The U.S. advertising industry is large and consists of a diverse mix of media platforms which has demonstrated attractive long-term growth. According to Kagan Research, in 2005 advertisers spent approximately $240 billion in the U.S. across all media platforms, and since 1996 advertising spending has grown at a compound annual growth rate, or CAGR, of approximately 4.8%. Historically, the larger components of U.S. advertising spending have been traditional media platforms such as television, radio, newspapers and direct mail, with non-traditional media representing a relatively small percentage of advertising spending.

Over the past 10 years, the growth rates of emerging, targeted media platforms such as Internet and cinema advertising have outpaced those of the traditional mass media platforms such as television, radio and newspapers. During the period from 2001 to 2005, Internet and cinema advertising grew at a CAGR of 13.2% and 26.0%, respectively, while more traditional media platforms such as broadcast television, radio, magazines and newspapers grew slower than the overall advertising market.

According to Zenith Optimedia, for many years, cinema advertising has represented a more significant percentage of total advertising spending in Europe and Australia than it has in the U.S. Historically, cinema advertising in the U.S. has been a low-quality medium consisting of slide advertisements delivered by 35 mm projectors and repurposed national television advertisements played on 35 mm film.

Over the past few years, cinema advertising in the U.S. has undergone significant changes. Companies providing nationwide coverage have emerged. Some companies have deployed digital networks and fostered the development of higher quality pre-feature shows that commingle advertising and entertainment programming.

Through its FirstLook program, LEN and other promotional products, the Company provides its advertisers with bundled offerings of on-screen and lobby marketing products that provide multiple touch points to interact with theatre patrons. The Company distributes its programming primarily through its proprietary digital content network, or DCN.

The Company’s lobby entertainment network, or LEN, is a network of television and high-definition plasma screens located throughout the lobbies of most of the Company’s digitally equipped theatres. As of June 29, 2006, the Company had 1,733 screens in 670 theatres connected to its DCN.

The Company also sells a wide variety of advertising and promotional products in its theatre lobbies. These products can be sold individually or bundled with an on-screen or LEN advertising package.

The Company provides live and pre-recorded network and single-site meetings and events in the theatres throughout its network. The Company’s CineMeetings business facilitates live and pre-recorded networked and single-site business meetings and corporate events in movie theatres. These events are typically scheduled from Monday through Thursday during off-peak hours while theatre attendance for movies is traditionally low.

The Company distributes live and pre-recorded concerts, sporting events and other entertainment programming to theatres across its digital network. The Company’s digital programming events business focuses on the licensing and distribution of entertainment programming products and the sale of sponsorships associated with live or pre-recorded programming on an event-by-event basis or for a series of events.

Total operating expenses increased from $17.8 million during the three months ended June 30, 2005 to $23.0 million during the three months ended June 29, 2006, an increase of $5.2 million, or 29.2%.

Net loss decreased from $2.2 million during the three months ended June 30, 2005 to $1.2 million during the three months ended June 29, 2006.