Cineverse Corp (CNVS) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 2006 second quarter Access Integrated Technologies, Inc. earnings conference call.

(Operator instructions)

Before we begin, the company has asked me to read the following statement. Listeners are cautioned that certain oral statements made on this call by officials of AccessIT are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events or conditions, which include words such as expect, anticipate, intend, plans, could, might, believe, seeks, estimates or similar expressions.

In addition, any statements concerning future financial performance, including future revenues, earnings or growth rates, ongoing business strategies or prospects or and possible future actions which may be provided by AccessIT's management are also forward-looking statements as defined by the Act.

Forward-looking statements are based on current expectations and projections about future events and are subject to various risks, uncertainties and assumptions about AccessIT, its technology, economic and market factors and the industries in which AccessIT does business, among other things. These statements are not guarantees of future performance and AccessIT has no specific intention to update these statements.

I would now like to turn the presentation over to your host for today, Mr. Bud Mayo, Chief Executive Officer. Sir, you may proceed.

Thank you, operator. Good morning, everyone and thank you for joining us today. With me on the call, as always, is Brian Pflug, our senior vice president of accounting and finance and Jeff Butkovsky, our CTO. We look back on the second quarter of our 2006 fiscal year as a defining time for AccessIT. During the quarter, we achieved several notable milestones, each of which will have a long-lasting impact on the future of this organization.

I will elaborate on each of these in a few minutes, but first, let's briefly talk about the financial results reported this morning. As an organization, we're still focused, as you all know, on making significant investments in the business. This is reflected in the increased operating costs and SG&A, offsetting strong revenue growth quarter over comparable quarter. The majority of this growth was generated in our media services operations, the result of content deliveries, increasing software contract revenues and, of course, the addition of the Pavilion Digital Showcase Theatre. Revenue in the second quarter of fiscal 2006 was up 78.6% to 3.902 million from 2.175 million in the year-ago period.

SG&A in the quarter was up 69% over Q2 last year. As we've pointed out in the past, while we do not expect expenses to continue to expand at the pace they historically have, but rather growing at a pace lower than that of revenue growth, investors should understand that these increases are fully anticipated. For example, cost and profit margins associated with the running of the Pavilion Theatre are significantly different from that of our other units and that increasing depreciation and amortization are a result of our increased asset base.

Furthermore, as you will see in the report, accounting treatments associated with the conversion of the company's outstanding debt and related warrants had a major P&L impact in this quarter. Although this is a one-time non-cash event, the benefits to the company of this conversion will be long lasting. But a bit more on that in a moment.

Let me address some of the defining moments I mentioned earlier. Back in June we announced our groundbreaking 2,500 screen digital cinema rollout plan with Christie Digital Systems. The industry's first practical plan for Hollywood's transition to digital, Christie/AIX, our wholly-owned subsidiary, immediately set out to secure its first long-term commitments from the major studios. These commitments are critical to the economics of funding the purchase of DCI compliant hardware.

Following on the heels of the publication of DCI's final technical specs in September, it was announced that Disney would become the first major studio to support our plan. Their commitment and the commitments made by Fox and Universal quickly thereafter is twofold. Firstly, they have agreed to make their feature films available for digital distribution and exhibition, ensuring a steady supply of content for use on these new systems.

Secondly, the studios have agreed to a long-term financial commitment, paying to Christie/AIX virtual print fees for each movie played on Christie/AIX funded equipment. In doing so, Hollywood has agreed to provide an increasingly predictable cash flow that can fund equipment purchases at no cost to exhibitors other than commissioning fees and their entry into a 10-year maintenance agreement.

Response to our plan has been overwhelming, with strong interest from other studios, other content owners and from exhibitors of all sizes. This interest was a major motivation behind our expansion of our plan from 2,500 screens to 4,000.

Finally, last week we announced that we're on target to install the first 150 systems before December 31, 2005 in the Detroit and Southern California markets. We expect to keep everyone updated on these and future installations as they occur.

Now, to fully address the convertible debenture conversion I mentioned a minute ago. We converted our 7.6 million and 1.7 million converts to equity. During the quarter, AccessIT reached an agreement with the holders of its convertible debentures for the full conversion of all outstanding debentures and the exercise of all related common stock warrants. This transaction greatly strengthens the company balance sheet and generated almost $2.5 million in cash. However, this conversion to equity was accompanied by a one-time non-cash expense of approximately $6.6 million or about 50 cents a share, accounting for the majority of the loss in the quarter.

Going forward, the benefits of a reduced debt load will include improved cash flow and reduced interest expenses and, of course, a stronger balance sheet. Lastly, one of the most important investments any company can make is in its own people. To that end, we were delighted to be joined by Chuck Goldwater, the former CEO of Hollywood's Digital Cinema Consortium, Digital Cinema Initiatives. As president and COO of our Christie/AIX subsidiary, Chuck brings over 30 years of personal relationships and experience with industry leaders and a unique in-depth knowledge of the business of Hollywood, both from the studio and exhibitor perspectives. He, like our other senior management team members, is a major asset of this firm, enabling us to further advance our market-leading position and accelerate our efforts to bring digital cinema to audiences worldwide.

At this point, I'd like turn the call over to Brian, who will comment on our latest financial results in greater detail. After Brian's presentation, I will make some concluding remarks and then open the call to questions.

Brian?

Thanks, Bud. I'd like to begin by reviewing our results of operations. Our revenues for our second quarter ended September 30, 2005 were 3.9 million, which is an increase of 78% from the comparable prior year quarter. Our media services segments revenue grew by 242% versus the prior year second quarter, due to contributions from our acquisition of FiberSat in November 2004 and the Pavilion Theatre in February 2005 and increased revenue within our software business, due to new customers.

Our data center services segment revenues grew by 7%, aided by customer growth in our managed services business, however partially offset by some decline in the data center business, primarily due to the bankruptcy of a large customer last year.

Our cost of revenues reflects our direct operating expenses, consisting mostly of personnel-related costs and increased by 131% for the quarter over the prior year, due to additional amortization of capitalized software costs, costs related to our international software development efforts and additional resources added across all business units.

Our quarterly gross profit margin fell to 26% from 43% in the prior year's quarter due to these factors, as well as costs associated with the startup of the digital movie delivery business. As Bud mentioned, our selling, general and administrative expenses have also increased, due to our expanded media services and managed services business. And as a result, our total company headcount more than doubled, going from 44 to 108 employees in the year-over-year period. We also incurred higher professional fees as a result of increased compliance costs and due to the overall growth of the company and entering into new businesses transactions and higher investor relations and advertising and marketing expenses, also mostly related to our media services business.

It should be noted that these costs have increased less proportionately than revenues have, a trend that we intend to continue. In the current year's quarter, we have also recorded research and development expenses of 154,000, which result from our continued investment in new software products within our media services business.

As a result, both our EBITDA and adjusted EBITDA for the quarter were a negative 1,051,000 versus a negative 828,000 and 329,000, respectively in the prior year. Our net loss was 9.3 million for the quarter compared to a loss of 1.7 million in the prior year.

In addition to the previously mentioned components, the 2005 quarter's loss was largely driven by expenses related to our issuance of common stock and warrants in order to affect the conversion of over nine million of notes payable into common stock and resulting non-cash charges totaling 6.6 million.

Going forward, we will have lower cash and non-cash interest expense resulting from a much lower debt. Our net loss for the quarter also includes significantly higher depreciation and amortization expense, which increased in the prior year due to an expanded asset base in our media services business. I'd like to note that over 75% of our second quarter net loss came from non-cash charges such as the debt conversion costs, depreciation and amortization and non-cash interest expense.

Turning to the balance sheet, our conversion of debt into equity resulted in improvements to the balance sheet via increased cash, lower debt and increased equity totaling 13 million. Together with our recent fund-raising activities, including the completion of an $18 billion private placement in July, partially offset by the investments we are making in the media services area, we've had over 14 million of cash as of September 30, a greatly reduce debt load and an improved working capital position.

With that, I'd like to turn the call back to Bud.

Thank you, Brian. As is our custom, before I take questions, I'll make some concluding remarks. I want to highlight a number of the recent digital cinema developments and elaborate on why these are so important and why we remain more confident than ever and excited about the future.

Late last week, Technicolor Digital Cinema, a unit of Technicolor, one of Hollywood's largest post production film and DVD replication companies announced its long-rumored digital cinema rollout plan. Make no mistake, this was a very positive development for the industry, helping to speed the universal adoption of digital technology.

Although I can't comment on the details of their plan as there were no technical and only limited financial details provided, conceptually, the plan appears to be very similar to our own Christie/AIX plan. It is based upon the commitment of the major studios to provide content in digital form and to the payment of virtual print fees to recoup investment in hardware and software systems. If they aren't already included in our plan, we expect all the studios mentioned in the Technicolor announcement to ultimately commit to our plan as well.

Now, you may be asking why do we not think of this potential competition? In fact, we view this development as a positive for several reasons. First, Technicolor's actions validate everything we've done over the past three years. It validates the potential of this market. It validates the soundness of the funding framework we developed before anyone else. It also confirms something we already knew. That interest in digital cinema, from both the studios and exhibitor communities is extremely strong.

As we've said all along, we're in the business of selling technology services for distribution and content management. For us to be successful, we do not need to deploy every one of the 36,000 screens in the U.S. and Canada or the 105,000 screens worldwide. While we're prepared to help fund as many of these screens as it would take to make the market move forward, the efforts of Technicolor and others will, in fact, increase opportunities for us by enabling the flow of significantly more digital content from the studios to an every expanding number of screens.

That is the business we're really focused on. Based upon our rollout efforts and our extensive commercial operational experience with digital cinema systems, we remain extremely optimistic about the pace of the industry's conversion to digital and look forward to hearing about technical progress and the specifics of its plan. Since our technology, which is already in place and technicolors actually complement each other would welcome a dialog to work together in the future.

Two weeks ago, there was yet another important milestone for digital cinema, the first commercial release of a full-length digital 3D movie, Disney's Chicken Little. As we've said before, 3D is just one of the many unique forms of entertainment that digital cinema creates for moviegoers, movie creators and theater owners. Appearing on 84 screens, including one at our own Pavilion Digital Showcase Theatre, Chicken Little has proven to be a big success for Disney. I'm pleased to report that the Pavilion had one of the highest grosses in the five boroughs of New York City. In fact, digital and 3D presentations proved to have generated a bigger box office take, exceeding the average for analog screens.

More importantly, and relevant to AccessIT, digital 3D generated significant buzz and interest, with audiences - at those 84 screens - creating an experience that is not reproducible at home and, hence, a reason to go to the movies at a theater. 3D movies like Chicken Little, live and prerecorded rock concerts, sporting events, some in 3D, will further redefine the movie going experience as digital cinema builds moment. And finally, two weeks ago we attended Show East, one of the largest gatherings of motion picture studios and exhibitors in the country. At Show East, we met with the heads of major studios, a number of independent studios and exhibitors of all sizes. Their enthusiasm for digital cinema in general, and AccessIT's efforts, in particular, was overwhelming.

Although more work needs to be done to convert this interest into binding contracts (ph), which we're doing, we have little doubt that over the course of the next two or three months, we will be successful in expanding both studio and exhibition participation in our plan. Of course, we look forward to communicating with you about these relationships a soon as they are finalized. With that said, operator, at this time, I'd like to open the call to questions.

Thank you, sir. (Operator instructions)

Your first question comes from Rich Ingrassia of Roth Capital Partners. You may proceed.

Thanks. Good morning, everybody.

Good morning, Rich.

Bud, you said that you would welcome discussions to work with Technicolor. Would that be to be their satellite distribution option or do you anticipate - is there a possibility of a more wide-ranging business partnership there?

If you look at how Technicolor operates today in their film distribution business, they use people like Airborne and DHL to physically deliver the prints. They could easily use our delivery service as an outsource service, as could Deluxe (ph), their competitor. And that's really what I'm referring to - an association in which they do what they do and we do what we do and we complement each other. And since we've already made the investment and have been delivering movies for the last year-and-a-half, electronically, clearly, this is the plan going forward. We can provide that. The same way that they use Airborne and don't buy a bunch of airplanes to do that, they can certainly use AccessIT services.

I see. Okay. And I was, I guess, a little surprised to see Technicolor mentioned that they're in late stages with Fox, given the history between those companies. But I suppose all the studios want some kind of choice in distribution providers. But was there anything else in Technicolor's press release or details, otherwise, that surprised you in the content agreements that they struck?

Not at all. Not at all. We were anticipating it and, as I mentioned, welcome it for all the reasons I mentioned earlier. I think it's important to distinguish between technology services and a deployment plan. The deployment plan is a financial intermediary providing a service for the entire industry. AccessIT has led the way by creating a template for that, which now Technicolor and perhaps others will adopt. That is a good thing for everyone. Anything that advances digital cinema, is good for AccessIT, understanding that AccessIT is the only company that we're aware of, as a public company that has focused itself entirely on the business of digital cinema.

And independently, I've just become aware or at least it appears that Technicolor is asking for a significantly larger financial commitment from the theaters than your plan calls for. Anything - have you heard or seen anything along those lines?

Well, since we have very little details and our information is that Technicolor is still in the business of assembling those technologies and sorting them out so they can do some kind of a test sometime next year, it's hard to really say what the costs are. I think they're in the process of trying to determine what they are. That's why they gave ranges. They are significantly less.

And one of the reasons we chose to work with Christie, the entire financing structure that we're able to put together with them, aside from best-of-breed technologies, which we've already assembled and have working with, in our own theater and in a simulated multiplex out in Cypress at Christie's facility since May, we're already doing what we've said we were going to do. I think Technicolor has a little more work to do. I'm sure they'll get there and we'd be happy to work with them, to the extent that we can, to advance their plan.

Okay. Enough on Technicolor then. It doesn't appear that you need funds for working capital with 14 million on the balance sheet now and that should - at least peers (ph) should last through calendar '06, but what's your current thinking to, in financing the next phase of screen rollouts. If you can, give us some detail on structure or amount.

Well, in view of the relatively low price of our stock today, which, obviously, we see as undervalued, we are now spending more time thinking about debt as an alternative, as at least a bridge that would take us well into '06 and to avoid any equity raises at this time. And we're optimistic about being able to put those kinds of facilities together.

Great. And finally, Brian, if you could, can you just break down Pavilion revenues and Hollywood software from other media services and, perhaps, their contribution to EBITDA and then a CapEx number for the quarter?

Well, Rich, we're not in the habit of breaking down revenues or other items by division. As you know, we have two reportable segments, which will be in Q3 files later today. So, I'm really not at liberty to discuss individual results by business unit. And as far as CapEx goes, that was significant for the quarter. That will also be in the statement of cash flows that will be filed later today.

Okay. Thank you.

Okay.

And your next question comes from the line of Dennis McAlpine of McAlpine Associates. Please proceed.

Thank you and good morning. A couple of the studios have mentioned that they would like to go digital, but they think the 4K is a better long-term solution and have commented that they would go 2K if they could have a method for upgrading to a 4K projector when those become available, acceptable, whatever the criteria is.

Do you have a program or provision in your program that would allow for such an upgrade and what would be the impact on that? And then, secondly, on the Disney, do you have an agreement that covers the 3D, the implementation as well?

Let's - those are two questions, very different from one other. The upgrade path, first of all, we are talking to all of the studios actively, actually negotiating final agreements with all of them. And none has brought up that issue. That's number one - I think that that's - that was an issue maybe several months ago. It is no longer an issue.

Secondly, with regard to that upgrade plan or path, we have created a means by which Christie/AIX could provide new technologies as they arise, in a way that provides some flexibility without endangering the fundamental financial plan that we've put together.

And the second part of your question was the 3D. All of the systems we're installing are 3D ready. And we are - we would welcome the addition of any new technologies, including REAL D to our plan as an add-on option. In fact, we can provide some efficiencies for both REAL D and exhibitors in doing that. It's part of our installation package. And we - suffice it to say, we are having discussions that would enable that to happen.

Thank you.

And your next question comes from Mark Harding of Maxim Group. You may proceed, sir.

Okay. Thanks. I was wondering if you could give us a little bit more color on the theater rollouts. What would be stopping you guys from exceeding the 150 by the end of the year?

We have no intention of exceeding the 150 at the end of the year, even though we do have more screens than that that we can deploy. It's very important to start off deliberately here. This is not a sprint, it's a marathon. And we need to do this right. We're the first to do it. We're making history as a company and as the leaders, we need to, along with Christie, make sure we do it right. We have to choose our partners, in particular, at the beginning very carefully. Both Emagine and Ultrastar have been our partners for more than a year-and-a-half. And before that, along with Boeing Digital Cinemas for two-and-a-half years. So, these are experienced folks, they're entrepreneurial. They understand digital cinema and they were ready to move very quickly, as soon as we got our third studio signed.

There are others waiting and we're in the process of concluding those negotiations and will be making announcements in the not-too-distant future with regard to additional exhibitor, of course, and studio signings, as mentioned before. Our focus now is on the first quartet - calendar quarter of next year, our fourth quarter, and our plans to add another 250-300 screens during that quarter and to keep the ball rolling. Our goal is to hit all 4,000 at the end of two years. But we can ramp up and do this at a deliberate pace. We don't intend to slow down. But, in fact, we intend to accelerate the installations, but we can do that a quarter at a time and still reach our goals.

Okay. So, I take it that installation would not be any sort of bottleneck?

It would not be a bottleneck. No. We've received every type of commitment and assurances from both Christie and its parent company. But that will not be a problem. And we have every reason to believe that the plan is going to continue as we've set forth with the 4,000 screens available by the end of September of '07. And the bulk of those - perhaps 2,500 - by the end of our fiscal year '07, which is a March 31 fiscal. And we'll ramp up gradually to increasing that number from the 250-300 a quarter to as many as five or even 600 a quarter as we get rolling.

And in the process, we'll be welcoming new technology. Remember, the theater command center and our technology is largely vendor-agnostic. So, we can invite other players to enter the fray with us and to be part of this deployment plan. It's always been our intention to do that. It's always been our intention to work with regional exhibitors who have been the most aggressive of all. We're in negotiations with 16 different exhibitors as we speak. Four of them are majors. But the rest of them are large and well funded independents. Some not so large, but very aggressive, very excited about the prospect of having digital cinema in their theaters. And we're working with everyone.

Okay. And, if you would, could you give us a sense of how many projections you've purchased since, I guess, the end of the quarter?

We've purchased 200.

Two hundred. Okay. Okay, thanks.

Thank you.

(Operator instructions)

Your next question comes from Sean Boyd (ph) of Westcliff Capital Management. You may proceed.

Good morning. A couple quick questions here. On the - just for housekeeping, down on the interest in other income, I just want to make sure I understand. Six point - of that total of about 6.95 million, 6.6 million is either non-cash or fund conversion of the two converts?

Right.

Okay. So, there's roughly 350,000 in there that's a recurring under/interest expense.

Well, a big part of that's going to go away now that we've retired the debt going forward.

Okay.

Going forward.

Got you. Okay. And on the growth margins - I understand that there's infancy right now, but dropping down, first, I'll pick the easy one, on the data center business, dropping down to 26%. Should we - is there something that occurred in a quarter that's keeping that very low or should we assume it's going to be at that 25-26% level going forward?

The data center gross margins were impacted, in part, during the year, by higher utility costs, in part by a loss of a customer last year that was pretty large. So, yes, going forward, I would say that that would be reasonable.

Yes, the data center business is very much like the real estate business. If you lose a tenant, you lose it right off the bottom line. And that's what's happened there. This is not a business we're committed to, other than in the managed services side of it, where we are servicing some of our studio customers, complementing the ASP model that we run in the TDS arena. And so, it's that area that we're concentrating on, not on the data center real estate side of the business. We're utilizing a good part of that data center to complement our own delivery services. We have a 24/7 knock in a data center in Brooklyn, back up in New Jersey and Jersey City to complement our LA facility.

And those are important things because that infrastructure has to be robust, has to be failsafe and has to be redundant. So, our expertise in the data center area, the carrier-rich environment that we operate in throughout the country, actually throughout the world because we actually monitor and manage networks in 35 countries out of that managed services division. It's an important part of our business going forward, but not the real estate side. You see that as either sustaining itself or not, going forward, and being replaced by an ever-increasing number of dollars coming in from media services.

Okay. So, on the media services business, they - those gross margins, we've talked about levels in the 75, 80% plus range. What level of the rollout - at what level of the rollout will we see that? How many strains need to get in place before we see those gross margins?

Well, right now, incrementally, any business we do in the delivery side, it has a very high incremental gross margin. Because what you're seeing on this P&L is a full amortization and depreciation of all the assets related to that delivery and all of the personnel, all of the facilities costs. They're being expensed.

Unfortunately, in the quarter, we did a very tiny amount of delivery business. As that number grows, it's going to come right to the bottom line and impact that loss and begin to erase it and then cross over.

So, we're looking forward to volume. I think that, in total dollars, it's pretty obvious what we need to make up for the gross profit margin that's not there and the loss. You can - at roughly $200 a movie per print as a model, you can pretty much get there by simply multiplying it. So, it's really the numbers of prints for each movie and the - times the number of movies. So, that's on the delivery side.

On the virtual printing side, you're looking at another significant number for Christie/AIX that will quickly begin to erase some of that loss. Right now, Access Digital Media, that subsidiary that operates our delivery service, is operating at a loss and will continue to do so for the next quarter or two. But it will cross over next year and begin to generate a contribution and gradually take over between Christie/AIX and our delivery service, will take over as the major contributor to the company. Starting probably as we deploy in the third and fourth quarter of next year, we'll begin to see real traction there and have a significant impact.

The impact in the third quarter will be minimal. Next quarter, we'll see a little bit of an impact. But each quarter, as we deploy more systems, we're going to see more revenue. It's a very simple model. The more movies, the more screens, the more revenue.

All right. Okay. And just a little bit more clarification on the financing that you're looking at. I certainly understand you don't want to raise equity. On the terms on the debt, any - can you give us any feel for what percentage equity you might need to put forward with the (inaudible) purchases or can you also give us a feel for, in the beginning, will that be some sort of a bridge that'll - you'll take out with term financing as you go? Just any more clarity on that.

Well, our original plan was to do more equity. We've already raised equity and it paid for 200 systems. We can leverage that investment significantly, based on any of the financing plans that we're looking at. And we're looking at doing so. Instead of looking for a permanent long-term facility alone, what we're looking for is a combination of a warehouse facility that can be smaller and that can be taken out either from a permanent long-term debt facility of the type that we've been negotiating for some time or an equity raise at a more optimum period.

We'll look at all of these possibilities and any combinations, including the potential of raising equity at the Christie/AIX level, which is a possibility as well. There are lots of possibilities, all of which we'll be examining. We've had a lot of experience in the capital markets, both personally and as a company. We have great advice coming from Roth Capital Partners and from Bear Stearns, who are advising us on each move. Ultimately, this is an ABS (ph) transaction, which is, perhaps, two years away.

Right.

In the meantime, we can get there. And ABS transaction would allow us to pay off any debt and recycle some equity that we might put in at an early stage and use it again to continue to deploy systems. This is probably a good time to say that we fully expect to increase the size of this deployment plan over time as demand grows. And based on the, as I mentioned earlier, overwhelming interest on the part of exhibitors, it's pretty obvious that we will be doing that over the course of the next year.

All right. Okay. So, I guess, just the last point on that. Can you give us any sort of timeframe, just as rough timeframe on when we might hear terms from you all on sort of the first step in that financing?

I would certainly expect that we'll be doing - putting something in place by January.

Very good. Thank you very much.

Thank you.

And your next question comes from Jeff Van Rhee of Craig-Hallum. You may proceed.

Hey, Bud.

Hi, Jeff.

A couple questions. First, on delivery. What was the delivery fee revenue for the quarter?

Delivery fee revenue was less than $100,000 for the quarter.

You talk abut the 150 that you'll hit by the end of December and another 250-300 in the March quarter. Are those, in terms of the screens that are encompassed in those two traunches, are those sign - I mean, those folks that have committed and are on board or, if not - I mean, what portion of those need to become? I understand you're talking to a whole lot of screens and the numbers are going to get very, very big and those negotiations take time. So, I'm wondering, before we get those announcements, do you have a lot of runway here with the signed exhibitors?

Well, Jeff, as you know, we don't announced letters of intent or agreements in principle. We only announced signed contract, final binding contracts. Which is why it took us as long as we did to announced the signings of Disney, Fox and Universal. We had letters of intent signed with them some time ago. And we're going right to contract now. We're not even bothering with letters of intent. Clearly, the momentum is there and everybody wants to do this. If I were discussing agreements in principle, we'd be well into 2007, based on the interest that's been shown to us. We need to convert these to final contracts before we make any further announcements. We're doing that with studios and exhibitors. We will be making announcements in the months ahead as we progress.

Brian, the cash balance bumped up here you had raised in capital. You also had some proceeds from the debt side. I think you said there 2.5 million generated there. Can you just walk through the cash uses and sources in the quarter to understand the differences here?

Well, the usage would be predominantly for CapEx, for projector and other related equipment purchases. We are still in an operations earn mode, so you have that component.

What - I mean, operationally, what was the cash number then?

The statement of cash flows that will be filed today is a negative 1.8 million for the year-to-date period from operations.

Okay.

And you'll see the rest of it when it's filed ...

Okay.

... later on. But if you've got net cash outflows from CapEx and also from note repayments that we did have during the quarter, over and above the refinancing that we talked about.

Okay. We'll look for the statement of cash flows. But, I guess, last question, then. I mean, your original intention with AccessIT was to bring to market your software and delivery platform and really bring a lot of value add to the whole ecosystem. And essentially, that ecosystem needed jump start in terms of getting the chicken and egg problem solved, getting the studios and theaters to come on board and get some digital equipment out there.

But back to the original premise of the company, being the software and delivery infrastructure, how does this progress from here in terms of announcements from the content providers as to how they're going to deliver their content to the consumers? I mean, do any of those announcements come in the foreseeable future here in terms of who they intend to use and some of the terms around that or how should we think about that progression?

Well, it's an interesting question. I don't know whether the studios are going to be making announcements or whether they will let us make announcements. I mean, all I can tell you is we're delivering movies for all of them on a continuing basis. We have movies scheduled for Christmas. We're doing it by satellite, in some cases by hard drive where satellite is not appropriate or there is simply too few screens that need to be delivered to. It simply doesn't make sense to do a satellite uplink when you're delivering to seven or 10 locations. But clearly, our commitment is our technology and we see that growing. We're working with all the studios.

I don't have any sense that anybody's going to corner the market. Now, this is, after all, ultimately about a $200 million a year marketplace of recurring revenue, when movies are released routinely in digital cinema. Our goal is to capture a sizable chunk of that on a recurring basis, as you know. We'll get there organically. We'll get there by proving our technology works as we have in the past. I think we're past that point.

It's now a matter of pricing and working with the studios, working with relationships that we've had for many years, collectively. AccessIT's management team and our technology will match anyone on the planet. We've assembled an incredible team of people who are not only knowledgeable, but well respected in the industry by not only studios, but exhibitors. And we intend to leverage that credibility at the CIO level, at the technology level, at the studio level and make it work for us as IT shareholders. We're creating value by our ability to deliver content of all kinds to theaters throughout the world. And we're moving on all fronts to advance that proposition.

What - along those lines, if I look at - I mean, certainly, you've got one alternative financing plan out there and I would presume there's others coming. If you look at those plans that are financed by these others parties, talk to me about your ability to penetrate those theaters and studios and essentially the delivery of content on systems that are rolled out through other plans. What are the tradeoffs? You talked about Technicolor, potentially, could use you because you do have something that they don't or anybody else, for that matter at this point. But talk to me about your ability to penetrate some of those other rollout plans as the delivery mechanism of choice. How do you think that turf war sort of plays out? What are the things to think about there?

Well, we don't see it as a turf war. There's no indication that it will be. It's not possible to link a deployment plan to any particular technology or distribution plan. Nobody's going to be a gatekeeper in this new digital era. We intend to put a satellite dish on all the roofs of any theater, anywhere in the world that has a digital cinema system. As many of you have heard me say before, we built the infrastructure to be a FedEx or an Airborne. We've already done that. We've put all those pieces together.

We need more than a warm body to sign for the package, however. We need a digital cinema projection system at the other end. And our intention is to follow the digital projection systems wherever they are and put a satellite dish on that roof. And be one of the very few companies that are going to be capable of delivering content, whether it's movies, alternative content or any other type of international product anywhere in the world. That's our goal. And we'll follow though on that and I doubt that any deployment plan will be in a position to keep us from doing that, any more than we would keep an alternative method of distribution from finding its way into theaters that we deploy. We don't own those theaters and we don't own the content. We're a service provider.

Okay. Thanks. Congrats on the progress so far.

Thank you.

(Operator instructions)

You have no further questions at this time. I would like to turn the call over to Mr. Mayo for closing remarks.

Well, thank you all. It has been a pleasure and we look forward to seeing you at various conferences and for sharing the news that we know will be coming in the months ahead.

Thank you.