Cineverse Corp (CNVS) 2008 Q3 法說會逐字稿

Good day and welcome to Access Integrated Technologies third-quarter fiscal year 2008 earnings conference call. Today's call is being recorded.

Listeners are cautioned some of the material discussed today may include forward-looking statements regarding AccessIT's business and expected financial results. Words like anticipate, believe, estimate or expect are generally forward-looking statements.

Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available in certain functions, and there can be no assurances that they will prove correct. You should not rely on anything in these forward-looking statements as a promise or representation as to the future results. You are encouraged to read the Company's Securities and Exchange Commission filings.

And now, at this time, I would like to turn the presentation over to your host for today's call, Mr. Bud Mayo, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thanks for joining us today for AccessIT's third-quarter fiscal 2008 conference call. With me here today is Brian Pflug, our SVP of Accounting and Finance; [Andy Patel], our Treasurer; Jeff Butkovsky, our CTO; and also joining us from our Bigger Picture division are Jonathan Dern, its President, and Michele Martell, its COO. They are calling in from the L.A. office.

We're pleased with our progress in the third quarter and for the year so far, and I'm very proud of the job our talented management team and employees have done to put our Company in such an enviable position to benefit from the just-emerging digital cinema era. We expect to create substantial value during the next few years as a byproduct of our leadership and proving that our technology solution and the virtual print fee model both work.

Our more than 3700 screens, while representing about 76% of the installed digital screens in the United States, is still less than 10% of the opportunity in the domestic market and about 3% of the international market for our products and services. Despite challenges in the financial markets, AccessIT and AccessIT alone has demonstrated not only that digital cinema works, but that it is the future for studios, exhibitors and a growing number of hardware vendors alike.

Some of the highlights of our third quarter include the completion of our Phase I digital cinema system deployment, growth of our satellite network, the signing of an international distribution agreement for the licensing of our Theatre Command Center software and Library Management Server, our continued progress on Phase II deployment agreements with studios, The Bigger Picture's launch of its San Francisco Opera series, and the distribution of other alternative content events, about which Jonathan and Michele will offer you some insight in just a few minutes.

But before we go into these items, let me give you a brief overview of the financial results for the quarter. Afterward, Brian, Jonathan, Michele and I will complete our prepared remarks. We will be all happy to answer your questions.

Consolidated revenues for the third quarter of fiscal 2008 were $21.5 million, up from $12.8 million in last year's third quarter. For the nine months ended December 31, revenues rose 133% from the comparable year-ago period to $59.1 million.

Adjusted EBITDA for the third quarter increased to $8.4 million, a more than threefold increase from the $2.4 million the prior year, and to $21.4 million for the nine months ended December 31, a more than sixfold increase from the $3.3 million in last year's comparable period.

Revenues increased from the quarter ended September 30 to the quarter ended December 31 by $2 million, and adjusted EBITDA over the same period increased by $1.5 million. In other words, 75% of the revenue increase fell to our adjusted EBITDA line.

Before Brian takes you through the financial results in more detail, I'd like to give you a brief status report on the business. The completion of our Phase I deployment included more than 3700 fully networked digital cinema systems and 100% of the screens in the theaters we deployed. It was a significant milestone for the Company. We accomplished something others have only made small attempts at, and in doing so solidified our leadership in the industry and created a revenue-generating platform for these systems and for our other business units for years to come.

During last quarter's call, I mentioned the growth of our satellite network, which had reached 170 sites in 40 states. As many of you know, the growth of this network is an integral part of our overall business strategy, which we use to use to increase revenues in all of our divisions for years to come.

I'm pleased to report that we have now completed a total of 240 satellite installations as of the end of January and are well on our way to reaching our goal of at least 270 sites by this summer. Using that very same network and our unique CineLive product, which enables live 2D and 3D events for the first time for paying audiences, I'm pleased to report we will be broadcasting our first live sports event to a limited number of AccessIT screens on February 18. We expect to give you more details on that event shortly, once the content owner signs off on a press release.

You've also heard me talk about the opportunities to expand our integrated digital cinema solutions internationally. We have recently taken an important step to begin this and make this a reality.

In December, we signed a nonexclusive agreement with our trusted partner, Doremi Labs, that allows Doremi to bundle their world-class media server with our Theatre Command Center software and Library Management Server in territories outside of the United States. We have already completed two successful pilot programs with cinema companies in the UK and Ireland and are ramping up marketing efforts to expand our reach beyond the U.S. and Canada.

I know there's tremendous interest as to the status of our Phase II deployment. The answer is that we're continuing our discussions with the major studios to get their contractual commitments to support Phase II of our plan to deploy up to an additional 10,000 digital screens over a three-year period starting very shortly. We have made excellent progress to date and have every reason to believe in the successful conclusion of our negotiations in the very near future.

It has come to my attention that many in the financial community feel these announcements are overdue. To that, I simply want to share with you that we're totally focused daily on pushing these agreements forward.

I'm now going to break from our normal course and ask that Jonathan Dern and Michele Martell speak to you about our Bigger Picture content distribution division. Jonathan?

Thanks, Bud. AccessIT's leadership role in digital cinema is making the promise of alternative content distribution a reality in very meaningful ways. In December, for example, The Bigger Picture signed a four-year worldwide agreement with the San Francisco Opera to distribute six opera performances per year beginning this March. This is the first time in entertainment history that an opera will be seen exclusively in a Hollywood feature film-quality digital cinema format, bringing unparalleled cultural experience to thousands of operas fans. This first series of performances will be shown throughout the U.S., with international distribution anticipated for future series.

In November The Bigger Picture presented two highly acclaimed rock concerts by award-winning R&B and rock artists Beyonce and Bon Jovi, each of which was an exclusive one-night-only engagement shown in about 100 digitally equipped theaters nationwide. Each showing offered thousands of fans the equivalent of front-row seats at the concerts, with amazing sound and perfect sight lines. We will also be distributing Tom Petty and the Heartbreakers' concert that will play on March 3. We are particularly excited to distribute this right after they have played the Super Bowl halftime show during the Super Bowl last weekend.

While these are single events to date, our plan is to develop similar events in a programmed, well-publicized concert series as part of our growing roster of Bigger Picture channel and alternative content offerings.

And lastly on this point, it's important to note that these concerts play both on AccessIT-deployed screens and on a smaller number of those deployed by others. That shows us that we have real growth opportunity here as the total universe of digital screens grows, regardless of who deploys them.

Our goal is to have 50 channels in five years. One of the channels that we see the future opportunity, real future opportunities, is in big screen gaming. Digital technology will enable audiences and audience members to play, to compete and to have a great time against each other within a theater and theater-to-theater around the country. We expect that this will be a tremendous draw, especially for the highly sought-after teenage audiences, and it will be something that will keep kids in the theater. For example, they might see a movie and then stay afterward to do some gaming. This keeps them buying concessions and thinking of the theater as a multifaceted entertainment destination.

Our exhibitor partners have embraced alternative entertainment and have seen the benefits of the incremental revenue opportunities. For example, at many of the participating theaters for our Bon Jovi concert event, that single showing outgrossed the cumulative box office of almost every other piece of content playing that day in their complexes.

Now that I've had a chance to tell you about some of our new initiative, Michele Martell, The Bigger Picture's COO, is going to speak to you about how we're working to drive additional attention to two of our existing programs. Michele?

Thank you, Jonathan. Two of the channels that have been part of The Bigger Picture for a long time are Kidtoons and Anime. They each bring different audience types to the theater by supporting underserved audiences.

First, Kidtoons is all G-rated programming. As most parents of young children recognize, there is very little G-rated programming developed for the theater today. In fact, the major studios combined averaged only four G-rated features between them per year. This leaves very few movies that parents of young children can feel confident about attending.

We help fill this void of programming not only by providing a G-rated movie each month, but also by supporting the movie with educational information about the importance of coviewing, which is watching movies with your children and then discussing how the content reflects or doesn't reflect the values you're trying to teach them.

We are supporting this effort with a consultant, who is a trained child psychologist by the name of Dr. Donna Mitroff. Dr. Donna, as we like to call her, develops a list of questions for each Kidtoons feature and suggests an activity for parents and children to do together after seeing the movie.

The other program I'm going to discuss today is our Anime program. For those of you not familiar with Anime or without teenage children, it is Japanese animation aimed at teenage audiences and has a cult-like following. The Japan External Trade Organization estimates that the Anime market for the United States alone is worth approximately $4.35 billion.

One of the initiatives we're taking on is to have both the CGI Anime film Vexille and the live-action epic Genghis Khan -- The Ends of the Earth and Sea, which we will distribute later this month, considered for an Academy Award, which would help put Anime and other Japanese films on the map for additional audiences.

Our philosophy behind all the channels we have currently and those which we are considering is to create new value for everyone -- for the theaters, for the content owners, for the audiences themselves. Each Bigger Picture program creates new opportunities, all enabled by the advent of digital cinema.

In a world where audiences are increasingly fragmented by a variety of screens, the movie theater screen remains the most compelling way to provide a unique experience. Each Bigger Picture program is targeted at what we call affinity audiences, bringing together people who share a common interest and giving them the chance to enjoy high-quality entertainment in a communal setting.

While we have been providing programs of alternative entertainment to exhibition for several years, we're still in the early stages of the opportunities created by the flexible nature of digital cinema. As the digital cinema footprint expands both in the United States and internationally, we see enormous growth opportunity. We anticipate that the 50 channels in five years Jonathan mentioned earlier will continue to expand the revenues for everyone involved -- for content owners, sponsors, exhibitors who will increase revenues through ticket and concession sales, and for AccessIT.

Please visit our website, thebiggerpicture.us and kidtoonfilms.com, to learn more. We update them regularly.

At this point, I would like to turn the call over to Brian, who will comment in more detail on the latest financial results. Brian?

Thanks, Michele. I will begin by reviewing our quarterly operating results.

Our consolidated revenues for the third quarter ended December 31, 2007, were $21.5 million, which is an increase of $7.3 million or 51% from the comparable prior-year quarter. Included in the prior-year quarter is approximately $500,000 of revenues related to components of our former datacenter segment, which we no longer operate.

Our third-quarter consolidated revenue increased by $2 million or 10% over the second quarter. Breaking this down, our media services segment revenues showed year-over-year growth for the quarter of 116% to $15.4 million. The quarter-over-quarter revenue increase in that segment of 29% was derived principally from an increase in virtual print fees attributable to the fact that our Phase I rollout was completed during the third quarter, which resulted in 3723 systems being installed and operational at December 31, 2007.

We were also pleased to see continued growth in the digital delivery business along with the increased screen count. The media services segment year-to-date adjusted EBITDA grew from $5.8 million to $26.4 million, a 352% year-over-year growth rate, and quarter-over-quarter segment-adjusted EBITDA grew by 40%.

Our content and entertainment segment showed a year-over-year quarterly decrease from $6.3 million in revenues to $5.8 million. Quarter-over-quarter revenues decreased 19% to year-to-date revenues of $19.8 million. However, our cost containment initiatives are minimizing the impact of our revenue decline. This segment has not grown this year so far, as expected.

Our direct operating costs increased by only $25,000 for the quarter over the prior year. Our third-quarter operating expenses decreased approximately $375,000 over the second quarter and decreased to 31% from 36% as a percentage of revenues. The decrease was primarily due to the reduced film costs in our movie theater following higher costs from summer blockbusters. Otherwise, we're seeing our direct operating expenses level off following periods of rapid growth for the Company.

Our overall selling, general and administrative expenses increased for the quarter over the prior year, primarily related to professional fees incurred in connection with Sarbanes-Oxley compliance efforts as we head into our year-end period and due to the prior-year acquisitions. Our third quarter's SG&A increased from our second quarter by approximately $600,000, also primarily due to SOx compliance efforts. Our total Company headcount has now stabilized at just over 300 employees.

As a result, our adjusted EBITDA improved to $8.4 million for this quarter compared to adjusted EBITDA of $2.1 million in the prior year versus $6.9 million in our second quarter. It should also be noted that adjusted EBITDA has exceeded all of our interest expense for the last three quarters, a trend we expect to continue.

Regarding interest, I should note that we're now presenting noncash interest expense together with cash-based interest expense. However, we will be disclosing the components in our 10-Q filing.

Our net loss was $8.4 million for this quarter versus $6.2 million in the prior year, although the current quarter's loss includes $11.1 million of noncash charges, more than our reported net loss. The December 2007 quarterly loss includes $6 million of interest primarily associated with our GE credit facility and $1.7 million of noncash interest, primarily the interest shares paid on our senior notes.

Our net loss for the quarter also includes significantly higher depreciation expense, which increased from the prior year due to our Phase I deployment-related assets and the acquired assets of our advertising business, as well as higher amortization expense on intangible assets, which increased from the prior year due to the purchase accounting and the two acquisitions closed last year.

Turning to the balance sheet, at the end of our third quarter we had cash of nearly $36 million and positive working capital exceeding $9 million. Following the Phase I completion and pending any Phase II activity, our asset base has peaked, and receivables growth is also expected to level out.

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

Thanks, Brian. In closing, let me say that AccessIT continues to meet its goals in the media services segment, but as we've indicated before, has so far underperformed in our content and entertainment segment. We have taken aggressive steps to improve this, and we have renewed optimism regarding the future of our advertising and creative services and Bigger Picture divisions.

We see future for alternative content in theaters. You've heard from Michele and Jonathan and hopefully share our enthusiasm for the future. Part of this is our knowledge of the business as an operator of a theater. Part of it comes from the highly positive response we've received from exhibitors on the alternative content available today. And part of it comes from seeing the public's enthusiasm for 3D events like the recent Hannah Montana and upcoming U2 concerts.

While we don't intend to provide more detailed information on utilization at this time, I will state that our Phase I subsidiary, Christie/AIX, billed more than $12 million in VPS in the December quarter, providing further evidence that the VPS model is working. We believe this level of revenue is sufficient to service our debt.

Finally, we'll redouble our efforts as the fiscal year draws to a close to meet our guidance of $83 million of revenues and $32 million of adjusted EBITDA -- not an easy feat. Whether or not we meet that guidance is largely dependent on the total VPS build in the historically weak March quarter, and our performance in the content and entertainment segment, led by The Bigger Picture and the opera and other content releases in the quarter.

Operator, at this time I'd like to open the call to questions.

(OPERATOR INSTRUCTIONS). Rich Ingrassia, Roth Capital Partners.

Bud, the numbers are starting to speak for themselves, so I wanted to ask you more of a strategic or philosophical question, I guess. Based on the results of the past few quarters, it looks like you can generate positive cash flow from operations on the existing Phase I deployment. So what would be the disadvantages, in your mind, to foregoing further deployments, Phase II, and focusing on the platform you've already developed? Do you feel that you lose leverage ultimately with the studios or with exhibitors over time if you're not a bigger network?

That's a good question, and certainly we've considered it and we have made it clear that the Phase II deployment is not an imperative. It's not something we have to do. However, we're choosing to do it because we see many, many advantages. First of all, it has to stand on its own as a debt-financed, cash-flow-generating entity unto itself, just as Phase I has.

As importantly, perhaps, to us is the fact that it creates a wider platform for The Bigger Picture, for our transport division, for our software division, for even our advertising division, to do more business going forward. While those are somewhat speculative and less certain in terms of the specific revenue streams for the Company, the installation of the digital systems, as we have in Phase I, where we have a predictable and refinanceable asset pool, we also have a commitment as a company to advance digital cinema. That's our job, that's why we were created, to move the needle forward for not just studios, but for our exhibitor partners, to create opportunities, to create additional choices.

So philosophically, AccessIT is committed to moving digital cinema forward, to assisting others to move digital cinema forward. That includes any serious and well-financed deployment plan anywhere on the planet. We will provide our technology. We will share revenues. And only in Phase II will we consider investing capital, and providing that capital, which is getting cheaper and cheaper as interest rates go down, is available to us on terms that make sense.

I hear what you're saying, and I can only assure you that that is certainly an option we will always keep in hand. But the way that the studio agreements are going and the level of enthusiasm that we're experiencing as we move into 2008 is very substantial, and I think both constituents, not to speak of hardware vendors, would be very disappointed if we withdrew from these negotiations. We have, currently, no intention of doing that.

Jeff Van Rhee, Craig-Hallum.

A couple questions. I guess, Brian, firstly, you gave the two segments and their changes. Can you just hit those again? They went by a little fast for me. You talked about their EBITDA. Can you give just what was the EBITDA in each segment this quarter versus last quarter?

Well, what I gave was the media services' year-to-date adjusted EBITDA growing to $26.4 million, and then I gave the -- I actually gave the content and entertainment segment as a percentage. I don't think I have that hard dollar figure right here in front of me. It will be in our segment footnote that we're going to file in the Q.

What was the percentage?

The percentage, quarter over quarter -- I gave quarter-over-quarter revenues as a percentage on content and entertainment. I did not give content and entertainment EBITDA. That will be in the 10-Q that we're going to file today in the segment footnote.

Bud, the refinancing, obviously kind of front and center, goes hand-in-hand with what you're talking about here in terms of Phase II. I understand your comment from the call and other forums, you don't want to preannounce or get ahead of yourself. But with that in mind, can you give us a broad sense of where we are in those discussions and even a range of a timeline of when we might see something there?

I've told my own Board that it's very difficult to set a timeline. As you know, we don't set the timeline. We don't set the agendas for meetings. We don't set the meetings themselves with these major studios. As you know, we're the only company in the world who has agreements with all of the major studios to support our Phase I deployment. We have the template for doing Phase II and are working from that template.

Every time we make a change for one studio, we need to modify, in some cases, the other studio agreements. What I can tell you is that there are four studios at redlines right now, and that we're moving as aggressively as we can. They are moving as aggressively as they can, considering the size of their organizations and the number of people that touch these major agreements within those studios.

We appreciate their efforts, and I will be the last to complain. But I will agree that it is frustrating at times. We're pushing as hard as we can. I assure you of that. And we're confident we're going to get to the finish line. We hope to start this in our first fiscal quarter of '09, which is the June quarter. We have no idea at this point of the speed at which those installations will take place, and a lot of this is also dependent on the availability of reasonably priced financing.

We're doing all of this work concurrently. We're talking to the studios, bringing those to the finish line. We are working on financing, and we are moving -- it's not as if we are planning to do this thing serially, and we're also presenting to exhibitors and moving forward with many exhibitors as we speak.

So we're hopeful that in the June quarter, we can get this thing started and really build up. Remember, is a three-year deployment plan this time, and we see some momentum building. We see an extraordinary amount of interest. We have tons of meetings already set at ShowWest in March, and we'll keep you all posted.

You maybe jumped ahead of me. That was a follow-on question. But my specific question wasn't so much related to the negotiations with studios on Phase II of the rollout as I was talking about the refinancing of the existing. Are you suggesting they are clearly hand-in-hand, and one won't come much before the other?

No, not at all. Phase I assets are a discrete asset pool, and therefore securitizable unto itself. We're looking at all methods of financing. Keep in mind, too, that interest rates are dropping rapidly. The last reset that we did with GE was done at about 7.5%, down 200 basis points from what our average has been in preceding quarters. When we started this, the interest rate was 10% on average, just under 10%. Now it's up.

As we move forward between now and August and reset the interest rate, even with GE, we're looking at something like 7.5%, based on 4.50 over LIBOR. So even there, are seeing some improvement and certainly optimism, and we thank our partners at GE, who have done a fabulous job in supporting us for Phase I and certainly have an interest in looking at Phase II with us. We're working with a major investment bank as an advisor, not only to refi Phase I, but also do Phase II.

We're feeling confident from a timing viewpoint in this market. In this debt market, I'd be foolish to put a timeline specifically on it. We know we're looking to do something in Phase II, in the June quarter. So that's as far as I can go right now.

And I guess two last questions, and I'll let somebody else jump on. Content and entertainment -- you had said you made some changes there and you have reacted to the slow start. Can you just talk about what has changed there, and also if the pre-show advertising business was up sequentially?

And then the second question was for Brian around SOx expense. You said part of the SG&A bump this quarter was SOx. Do we get a reversal of that next quarter?

Well, let me start by addressing content and entertainment. Advertising was not sequentially up quarter over quarter. The Bigger Picture has not done any significant revenues for the first three quarters and has actually been a negative contributor to the tune of about $2 million year to date. We expect that trend to turn around.

Let me address the advertising business. We had a full changeover in management and sales management, and under the leadership of Bill McGlamery, who came on board earlier this year -- actually, toward the end of last year -- has reorganized the entire sales effort. And what we're seeing now is a trend back upward in terms of signing advertising contracts. And there's a lag of about a quarter to see that happening sequentially.

And so I don't even think we'll see anything in this quarter, but on the current quarter, we're seeing sales results that are trending upward, and we expect, obviously, to see that trend continue.

On The Bigger Picture side, I just explained what happened there. But again, delays -- timing means everything. Just to give you some color on that, we all negotiated the opera series this summer and agreed in principle on virtually all of its key terms. It took us until December to be able to sign a complete agreement with the San Francisco Opera, not because they weren't ready, but because they had to sign groundbreaking union agreements with, I believe, five different unions before they could sign our distribution and rights agreement. And then the first operas will be, as you can tell from our website, will be released in March. So we won't see the impact.

The pipeline has been getting filled with more and more concerts. Both Michele and Jonathan gave you some color on that. We continue to work on adding to those contents, each in a genre called a channel, and we expect to see some results in this quarter and some increasing results in the subsequent quarters as we head into the new fiscal year.

On the SOx question, yes, we will see a reversal of that in -- Q4 will obviously have some expenses in it, but those are starting to wind down now as we go into final testing. Q1 and forward next year, we will see very little, since we will be in more of a maintenance mode.

George Grose, American Capital Partners.

Your gross margins in the December quarter -- they showed a nice improvement on a sequential basis. I know you talked about some of the items that clipped margins in Q3, like the content and entertainment, Bigger Picture. I'd just like to get a sense as to where your margins could be once you have a first full quarter of integrated operations and once these other divisions start to really at least break even or so.

That's a good question. I think that we need to separate our businesses a bit to understand what the incremental margins would look like. I think we can look forward to very substantial incremental margins in the media services segment, both any improvement in VPS and any improvement in delivery revenues, transport revenues and any improvement in our software-generated revenues. Those are high-margin, incremental businesses that do affect and in fact do come down to the bottom line.

So that 75% of that revenue increase that we saw quarter over quarter is the kind of thing that is driven largely by the media services segment and the relatively high incremental margins that they have.

Now, when we move to content and entertainment, we're not looking at those kind of margins incrementally, but very substantial improved margins. I would look at more in the 40% range of incremental based on revenues, so The Bigger Picture's incremental revenues we should see about a 40% bottom-line, EBITDA line improvement, based on their increase in revenues, which have been minimal to date.

Same thing with advertising. Based on splits, based on direct costs and margins, we should see something in that 40% incremental range. Maybe that's somewhat optimistic, but certainly those are the kind of numbers we're after, when you look at the splits with exhibitors on advertising and when you look at production costs coming off the top.

The SG&A costs are very much fixed. There are some direct incremental costs for deliveries. When you deliver by satellite, that's very scalable, and those margins are excellent. Even by hard drive, we can get margin incrementally, and certainly on software license fees, the typical software business, when it has a product already developed, is going to see substantial margins on new license agreements.

And certainly, finally, VPS -- again, any fluctuation quarter over quarter in VPS, and certainly we're optimistic about seeing bigger numbers in the future, not necessarily in the March quarter, but certainly scaling from this $12 million-plus number that we achieved in December quarter -- that, too, will be very high incremental margin.

So this really sounds like, on the content and entertainment, once you start having more content available, you should see some improvement there; it's just the timing --

Absolutely. We're looking -- it's almost a dollar-for-dollar improvement at this point because we've had so little revenues coming from that particular division, and we're very excited about that division. We're very excited, as you all know, about the prospects. And I am disappointed in the results to date. So are Jonathan and Michele and its team. But it's a timing issue. The product is flowing. We're going to increase that amount of product.

And the good news for Bigger Picture is that it doesn't need that huge digital cinema universe to make money; it just needs more content to the existing universe.

Our transport division does rely on a broader universe because when it delivers a movie, it delivers to everybody who gets that movie, irrespective of whether AccessIT has installed a site or not. So the opportunity grows in direct proportion to the number of screens that are out there.

They can increase the number of titles they deliver as more and more digital titles come out. But it's math; it's really the number of titles times the number of sites that you deliver to times what we charge for those deliveries. And it's kind of a FedEx model, if you will. You've got to get it out to many sites to really start making some money.

As you know, we see this market growing significantly over the next three years. We want to win a market share. We have no illusions about winning at all. We also know that there are not going to be six satellite dishes on the roofs of movie theaters around the country. We see two or three, at most, and we want to be one of them.

And maybe a last question here -- on the debt, assuming the status quo with respect to your debt, like you don't refinance the GE debt, and no further rate cuts, can you remind us what your total principal and interest payments would look like in fiscal '09?

Well, at the current interest rate, it would be about $33 million in the fiscal year ended March 31, '09. That includes about $15 million of amortization, and we're estimating, based on current rates, $15 million of interest. It actually would -- so we're really looking at something on the order of about $30 million of debt service required in fiscal '09.

And of course, as the principal reduction occurs, we're looking at a reduction in the interest expense. And overall, that $30 million of debt service includes the assumption of $15 million of interest expense, and that's assuming current rates, that we can reset our term loan at somewhere in that 7.5% range. And that is, by the terms of our agreement with GE, what we will have the opportunity to lock in. We will have to lock it in and buy that lock.

Our hopes in refinancing are to bring the debt rate even lower, below that 4.5% over LIBOR. Certainly, we have every reason in this debt market to look for the benefits of the chaos that has occurred over the last six months and benefit from it.

The fact that we have an asset pool with predictable revenue streams and a history that goes back over two years of revenue, that we have top credits as accounts receivable studios pay us, not exhibitors -- not that there's anything wrong with exhibitors' credits, but the fact is that the studios are rated credits; these are top companies that are paying us. We have an excellent accounts receivable collection record with all of them.

And that, when you combine it, is a very refinanceable package, we and our advisors believe. And we're going to pursue that and bring those costs further down, we hope.

And just to follow up on that, does the $30 million or so -- does that include the $55 million that you --

It does not. We are talking about the bulk of the debt, which is down at the Christie/AIX subsidiary, about $210 million today. The $55 million is an interest-only facility through 2010 with the opportunity to extend for another six months into 2011. We can pay the interest with either cash or stock, at our choice.

The equity kicker, just to remind everyone, has already been paid through October. We will make our next quarterly equity kicker payment using a range of $6 to $10 a share. The lowest we will have to deliver those kicker shares at is $6, the highest $10, so that over the two-year period that begins later this year, the total number of shares that we will have to deliver we've calculated at approximately 1.76 million shares on the high side and, on the low side, about 1 million shares, using that collar that we've created.

And right now, what we have is a 10% coupon debt that is standing senior unsecured debt, which in this market is certainly looking pretty good.

Marla Backer, Soleil Securities.

I have a couple of questions. One is on the preshow advertising. First of all, are you seeing any potential opportunity as competitors' contracts expire? Do you think you can grow that business? And if you do, will scale help you in terms of your initiative to move it towards profitability?

Yes, we do absolutely. There are three ways to grow that business -- first and foremost, get the advertising per screen for the existing 3800-odd screens that we have in 43 states around the country, get those revenues per screen up. We haven't done that, and a big part of that is the reorganization of our whole sales effort. We did lose some key people. We've replaced them. We're in good shape now, we think, and we will move on that.

The other way to grow is to add the number of screens that we provide advertising for, and that opportunity does exist. We have proposals outstanding for a significant number of screens in other parts of the country.

And then finally, the other way to grow this business is to get a national layer of advertising. Those of you who are familiar with the UniqueScreen Media acquisition recall that they sell, with a salesforce of more than 80 sales reps around the country, commissioned people, they sell local advertising and occasionally regional advertising. But we don't sell national advertising. That's where the big bucks are, and we're in discussions now with a number of national advertising providers.

We actually have at least one proposal in hand that would be incremental to us, that is, we would add revenue per screen for the screens that we now serve. Those revenues would be incremental, and the impact on the bottom line would be substantial. But those are the things that we're doing to build that business.

My next question was about the screen turns, the number of films turning on the screen. Are you seeing any change in that over the past few quarters in terms of the Hollywood release schedule? Are there more films out? Are there a greater number of turns? And is it moving in towards your expected -- I think you had originally modeled 15 turns on the screen, if I'm not mistaken. Are you seeing trends in that direction?

I would say yes, but we haven't seen major jumps yet. I think that as we look at the coming year, we're seeing greater and greater participation from independent distributors. The divisions of the major studios that have heretofore not released very many titles in digital now are beginning to do so. We also know that new distributors that have just opened their doors who our customers of ours on the software side -- Overture, which is a Liberty Media affiliate, Summit Films and a number of others that plan to open their doors this year with substantial backing will be doing some of their releases in digital. These are all incremental to the base case scenario we've created with the major studios, and we are seeing movement forward.

But again, among the major studios, I wouldn't call that rapid growth. We're seeing quarter-over-quarter variations in the utilization, but we're on our way toward those 15 turns, and actually are hopeful to go beyond that number.

Historically, the data that we have internally put together would indicate that the number of turns would be substantially higher when all of the movies that are available are available in digital -- that is, all of the movies including analog and digital today become digital and are available to be played on these screens, we would then be at full utilization. We think that full utilization is higher than 15 turns, based on that data.

Madhu Kodali, Fertilemind Capital.

I've got a few questions. Related to the EBITDA number, I just went to make sure I heard it right. I think year-to-date EBITDA on the media segment -- I think you spoke about $26.4 million; is that correct?

That is correct.

So if $26.4 million is coming from media and you've had a negative $2 million contribution from Big Picture, that kind of backs it out to $2.8 million in advertising. So the fixed costs on SG&A or cost of service, looks like a big component of that comes from your content and advertising fees. Does that make sense? Am I looking at it right?

Yes. The content and entertainment adjusted EBITDA for the quarter was approximately negative $800,000. I'm not sure if that's your question, but the $2.8 million that we gave earlier was the approximate losses in The Bigger Picture year to date. So you are correct.

That's not negative EBITDA contribution; it's loss of contribution?

Well, if we break it down to divisions, which we don't do routinely, but I did give you that piece of information, if Bigger Picture breaks even in a quarter on a comparative basis, that $2 million comes right to the bottom line of AccessIT on a consolidated basis in terms of year-to-date comparisons.

For the quarter, we haven't given the specific breakdown, but it is substantial. It is a loss, and to the extent that that loss can be turned around, we will see a direct contribution to the bottom line of AccessIT consolidated and for that segment in particular.

On the preshow advertising, out of the 3723 theaters you have today, there is obviously some advertising going on in those theaters today. What percentage of advertising revenue do you have today?

And the second follow-up question to that is, do you have any advantage or a lock-in into those theaters for streaming advertising? Or do your competitors have the same advantage, like National CineMedia and others?

I'm not sure I understand the question. Do we have an advantage for selling advertising on the screen?

Right.

Well, that's the contract that we have. We have contracts to provide advertising exclusively on those screens, and we've converted 800 of those 3800 screens to our deployment subsidiary. So Christie/AIX actually owns the equipment in 800 of those 3800 screens.

Although the numbers are similar, just to be clear, one of the strategies behind buying UniqueScreen Media and getting into this business was to address that population, that customer base with our deployment plan for Phase I. The remaining roughly 3000 and any other screens we may add through our sales efforts will be addressed in Phase II and are a logical and ready customer base, prospect base, for Phase II.

What we have learned also strategically, if I may just mention this now, is that our advertising division is enormously helpful to The Bigger Picture in securing its rights to distribute content and can monetize the unused sold inventory in providing promotional support for not only the events themselves, but the follow-on downstream channels of DVD releases for this content, and we're packaging our advertising and Bigger Picture, which is one of the reasons we've created this separate segment. It's really a very aligned, very strategically intertwined business unit, and more and more we're seeing that.

Again, despite the disappointing results from an operational viewpoint, strategically this is working very well. What we hope to do is to produce that strategic advantage into an advantage that will show with both revenues and bottom line in the future.

But what I'm hearing is you have 800 of the 3700 converted today, and the balance you're saying you still have to sell, but at the same time you also said you already have contracts to stream advertising.

Yes.

I'm not following that.

Two totally separate matters. There are five divisions of AccessIT. One of them is advertising. That division has contracts to provide advertising exclusively on those screens. And no one else has --

On the 800 screens or all the --

3800 screens. Not the same 3800 as our deployment subsidiary; let's just be clear. 3700 screens in the deployment subsidiary that we've installed systems in. 800 of those happen to be customers of our advertising division and are included among those for whom we have rights to provide advertising. Does that make it any clearer?

I'm still lost with the balance of the 3000 theaters. What do you need to do? Or do you also have agreements --

We have advertising rights, and we provide advertising every day in those theaters using smaller LCD projectors, just the way other advertising companies do, sitting side-by-side with the film projectors that are there. That's the legacy business of advertising on-screen.

What we've done with the 800 that we've converted is we've removed those LCD projectors and with it many of the costs associated with that, for that division, and moved everything onto a single big D platform, the big digital cinema platform that is what the industry needs and wants. That's the difference for those 800 screens.

But in terms of the advertising, we're playing it on both kinds, the LCD projectors and the big cinema projectors. And what the audience is seeing is a much better-quality presentation with the digital cinema system than they are on the LCD projectors, clearly.

And I don't mean that as a pun, but what we're doing here is moving forward with all parts of our business and delivering the content to those theaters, playing it out on the screen. We call it preflicks; that's what our preshow entertainment and advertising segment is. It's 20-minute preshow program that shows on these screens before the features begin and the main trailers begin.

That's universally true. National CineMedia does that with their preshow. Screenvision, the second largest company -- the two of those are major competitors of one other because they both do national advertising. And then we are a distant third in terms of the number of screens we serve. The difference between us and those two companies is that we only do local advertising so far. And what we're hoping to do is to get into the national part of this business as well.

The other thing we do in terms of our related companies at AccessIT is, of course, move toward converting those screens and anybody else's screens, whether they are advertising clients or not, to the big D systems.

So if there is any national campaign going on today, what happens with these 3723 theaters? Do they participate in that through your competitors' contracts, or you just do local --

Yes, they do. On those 3723 screens that we've installed in Phase I, only 800 of them are those that we sell advertising on. The others are being supplied by others. In one case, we supply the local advertising for about 100-and-some-odd screens in the Michigan market, and another company, one of those two, supplies the national part. And they both run on the same platform, which is our platform.

Other question on the distribution segment, The Big Picture and so on -- what is the economic model there? Do you have to commit to a certain amount of revenue for the content partners, or if you can throw some light on that?

We do not. That's certainly the kind of thing that has slowed the process down because we do not want to take any significant economic risk on this content. So we're looking for producers and content owners who are looking for services, who are looking for our ability to market, book, manage the entire distribution process and to get it out there in the marketplace, all of which we do.

The Bigger Picture is the quarterback on this distribution process. They provide the marketing plan. They supply the theaters with a marketing-in-a-box package. They make sure it gets up on the websites.

They utilize our transport division to deliver it. They utilize our advertising division to support it and to market it as part of their marketing package. They utilize our software division to manage the back-office process of getting it, booking it, accounting for it. And ultimately, they also generate alternative content fees and in some cases virtual print fees for our deployment subsidiary.

So you can see why it's so important for us to build that part of our business. Not only do they get a payday, but they generate internally potential paydays for every other division of the Company.

One last question on the satellite network. You have 240 sites. When you talk about a site, is it a location like a multiplex, for example?

That's correct. There is one in each multiplex that we have deployed. We have 100%, as I mentioned earlier, of the screens that are deployed in that multiplex. Sitting in the middle of that multiplex somewhere is our Library Management Server, which is connected to the satellite dish and is the single point of ingest for satellite deliveries, but it can also take a hard drive delivery from either AccessIT or a competitor in that space.

Right now, we're the only ones with a satellite network delivering on a regular basis throughout the United States. We expect some competition eventually in that space. And I think that answers your question.

Yes. What percentage of the 3723 theaters are covered by these 240 sites?

We have 365 sites, at last count. There is a little bit of movement and consolidation within that, so it's north of 362 sites. So, to give you a frame of reference, 240 of those are enabled by satellite, 270 by the summer.

Some of those sites are smaller sites and don't have as many screens, and we're less motivated to put a satellite dish there. In those cases, it's just as cost-effective to send a hard drive when they get a delivery, if it's a twin or even, in some cases, a four-plex, the installation of a satellite dish, which, in our case, is a state-of-the-art, best-in-breed technology with VSAT capability, motorized. This is a capital investment on our part of $25,000 per building, with the live event capability that we will add to that, so that we only do that where we can see continuous revenue streams that justify that kind of investment.

So we are being selective about those sites. I would estimate we'd probably be at something like 320 to 325 by the time we are done with Phase I. In Phase II, we're looking at probably another 1000 sites, and we will address those separately. In the meantime, we can certainly deliver hard drives to all of those sites, to the same single point of ingest, that Library Management Server, as we do to other sites today, again, non-AccessIT sites. We deliver routinely to those sites as well, and that gives rise to the ability to look forward to the growth of digital cinema in any form, by anybody.

[Roger Sachs], Societe Generale.

Bud on The Bigger Picture, how are you being able to measure the awareness of customers when some alternative feature is playing in a theater, whether it's a concert or some of the children's entertainment? Are you seeing sold-out theaters? How has that been so far, and what can be done better to expand awareness?

Well, first of all, I'm going to let Jonathan and Michele give some color to this response. But I can tell you that we've been doing a lot of research, which I will let them discuss with you, using demographic data.

We need to get better at measuring that result. Certainly, we save the data, and our software does mine the data for what works, how Beyonce did in certain screens and how Bon Jovi did. Certainly, we will be measuring Tom Petty results. But so much of it is the programmatic nature of doing this and preparing audiences.

So Jonathan or Michele or both, would you mind responding?

You bet. The programmatic nature of each of the niches and genres that we're distributing now and that we're looking forward to distribute are -- it's cumulative marketing, so the ability to reach an audience in an efficient and in a cost-effective way is the way we look at each discrete program.

When you look at our Kidtoon program and our Anime program, which are much more mature, we are seeing a great uptick in occupancy in the locations that we're playing. We are very confident and very upbeat about each discrete program and reaching that niche audience in a cost-effective way.

And I'll give you an example. So in the Kidtoon program, which is an ongoing, year-round program that, every month, has new content, we see, for example, if a theater begins a program, it takes a month or two to penetrate that mom audience or, if she's got young kids, she's not used to thinking there's movies at the theater for her to take her family to. But after the first couple months of penetrating, we see theaters do very well and then consistently perform with a base across all titles that increases where there's titles that do better, but with a solid base of people who are essentially repeat customers.

And in that philosophy that I mentioned earlier about focusing on affinity audiences, really, the key is saying to people, this is the content that's coming. Here's what's coming in March, here's what's coming in April, here's what's coming in May. Then we just measure how well those do. But really, we have seen from the programs where we have been able to establish that kind of programmatic scheduling that we've reached those audiences very well, and actually see sold-out auditoriums and theater owners that are very happy that they've filled that space at either 10AM in the morning or 10PM at night, at some off-peak time.

Bud also mentioned earlier our marketing-in-a-box notion in that, at the theater level -- and we really do drill down to the theater level from a marketing standpoint -- we have our in-theater trailers that they run. We have one-sheets that they put up. We have banners and giveaways. So there's an awareness on a local level that at your local theater, you can see different types of fare on a regular basis. Clearly, we're building that business, but the excitement at the exhibitor level and the need at the exhibitor level to bring audiences in off-peak times is very desirable for our exhibitor partners.

Let me ask it maybe separately or a different way. If you had a target audience, let's say, of 1000 people, is there a way that you would be able to measure, out of that 1000, 500 know that there was something playing at a theater that they can see, and out of that 500, 200 are actually going, so which, after you measure what the awareness is, if there is some alternative content for your target audience at a location?

I think the answer to that is we're maturing as we grow, and we are polling, we're doing data surveys, we are getting that data now so that we can accurately play the right theaters and the right theaters for the content that we're providing, and we are polling on a regular basis so that we understand that awareness.

What are some of the methods? So what you describe, the marketing-in-a-box, from trailers to the posters and banners, what I guess I typically would see for any sort of movie in a theater -- is there anything unique that you're doing, marketing outside of the box, so to speak?

Actually, the marketing for every program is different because, again, if you think about that affinity audience -- so, for example, in our Anime program, which we're doing in partnership with FUNimation, which is one of the leading importers of anime content and has websites that touch anime fans multiple times every day, we really collaborate with our content partners where they have expertise in reaching their target audience.

FUNimation lives or dies on how well they get that anime fan connected to their property, whether it's on television or selling DVDs or whatever. So we collaborate with them in terms of how do we push people. So, for example, we push anime fans to theaters using different methods than, for example, I would with Mom.

So in our Kidtoon program, we're working with companies like Simon Malls, that we map our theater ZIP codes to their mall locations and then have an ongoing promotional program with Simon Malls where Mom is seeing a table tent and a poster and in their [kids'] program. So we're targeting how we get to each target audience in a way that is really reflective of where that audience is. Reaching opera audiences is, again, a very different animal than reaching that anime audience.

So we look at all the same categories of how you connect with that audience and then partner with our content partners and then figure out how to do it on a very programmatic basis, so once you've captured that consumer with the knowledge that this program exists in the theater, you don't have to do much more to just tell them, this is the ongoing schedule. So it's what we call consistent and cumulative marketing.

[Paul Zons, Zons] Partners.

A few housekeeping questions and then a more substantive question. What is the share count, fully diluted, at the end of the quarter?

Fully diluted is something in excess of 25 million shares. Our weighted average shares that we're showing on the balance sheet was 25 million. So the number would be slightly in excess of that.

Right. And that doesn't include the equity kicker that's going to be issued this year?

You should add up to 1,176,000 shares to that over the two-year period starting delivering in October of this year. So fully diluted picture on a worst-case basis.

Perfect. Does that include potential option exercises by employees?

It does not.

And how much would that be? What are the total number of options outstanding and the average exercise price?

The actual outstanding share number is 25.5 million. There's about other 500,000 options out there. Actually, I'm sorry about that -- there's about 500,000 shares remaining in the pool. There's about 1.5 million shares outstanding.

Those options, however, are substantially above the current market and average well in excess of $6 or $7.

Great. I mean, not great, but I understand.

No, they are not great.

Cash on hand -- what was the cash at the end of the quarter?

The cash on hand in the quarter -- I think Brian gave you that, and that's shown on the balance sheet, on the press release.

All right, I can just take it off that. And -- go ahead?

Oh, you mean today?

No, the cash at the end of the quarter. And if it's on the balance sheet, I'll just get it off that, the press release.

There was a question about, at this point in time, at the end of the last quarter, are you guys cash flow positive, based on current run rates?

I don't know what exactly that means, but I will tell you that the loss that we've shown for the last few quarters has been exceeded by all the noncash items in that loss, in the most recent quarter, ended December 31. It exceeded -- the noncash items exceeded the actual loss by over $1 million. And that, I think, is two quarters in a row. We view that as an operating cash metric, and one that we look at closely.

We manage our cash flows, and I think that many assume that we are, somehow, and based on what the market is looking at today and the price of our stock and the market cap, I have to assume that there are some out there who believe that we're bleeding heavily in cash, and I can tell you that is simply not true and that the numbers speak for themselves.

Good. In terms of the broader questions, one of the things that surprised me has been the -- and I assume, Bud, this probably surprised you, too -- that the lack of alternative content in -- when I go to a movie theater, I go to a Regal theater near my home. And I'm constantly seeing advertisements for special events -- the Hannah Montana concert, for one. I just wondered, considering the fact that you do have a fairly large number of theaters where you could do this, as opposed to Regal, why was it that Hannah Montana went to their theater group as opposed to yours, where you seem to be so much better set up?

Well, no, it didn't go to Regal exclusively. We played it throughout our circuit, and it was an extremely profitable event for us.

Oh, okay. I hadn't realized. I saw it there, and I just assumed that they were the only ones who had it.

(multiple speakers) We played it on more screens than Regal did. I guarantee you that our exhibitor partners collectively played it on many more screens than Regal, AMC or Cinemark combined. We are very pleased that most of the screens, a majority, I should say, not most, but a vast majority of the screens that Hannah Montana played on are AccessIT-enabled screens.

Oh, excellent, excellent.

And U2 will be in the same category. That's a concert that's coming up on the 14th, released on the 13th. Both are digital cinema 3D events. They are alternative content, and AccessIT gets paid for both of those events.

And of course, once The Bigger Picture releases, if we ever could release something like Hannah Montana, I don't think Disney has any interest in letting us do that. They don't really need Bigger Picture to release Hannah Montana; they do a pretty good job on their own of marketing it, but we still get paid. We are a service provider. We still get fees for playing it.

We can get fees for delivering something like that, and we'll talk more about the future of some of these relationships as we see the studio affiliates, more and more, come out with this type of content. We are cheering them on, because it helps exhibitors see the reality of digital cinema and really what it's all about.

This is a splendid example, Hannah Montana is. The U2 concert is another excellent example of a wide release in 3D, which is distinctly digital, and we, too, again will be playing the majority of the screens that book that U2 concert. They will be AccessIT-enabled sites.

What do you think, then, is the -- I noticed in both the advertising section and in the alternative content, advertising -- I heard you say that you had lost some key people and they have been replaced. Of course, there hasn't been substantial revenue from the alternative content.

Both of these, when you got them, there were high hopes for them, and yet they seem to have underperformed. What is it that was the main reason, do you think, for underperforming? I know you've said that you've taken efforts to turn things around. And could you talk a little bit more about them? Because they seem to me very, very key to the prospects going forward.

I agree, they are key to the organic growth of the Company going forward. In the case of the advertising division, the main reason is the turnover of key personnel. The president of that division had to resign because of an illness. His mother took very ill, and he had to be back at her side to help her. In addition, the head of sales left shortly thereafter.

We hired an excellent industry veteran in Bill McGlamery, who stepped in, supported by an excellent CFO of that division, and figured it out, and working with Chuck Goldwater, who heads our media services group, put together a new sales plan that had to be implemented, which has much greater potential in terms of follow-on business in each of these territories, have really structured the sales plan differently, pushed more of the responsibility for producing results to the salesforce, and to giving us the product that we need to get up on the screen in a timely fashion by delaying commission payments, for example, streamlining some of that salesforce into more reasonably focused people who are there and call on the same people for repeat business rather than bouncing around the country, which is what used to be done, and then focusing on working with The Bigger Picture division to assist it and figure out ways to monetize some of that unsold inventory in connection with The Bigger Picture events, sponsorships, even local advertising associated specifically with those affinity audiences.

I'm not sure that Jonathan and Michele mentioned that we worked with EDI in creating a demographic profile for every digital screen in the United States, so that we know, when it comes to the opera, we can target that audience. We know when we're talking about NASCAR or something like that or a sports event for college sports or even professional sports, we know what that audience looks like to a much greater degree. And we are bringing, as I mentioned when we started this, some science to it.

But it's been very difficult. So advertising -- I think I've answered that question. On The Bigger Picture, it's all about timing. I mentioned how long it took to get the opera series out. It was pretty much a nine-month process. But out of that process, we have a commitment for six operas a year for four years, and we have the international rights to those world-class operas.

They are magnificent. I hope some of you will be able to see them at theaters around the country and really recognize the enormous production value that we are bringing to the screen, and for audiences who, for $15 or $18 or $20, can see something that, if they saw it live, would be paying many multiples of that.

And I think the San Francisco Opera has done a superb job of producing these, of editing these programs. We, in turn, at Bigger Picture have given theater owners flexibility on when they can book these and when they can play them.

We're hoping that we will see multiple plays, not just one or two, but maybe four or five, and give the flexibility to the theater owners from a timing viewpoint. They are not limited to a live event that might have different time zones. That's a risk; we know that.

In determining that we're going to do a prerecorded opera instead of a live opera, which has been very successful for the Met and with MCM, we've watched that closely and have -- we have two issues here. One, does a live event -- is that going to mean something to the audience compared to a prerecorded one? And will that be offset by the quality of the presentation, to some degree, and the ability for the theater owner to choose the optimum time to address that audience, who may not want to get there at 11AM or 12PM in the afternoon to see the opera in some time zones?

We don't know, and certainly the Met as a premier opera company in this country, certainly the draw there -- but I can tell you the production values and the job that the San Francisco Opera has done is peerless, and we're extremely impressed not only with that team, but also the product they produce.

They have an in-house capability to not only record these in high-definition cinema quality, but they have their own in-house editing department, and so they can produce something that is just really marvelous. We are all looking forward to not only seeing the results in the theater and having audiences enjoy this stuff, but also, obviously, we want to see numbers. We want to see the kind of results that will grow as these operas continue to build in audience.

Have you had any discussions with the Broadway theaters and Broadway productions about this as a possible venue for theater?

As a matter of fact, we have. It's a very difficult process for Broadway, not very different from the San Francisco Opera's barrier to entry.

Because of the unions?

All the unions and their rights. It just hasn't happened yet. We've certainly had discussions on a number of fronts there. I think that the most likely scenario for some Broadway plays would be some of the major players who own those rights to decide to produce them, get them digitally recorded and give them to us to distribute, or distribute them themselves. We know that some of the major studios have some rights in Broadway plays.

Clearly, if they choose to market those out in the marketplace, it's something we would certainly encourage and exhibitors would love. Not everybody throughout the country, and particularly in some of the smaller markets, get to see Broadway plays, and we would love to see these movie theaters, as you know, converted to entertainment centers. That's our vision for digital cinema.

But, one last question. In talking about your estimates for this year, you said that they were going to be -- it's not an easy target to get to and that there are -- things have to go right. Could you just talk a little bit more about the estimates that you've put out there and what you see could be the upside to those estimates? In other words, you've talked about some of the, I think, very unvarnishedly, some of the difficulties in getting to those targets. But what are the things that could go right that would make us all happy to have bought the stock here?

For the fourth quarter, or are you talking about fiscal '09?

I think for fiscal '09.

Okay. Well, we're certainly very focused on fiscal '09. So the kinds of things that -- let's leave Phase II out of it for now. Let's just focus on the five business units that we currently have.

We see organic growth potential in our transport division. We can see significant growth there in just doing more business with more screens that have already been deployed over the last few months, many of them just in order to play Hannah Montana and U2.

So we're seeing an increase in the number of screens throughout the United States. We went from having 81% of the screens just a quarter ago to, now, 76% of the total screens. So we're seeing screen counts increase nominally throughout the country to be able to play these 3D events.

So that's the transport division. We think there's continuing upside on VPS coverage, so we can see some revenue growth there year over year. In our software division, absolutely, in the software licensing, both internationally and domestically with a whole variety of products, we certainly can look forward to some growth. Certainly, in our advertising division, everything I've been talking about today, we can see year-over-year growth. We'd be extremely disappointed not to see that growth. And Bigger Picture, first and foremost, we see significant growth year over year.

So just taking this quarter and annualizing it, we will produce better results than we will have for the current year, just going and doing the same business we were doing in the December quarter. We're not going to be satisfied with that level of business, by any means, and the relationship between the growth in those other divisions and the results quarter over quarter going forward, without Phase II, can be measured.

This 100% year-over-year growth without a Phase II is not going to happen. But substantial growth year over year with high-margin incremental revenue and EBITDA and cash flows can certainly happen irrespective of when we begin Phase II. That being said, we are dedicated to trying to get Phase II going. The studios know it, the exhibitors know it, everybody in the management group at AccessIT knows it. We're very confident we're going to make that happen.

I am not ready to talk about installation rates in Phase II. Obviously, that would be getting way ahead of ourselves. Let's start by announcing studio agreements and get our financing act in order and begin to announce exhibitor signings, and then we can talk about installation rates and then the incremental impact of Phase II, not only from the standpoint of more VPS generation and alternative content fee generation, but the impact that it has organically on the other four divisions.

It appears we have no further questions at this time. I'd like to turn the call back over to our speakers for any additional or closing remarks.

As a final word, I'd simply like to reiterate that there is one indisputable fact that AccessIT investors should keep in mind. The digital cinema revolution and the huge potential benefits it will bring in terms of movie distribution, alternative content and ultimate shareholder value is happening as we speak. It's well underway, and AccessIT is in the vanguard of that movement.

Thank you all for your continued interest in AccessIT.

Once again, that does conclude today's call. We do appreciate your participation. You may disconnect at this time.