Stock issued pursuant to the One Year Senior Notes at any time and from time to time. In August 2007, the One Year Senior Notes were repaid in full with a portion of the proceeds from the refinancing which closed in August 2007, which is discussed further below.

In August 2007, AccessIT DC obtained $9,600 of vendor financing (the “Vendor Note”) for equipment used in AccessIT DC’s Phase I Deployment. The Vendor Note bears interest at 11% and may be prepaid without penalty. Interest is due semi-annually commencing February 2008. The balance of the Vendor Note, together with all unpaid interest is due on the maturity date of August 1, 2016. The Vendor Note is not guaranteed by the Company or its other subsidiaries, other than AccessIT DC. As of December 31, 2008, the outstanding principal balance of the Vendor Note was $9,600.

In August 2007, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with the purchasers party thereto (the “Purchasers”) pursuant to which the Company issued 10% Senior Notes (the “2007 Senior Notes”) in the aggregate principal amount of $55,000 (the “August 2007 Private Placement”). The term of the 2007 Senior Notes is three years which may be extended for one 6 month period at the discretion of the Company if certain conditions are met. Interest on the 2007 Senior Notes is payable on a quarterly basis in cash or, at the Company’s option and subject to certain conditions, in shares of its Class A Common Stock (“Interest Shares”). In addition, each quarter, the Company issues shares of Class A Common Stock to the Purchasers as payment of additional interest owed under the 2007 Senior Notes based on a formula (“Additional Interest”). The Company may prepay the 2007 Senior Notes in whole or in part following the first anniversary of issuance of the 2007 Senior Notes, subject to a penalty of 2% of the principal if the 2007 Senior Notes are prepaid prior to the two year anniversary of the issuance and a penalty of 1% of the principal if the 2007 Senior Notes are prepaid thereafter, and subject to paying the number of shares as Additional Interest that would be due through the end of the term of the 2007 Senior Notes. The net proceeds of approximately $53,200 from the August 2007 Private Placement were used for expansion of digital cinema rollout plans, to pay off the existing obligations under the $22,000 of One Year Senior Notes, to pay off certain other outstanding debt obligations, for investment in Systems and for working capital and other general corporate purposes. The Purchase Agreement also requires the 2007 Senior Notes to be guaranteed by each of the Company’s existing and, subject to certain exceptions, future subsidiaries (the “Guarantors”), other than AccessIT DC and its respective subsidiaries. Accordingly, each of the Guarantors entered into a subsidiary guaranty (the “Subsidiary Guaranty”) with the Purchasers pursuant to which it guaranteed the obligations of the Company under the 2007 Senior Notes. The Company also entered into a Registration Rights Agreement with the Purchasers pursuant to which the Company agreed to register the resale of any shares of its Class A Common Stock issued pursuant to the 2007 Senior Notes at any time and from time to time. As of December 31, 2007, all shares issued to the holders of the 2007 Senior Notes were registered for resale (see Note 6). Under the 2007 Senior Notes the Company agreed (i) to limit its total indebtedness to an aggregate of $315,000 until certain conditions were met, which conditions have been met allowing the Company to incur indebtedness in excess of $315,000 in the aggregate and (ii) not to, and not to cause its subsidiaries (except for AccessIT DC and its subsidiaries) to, incur indebtedness, with certain exceptions, including an exception for $10,000; provided that no more than $5,000 of such indebtedness is incurred by AccessDM or AccessIT Satellite or any of their respective subsidiaries except as incurred by AccessDM pursuant to a guaranty entered into in accordance with the GE Credit Facility (see below). At the present time, the Company and its subsidiaries, other than AccessIT DC and its subsidiaries, are prohibited from paying dividends under the terms of the 2007 Senior Notes. Interest expense on the 2007 Senior Notes for the three and nine months ended December 31, 2008 amounted to $1,375 and $4,092, respectively. As of December 31, 2008, the outstanding principal balance of the 2007 Senior Notes was $55,000.

CREDIT FACILITIES

In August 2006, AccessIT DC entered into an agreement with General Electric Capital Corporation (“GECC”) pursuant to which GECC and certain other lenders agreed to provide to AccessIT DC a $217,000 Senior Secured Multi Draw Term Loan (the “GE Credit Facility”). Proceeds from the GE Credit Facility were used for the purchase and installation of up to 70% of the aggregate purchase price, including all costs, fees or other expenses associated with the purchase acquisition, receipt, delivery, construction and installation of Systems in connection with AccessIT DC’s Phase I Deployment (see Note 7) and to pay transaction fees and expenses related to the GE Credit Facility, and for certain other specified purposes. The remaining cost of the Systems was funded from other sources of capital including contributed equity. Each of the borrowings by AccessIT DC bears interest, at the option of AccessIT DC and subject to certain conditions, based on the bank prime loan rate in the United States or the

Eurodollar rate, plus a margin ranging from 2.75% to 4.50%, depending on, among other things, the type of rate chosen, the amount of equity contributed into AccessIT DC and the total debt of AccessIT DC. Under the GE Credit Facility, AccessIT DC must pay interest only through July 31, 2008. Beginning August 31, 2008, in addition to the interest payments, AccessIT DC must repay approximately 71.5% of the principal amount of the borrowings over a five-year period with a balloon payment for the balance of the principal amount, together with all unpaid interest on such borrowings and any fees incurred by AccessIT DC pursuant to the GE Credit Facility on the maturity date of August 1, 2013. In addition, AccessIT DC may prepay borrowings under the GE Credit Facility in whole or in part, after July 31, 2007 and before August 1, 2010, subject to paying certain prepayment penalties ranging from 3% to 1%, depending on when the prepayment is made. The GE Credit Facility is required to be guaranteed by each of AccessIT DC’s existing and future direct and indirect domestic subsidiaries (the “Guarantors”) and secured by a first priority perfected security interest on all of the collective assets of AccessIT DC and the Guarantors, including real estate owned or leased, and all capital stock or other equity interests in AccessIT DC and its subsidiaries, subject to specified exceptions. The GE Credit Facility is not guaranteed by the Company or its other subsidiaries, other than AccessIT DC. During the nine months ended December 31, 2008, the Company repaid principal of $9,644 on the GE Credit Facility. As of December 31, 2008, the outstanding principal balance of the GE Credit Facility was $191,635 at a weighted average interest rate of 7.1%.

Under the GE Credit Facility, as amended, AccessIT DC is required to maintain compliance with certain financial covenants. Material covenants include a leverage ratio, and an interest coverage ratio. In September 2007, AccessIT DC entered into the third amendment with respect to the GE Credit Facility to (1) lower the interest reserve from 12 months to 9 months; (2) modify the definition of total equity ratio to count as capital contributions (x) up to $23,300 of permitted subordinated indebtedness and (y) up to $4,000 of previously paid and approved expenses that were incurred during the deployment of Systems; (3) change the leverage ratio covenant; (4) add a new consolidated senior leverage ratio covenant; and (5) change the consolidated fixed charge coverage ratio covenant.

At December 31, 2008, the Company was in compliance with these covenants.

In April 2008, AccessIT DC executed the Interest Rate Swap, otherwise known as an “arranged hedge transaction” or "synthetic fixed rate financing" with a counterparty for a notional amount of approximately 90% of the amounts outstanding under the GE Credit Facility or an initial amount of $180,000. Under the Interest Rate Swap, AccessIT DC will effectively pay a fixed rate of 7.3%, to guard against AccessIT DC’s exposure to increases in the variable interest rate under the GE Credit Facility. GE Corporate Financial Services arranged the transaction, which took effect commencing August 1, 2008 as required by the GE Credit Facility and will remain in effect until August 2010. As principal repayments of the GE Credit Facility occur, the notional amount will decrease by a pro rata amount, such that approximately 90% of the remaining principal amount will be covered by the Interest Rate Swap at any time.

Previously, the Interest Rate Swap was classified as an asset, however as a result from the recent decline in Libor rates and the outlook for Libor to remain below the Company’s 2.8% fixed Libor rate, the Interest Rate Swap is currently being shown as a liability. Upon any refinance of the GE Credit Facility or other early termination or at the maturity date of the Interest Rate Swap, the fair value of the Interest Rate Swap, whether favorable to the Company or not, would be settled in cash with the counter party. The fair value of the Interest Rate Swap liability was $3,846 at December 31, 2008 and a loss of $5,411 and $3,846 was recorded in the consolidated statement of operations for the three months and nine months ended December 31, 2008, respectively.

In May 2008, AccessDM entered into a credit facility with NEC Financial Services, LLC (the “NEC Facility”) to fund the purchase and installation of equipment to enable the exhibition of 3-D live events in movie theatres as part of the Company’s CineLiveTM product offering. The NEC Facility provides for maximum borrowings of up to approximately $2,000, repayments over a 47 month period, and interest at annual rates ranging from 8.25-8.44%. As of December 31, 2008, AccessDM has borrowed $569 and the equipment purchased therewith is included in property and equipment within the unaudited condensed consolidated balance sheets as of December 31, 2008. During the nine months ended December 31, 2008, the Company repaid principal of $32 on the NEC Credit Facility. As of December 31, 2008, the outstanding principal balance of the NEC Credit Facility was $537.

In December 2008, Phase 2 B/AIX, an indirect wholly-owned subsidiary of the Company, entered into a credit facility (the “Barco Related Facility”) with a bank to fund the purchase of Systems from Barco N.V., to be installed in movie theatres as part of the Company’s Phase II Deployment. The Barco Related Facility provides for borrowings of up to a total of $8,900 in tranches as necessary through December 31, 2009 (the “Draw Down Period”) and requires interest-only payments at 7.3% per annum during the Draw Down Period. The principal is to

be repaid in twenty-eight equal quarterly installments commencing in March 2010 (the “Repayment Period”) at an interest rate of 8.5% per annum during the Repayment Period. The Barco Related Facility may be prepaid at any time without penalty and is not guaranteed by the Company or its other subsidiaries. As of December 31, 2008, no funds have been drawn down on the Barco Related Facility.

6.	STOCKHOLDERS’ EQUITY

CAPITAL STOCK

COMMON STOCK

In August 2004, the Company’s Board authorized the repurchase of up to 100,000 shares of Class A Common Stock, which may be purchased at prevailing prices from time-to-time in the open market depending on market conditions and other factors. Under the terms of the 2007 Senior Notes (see Note 5), the Company is currently precluded from purchasing shares of its Class A Common Stock. As of December 31, 2008, the Company has repurchased 51,440 shares of Class A Common Stock for an aggregate purchase price of $172, including fees, which have been recorded as treasury stock.

In April 2007, in connection with the acquisition of USM and the achievement of certain digital cinema deployment milestones, the Company issued 67,906 shares of the Company’s Class A Common Stock, with a value of $512, to the USM Stockholders as additional purchase price. The Company agreed to register the resale of these shares of Class A Common Stock with the SEC. The Company filed a registration statement on Form S-3 on April 27, 2007, which was declared effective by the SEC on May 18, 2007.

In June 2007, the Company issued 74,947 and 72,104 shares of Class A Common Stock as Additional Interest and Interest Shares, respectively, pursuant to the One Year Senior Notes (see Note 5). The Company agreed to register the resale of these shares of Class A Common Stock with the SEC. The Company filed a registration statement on Form S-3 on July 27, 2007, which was declared effective by the SEC on August 9, 2007.

In July 2007, in connection with the acquisition of USM and the achievement of certain digital cinema deployment milestones, the Company issued an additional 77,955 shares of the Company’s Class A Common Stock, with a value of $488, to the USM Stockholders as additional purchase price. The Company agreed to register the resale of these shares of Class A Common Stock with the SEC. The Company filed a registration statement on Form S-3 on July 27, 2007, which was declared effective by the SEC on August 9, 2007.

In August 2007, the Company issued 105,715 shares of Class A Common Stock as Interest Shares pursuant to the One Year Senior Notes (see Note 5) for interest due up through the date refinanced. The Company issued an additional 104,971 shares of Class A Common Stock as an inducement for certain holders of the One Year Senior Notes to invest in the August 2007 Private Placement and $686 was recorded as debt refinancing expense for the value of such shares. The Company agreed to register the resale of all 210,686 shares of Class A Common Stock with the SEC. The Company filed a registration statement on Form S-3 on September 26, 2007, which was declared effective by the SEC on November 2, 2007.

Pursuant to the 2007 Senior Notes, in August 2007 the Company issued 715,000 shares of Class A Common Stock (the “Advance Additional Interest Shares”) covering the first 12 months of Additional Interest (see Note 5). The Company registered the resale of these shares of Class A Common Stock and also registered the resale of an additional 1,249,875 shares of Class A Common Stock for future Interest Shares and Additional Interest. The Company filed a registration statement on Form S-3 on September 26, 2007, which was declared effective by the SEC on November 2, 2007. The Company is recording the value of the Advance Additional Interest Shares of $4,676 to interest expense over the 36 month term of the 2007 Senior Notes. For the nine months ended December 31, 2007 and 2008, the Company recorded $267 and $1,202, respectively, of interest expense in connection with the Advance Additional Interest Shares.

Commencing with the quarter ended December 31, 2008 and through the maturity of the 2007 Senior Notes in the quarter ended September 30, 2010, the Company is obligated to issue a minimum of 132,000 shares or a maximum of 220,000 shares of Class A Common Stock per quarter as Additional Interest (the “Additional Interest Shares”). The Company estimated the value of the Additional Interest Shares to be $5,244 and is recording that amount over the 36 month term of the 2007 Senior Notes. For the nine months ended December 31, 2007 and 2008, the Company recorded $0 and $1,311, respectively, to interest expense in connection with the Additional Interest

Shares. In December 2008, the Company issued 220,000 shares of Class A Common Stock, respectively, as Additional Interest Shares valued at $81.

In December 2007, March 2008 and June 2008, the Company issued 345,944, 548,572 and 635,847 shares of Class A Common Stock, respectively, as Interest Shares pursuant to the 2007 Senior Notes (see Note 5), which were part of the 1,249,875 shares of Class A Common Stock previously registered for resale on the registration statement on Form S-3 filed on September 26, 2007, which was declared effective by the SEC on November 2, 2007 and part of an additional 500,000 shares of Class A Common Stock the resale of which was registered on the registration statement on Form S-3, which was filed on May 6, 2008, and was declared effective by the SEC on June 30, 2008. The resale of an additional 750,000 shares of Class A Common Stock issued as future Interest Shares and Additional Interest Shares were registered on the registration statement on Form S-3, which was filed on September 12, 2008, and has not yet been declared effective. For the nine months ended December 31, 2007 and 2008, the Company recorded $1,546 and $1,342, respectively, as non-cash interest expense in connection with the Interest Shares.

In April 2008, in connection with the acquisition of Managed Services in January 2004, the Company issued 15,219 shares of unregistered Class A Common Stock as additional purchase price based on subsequent performance of the business acquired. The value of such shares was accrued for in the fiscal year ended March 31, 2008. No additional purchase price will be payable in connection with the acquisition of Managed Services.

In April 2008, in connection with the acquisition of the Access Digital Server Assets by the Company in January 2006, the Company issued 30,000 shares of unregistered Class A Common Stock as additional purchase price based on subsequent performance. The value of such shares was accrued for in the fiscal year ended March 31, 2008. No additional purchase price will be payable in connection with the acquisition of the Access Digital Server Assets.

In connection with the acquisition of The Bigger Picture in January 2007, The Bigger Picture entered into a services agreement (the “SD Services Agreement”) with SD Entertainment, Inc. (“SDE”) to provide certain services, such as the provision of shared office space and certain shared administrative personnel. The SD Services Agreement is on a month-to-month term and requires the Company to pay approximately $17 per month, of which 70% may be paid periodically in the form of Cinedigm Class A Common Stock, at the Company’s option. In June 2008 and September 2008, the Company issued 24,579 and 22,010 shares of unregistered Class A Common Stock with a value of $60 and $33, respectively, to SDE as partial payment for such services and resources.

In September 2008, the Company amended its Fourth Amended and Restated Certificate of Incorporation to designate as Class A Common Stock the 25,000,000 shares of undesignated common stock.

In September 2008, the Company issued 12,824 shares of Class A Common Stock for restricted stock awards that vested.

PREFERRED STOCK SUBSCRIPTION

In December 2008, the Company received subscription proceeds of $2,000 from an investor for Series A 10% Non-Voting Cumulative Preferred Stock (“Preferred Stock”) to be issued. The Company recorded the $2,000 as a liability at December 31, 2008. See Note 10 for subsequent events.

CINEDIGM’S EQUITY INCENTIVE PLAN

Stock Options

Cinedigm’s equity incentive plan (“the Plan”) provides for the issuance of options and other equity-based awards to purchase up to 3,700,000 shares of Class A Common Stock to employees, outside directors and consultants.

During the nine months ended December 31, 2008, under the Plan, the Company granted stock options to purchase 5,500 and 320,003 shares of its Class A Common Stock to its employees at an exercise price of $3.87 and $3.25 per share, respectively. As of December 31, 2008, the weighted average exercise price for outstanding stock options is $6.11 and the weighted average remaining contractual life is 6.7 years.

The following table summarizes the activity of the Plan:

	Shares Under Option				Weighted Average Fair Value Per Share
Balance at March 31, 2008		2,076,569	(1	)	$	4.77
Granted		325,503				.58
Exercised		—				—
Forfeited		(87,750	)			6.62
Balance at December 31, 2008		2,314,322			$	4.11

(1)

As of March 31, 2008, there were no shares available for issuance under the Plan, due to the number of options and restricted stock currently outstanding along with historical option exercises. An expansion of the number of shares issuable under the Plan was obtained at the Company’s 2008 Annual Meeting of Stockholders held on September 4, 2008.

Restricted Stock Awards

The Plan also provides for the issuance of restricted stock awards. During the nine months ended December 31, 2008, the Company granted 723,700 restricted stock units. The Company may pay such restricted stock units upon vesting in cash or shares of Class A Common Stock or a combination thereof at the Company’s discretion.

The following table summarizes the activity of the Plan related to restricted stock awards:

	Restricted Stock Awards			Weighted Average Fair Value Per Share
Balance at March 31, 2008		102,614		$	3.78
Granted		723,700			1.66
Vested		(12,824	)		5.56
Forfeitures		(19,901	)		2.52
Balance at December 31, 2008		793,589		$	1.85

ACCESSDM STOCK OPTION PLAN

AccessDM’s separate stock option plan (the “AccessDM Plan”) provides for the issuance of options to purchase up to 2,000,000 shares of AccessDM common stock to employees. During the nine months ended December 31, 2008, there were no AccessDM options granted. As of December 31, 2008, the weighted average exercise price for outstanding stock options is $0.95 and the weighted average remaining contractual life is 5.1 years.

The following table summarizes the activity of the AccessDM Plan:

	Shares Under Option				Weighted Average Fair Value Per Share
Balance at March 31, 2008		1,055,000	(2	)	$	0.71	(1	)
Granted		—				—
Exercised		—				—
Forfeited		—				—
Balance at December 31, 2008		1,055,000	(2	)	$	0.71	(1	)

(1)	Since there is no public trading market for AccessDM’s common stock, the fair market value of AccessDM’s common stock on the date of grant was determined by an appraisal of such options.

(2)	As of December 31, 2008, there were 50,000,000 shares of AccessDM’s common stock authorized and 19,213,758 shares of AccessDM’s common stock issued and outstanding.

WARRANTS

Warrants outstanding consisted of the following:

Outstanding Warrant (as defined below)	March 31, 2008		December 31, 2008
July 2005 Private Placement Warrants		467,275		467,275
August 2005 Warrants		760,196		760,196
		1,227,471		1,227,471

In July 2005, in connection with the July 2005 Private Placement, the Company issued warrants to purchase 477,275 shares of Class A Common Stock at an exercise price of $11.00 per share (the “July 2005 Private Placement Warrants”). The July 2005 Private Placement Warrants were exercisable beginning on February 18, 2006 for a period of five years thereafter. The July 2005 Private Placement Warrants are callable by the Company, provided that the closing price of the Company’s Class A Common Stock is $22.00 per share, 200% of the applicable exercise price, for twenty consecutive trading days. The Company agreed to register the resale of the shares of Class A Common Stock underlying the July 2005 Private Placement Warrants with the SEC. The Company filed a Form S-3 on August 18, 2005, which was declared effective by the SEC on August 31, 2005.

In August 2005, in connection with a conversion agreement, certain warrants were exercised for $2,487 and the Company issued to the investors 560,196 shares of Class A Common Stock and warrants to purchase 760,196 shares of Class A Common Stock at an exercise price of $11.39 per share (the “August 2005 Warrants”). The August 2005 Warrants were immediately exercisable upon issuance and for a period of five years thereafter. The Company was required to register the resale of the shares of Class A Common Stock underlying the August 2005 Warrants with the SEC. The Company filed a Form S-3 on November 16, 2005, which was declared effective by the SEC on December 2, 2005.

7.	COMMITMENTS AND CONTINGENCIES

In October 2008, in connection with the Phase II Deployment, Phase 2 DC 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 VPFs to Phase 2 DC. Phase 2 DC also entered into master license agreements with three exhibitors covering a total of 493 screens, whereby the exhibitors agreed to the placement of Systems as part of the Phase II Deployment. Installation of Systems in the Phase II Deployment is still contingent upon the completion of appropriate vendor supply agreements and financing for the purchase of Systems. As of December 31, 2008, there were 47 Systems, which had been previously installed by exhibitors and are part of the Phase II Deployment. The Company will purchase these Systems which have an aggregate cost of approximately $3,400.

In November 2008, in connection with the Phase II Deployment, Phase 2 DC entered into a supply agreement with Christie, for the purchase of up to 10,000 Systems from Christie at agreed upon pricing, as part of the Phase II Deployment. As of December 31, 2008, the Company had not purchased any Systems under this agreement.

In November 2008, in connection with the Phase II Deployment, Phase 2 DC entered into a supply agreement with Barco, Inc. (“Barco”), for the purchase of up to 5,000 Systems from Barco at agreed upon pricing, as part of the Phase II Deployment. As of December 31, 2008, the Company had not purchased any Systems under this agreement.

Litigation

A subsidiary of the Company, ADM Cinema, was named as a defendant in an action filed on May 19, 2008 in the Supreme Court of the State of New York, County of Kings by Pavilion on the Park, LLC (“Landlord”). Landlord is the owner of the premises located at 188 Prospect Park West, Brooklyn, New York, known as the Pavilion Theatre. Pursuant to the relevant lease, ADM Cinema leases the Pavilion Theatre from Landlord and operates it as a movie theatre.

In the complaint, Landlord alleges that ADM Cinema violated its obligations under Article 12 of the lease in that

ADM Cinema failed to comply with an Order of the Fire Department of the City of New York issued on September 24, 2007 calling for the installation of a sprinkler system in the Pavilion Theatre and that such violation constitutes an event of default under the lease. Landlord seeks to terminate the lease and evict ADM Cinema from the premises and to recover its attorneys’ fees and damages for ADM Cinema’s alleged “holding over” by remaining on the premises. The Company believes that it has meritorious defenses against these claims and the Company intends to defend its position vigorously. However, if the Company does not prevail, any significant loss resulting in eviction may have a material effect on the Company’s business, results of operations and cash flows.

8.	SUPPLEMENTAL CASH FLOW DISCLOSURE

	For the Nine Months ended December 31,
	2007		2008
Supplemental disclosure:
Interest paid	$	14,149	$	15,758

Noncash Investing and Financing Activities:
Equipment purchased from Christie included in accounts payable and accrued expenses at end of period	$	29,762	$	231
Deposits applied to equipment purchased from Christie	$	23,402	$	—
Issuance of Class A Common Stock as additional purchase price for USM	$	1,000	$	—
Issuance of Class A Common Stock as additional purchase price for Managed Services	$	29	$	82
Note payable issued for customer contract	$	75	$	—
One Year Senior Notes refinanced into 2007 Senior Notes	$	18,000	$	—
Legal fees from the holders of the 2007 Senior Notes included in debt issuance costs	$	109	$	—
Issuance of Class A Common Stock as additional purchase price for Access Digital Server Assets	$	—	$	129
Issuance of Class A Common Stock to SDE as payment for services and resources	$	—	$	93
Assets acquired under capital lease	$	—	$	92

For the nine months ended December 31, 2007 and 2008, included in purchases of property and equipment on the unaudited condensed consolidated statements of cash flows are payments made on prior period accounts payable and accrued expenses related to equipment additions of $19,239 and $15,701, respectively.

9.	SEGMENT INFORMATION

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

The Media Services segment consists of the following:

Operations of:		Products and services provided:
AccessIT DC and Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”)		Financing vehicles and administrators for the Company’s 3,723 Systems installed nationwide in AccessIT DC’s Phase I Deployment and Phase 2 DC’s second digital cinema deployment (the “Phase II Deployment”) to motion picture exhibitors. Collect VPFs from motion picture studios and distributors and ACFs from alternative content providers and movie exhibitors.
AccessIT SW		Develops and licenses software to the theatrical distribution and exhibition industries, provides ASP Service, and provides software enhancements and consulting services.
DMS		Stores and distributes digital content to movie theatres and other venues having digital projection equipment and provides satellite-based broadband video, data and Internet transmission, encryption management services, video network origination and management services and a virtual booking center to outsource the booking and scheduling of satellite and fiber networks and provides forensic watermark detection services for motion picture studios and forensic recovery services for content owners.
Managed Services		Provides information technology consulting services and managed network monitoring services through its global network command center.

The Content & Entertainment segment consists of the following:

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

The Other segment consists of the following:

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

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

100% of the revenues and expenses are being realized by FiberMedia.

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

	As of March 31, 2008
	Media Services	Content & Entertainment	Other	Corporate	Consolidated
Total intangible assets, net	$666	$12,924	$—	$2	$13,592
Total goodwill	$4,529	$9,857	$163	$—	$14,549
Total assets	$315,588	$39,755	$1,136	$17,197	$373,676

	As of December 31, 2008
	Media Services	Content & Entertainment	Other	Corporate	Consolidated
Total intangible assets, net	$757	$10,715	$—	$1	$11,473
Total goodwill	$4,529	$3,332	$163	$—	$8,024
Total assets	$288,557	$29,465	$711	$10,311	$329,044

Based on the Company’s most recent testing at December 31, 2008, the Company concluded that the fair value of its reporting units within the Content & Entertainment segment, was below the carrying amount and recorded an impairment charge of $6,525 (see Note 2).

Capital Expenditures	Media Services	Content & Entertainment	Other	Corporate	Consolidated
For the nine months ended December 31, 2007	$65,080	$537	$13	$23	$65,653
For the nine months ended December 31, 2008	$17,816	$275	$3	$21	$18,115

	For the Three Months Ended December 31, 2007
	Media Services	Content & Entertainment	Other	Corporate	Consolidated
Revenues from external customers	$15,353	$5,805	$322	$—	$21,480
Intersegment revenues	99	—	—	—	99
Total segment revenues	15,452	5,805	322	—	21,579
Less Intersegment revenues	(99)	—	—	—	(99)
Total consolidated revenues	$15,353	$5,805	$322	$—	$21,480

Direct operating (exclusive of depreciation and amortization shown below)	2,214	4,124	270	—	6,608
Selling, general and administrative	1,835	2,330	59	1,866	6,090
Provision for doubtful accounts	135	186	—	—	321
Research and development	180	—	—	—	180
Stock-based compensation	68	28	—	66	162
Depreciation of property and equipment	7,459	438	106	17	8,020
Amortization of intangible assets	191	879	—	1	1,071
Total operating expenses	12,082	7,985	435	1,950	22,452
Income (loss) from operations	$3,271	$(2,180)	$(113)	$(1,950)	$(972)

Interest income	227	1	—	220	448
Interest expense	(4,998)	(272)	—	(2,433)	(7,703)
Debt refinancing expense	—	—	—	—	—
Other expense, net	(87)	(2)	—	(36)	(125)
Net loss	$(1,587)	$(2,453)	$(113)	$(4,199)	$(8,352)

	For the Three Months Ended December 31, 2008
	Media Services	Content & Entertainment	Other	Corporate	Consolidated
Revenues from external customers	$16,351	$6,064	$295	$—	$22,710
Intersegment revenues	207	12	—	—	219
Total segment revenues	16,558	6,076	295	—	22,929
Less Intersegment revenues	(207)	(12)	—	—	(219)
Total consolidated revenues	$16,351	$6,064	$295	$—	$22,710

Direct operating (exclusive of depreciation and amortization shown below)	2,102	4,739	227	—	7,068
Selling, general and administrative	1,141	1,608	52	1,890	4,691
Provision for doubtful accounts	10	88	—	—	98
Research and development	107	—	—	—	107
Stock-based compensation	73	27	—	195	295
Impairment of goodwill	—	6,525	—	—	6,525
Depreciation of property and equipment	7,679	368	62	17	8,126
Amortization of intangible assets	115	706	—	—	821
Total operating expenses	11,227	14,061	341	2,102	27,731
Income (loss) from operations	$5,124	$(7,997)	$(46)	$(2,102)	$(5,021)

Interest income	44	1	—	43	88
Interest expense	(4,149)	(294)	—	(2,492)	(6,935)
Other expense, net	(49)	(87)	—	(26)	(162)
Change in fair value of interest rate swap	(5,411)	—	—	—	(5,411)
Net loss	$(4,441)	$(8,377)	$(46)	$(4,577)	$(17,441)

	For the Nine Months Ended December 31, 2007
	Media Services	Content & Entertainment	Other	Corporate	Consolidated
Revenues from external customers	$38,309	$19,807	$976	$—	$59,092
Intersegment revenues	465	—	—	—	465
Total segment revenues	38,774	19,807	976	—	59,557
Less Intersegment revenues	(465)	—	—	—	(465)
Total consolidated revenues	$38,309	$19,807	$976	$—	$59,092

Direct operating (exclusive of depreciation and amortization shown below)	6,401	12,728	669	—	19,798
Selling, general and administrative	5,261	7,274	156	4,436	17,127
Provision for doubtful accounts	183	508	—	—	691
Research and development	503	—	—	—	503
Stock-based compensation	165	70	—	126	361
Depreciation of property and equipment	19,278	1,305	316	51	20,950
Amortization of intangible assets	576	2,631	—	3	3,210
Total operating expenses	32,367	24,516	1,141	4,616	62,640
Income (loss) from operations	$5,942	$(4,709)	$(165)	$(4,616)	$(3,548)

Interest income	737	4	—	433	1,174
Interest expense	(13,821)	(1,037)	—	(5,672)	(20,530)
Debt refinancing expense	—	—	—	(1,122)	(1,122)
Other expense, net	(176)	(57)	—	(193)	(426)
Net loss	$(7,318)	$(5,799)	$(165)	$(11,170)	$(24,452)

	For the Nine Months Ended December 31, 2008
	Media Services	Content & Entertainment	Other	Corporate	Consolidated
Revenues from external customers	$46,702	$17,482	$945	$—	$65,129
Intersegment revenues	669	33	—	—	702
Total segment revenues	47,371	17,515	945	—	65,831
Less Intersegment revenues	(669)	(33)	—	—	(702)
Total consolidated revenues	$46,702	$17,482	$945	$—	$65,129

Direct operating (exclusive of depreciation and amortization shown below)	6,502	12,409	686	—	19,597
Selling, general and administrative	3,075	5,255	162	5,219	13,711
Provision for doubtful accounts	(40)	311	—	—	271
Research and development	207	—	—	—	207
Stock-based compensation	140	71	—	442	653
Impairment of goodwill	—	6,525	—	—	6,525
Depreciation of property and equipment	22,966	1,184	194	50	24,394
Amortization of intangible assets	459	2,208	—	2	2,669
Total operating expenses	33,309	27,963	1,042	5,713	68,027
Income (loss) from operations	$13,393	$(10,481)	$(97)	$(5,713)	$(2,898)

Interest income	142	3	—	166	311
Interest expense	(13,005)	(822)	—	(7,274)	(21,101)
Other expense, net	(191)	(166)	—	(131)	(488)
Change in fair value of interest rate swap	(3,846)	—	—	—	(3,846)
Net (loss) income	$(3,507)	$(11,466)	$(97)	$(12,952)	$(28,022)

10. SUBSEQUENT EVENTS

In January 2009, the Company issued 19,921 shares of Class A Common Stock for restricted stock awards that vested.

In January 2009, the Company issued 129,871 shares of unregistered Class A Common Stock with a value of approximately $100 as payment for services rendered related to the preferred stock subscription as discussed below.

In January 2009, in connection with the SD Services Agreement (see Note 6) the Company issued 70,432 shares of unregistered Class A Common Stock with a value of $49 to SDE as partial payment for such services and resources.

In February 2009, the Company issued Preferred Stock and warrants to purchase Class A Common Stock (the “Preferred Warrants”) to an investor for total proceeds of $2,000. The $2,000 proceeds had been received in December 2008 and was recorded by the Company as a liability as of December 31, 2008. The investor received 4 shares of Preferred Stock and Preferred Warrants to purchase 700,000 shares of Class A Common Stock with an exercise price of $0.66 per share. Dividends will accrue on the Preferred Stock at a rate of 10% per annum and are payable quarterly after the maturity date of the 2007 Senior Notes in cash or, at the Company’s option and subject to certain conditions, in shares of Class A Common Stock. The Preferred Warrants are exercisable beginning in March 2009 until the fifth anniversary of the date of grant.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the historical results of operations and financial condition of Cinedigm Digital Cinema Corp. (the “Company”) and factors affecting the Company’s financial resources. This discussion should be read in conjunction with the condensed consolidated financial statements, including the notes thereto, set forth herein under Item 1 “Financial Statements” and the Form 10-K.

This report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,“ and similar words. Forward-looking statements represent, as of the date of this report, our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Additional information regarding risks to the Company can be found below (see Part II Item 1A under Risk Factors).

In this report, “Cinedigm,” “we,” “us,” “our” refers to Access Integrated Technologies, Inc. d/b/a Cinedigm Digital Cinema Corp.and the “Company” refers to Cinedigm and its subsidiaries unless the context otherwise requires.

OVERVIEW

Cinedigm was incorporated in Delaware on March 31, 2000 and began doing business as Cinedigm Digital Cinema Corp. on November 25, 2008. We provide fully managed storage, electronic delivery and software services and technology solutions for owners and distributors of digital content to movie theatres and other venues. We have three primary businesses, media services (“Media Services”), media content and entertainment (“Content & Entertainment”) and other (“Other”). Our Media Services business provides software, services and technology solutions to the motion picture and television industries, primarily to facilitate the conversion from analog (film) to digital cinema and positioned us at what we believe to be the forefront of an industry relating to the delivery and management of digital cinema and other content to entertainment and other remote venues worldwide. Our Content & Entertainment business provides motion picture exhibition to the general public and cinema advertising and film distribution services to movie exhibitors. Our Other business provides hosting services and network access for other web hosting services (“Access Digital Server Assets”). Overall, our goal is to aid in the transformation of movie theatres to entertainment centers by providing a platform of hardware, software and content choices. Additional information related to the Company’s reporting segments can be found in Note 9 to the Company’s Unaudited Condensed Consolidated Financial Statements.

We have three reportable segments: Media Services, Content & Entertainment and Other. The Media Services segment of our business is comprised of FiberSat Global Services, Inc. d/b/a AccessIT Satellite and Support Services, (“AccessIT Satellite”), Access Digital Media, Inc. (“AccessDM” and, together with AccessIT Satellite, “DMS”), Christie/AIX, Inc. (“AccessIT DC”), PLX Acquisition Corp., Core Technology Services, Inc. (“Managed Services”) and Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”). The Content & Entertainment segment of our business is comprised of ADM Cinema Corporation (“ADM Cinema”) d/b/a the Pavilion Theatre (the “Pavilion Theatre”), UniqueScreen Media, Inc. (“USM”) and Vistachiara Productions, Inc. d/b/a The Bigger Picture (“The Bigger Picture”). Our Other segment consists of the operations of our Access Digital Server Assets. In the past our Other segment included the operations of our internet data centers (“IDCs”). However, since May 2007, the IDCs have been operated by FiberMedia, consisting of unrelated third parties, and substantially all of the revenues and expenses were being realized by FiberMedia and not the Company and since May 1, 2008, 100% of the revenues and expenses are being realized by FiberMedia.

The following organizational chart provides a graphic representation of our business and our three reporting segments:

We have incurred net losses historically and through the current period, and until recently, have used cash in operating activities, and have an accumulated deficit of $128.7 million as of December 31, 2008. We also have significant contractual obligations related to our debt for the remainder of fiscal year 2009 and beyond. We expect to continue generating net losses for the foreseeable future. Certain of our costs could be reduced if our working capital requirements increased. Based on our cash position at December 31, 2008, and expected cash flows from operations, we believe that we have the ability to meet our obligations through December 31, 2009. We are seeking to raise additional capital to refinance certain outstanding debt, to meet equipment requirements related to the Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”) second digital cinema deployment (the “Phase II Deployment”) and for working capital as necessary. Although we recently entered into certain agreements related to the Phase II Deployment, there is no assurance that financing for the Phase II Deployment will be completed as contemplated or under terms acceptable to us or our existing shareholders. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have a material adverse effect on our ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not reflect any adjustments which may result from our inability to continue as a going concern.

Goodwill Impairment

The carrying value of goodwill and other intangible assets with indefinite lives are reviewed for possible impairment in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 142 addresses the recognition and measurement of goodwill and other intangible assets subsequent to their acquisition. We test our goodwill for impairment annually and in interim periods if certain events occur indicating that the carrying value of goodwill may be impaired. We review possible impairment of finite lived intangible assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. The Company records goodwill and intangible assets resulting from past business combinations.

Our process of evaluating goodwill for impairment involves the determination of fair value of four goodwill reporting units: AccessIT SW, The Pavilion Theatre, USM and The Bigger Picture. Identification of reporting units is based on the criteria contained in SFAS No. 142. We normally conduct an annual goodwill impairment analysis during the fourth quarter of each fiscal year, measured as of March 31, unless triggering events occur which require goodwill to be tested as of an interim date. As discussed further below, we concluded that one or more triggering events had occurred during the three months ended December 31, 2008 and conducted impairment tests as of December 31, 2008.

assumptions about our strategic plans with regard to our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.

The market multiple methodology establishes fair value by comparing the reporting unit to other companies that are similar, from an operational or industry standpoint and considers the risk characteristics in order to determine the risk profile relative to the comparable companies as a group. The most significant assumptions are the market multiplies and the control premium. We have elected not to apply a control premium to the fair value conclusions for the purposes of impairment testing.

We assign a weighting to the discounted cash flows and market multiple methodologies to derive the fair value of the reporting unit. The income approach is weighted 40% to 30% and the market approach is weighted 40% to 30% to derive the fair value of the reporting unit. The weightings are evaluated each time a goodwill impairment assessment is performed and give consideration to the relative reliability of each approach at that time.

Based on the results of our impairment evaluation, we recorded an impairment charge of $6.5 million in the quarter ended December 31, 2008 related to our content and entertainment reporting segment.

Results of Operations for the Three Months Ended December 31, 2007 and 2008

Revenues

	For the Three Months Ended December 31,
($ in thousands)	2007		2008		Change
Revenues:
Media Services	$	15,353	$	16,351		7	%
Content & Entertainment		5,805		6,064		4	%
Other		322		295		(8	)%
	$	21,480	$	22,710		6	%

Revenues increased $1.2 million or 6%. The increase in revenues was primarily due to an 11% increase in VPF revenues in the Media Service segment, attributable to the increased number of Systems installed in movie theatres, upon the completion of our Phase I Deployment of 3,723 screens, along with a 45% increase in revenues from delivery of movies to digitally equipped theatres, also due to the increase in the number of such theatres over the last year. These gains in the Media Services segment were offset by a 100% decline in Theatre Command Center (“TCC”) software license fees as there were no TCC fees yet for our Phase II Deployment in addition to a 30% reduction in software related revenues by AccessIT SW. We expect these TCC software license fees to resume upon either the Phase II Deployment, or other deployments of Systems. The Content & Entertainment segment revenues increased 5% mainly due to non-cash barter revenues of $1.2 million, which represents the fair value of advertising provided to alternative content providers of The Bigger Picture as part of the agreements to distribute alternative content, along with a 124% increase in distribution revenues by The Bigger Picture. These gains were partially offset by a 20% decline in in-theatre advertising revenues, mostly attributable to the elimination of various under-performing customer contracts and economic conditions impacting the advertising industry. We expect consolidated revenues to generally remain near current levels until there is an increase in the number of Systems deployed from our Phase II Deployment. Such revenues will be generated primarily from VPFs and, to a lesser degree, other

revenue sources including content delivery and distribution of alternative content generated from Systems installed at exhibitors in digitally equipped movie theatres.

Direct Operating Expenses

	For the Three Months Ended December 31,
($ in thousands)	2007		2008		Change
Direct operating expenses:
Media Services	$	2,214	$	2,102		(5	)%
Content & Entertainment		4,124		4,739		15	%
Other		270		227		(16	)%
	$	6,608	$	7,068		7	%

Direct operating expenses increased $0.5 million or 7%. The increase in the Content & Entertainment segment was primarily related to non-cash content acquisition expenses of $1.2 million for The Bigger Picture related to the fair value of advertising provided by USM offset by reduced staffing levels, reduced minimum guaranteed obligations under theatre advertising agreements with exhibitors for displaying cinema advertising and reduced film rent expense for the Pavilion Theatre. The Media Services segment decreased 5% mainly due to reduced staffing levels and reduced software related cost of sales by AccessIT SW offset by increased property tax expense related to the 3,723 Systems installed. Our Other segment decreased by 16% mainly due to reduced IDC expenses not reimbursable by FiberMedia and reduced staffing levels. Other than these non-cash content acquisition expenses, we expect direct operating expenses to remain near current levels for the near future.

Selling, General and Administrative Expenses

For the Three Months Ended December 31,

($ in thousands)

2007