Access Integrated Technologies, Inc. (AIXD-NASDAQ)

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October 31, 2008 Issue

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Access Integrated Technologies Is Focused On Exploiting Their Leadership Position In Converting Film To Digital Cinemas Throughout The United States As Well As Globally

Access Integrated Technologies, Inc.

Access Integrated Technologies, Inc. (AccessIT)
is the global leader in providing integrated solutions for digital cinemaThe Company’s ground-breaking digital cinema networked services along with its Library Management Server® and Theatre Command Center® software have enabled theatres across the United States to play millions of digital showings of Hollywood features to date. AccessIT's 24/7 satellite operations delivers feature movies, alternative content advertising, and pre-show entertainment through its UniqueScreen Media subsidiary, including live 2-D and 3-D events through its CineLive® satellite network, expanding box office sales and developing new ways to attract incremental revenues. Through its alternative content distribution unit, The Bigger Picture, AccessIT offers channels of programming including Opera, Kidtoons, Faith Based, Concerts, Sports and Anime.

Business Services

Access Integrated Technologies, Inc.

55 Madison Avenue, Suite 300
Morristown, NJ 07960
Phone: 973-290-0080


Bud Mayo, Chairman, Co-Founder, Chairman, President and CEO
A. Dale Mayo is a co-founder of the company, and has been Chairman, President and Chief Executive Officer since its inception on March 31, 2000. He also serves as Chairman and CEO of each of our subsidiaries. From January to March 2000, Mr. Mayo explored various business opportunities, including data center operations. From December 1998 to January 2000, he had been the President and Chief Executive Officer of Cablevision Cinemas, LLC. In December 1994, Mr. Mayo co-founded Clearview Cinema Group, Inc., which was sold to Cablevision Cinemas in 1998. During the term of Mr. Mayo's leadership, Cablevision Cinemas was an early exhibitor of digital film, and explored content delivery via cable and satellite technology. Clearview Cinema Group, Inc. had eight screens in 1994 and, when Mr. Mayo left Cablevision Cinemas in January 2000, it had almost 300 screens at 65 locations, making it the second largest theatre circuit in the metropolitan New York City area. Mr. Mayo was also the founder, chairman and chief executive officer of Clearview Leasing Corporation, a lessor of computer peripherals and telecommunications equipment founded in 1976. Mr. Mayo began his career as a computer salesman with IBM in 1965.

Interview conducted by:
Lynn Fosse, Senior Editor

Mr. Mayo, what is your vision for the company?
Mr. Mayo: “Our vision is to exploit the leadership that we created over the last three years in digital cinema enabling every part of the motion picture industry to convert from film to digital. Our vision is to continue doing that through advances in our own technology and through the work internationally with partners in various countries while we continue to do the conversions here in the US. We set out to convert up to 4000 screens over a two-year period commencing in 2005. We have completed that deployment, which we have referred to as Phase I, with more than 3723 screens in 41 states throughout the US, representing about 75% of all the digital screens in the US. We are now embarking upon another 10,000 screen deployment plan, which would bring us to about 50% of the total screens that play Hollywood movies in the US, and at the same time talking to partners all over the world about providing our technology and expertise to aid their system conversions.”


CEOCFO: What is involved in doing the conversion to digital?

Mr. Mayo: “First of all we have agreements with hardware suppliers. There are various components to the architecture that we have created. These include a digital projector and media server. Our unique Library Management Server® is the center or core of the installation and consists of components assembled for us. Think of the Multiplex movie theater as a local area network where there is a central server connected to a satellite dish so that you have a single point of ingest with deliveries for all kinds of content and a place to store all of that content in digital form. Then distribute out to the various auditoriums where there is a media server, which has a small amount of storage, and a studio approved digital projector. Movies play out on a screen in a crystal-clear manner that does not deteriorate along with crisp sound and automation that follows. Everything can be set up from the manager’s office using the Library Management Server, which houses our Theatre Command Center® software or “TCC”. Like an iPod, a play list can be created to automate when the lights go down and come up throughout the entire week. The operators determine what version, what movie, and what particular type of content will appear on which screen at what time. Using the software managers will set up a schedule for each play list, which includes when the movie will start, what time the trailers will start, and what time advertising begins and ends.

What we do is enter into agreements, first with all the major studios because we have to collect a virtual print fee, which is essentially a toll every time the digital cinema systems are used. We have to enter agreements with exhibitors. These agreements go out to the year 2020. We also arrange for a service contract that would also go out to 2020 for the exhibitor to make sure that systems are as good as new throughout the entire period. It is a bumper-to-bumper warranty, parts and labor agreement that is provided by our choice of vendors. We then manage the installation and make sure that everybody is properly trained, and we provide 24/7 support throughout the entire process. Once the installations are complete, we start collecting revenue streams primarily in the form of virtual print fees from the major studios, but anybody that displays any form of content on those screens has to pay the toll. If it is a sporting event or a concert or some lesser event that doesn’t play to the full length of run and might only have one or two shows, they pay something called an alternative content fee, which is a share of the box office, and that is a growing part of this whole process. In some cases, the whole virtual print fee is paid even for those kinds of events such as Hannah Montana or the U2 concert that appeared on the screen. That is the main process and then we follow that in our satellite transport division with the installation of a satellite dish that permits electronic transport and content both pre-recorded like movies or live events like sports events or concerts.”


CEOCFO: How is this economic climate affecting the people that are purchasing your services?
Mr. Mayo: “The exhibitors make a sizeable contribution to the cause, so it is certainly a factor for them. However, they recognize that they have no choice, that over the next few years they have to do this conversion literally to stay in business, but even more importantly to prosper with all of the choices that digital offers. If you didn’t have a digital screen you weren’t able to play the Hannah Montana concert, if you didn’t have digital screen you didn’t play the U2 concert. There are going to be many more movies like that, which say to the exhibitor you may be able to play movies for the next few years; regular movies on film. However, three years from now and during this process you are going to miss many opportunities to utilize seats that are empty 85% of the time in your theaters, and Monday to Thursday 98% of the time. What we are really seeing here is an opportunity for exhibitors to get incremental revenues and defend their business in the digital era, which has finally happened and the momentum is enormous. AccessIT is the leader. We have been chosen by the National Association of Theater Owners in a competition of nine other companies including Kodak and Technicolor as the integrator of choice for their 8000 screen members and we are addressing those as well in our Phase II.”


CEOCFO: What do you do that is better? What is the competitive edge causing customers to choose AccessIT?

Mr. Mayo: “What we do is we do it, we don’t just talk about it. We have all of the parts, all of the technical expertise, all of the products and services that are needed to have successful conversions. No other company on the planet has that combination of talents. In addition, we have the ability to offer alternative content. We have a continuing stream of alternative content, such as concerts, and G-rated cartoons aimed at very young children, with a child psychologist giving an analysis of what is in these programs. Examples are Care Bears, My Little Pony, Thomas the Tank Engine, and Sesame Street characters. We have sports events live and will be doing more of these in the future, some in 3-D. We do all of these things and we manage that whole process on a fully integrated basis. It is a complex story for sure and certainly, it is misunderstood and undervalued in our opinion. We understand that there are plenty of undervalued microcaps out there. We happen to be one and the one we know about most. We know we are misunderstood because of our complex debt structure, which is backed by long-term contracts that are in place before we incur that debt and it is backed by assets, and the long-term contracts are with major credits. Even though the debt is on our books at first glance it looks like a lot of debt, but when you understand the revenue streams of the company of those assets, you get more comfortable quickly with the fact that we have a sizeable investment in those assets and excess cash flow.”


CEOCFO: Are theater owners looking for that additional content or do they need to be educated on how they can make it work for them?

Mr. Mayo: “At this point they are looking for it very actively. A year or two ago that would not have been the case. The industry has been educated from all the conversations around the industry at all the major conferences; it is all about digital cinema. What we noticed a few years ago is it was about understanding what digital cinema was, technology, cost, and what the pitfalls were. Now it is about what do you do with it once you have it, and how do you make it work for you. We have been saying this for years, that digital cinema is not about technology even though we are a technology company. It is about content, choices, and what you do with it that really makes a difference. We certainly know studios and distributors will save a lot of money on prints. That is their motivation, but it is also about staying in a digital format from beginning to end right through post production, DVD, high definition, pay-per-view, all of which are digital. The only stop in the chain of distribution has been film in theaters and once that changes it is going to be seamless and a lot easier to control piracy and have a much more highly secure information that will not been accessible as readily to pirates as film is.”


CEOCFO: Would you tell us about the global component?

Mr. Mayo: “The global component is absolutely there. There are 107,000 screens worldwide, 37,000 of them in the US. The issue is that it is a very fragmented market. There is no United States market anywhere else in the world, except maybe India, which has its own industry and isn’t following the Hollywood standards. Everywhere else in the world you have anywhere from a couple hundred theaters to maybe a couple thousand and that presents its own problems because each one of these countries has its own currency, laws, business rules and players, people in the business that influence business in the country. Not every movie that is played in China or France or Italy or even Australia comes from Hollywood. That means that the local distributors have to be a part of this as well. What we decided as a company that on international we will work with partners in each country that we feel are financially sound, knowledgeable and solid, and provide our technology, provide our expertise and help in a joint venture mode. Our mantra outside of the US is that we will sign the backs of checks not the fronts of checks.”


CEOCFO: What do you see two or three years down the road?

Mr. Mayo: “I see a company doing between $350 to $400 million a year, and the software type margins in excess of 60% on an EBITDA level.


CEOCFO: In closing, why should potential investors look at Access Integrated Technologies today?

Mr. Mayo: “They should be looking for the growth of the digital cinema universe throughout the world because that is the gating issue for AccessIT. Whether we install the systems in our own Phase II or some joint venture outside of the US, or we help another provider or just stand by while others install systems, we feed off of that digital platform: we sell more content, we sell software, we deliver to those systems every time they play a movie or any other content as a delivery agent just like FedEx or DHL. We have satellite dishes, we have the only electronic system for delivering movies, and we also can deliver by hard-drive when we have to. Our growth is tied to the growth of digital cinema; we are the only company that is pure-play in digital cinema and we are a beneficiary of the worldwide growth. Any expansion of that universe from only a few thousand screens now to ultimately 107 thousand screens over the next three to five years, will have a direct impact on our ability to grow. We fully expect to continue to benefit from that.”


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“Our vision is to exploit the leadership that we created over the last three years in digital cinema enabling every part of the motion picture industry to convert from film to digital. Our vision is to continue doing that through advances in our own technology and through the work internationally with partners in various countries while we continue to do the conversions here in the US.” - Bud Mayo does not purchase or make
recommendation on stocks based on the interviews published.