S-1/A 1 d29336.htm S-1/A

As filed with the Securities and Exchange Commission on April 9 , 2012

Registration No. 333-178648

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


AMENDMENT NO. 6

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


DIGITAL CINEMA DESTINATIONS CORP.

(Exact name of registrant as specified in its charter)

Delaware
           
7830
   
27-3164577
(State or other jurisdiction of
incorporation or organization)
           
(Primary Standard Industrial
Classification Code Number)
   
(I.R.S. Employer
Identification Number)
 


250 East Broad Street
Westfield, New Jersey 07090
(908) 396-1362
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)


(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Joseph L. Cannella
Eaton & Van Winkle LLP
Three Park Avenue, 16th floor
New York, New York 10016
(212) 561-3633
           
Richard H. Gilden
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
(212) 715-9486
 


Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [   ]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
           
[   ]
   
Accelerated filer
   
[   ]
Non-accelerated filer
           
[   ]
   
Smaller reporting company
   
[X]
 



CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities
to be Registered
        Amount to be
Registered
    Proposed Maximum
Offering Price Per Share
    Proposed Maximum
Aggregate
Offering Price (1)(2)
    Amount of
Registration Fee (3)
Class A Common Stock par value $0.01
                 2,645,000          $ 8.00          $ 2 1,160,000          $ 2,425   
 


(1)
  Includes 345,000 Class A common stock which may be issuable pursuant to the exercise of a 45-day option granted to the underwriters by the registrant to cover over-allotments, if any.

(2)
  Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933 (the “Securities Act”), based on a proposed aggregate offering of $ 18.4 million and a $ 2.8 million over-allotment option.

(3)
  T his amount was previously paid.


The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.





The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject To Completion, Dated April 9 , 2012

PROSPECTUS

2,300,000 Shares

Digital Cinema Destinations Corp.

 

Class A Common Stock

This is our initial public offering. We are offering 2,300,000 shares of Class A common stock.

We expect the public offering price to be between $6.00 and $8.00 per share. Currently, no public market exists for the shares. We have applied to list our Class A common stock on The NASDAQ Capital Market under the symbol “DCIN.”


Following this offering, we will have two classes of outstanding common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting and conversion. Each share of Class A common stock will be entitled to one vote per share. Each share of Class B common stock will be entitled to ten votes per share and will be convertible at any time into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately 67.9 % of the voting power of our outstanding capital stock following this offering (assuming no exercise of the underwriters’ over-allotment option).


Investing in our Class A common stock involves a high degree of risk.
See “Risk Factors” beginning on page 12.


        Per Share
    Total
Public offering price
                                       
Underwriting discount (1)
                                       
Proceeds to us (before expenses)
                                       
 


(1)
  See “Underwriting” for a description of compensation payable to the underwriters.

We have granted the underwriters an option to purchase up to an additional 345,000 shares of Class A common stock, less the underwriting discount, within 45 days from the date of this prospectus to cover overallotments.

We have also agreed to issue to the underwriters warrant s to purchase up to an aggregate 2 % of the shares of Class A common stock sold in this offering. The warrant s will have an exercise price equal to 110% of the offering price of the shares of Class A common stock sold in this offering.

Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about      , 2012.


MAXIM GROUP LLC
                 DOMINICK & DOMINICK LLC    
 
                      
 

The date of this prospectus is       , 2012.



TABLE OF CONTENTS

Prospectus Summary
                 1    
The Offering
                 6    
Historical Consolidated Financial and Operating Data and Summary Unaudited Pro Forma Combined Data
                 8    
Risk Factors
                 12    
Special Note Regarding Forward-Looking Statements
                 22    
Use of Proceeds
                 23    
Dividend Policy
                 23    
Dilution
                 24    
Capitalization
                 25    
Unaudited Pro Forma Combined Financial Information
                 26    
Management’s Discussion and Analysis of Financial Condition and Results of Operations
                 34    
Business
                 5 1   
Directors and Executive Officers
                 6 5   
Director Compensation
                 6 9   
Executive Compensation
                 70   
Security Ownership of Certain Beneficial Owners and Management
                 7 4   
Related Party Transactions
                 7 7   
Description of Capital Stock
                 7 7   
Shares Eligible For Future Sale
                 8 1   
Underwriting
                 8 3   
Legal Matters
                 8 6   
Experts
                 8 6   
Where You Can Find More Information
                 8 6   
Index to Financial Statements
                 F-1    
 

You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus. This prospectus may only be used where it is legal to offer and sell these securities. The information in this prospectus is only accurate as of the date of this prospectus.

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Market Data and Industry Information

Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from independent industry analysts, the National Association of Theatre Owners, the Motion Picture Association of America (the “MPAA”) and publications such as Film Journal International, Box Office Magazine and Variety, as well as our own estimates and research. None of the independent industry publications used in this prospectus were prepared on our behalf, and none of the sources cited in this prospectus have consented to the inclusion of any data from its reports, nor have we sought consent from any of them. Although we believe that the sources are reliable, we have not independently verified market industry data provided by third parties or by industry or general publications. Similarly, while we believe our internal estimates with respect to our industry are reliable, our estimates have not been verified by any independent sources. While we are not aware of any misstatements regarding any industry data presented by this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors” in this prospectus.

ii




PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus, including our financial statements and related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As used in this prospectus, unless the context otherwise requires, the words the “Company,” “Digiplex”, “we”, “our”, “us” and “Successor” and words of similar import refer to Digital Cinema Destinations Corp. and its subsidiaries and references to “Cinema Centers” refer to Cinema Supply, Inc. As used in this prospectus, the word “Predecessor” refers to two movie theatres located in Westfield and Cranford, New Jersey which we acquired on December 31, 2010. As used in this prospectus, the term “pro forma” refers to, in the case of pro forma financial information, such information after giving pro forma effect to: (1) our planned acquisition of five Cinema Centers theatres and ( 2 ) this offering and the use of the proceeds therefrom (collectively referred to as the “Transactions”).

Our Company

Digital Cinema Destinations Corp. is a fast-growing motion picture exhibitor dedicated to transforming movie theatres into digital entertainment centers. Pro forma for the Transactions, we will own and operate 73 screens in eight theatres, up from our current 19 screens in three theatres prior to our planned acquisitions. Our goal is to own and operate at least one theatre in each of approximately 100 locations throughout the United States, which, depending on the number of screens in each theatre, may approximate 1,000 screens.

Acquisitions of historically cash flow positive theatres are a key component of our strategy. We intend to create an all-digital national footprint by selectively pursuing multi-screen theatre acquisition opportunities that meet our strategic and financial criteria. We expect to upgrade the theatres to digital platforms if they have not already been upgraded. We believe that an all-digital theatre circuit serves as the backbone for creating a more entertaining movie-going experience, providing us with significantly greater programming flexibility and enabling us to achieve increased operating efficiencies. We believe that through a combination of operating practices, enhanced productivity resulting from the management of the new digital platforms and increased alternative content supplementing the traditional theatrical exhibition schedule, we can produce improved financial results and customer experiences. We can not assure you, however, that we will accomplish these goals. See “Risk Factors”.

We currently operate theatres located in Westfield, New Jersey (the “Rialto”), Cranford, New Jersey (the “Cranford”) and Bloomfield, Connecticut (the “Bloomfield 8”), consisting of three theatres and 19 screens. We acquired the Rialto and Cranford on December 31, 2010 and the Bloomfield 8 on February 17, 2011. All of our theatres are multi-screen theatres and contain auditoriums ranging from 90 to 275+ seats. We believe our theatres appeal to a diverse group of patrons because, to the extent the number of screens allow, we offer a wide selection of films and convenient show times, targeted to the demographics of the surrounding population. In addition, most of our theatres feature state-of-the-art amenities such as wall-to-wall and silver 3D screens, digital stereo surround-sound, computerized ticketing systems and comfortable seating with cup holders and infrared security cameras throughout the theatre along with enhanced interiors and exteriors.

In April 2011, we executed an asset purchase agreement for the purchase of certain assets of Cinema Centers, which we refer to as the “Cinema Centers acquisition.” Cinema Centers consists of 54 screens located in central Pennsylvania, with 11 screens in Bloomsburg, 12 screens in Camp Hill, 10 screens in the Fairground Mall, 12 screens in Selinsgrove and 9 screens in Williamsport. The Cinema Centers theatres had approximately 1.4 million attendees for the twelve months ended December 31, 2011. The Cinema Centers theatres have not yet been fully upgraded to digital projection platforms, which we plan to accomplish following the consummation of the acquisition.

We expect to consummate the Cinema Centers acquisition by using a portion of the net proceeds from this offering to fund the purchase price.

We believe in our slogan, “cinema reinvented.” Our philosophy is to “buy and improve” existing facilities rather than “find and build” new theatres. We believe this approach provides more predictability, speed of execution

1





and lower risk. We have enhanced the operations of the Rialto, Cranford and Bloomfield 8 theatres by fully converting each of the 19 screens to digital projection platforms, with 12 screens equipped with RealD™ 3D systems, installing proven state-of-the-art software and renovating the theatres. During fiscal year ended June 30, 2011, we installed 16 digital platforms, including digital projectors and related equipment in our three theatres. With three systems that were installed prior to our acquisition of the theatres, all 19 of our screens are digital. The average cost that we have incurred with respect to the instillation of the 16 digital projectors and related equipment that we installed to date is approximately $74,000 per digital platform, inclusive of equipment and labor. Our total cost of digital platform installations is $1.2 million. Pro forma for the Transactions, 25 of our screens will be digital. We expect to convert the 48 remaining screens within four months from consummation of the offering at an estimated aggregate cost of $3.1 million and expect to finance this conversion through capital lease or other secured financing from banks or vendors.

We believe that the historic average capacity utilization of movie theatre seats for the industry has ranged between 10% and 15% and that average utilization falls to below 5% from Monday through Thursday. An all-digital theatre circuit gives us the flexibility to target our programming to match and draw audience demand, which is of particular importance during off-peak times. Properly programmed and advertised, we believe alternative content will increase the utilization of theatres and generate higher theatre level cash flow. We expect that alternative content will vary with customer taste and that the breadth of offerings will increase as alternative content gains traction in the market.

In addition to digital projection platforms, we intend to use alterative content to supplement our traditional theatrical exhibition schedule. Alternative content can be as diverse as the ballet from the Bolshoi, opera from the Metropolitan Opera, rock concerts and sporting events from around the world, which may be taking place in different geographical regions, or even if locally, may be sold out. At a fraction of the ticket price of a major event, our customers are able to see events occurring throughout the world, at times in live 3D. We have presented sporting events such as boxing matches, the World Cup, all-star games, the NCAA basketball finals, and major college football bowl games. Tapping into the potential of alternative content could lead to use of our theatres for auctions and fundraisers as well as a venue for meetings of corporate, religious, trade or professional organizations.

Our three theatres had, on a pro forma basis, approximately 312,000 attendees for the twelve months ended December 31, 2011. For the same twelve-month period, and pro forma for the Transactions, the eight theatres had an aggregate of approximately 1.7 million attendees.

For the Successor period from the inception date (July 29, 2010) to June 30, 2011, we had revenues of $1.6 million and a net loss of $0.8 million. For the six month period (unaudited) ended December 31, 2011, we had revenues of $1.9 million and a net loss of $0.6 million. Pro forma for the Transactions (unaudited), for the twelve month period ended June 30, 2011 and the six month period ended December 31, 2011, the eight theatres had revenues of $ 17.7 million and $ 8.6 million, and net loss of $ 1.2 million and $ 1.0 million, respectively. Approximately 7% of our admissions revenue was attributable to alternative content for the six months ended December 31, 2011. Revenues related to alternative content have not been material to date for the Cinema Centers theatres.

2




Our Strategy

Our business strategy is to transform movie theatres into digital entertainment center destinations by acquiring cash flow positive theatres in strategic markets, converting them to digital formats and actively programming and marketing alternative content in addition to first run 2D and 3D movies.

Organic Growth

The principal factors that we expect will contribute to our organic growth include:

•  
  Digital Implementation. We intend to create an all-digital theatre circuit utilizing our senior management team’s significant experience in digital cinema deployment, alternative content selection and movie selection. We have converted all of our existing theatres and will convert those we acquire to digital formats with a mix of RealD™ 3D auditoriums in each theatre complex. We expect to finance our purchases of digital projection equipment in the theatres we acquire in part by leveraging “virtual print fees” that we receive from motion picture distributors. Motion picture distributors make these payments to motion picture exhibitors to encourage conversion of theatres to digital projection platforms. The “virtual print fee” program will be available to us with respect to installations of new digital platforms until September 30, 2012, at which time the program is scheduled to expire with respect to installations of new digital projection equipment. For additional information regarding “virtual print fees,” see “Business — Digital Cinema Implementation.”

•  
  Alternative Content. We expect to offer our customers popular movies and alternative content including sports, music, opera, ballet and video games. With the exception of video games for which we have acquired the necessary software (but have not yet implemented), we offer each of these alternative content presentations at our existing theatres. We advertise and implement these features as an event being presented so that our patrons can fully enjoy the presentation and return frequently to enjoy future presentations. We believe we can increase the utilization rates of our theatres and concession sales by matching content to audience demand during off-peak and some peak periods. Approximately 7% of our admissions revenue was attributable to alternative content for the six months ended December 31, 2011.

•  
  Operating Efficiencies. We have deployed state-of-the-art integrated software systems for back office accounting and theatre management. This enables us to manage our business efficiently while providing maximum scheduling flexibility and reduced operational costs.

•  
  Dynamic Programming. One of the major benefits of the industry’s digital conversion is that it removes our reliance on single reels of film. With digital content, we are able to program multiple screens for playback from a single source file, based on ticket sales and customer demand, rather than being limited to one screen per reel.

•  
  Marketing. We intend to actively market the Digiplex brand concept and programs to consumers using primarily new media tools such as social media, website design and regular electronic communications to our targeted audience, which should allow us to grow our attendance. We expect the combination of our marketing strategy with our blend of traditional cinema and alternative content will transform our theatres to entertainment centers.

•  
  Pre-Show and Other Advertising. We expect to increase pre-show and other advertising revenue in our existing theatres and the theatres we acquire using National CineMedia LLC’s services under a multi-year advertising contract that we executed in March 2011 and under which we commenced pre-show advertising in August 2011.

External Growth

The principal factors that we expect to contribute to our external growth are a disciplined approach to acquisitions and our industry experience and relationships. We believe there is a supply of smaller, family-owned chains and individual theatres currently available in the market in “free zones,” which are areas that permit us to acquire movies from any distributor, compared to an area where film distributors establish geographic licensing zones and allocate each available film to one theatre within that zone.

3




Smaller theatre owners are facing significant capital investments due to the motion picture and theatre exhibition industry’s ongoing digital conversion. Despite the availability of the virtual print fee program, which provides payments to motion picture exhibitors from movie distributors to encourage and assist in the conversion to digital platforms, we believe many operators are either unable or unwilling to make the necessary capital expenditures despite positive historical cash flows. Our philosophy is to “buy and improve” existing facilities rather than “find and build” new theatres. We believe this approach provides more predictability, speed of execution and lower risk. To remain competitive, we believe alternative content will become increasingly important, and many smaller theatres will lack access to quality content. We intend to selectively pursue acquisitions where the location, overall market and facilities further enhance the quality of our theatre portfolio.

Our acquisition policy is to acquire theatres in free zones that provide significant opportunities for improved financial performance through our business model. We will typically attempt to acquire cash flow positive theatres in attractive markets, convert them to a digital format where still necessary and actively program and market alternative content in addition to running 2D and 3D movies. By marketing our theatres as all digital entertainment destinations, we expect to realize increased cash flow from 3D films and alternative content programs aimed at targeted audiences, increased attendance, increased concessions and sponsorship and advertising revenues.

Our Industry

Movie-going is a convenient and attractively-priced form of out-of-home entertainment. On an average price-per-patron basis, movie-going continues to compare favorably to other out-of home entertainment alternatives, such as the opera, concerts and sporting events. Movie theatres currently garner a relatively small share of consumer entertainment time and spend. We believe that, despite the declining trend in attendance experienced in the U.S. motion picture exhibition industry in recent years, there is significant room for expansion and growth in the U.S. movie exhibition industry. Our industry benefits from available capacity to satisfy additional consumer demand without capital investment. As major studio releases have declined in recent years, we believe that alternative content could fill an important gap that exists in the market today for consumers, movie producers and theatrical exhibitors by providing a broader range of content and access to consumers.

We believe the following market trends will drive the growth and strength of our industry:

•  
  Importance of Theatrical Success in Establishing Movie Brands and Subsequent Markets. Theatrical exhibition is the primary distribution channel for new motion picture releases in the domestic and international markets. We believe a successful theatrical release which “brands” a film is one of the major factors in determining its success in “downstream” markets, such as DVDs, network and syndicated television, video-on-demand, pay-per-view television and the Internet. As a result, we believe motion picture studios will continue to work cooperatively with theatrical exhibitors to ensure the continued importance of the theatrical window.

•  
  Convenient and Affordable Form of Out-Of-Home Entertainment. Movie-going continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an estimated average ticket price in the United States of $7.89 in 2010 and $7.96 in 2011 (according to boxofficemojo.com). Average prices in 2010 for other forms of out-of-home entertainment in the United States, including sporting events and theme parks, ranged from approximately $25.00 to $77.00 per ticket according to the MPAA.

•  
  Innovation with Digital Technology. Our industry began its conversion to digital projection technology in 2006. This conversion has allowed exhibitors to expand their product offerings. Digital technology allows the presentation of 3D content and alternative content such as live and pre-recorded sports programs, opera, ballet, concert events and special live events. We believe that these additional programming alternatives should expand the industry’s customer base and increase patronage for exhibitors.

Risk Associated with Our Business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks are:

•  
  We are a recently-formed enterprise, have incurred net losses to date and we cannot assure you that we can operate profitably in the future.

4




•  
  We will need substantial additional funding to accomplish our business strategy and may be unable to raise capital on terms favorable to us or at all, which could increase our financing costs, dilute your ownership interests, affect our business operations or force us to delay, reduce or abandon our business strategy.

•  
  We may not benefit from our business strategy of acquiring and operating multi-screen theatres.

•  
  We may face intense competition in our business strategy of acquiring theatres.

•  
  We are subject to uncertainties related to digital cinema, including insufficient financing to obtain digital projectors and insufficient supply of digital projectors.

•  
  We depend on motion picture production and performance.

•  
  Our business is subject to significant competitive pressures.

•  
  The interests of A. Dale Mayo, our CEO and Chairman of the Board and controlling stockholder, may conflict with your interests, and the concentration of voting power in Mr. Mayo will limit your ability to influence corporate matters.

Corporate Information

We are a Delaware corporation organized on July 29, 2010. Our principal executive offices are located at 250 East Broad Street, Westfield, New Jersey 07090. Our telephone number at this address is (908) 396-1362. You should direct all inquiries to us at this address and telephone number. Our website address is www.digiplexdest.com. The information contained on our website is not part of this prospectus.

5




THE OFFERING

Common Stock
           
2,300,000 shares of Class A common stock(1)
Offering Price
           
We anticipate that the initial public offering price for our Class A common stock will be between $6.00 and $8.00 per share.
Common Stock to be Outstanding After this Offering
           

4, 256,607 shares of Class A common stock(1)(2)
900,000 shares of Class B common stock
Use of Proceeds
           
We estimate that the net proceeds to us from this offering will be approximately $ 13.9 million or approximately $ 16. 0 million if the underwriters exercise their over-allotment option in full, based on the assumed offering price of $7.00 per share (the midpoint of the estimated initial public offering price range), and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us related to this offering.
We intend to use approximately $1 1 .0 million of the net proceeds from this offering to fund the cash portion of the Cinema Centers purchase price and $1.1 million to repay an outstanding obligation owed by us to Barco, Inc. (“Barco”) for purchases of digital cinema projectors equipment. We intend to use the balance of the net proceeds from this offering for general corporate purposes, including our working capital needs. If we fail to consummate the Cinema Centers acquisition , we plan to use the portion of the net proceeds from this offering not used for the acquisition for future acquisitions and general corporate purposes, including working capital needs.
You should read the discussion in this prospectus under the heading “Use of Proceeds” for more information.
Over-Allotment Option
           
We have granted the underwriters an option for a period of 45 days to purchase, on the same terms and conditions set forth above, up to an additional 345,000 shares of Class A common stock to cover over-allotments.
Lock Up
           
Our officers and directors and major shareholders have agreed that, for a period of 180 days from the closing date of this offering, they will be subject to a lock-up agreement prohibiting, without the prior written consent of Maxim Group LLC , any sales, transfers or hedging transactions of our securities owned by them. See “Underwriting” presented below.
Listing
           
We have applied to have our common stock listed on the NASDAQ Capital Market; however, we can not assure you that such listing will be approved.

6




Proposed Symbol
           
DCIN
Risk Factors
           
See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the common stock.
 


(1)
  The number of shares of our common stock outstanding immediately after this offering gives effect to (1) the one-for-two reverse stock split of our Class A and Class B common stock which was approved by our Board of Directors in November 2011 , (2) the conversion of 2,104,882 shares of Series A preferred stock into 1,052,441 shares of Class A common stock (inclusive of 66,191 shares issuable as a dividend accrued on the preferred shares through December 31, 2011) and (3) the issuance of 335,000 shares of Class A common stock to the seller of Cinema Centers on consummation of the Cinema Centers acquisition . Unless otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase up to 345,000 shares of our Class A common stock in this offering solely to cover over-allotments.

(2)
  Excludes 46 ,000 shares of Class A common stock available for issuance in connection with warrants that we will issue to the underwriters in connection with this offering and future grants of options and restricted stock. Also excludes 33,333 unvested shares of Class A common stock underlying equity awards granted to employees and non-employees.

7




HISTORICAL CONSOLIDATED FINANCIAL
AND OPERATING DATA AND SUMMARY UNAUDITED PRO FORMA COMBINED DATA

Summary Consolidated Selected Financial Data

This is only a summary of our financial information and does not contain all of the financial information that may be important to you. Therefore, you should carefully read all of the information in this prospectus, including the financial statements and their explanatory notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making a decision to invest in our Class A common stock. The consolidated statement of operations data for the period from inception (July 29, 2010) to June 30, 2011 (Successor) and the combined statement of operations data for the years ended December 31, 2010 and 2009 (Predecessor) are derived from our audited financial statements and related notes thereto included elsewhere in this prospectus. For the Successor, the consolidated balance sheet data as of December 31, 2011, the statement of operations data for the six months then ended; and for the Predecessor, the statement of operations data for the six months ended December 31, 2010 are derived from our unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus. Our historical results presented below are not necessarily indicative of results to be expected in future periods.

        Successor
    Predecessor
    Predecessor
(in thousands)
        Inception date
(July 29, 2010) to
June 30, 2011

    Year Ended
December 31,
2010

    Year Ended
December 31,
2009

Statement of operations data:
                                                    
Revenue
              $ 1,572          $ 2,156          $ 2,536   
Total costs and expenses
                 2,445             2,380             2,424   
Income (loss) before income taxes
                 (776 )            (229 )            109    
Net (loss) income
                 (790 )            (229 )            109    
Other operating data:
                                                      
Theatre level cash flow (1)
              $ 192           $ 358           $ 641    
Adjusted EBITDA (2)
              $ (373 )         $ (83 )         $ 229    
 

        Successor
    Predecessor
        Six Months Ended
December 31, 2011
    Six Months Ended
December 31, 2010

Statement of operations data:
                                     
 
   
Revenue
              $ 1,899          $ 1,114   
Total costs and expenses
                 2,466             1,217   
Loss before income taxes
                 (567 )            (105 )  
Net loss
                 (587 )            (105 )  
 
Other operating data:
                                      
Theatre level cash flow (1)
              $ 368           $ 189    
Adjusted EBITDA (2)
              $ (263 )         $ (33 )  
 


(1)
  Theatre Level Cash Flow (“TLCF”) is a non-GAAP financial measure. TLCF is a common financial metric in the theatre industry, used to gauge profitability at the theatre level, before the effect of depreciation and amortization, general and administrative expenses, interest, taxes or other income and expense items. While TLCF is not intended to replace any presentation included in our consolidated financial statements under GAAP and should not be considered an alternative to cash flow as a measure of liquidity, we believe that this measure is useful in assessing our cash flow and working capital requirements. This calculation may differ in method of calculation from similarly titled measures used by other companies. This financial measure should be read in conjunction with the financial statements included in this prospectus. For additional information on TLCF, see pages 43-46.

8




(2)
  Adjusted EBITDA is a non-GAAP financial measure. We use Adjusted EBITDA as a supplemental liquidity measure because we find it useful to understand and evaluate our results, excluding the impact of non-cash depreciation and amortization charges, stock based compensation expenses, and nonrecurring expenses and outlays, prior to our consideration of the impact of other potential sources and uses of cash, such as working capital items. This calculation may differ in method of calculation from similarly titled measures used by other companies. This adjusted financial measure should be read in conjunction with the financial statements included in this prospectus. For additional information on Adjusted EBITDA, see pages 43-46.

9




Summary Unaudited Proforma Combined Data

This is only a summary of our unaudited pro forma financial information and does not contain all of the financial information that may be important to you. The following summary of our unaudited proforma combined financial information data is to be read in conjunction with the detailed Unaudited Pro Forma Combined Financial Information, and notes thereto, beginning at page 26, in accordance with Article 11 of SEC Regulation S-X.

(dollars in thousands except per share data)
        (1)
Pro forma-19 screens
12 months ended June 30,
2011

    (2)
Pro forma- 73 screens
12 months ended June 30,
2011

    (2)
Pro forma- 73 screens
6 months ended
December 31,
2011

Statement of operations data:
                                                       
Revenues
              $ 3,291          $ 17,665          $ 8,575   
 
Film rent expense
                 1,345             7,050             3,200   
Cost of concessions
                 156              783             340   
Salaries and wages
                 411              1,863             970   
Facility lease expense
                 399              1,725             992   
Utilities and other
                 558              2,973             1, 547   
General and administrative
                 1,150             2, 222             1, 239   
Depreciation and amortization
                 330              2, 354             1, 274   
Total costs and expenses
                 4,349             18,970             9,562   
 
Operating loss
                 (1,058 )            (1, 30 5 )            ( 987 )   
 
Net loss attributable to Class A and Class B common shareholders
              $ (975 )         $ ( 1,2 47 )          $ ( 1,0 32 )   
 
Weighted average shares of Class A and Class B common stock
                 1,073,207             4,990,416             5,090,416   
Loss per share
              $ (0.84 )         $ (0.25 )         $ (0.20 )   
 
Other operating data:
                                                      
Theatre level cash flow (3)
              $ 422           $ 3,271          $ 1,526   
Adjusted EBITDA (4)
              $ (393 )         $ 1,384          $ 329   
 

(dollars in thousands)
        Actual-19 screens
As of December 31,
2011

    Pro forma- 73 screens
As of December 31,
2011

Balance Sheet Data:
                                       
Cash and cash equivalents
              $ 650           $ 3,507   
Property and equipment, net
                 2,328             15,328   
Total assets
                 4,841             22,043   
Total liabilities
                 2,167             3 ,167   
Total stockholders’ equity
              $ 2,674          $ 18,876   
 
Other Data:
                                       
Screens
                 19              73   
Locations
                 3              8   
Attendance (12 months ended December 31, 2011)
                 312,000             1,679,000   
 


(1)
  Represents the actual results of our three theatres from the dates of acquisition (the Rialto and the Cranford) on December 31, 2010 and (the Bloomfield 8) on February 17, 2011 through June 30, 2011, plus the pre-acquisition results of these theatres from July 1, 2010 to the respective dates of acquisition.

(2)
  Represents the pro forma results of our three theatres (the Rialto, the Cranford and the Bloomfield 8) as described in note (1) above, plus the pro forma results of the Cinema Centers acquisition for the 12 and 6 month periods indicated.

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(3)
  TLCF is a non-GAAP financial measure. For additional information on TLCF, see page 33 and pages 43-46.

(4)
  Adjusted EBITDA is a non-GAAP financial measure. For additional information on Adjusted EBITDA, see page 33 and pages 43-46.

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RISK FACTORS

An investment in our Class A common stock involves significant risks. You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below and the financial statements and related notes included in this prospectus, before making an investment in our Class A common stock. Any of the following risks could have a material adverse effect on our business, financial condition, results of operations, prospects or liquidity. In any such case, the market price of our Class A common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

We will need substantial additional funding to accomplish our business strategy and may be unable to raise capital on terms favorable to us or at all, which could increase our financing costs, dilute your ownership interests, affect our business operations or force us to delay, reduce or abandon our business strategy.

Our business strategy is to create an all-digital national footprint by selectively pursuing multi-screen theatre acquisition opportunities that meet our strategic and financial criteria, with upgrades to digital platforms as necessary. To successfully implement this strategy, we will need to raise substantial additional funds. Our ability to fund potential theatre acquisitions and capital expenditures for theatre digitalization, expansion or renovation will require a significant amount of cash, the availability of which depends on many factors beyond our control, including:

•  
  general economic and capital market conditions;

•  
  the availability of credit from banks or other lenders;

•  
  investor confidence in us; and

•  
  the continued performance of our theatres.

We cannot predict when, if ever, our operations will generate sufficient cash flows to fund our capital investment requirements. Until they do, we will be required to finance our cash needs through public or private equity offerings, bank loans or other debt financing, or otherwise. There can be no assurance that financing for future theatre acquisitions and capital expenditures for theatre digitalization, expansion or renovation will be available on terms favorable to us or at all, which could force us to delay, reduce or abandon our growth strategy, increase our financing costs, or both.

We may incur debt, if such financing is available to us, in order to expand our business. Additional funding from debt financings may make it more difficult for us to operate our business because we would need to make principal and interest payments on the indebtedness and may be obligated to abide by restrictive covenants contained in the debt financing agreements, which may, among other things, limit our ability to make business and operational decisions and pay dividends. Furthermore, raising capital through public or private sales of equity to finance acquisitions or expansion could cause earnings or ownership dilution to your shareholding interests in our company.

We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated revenue growth will be realized or that future capital will be available for us to fund our capital expenditure needs.

We may not benefit from our business strategy of acquiring and operating multi-screen theatres.

Our business strategy is to acquire and operate multi-screen theatres. In any acquisition, we expect to benefit from cost savings through, for example, the reduction of overhead and theatre level costs, and from revenue enhancements resulting from the acquisition. There can be no assurance, however, that we will be able to realize any anticipated benefits or that our profitability will be improved by any one or more acquisitions. Any acquisition may involve operating risks, such as:

•  
  the difficulty of assimilating the acquired operations and personnel and integrating them into our current business;

•  
  the potential disruption of our ongoing business;

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•  
  the diversion of management’s attention and other resources;

•  
  the possible inability of management to maintain uniform standards, controls, procedures and policies;

•  
  the risks of entering markets in which we have little or no experience;

•  
  the potential impairment of relationships with employees;

•  
  the possibility that any liabilities we may incur or assume may prove to be more burdensome than anticipated; and

•  
  the possibility that any acquired theatres or theatre circuit operators do not perform as expected.

We have incurred net losses since inception, and we cannot assure you that we will be profitable in the future.

We incurred a net loss of $0.8 million for the Successor period from the inception date (July 29, 2010) to June 30, 2011. We incurred a net loss of $0.6 million for the six months ended December 31, 2011 (unaudited) and had an accumulated deficit of $1.4 million as of December 31, 2011 (unaudited). Following this offering, we expect to consummate the Cinema Centers acquisition. For additional information regarding this acquisition, see “Business — Acquisitions.” We cannot assure you, however, that, following our consummation of the Cinema Centers acquisition, we will become profitable for fiscal year ending June 30, 2012 or in any other future period. Further, we cannot be certain that we will be able to execute our business strategy of acquiring and operating multi-screen theatres on a profitable basis. As a result, we cannot assure you that we will be able to attain or increase profitability on a quarterly or annual basis. If we are unable to effectively acquire theatres and manage the risks and difficulties facing our business as we encounter them, our business, financial condition and results of operations may suffer.

We have a limited operating history which provides limited reference for you to evaluate our ability to achieve our business objectives.

Since we have a limited operating history, we are subject to the risks and uncertainties associated with early stage companies and have historically operated at a loss. Accordingly, you will have a limited basis on which to evaluate our ability to achieve our business objectives. We were formed in July 2010 without any operating business. We have acquired a total of three theatres and have entered into an acquisition agreement to acquire five more. We plan to continue carrying out our acquisition strategy of acquiring theatres. Our financial condition, results of operations and our future success will, to a significant extent, depend on our ability to continue to acquire theatres throughout the United States and to achieve economies of scale. We cannot assure you that more acquisitions can be consummated on terms favorable to us or at all, or that if we achieve those acquisitions we will be able to operate our expanded business profitably. If we fail to achieve our business objectives, then we may not be able to realize our expected revenue growth, maintain our existing revenue levels or operate at a profit. Even if we do realize our business objectives, our business may not be profitable in the future.

We expect to incur long-term lease and debt obligations, which may restrict our ability to fund current and future operations and that may restrict our ability to enter into certain transactions.

In order to effect our business plan, we expect to incur long-term debt service obligations and long-term lease obligations. We expect to assume outstanding or execute new operating leases for theatres in connection with any acquisition that we may consummate. In addition, we may finance future theatre acquisitions through debt financing, provided that such financing is available to us on acceptable terms. Any lease or debt obligations we incur will pose risk to you by:

•  
  making it more difficult for us to satisfy our obligations;

•  
  requiring us to dedicate a substantial portion of our cash flows to payments on our lease and debt obligations, thereby reducing the availability of our cash flows from operations to fund working capital, capital expenditures, acquisitions and other corporate requirements and to pay dividends;

•  
  impeding our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;

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•  
  subjecting us to the risk of increased sensitivity to interest rate increases on any variable rate debt we incur; and

•  
  making us more vulnerable to a downturn in our business and competitive pressures and limiting our flexibility to plan for, or react to, changes in our industry or the economy.

Our ability to make scheduled payments of principal and interest with respect to any indebtedness we incur will depend on our ability to generate positive cash flows and on our future financial results. Our ability to generate positive cash flows is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. We cannot assure you that we will generate cash flows at levels sufficient to enable us to pay any indebtedness we incur. If our cash flows and capital resources are insufficient to fund future lease and debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet any scheduled debt service obligations and these actions may be restricted under the terms of any future debt agreements.

If we fail to make any required payment under the agreements governing our leases and indebtedness or fail to comply with the financial and operating covenants contained in them, we would be in default, and as a result, our debt holders would likely have the ability to require that we immediately repay our outstanding indebtedness and the lenders under any secured credit facility that we execute could terminate their commitments to lend us money and foreclose against the assets securing our borrowings. We could be forced into bankruptcy or liquidation, which could result in the loss of your investment. The acceleration of our indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default and cross-acceleration provisions. If our indebtedness is accelerated, we may not be able to repay any future indebtedness or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our debt holders require immediate payment, we may not have sufficient assets to satisfy our obligations under our indebtedness.

We may face intense competition in our business strategy of acquiring theatres.

We may have difficulty identifying suitable acquisition candidates. Even if we do identify appropriate candidates, we anticipate significant competition from other motion picture exhibitors and other buyers when trying to acquire these candidates, and we cannot assure you that we will be able to acquire identified candidates at reasonable prices or on favorable terms. Many of our competitors are well established and have significant experience in identifying and effecting acquisitions. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target theatres. Because of this competition, we cannot assure you that we will be able to successfully compete for attractive theatre acquisitions. In addition, while we believe that there are numerous potential target theatres that we can acquire, our ability to compete in acquiring certain sizable target theatres will be limited by our available financial resources. As a result of competition, we may not succeed in acquiring suitable candidates or may have to pay more than we would prefer to make an acquisition. If we cannot identify or successfully acquire suitable acquisition candidates, we may not be able to successfully expand our operations and the market price of our securities could be adversely affected particularly since acquisitions are an important part of our strategy.

Resources could be wasted in researching acquisitions that are not consummated.

It is anticipated that the investigation of each specific target theatre and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial time and attention and substantial costs for accountants, attorneys and others. In addition, we may opt to make down payments or pay exclusivity or similar fees in connection with structuring and negotiating an acquisition. If a decision is made not to complete a specific acquisition, the costs incurred up to that point in connection with the abandoned transaction, potentially including down payments or exclusivity or similar fees, would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to consummate the transaction for any

14




number of reasons, including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could adversely affect subsequent attempts to locate and acquire other theatres.

We are subject to uncertainties related to digital cinema, including insufficient financing to obtain digital projectors and insufficient supply of digital projectors.

Some of our competitors began a roll-out of digital projection equipment for exhibiting feature films during 2006 and most exhibitors plan to continue domestic roll-out of digital cinema until it is completed. However, significant obstacles may exist that impact such a roll-out plan and our ability to convert the theatres we acquire to digital projection platforms including the availability of financing, the cost of digital projectors and the supply of projectors by manufacturers. We cannot assure you that we will be able to obtain sufficient additional financing to be able to purchase and/or lease the number of digital projectors we will require or that the manufacturers will be able to supply the volume of projectors needed for the worldwide roll-out that is now ongoing in our industry. As a result, our ability to deploy digital equipment in the theatres we acquire could be delayed. Accordingly, the availability of financing, the cost of digital projection systems and manufacturer limitations may delay our deployment of digital platforms.

We may not be able to obtain sufficient or compelling alternative content.

Our ability to present alternative content depends on the availability, diversity and appeal of alternative content and customer taste. This varies from geographic region to region. Poor performance of, or any disruption in the production or supply of alternative content could hurt our business and results of operations. In addition, the type of alternative content offered to us may not be accepted by the demographic base of movie-goers in our theatres.

The “virtual print fee” program is expected to expire on September 30, 2012, after which we will no longer be able to use such fees to finance our purchases of digital projection equipment.

Following the consummation of the Cinema Centers acquisition, and with respect to any future acquisitions that we may consummate, we expect to finance our purchases of digital projection equipment through capital lease financing or secured loans provided by banks or vendors. We expect to repay our obligations under these financing arrangements using “virtual print fees” that we recover from motion picture distributors, and we may also secure such financing arrangements with the virtual print fees.

Virtual print fees are provided to motion picture exhibitors from movie distributors, to encourage and assist exhibitors in the conversion to digital projection platforms, by effectively lowering the film rent expense that exhibitors pay to the movie distributors. The virtual print fee program provides that all distributors pay virtual print fees on a quarterly basis to motion picture exhibitors based on films scheduled by the exhibitors on approved digital projection platforms until the earlier of ten years from date the digital systems in a particular theatre are installed or the date the exhibitor has recovered its out-of-pockets costs, including any financing charges, for the digital conversion. The virtual print fee program is expected to expire for new installations of digital projection systems made after September 30, 2012. We will continue receiving virtual print fees for approved digital projection systems installed prior to September 30, 2012.

Following expiration of the virtual print fee program, we will need to finance installations of digital projection platforms from other sources. The pending expiration of the virtual print fee program may provide theatre owners who are otherwise inclined to sell their theatres an incentive to sell their theatres at a higher price. We may seek to reduce our proposed purchase price or offer a lower purchase price with respect to any theatre that we seek to acquire which has not been previously converted to a digital projection system prior to the discontinuance of the virtual print fee program. We cannot assure you, however, that we will be able to secure the financing that we may require or that we will be able to obtain the proposed purchase price reductions.

Disruption of our relationships with various vendors could substantially harm our business.

We rely on our relationships with several vendors in the operations of our business. These relationships include:

•  
  the film department of Clearview Cinema Group (“Clearview”), which handles our negotiations with film distributors;

15



•  
  Cinedigm Digital Cinema Corp. (“Cinedigm”), from which we license the Exhibit Management System (“EMS”) back office management system and which, through a subsidiary, acts as our agent to collect “virtual print fees” from motion picture distributors (for a discussion of “virtual print fees,” see “Business-Digital Cinema Implementation”);

•  
  National CineMedia, LLC (“NCM”) provides us with in-theatre advertising and alternative context;

•  
  Barco, Inc. (“Barco”), which provides us with digital equipment;

•  
  Continental Concession Supply, Inc. (“Continental Concession”), which provides us with most of our concessions; and

•  
  RealD™, Inc. (“RealD™”), which provides us with our 3D cinema systems.

Although our senior management has long-standing relationships with each of these vendors, we could experience deterioration or loss of any of our vendor relationships, which would significantly disrupt our operations until an alternative source is secured.

Deterioration in our relationships with any of the major film distributors could adversely affect our access to commercially successful films and could adversely affect our business and results of operations.

Our business depends to a significant degree on maintaining good relationships with the major film distributors that license films to our theatres. Clearview’s film department handles negotiations with motion picture distributors on our behalf. Deterioration in our relationships with any of the major film distributors could adversely affect our access to commercially successful films and adversely affect our business and results of operations. Since the distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases, we cannot ensure a supply of motion pictures by entering into long-term arrangements with major distributors. Rather, we must compete for licenses on a film-by-film and theatre-by-theatre basis and are required to negotiate licenses for each film and for each theatre individually.

We rely on software we license from Cinedigm to operate our accounting systems and a failure of this system could harm our business.

We depend on Cinedigm’s EMS back office management software system to operate the accounting functions of our business. A substantial system failure could temporarily restrict and limit our internal accounting functions. In addition, we rely on EMS to track theatre invoices and to generate operating reports to analyze film performance and theatre profitability. The EMS system is also an intricate part of our financial reporting process and provides us with information that, together with our other financial software program, allows us to prepare our periodic financial reports. Disruption in, changes to, or a system failure of the EMS system could result in the loss of important data, and increase our expenses.

We rely on “point-of-sale” software that we license from Ready Theatre Systems (“RTS”) to operate our back office management systems and a failure of this system could harm our business.

We depend on RTS’s point-of-sale software to operate our point-of-sale transactions including issuing tickets to patrons at our theatres and selling concessions. A substantial system failure could restrict and limit our ability to issue tickets timely to our patrons, sell concessions and could reduce the attractiveness of our services and cause our patrons to visit other theatres. In addition, we rely on RTS to transmit data to our EMS software to coordinate payroll, track theatre invoices, generate operating reports to analyze film performance and theatre profitability, and generate information to quickly detect theft. Disruption in, changes to, or a system failure of the RTS system could result in the loss of important data, and increase our expenses.

We depend on our senior management.

Our success depends upon the retention of our senior management, including A. Dale Mayo, our chairman and chief executive officer, Jeff Butkovsky, our chief technology officer, and Brian D. Pflug, our chief financial officer. In particular, we rely on the relationships in the motion picture exhibition industry that Mr. Mayo has fostered in his 24 year career in the industry. We cannot assure you that we would be able to find qualified replacements

16




for the individuals who make up our senior management if their services were no longer available. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. The loss of any member of senior management could adversely affect our ability to effectively pursue our business strategy.

Compensation may be paid to our senior management regardless of our profitability which may affect our operating results.

We have entered into employment agreements with each member of our senior management team. Mr. Mayo, our chairman and chief executive officer, is entitled to periodic salary increases as well as bonuses based on our consolidated gross revenues and regardless of whether we operate at a profit or loss. Each of our other executive officers is entitled to bonuses, as determined by our board of directors. Increases in compensation paid to our senior management will increase our expenses, effect our results of operations and may make it more difficult for us to achieve profitable operations. For information relating to our employment agreements with our senior management, see “Executive Compensation—Employment Agreement”.

If we do not comply with the Americans with Disabilities Act of 1990, we could be subject to litigation.

Movie theatres must comply with Title III of the Americans with Disabilities Act of 1990 (the “ADA”) and analogous state and local laws. Compliance with the ADA requires among other things that public facilities “reasonably accommodate” individuals with disabilities and that new construction or alterations made to “commercial facilities” conform to accessibility guidelines unless “structurally impracticable” for new construction or technically infeasible for alterations. If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-compliance. Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results.

Risk Related to Our Industry

We depend on motion picture production and performance.

As a motion picture exhibitor, our ability to operate successfully depends upon the availability, diversity and appeal of motion pictures, our ability to license motion pictures and the performance of such motion pictures in our theatres. We license first-run motion pictures, the success of which has increasingly depended on the marketing efforts of the major motion picture studios. Poor performance of, or any disruption in the production of these motion pictures (including by reason of a strike or lack of adequate financing), or a reduction in the marketing efforts of the major motion picture studios, could hurt our business and results of operations. In addition, a change in the type and breadth of movies offered by motion picture studios may not be accepted by the demographic base of moviegoers.

The motion picture exhibition industry has experienced a declining trend in attendance during recent years.

The U.S. motion picture exhibition industry has been subject to periodic short-term increases and decreases in attendance and, box office revenues. In recent years, the U.S. motion exhibition industry has experienced a declining trend in attendance, and according to boxoffice.com, attendance during 2011 was 1.28 billion. According to the MPAA, attendance during 2010 was 1.34 billion. For additional information regarding attendance levels and industry trends, see “Business — Industry Overview and Trends.” We expect the cyclical nature of the U.S. motion picture exhibition industry to continue for the foreseeable future, and if the declining trend in attendance continues, our results of operations could be adversely affected. To offset any decrease in attendance, we plan to offer products unique to the motion picture exhibition industry, such as 3D films and specially selected alternative content. We cannot assure you, however, that our offering of such content will offset any decrease in attendance that the industry may experience.

17



Our business is subject to significant competitive pressures.

We face varying degrees of competition from other motion picture exhibitors with respect to licensing films and attracting patrons. In those areas where real estate is readily available, there are few barriers preventing competing companies from opening theatres near one of our existing or future theatres. Many of our competitors have substantially more resources than we do and may therefore have a competitive advantage over us.

An increase in the use of alternative film delivery methods, which may be enhanced if traditional release windows are shortened, may drive down movie theatre attendance and reduce ticket prices.

We compete with other movie delivery vehicles, including cable television, downloads and streaming video via the Internet, in-home video and DVD, satellite and pay-per-view services. When motion picture distributors license their products to the domestic exhibition industry, they refrain from licensing their motion pictures to these other delivery vehicles during the theatrical release window. The theatrical release window has shortened over the last decade. In addition, proposals have been made from time to time, particularly in the last several years, which would further shorten the window substantially and allow for premium video on demand and other alternatives that would be available during theatrical releases. These initiatives have not been instituted due, in part, to the adverse reaction of motion picture exhibitors. We cannot assure you that these initiatives will not be instituted in the future. We believe that a material contraction of the current theatrical release window could significantly dilute the consumer appeal of in-theatre motion picture offerings, which could have a material adverse effect on our business and results of operations.

Our revenues vary significantly depending upon the timing of the motion picture releases by distributors.

Our business is seasonal, with a disproportionate amount of our revenues generated during the summer months and year-end holiday season. While motion picture distributors have begun to release major motion pictures more evenly throughout the year, the most marketable motion pictures are usually released during the summer months and the year-end holiday season, and we expect to generate more revenue and cash flows during those periods than in other periods during the year. As a result, the timing of motion picture releases affects our results of operations, which may vary significantly from quarter to quarter and year to year. If we do not adequately manage our theatre costs of operations, it could significantly affect our cash flow and potential for future growth. Due to the dependency on the success of films released from one period to the next, results of operations for one period may not be indicative of the results for the following period or the same period in the following year.

There can be no assurance of a supply of motion pictures.

The distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. Consent decrees resulting from those cases effectively require major motion picture distributors to offer and license films to motion picture exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for our licenses on a film-by-film and theatre-by-theatre basis.

Risks Related to Our Class A Common Stock and this Offering

Our Class A common stock has no prior trading market. We cannot assure you that our stock price will not decline or not be subject to significant volatility after this offering.

Before this offering, there has not been a public market for our Class A common stock, and an active public market for our Class A common stock may not develop or be sustained after this offering. The market price of our Class A common stock could be subject to significant fluctuations after this offering. The price of our stock may change in response to variations in our operating results and also may change in response to other factors, including factors specific to companies in our industry many of which are beyond our control. After the offering, our shares may be less liquid than the shares of other newly public companies and there may be imbalances between supply and demand for our shares. As a result, our share price may experience significant volatility and may not necessarily

18




reflect the value of our expected performance. In particular, we cannot assure you that you will be able to resell your shares of our Class A common stock at or above the initial public offering price. The initial public offering price will be determined by negotiations between the underwriters and us.

The interests of Mr. Mayo, our controlling stockholder, may conflict with your interests, and the concentration of voting power with Mr. Mayo will limit your ability to influence corporate matters.

Our Class A common stock has one vote per share on all matters to be voted on by stockholders, while our Class B common stock has ten votes per share. Mr. Mayo owns all of our outstanding Class B common stock. As a result, as of April 9 , 2012, Mr. Mayo controlled approximately 94.1% of the voting power of all of our outstanding capital stock with voting rights (calculated prior to conversion of our Series A preferred stock to shares of Class A common stock upon consummation of this offering). Upon completion of this offering, we anticipate that Mr. Mayo will control approximately 67.9 % of the voting power of all of our outstanding capital stock with voting rights. Therefore, Mr. Mayo will have significant influence for the foreseeable future over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional shares of common stock or other equity securities and the payment of dividends on our common stock. Mr. Mayo will also have the power to prevent or cause a change in control, and could take other actions that might be desirable to him but not to other stockholders. Because of this dual class structure, Mr. Mayo will continue to be able to control all matters submitted to our stockholders for approval (other than changes to our authorized capital stock) even if he owns less than 50% of the outstanding shares of our capital stock. This concentrated control will limit your ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. As a result, the market price of our Class A common stock could be adversely affected. We intend to amend our certificate of incorporation to provide that on transfer for any reason, the Class B common stock will automatically convert to Class A common stock on a one-for-one basis.

Our stockholders do not have the same protections generally available to stockholders of other NASDAQ-listed companies because we are currently a “controlled company” within the meaning of the NASDAQ Marketplace Rules.

Upon completion of this offering, we anticipate that Mr. Mayo will control approximately 67.9 % of the voting power of all of our outstanding capital stock with voting rights. Because of Mr. Mayo’s ownership interest and control of our voting power, we will be considered a “controlled company” within the meaning of NASDAQ Marketplace Rules. As a controlled company, within the meaning of NASDAQ Marketplace Rules, we are not subject to the corporate governance requirements of the Rule 5600 series of the NASDAQ Marketplace Rules that would otherwise require us to have:

•  
  a majority of independent directors on our board of directors;

•  
  compensation of our executive officers determined, or recommended to the board of directors for determination, either by a majority of the independent directors or a compensation committee comprised solely of independent directors; or

•  
  director nominees selected, or recommended for the board of directors’ selection, either by a majority of the independent directors or a nominating committee comprised solely of independent directors.

Accordingly, our stockholders will not be afforded the same protections generally as stockholders of other NASDAQ-listed companies for so long as Mr. Mayo controls more than 50% of our voting power and we rely upon such exemptions. The interests of Mr. Mayo, our controlling stockholder, may conflict with your interests, and the concentration of voting power with Mr. Mayo will limit your ability to influence corporate matters,” for more information on the risks we face in connection with Mr. Mayo’s ownership interest and control of our voting power.

Potential future sales of our Class A common stock could cause the market price for our Class A common stock to decline.

We cannot predict the effect, if any, that market sales of shares of our Class A common stock or the availability of shares of our Class A common stock for sale will have on the market price of our Class A common stock prevailing

19




from time to time. Sales of substantial amounts of shares of our Class A common stock in the public market, or the perception that those sales will occur, could cause the market price of our Class A common stock to decline.

Based on the total number of shares of our capital stock outstanding as of April 9 , 2012, upon completion of this offering and the consummation of the Cinema Centers acquisition , we will have 4, 256,607 shares of Class A common stock and 900,000 shares of Class B common stock outstanding. All of the outstanding shares of Class B common stock are held by Mr. Mayo, who may convert his shares of Class B common stock into shares of Class A common stock on a one-for-one basis.

All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares held by our affiliates as defined in Rule 144 under the Securities Act. Substantially all of the remaining 1,621,607 shares of Class A common stock and 900,000 shares of Class B common stock outstanding after this offering and the consummation of the Cinema Centers acquisition , based on shares outstanding as of April 9 , 2011, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this prospectus (or such earlier date or dates as agreed between us and Maxim Group LLC ), subject to certain extensions. Maxim Group LLC may, in its sole discretion, release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period.

Our issuance of preferred stock could adversely affect the market value of our common stock, dilute the voting power of common stockholders and delay or prevent a change of control.

Our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 8,027,500 shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series.

The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price causing economic dilution to the holders of common stock.

Further, the issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock. The issuance of shares of preferred stock may also have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are offered a premium for their shares.

We do not intend to pay dividends on our Class A or Class B common stock for the foreseeable future.

We intend to retain all of our earnings for the foreseeable future to finance our operations and acquisitions of theatres and digital upgrades associated with any acquisitions. As a result, we do not anticipate paying cash dividends on our Class A common stock or Class B common stock, and consequently, you can expect to receive a return on your investment in our Class A common stock only if the market price of the stock increases.

Because our existing investors paid substantially less than the initial public offering price when they purchased their shares, new investors will incur immediate and substantial dilution in their investment.

Investors purchasing shares of Class A common stock in this offering will incur immediate and substantial dilution in net tangible book value per share because the price that new investors pay will be substantially greater than the net tangible book value per share of the shares acquired. This dilution is due in large part to the fact that our existing investors paid substantially less than the initial public offering price when they purchased their shares

20




of Class A common stock. The initial public offering price for the shares sold in this offering was determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the trading market. See “Underwriting” for a discussion of the determination of the initial public offering price.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.

Provisions in our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

•  
  Our certificate of incorporation provides for a dual class common stock structure. As a result of this structure, Mr. Mayo will have the ability to control all matters requiring stockholder approval (other than changes to our authorized capital stock), including the election of directors, amendments to our charter documents and significant corporate transactions, such as a merger or other sale of our company or its assets. This concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that other stockholders may view as beneficial. We intend to amend our certificate of incorporation to provide that on transfer for any reason, the Class B common stock will automatically convert to Class A common stock on a one-for-one basis.

•  
  Our board of directors has the right to determine the authorized number of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to control the size of or fill vacancies on our board of directors.

•  
  Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder becomes an “interested” stockholder. For a description of our capital stock, see “Description of Capital Stock.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make “forward-looking statements” in the “Prospectus Summary,” “Risk factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” sections and elsewhere throughout this prospectus. Whenever you read a statement that is not simply a statement of historical fact (such as when we describe what we “believe,” “expect,” “anticipate,” “project,” “predict”’ or “forecast” will occur, and other similar statements), you must remember that our expectations may not be correct, even though we believe that they are reasonable. These forward-looking statements relate to:

•  
  future revenues, expenses and profitability;

•  
  our ability to acquire and integrate theatres in our business;

•  
  attendance at movies generally or in any of the markets in which we operate;

•  
  the number and diversity of popular movies released and our ability to successfully license and exhibit popular films;

•  
  national growth in our industry;

•  
  competition in our markets; and

•  
  competition with other forms of entertainment.

We do not guarantee that the transactions and events described in this prospectus will happen as described or that they will happen at all. You should read this prospectus completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation, beyond that required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, even though our situation will change in the future.

Whether actual results will conform to our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control, and reflect future business decisions that are subject to change. Some of the assumptions, future results and levels of performance expressed or implied in the forward-looking statements we make inevitably will not materialize, and unanticipated events may occur which will affect our results. The “Risk Factors” section of this prospectus describes the principal contingencies and uncertainties to which we believe we are subject.

This prospectus contains data related to the motion picture exhibition industry. This market data includes projections that are based on a number of assumptions. The motion picture exhibition industry may not grow at the rates projected by the market data, or at all. The failure of the markets to grow at the projected rates may materially and adversely affect our business and the market price of our Class A common stock. In addition, the rapidly changing nature of our industry subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data proves to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $ 13.9 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us related to this offering. For the purposes of estimating net proceeds, we are assuming an initial public offering price of $7.00 per share, the midpoint of the estimated range of the initial public offering price. A $1.00 increase (decrease) in the assumed public offering price of $7.00 per share (the midpoint of the estimated range of the initial public offering price) would increase (decrease) the net proceeds to us from this offering by $ 2.1 million. We intend to use $1 1 .0 million of the net proceeds from this offering to fund the cash portion of the Cinema Centers purchase price and $1.1 million of the net proceeds to repay an outstanding obligation owed by us to Barco for purchases of digital cinema projector equipment, which obligation is not interest bearing and has no specific maturity date. We intend to use the balance of the net proceeds from this offering for general corporate purposes, including our working capital needs. If we fail to consummate the Cinema Centers acquisition , we plan to use the portion of the net proceeds from this offering not used for the acquisition for future acquisitions and general corporate purposes, including working capital needs.

The foregoing represents our intentions as to the use and allocation of the net proceeds of this offering based upon our present plans, contractual obligations and business conditions. The amount and timing of any expenditure will vary depending on the amount of cash generated by our operations and the rate of growth, if any, of our business. Accordingly, our management will have significant discretion in the allocation of the net proceeds we will receive from this offering. Depending on future events and other changes in the business climate, we may determine at a later time to use the net proceeds for different purposes. Pending their use, we intend to invest the proceeds in a variety of capital preservation instruments, including short-term, investment-grade, and interest-bearing instruments.

DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness. Therefore, we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors, and will depend upon our results of operations, financial condition, capital requirements and other factors including contractual obligations that our board of directors deems relevant.

23



DILUTION

If you invest in our Class A common stock, your investment will be diluted immediately to the extent of the difference between the public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A and Class B common stock after this offering. The following discussion and tables treat our Class A and Class B common stock as a single class and gives effect to the one-for-two reverse stock split of our Class A and Class B common stock which was approved by our board of directors in November 2011.

Dilution represents the difference between the amount per share of Class A common stock paid by investors in this offering and the pro forma net tangible book value per share of our Class A and Class B common stock immediately after this offering. Net tangible book value per share as of December 31, 2011 represented the amount of our total tangible assets less the amount of our total liabilities, divided by the number of shares of common stock outstanding at December 31, 2011.

After giving effect to our sale of the 2.3 million shares of Class A common stock offered by us in this offering at an assumed price of $7.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds from this offering to us as described under the “Use of Proceeds” section, our pro forma as adjusted net tangible book value as of December 31, 2011 would have been $ 16.0 million, or $ 3.32 per share. This represents an immediate increase in net tangible book value to our existing stockholders of $ 2.92 per share and an immediate dilution to new investors in this offering of $ 3.68 per share. The following table illustrates this per share dilution in net tangible book value to new investors.

Assumed initial public offering price per share
                          
$7.00
Net tangible book value per share as of December 31, 2011
              $ 0.40                   
Increase per share attributable to new investors in this offering
               $ 2.92                   
Pro forma net tangible book value per share after this offering
                          
$ 3.32
Dilution per share to new investors (1)
                          
$ 3.68
 

A $1.00 increase (or decrease) in the assumed initial public offering price of $7.00 per share, the mid-point of the price range set forth on the cover page of this prospectus, would increase (or decrease) net tangible book value by $ 2.1 million, or $0. 44 per share, and would increase (or decrease) the dilution per share to new investors by $0. 56 , based on the assumptions set forth above.

If the underwriters exercise in full their option to purchase additional shares, the net tangible book value per share after the offering would be $ 3.53 per share, the increase in net tangible book value per share to existing stockholders would be $ 3.13 per share and the dilution to new investors would be $ 3.47 per share.

The following table summarizes as of December 31, 2011, on an as adjusted basis, the number of shares of common stock purchased, the total consideration paid and the average price per share paid by the existing stockholders and by new investors, based upon an assumed initial public offering price of $7.00 per share (the mid-point of the initial public offering price range) and before deducting estimated underwriting discounts and commissions and offering expenses:

        Shares Purchased (1)
    Total Consideration
   
(dollars in thousands)
        Number
    Percent
    Amount
    Percent
    Average Price Per Share
Existing stockholders
                 2,521,607             52          $ 4,808             23          $ 1.91   
New investors
                 2,300,000             48             16,100             77             7.00   
 
Total
                 4,821,607             100           $ 2 0, 908             100           $ 4. 34   
 


(1)
  Dilution excludes the 335,000 of Class A common stock to be issued as part of the purchase price for Cinema Centers. For additional information, see pages 26–33.

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2011:

•  
  on an actual basis; and

•  
  on a pro forma as adjusted basis for conversion of 2,104,882 shares of Series A preferred stock to 1,052,441 shares of Class A common stock, the issuance and sale of shares of our Class A common stock in this offering, assuming an initial public offering price of $7.00 per share, the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters’ over-allotment option and no other change to the number of shares of our Class A common stock sold by us as set forth on the cover page of this prospectus.

You should read this table together with our financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

        As of December 31, 2011    
        (unaudited)    
(in thousands)
        Actual
    Pro Forma
As Adjusted
Cash and cash equivalents
              $ 650           $ 3,768   
 
Stockholders’ equity:
                                     
 
Series A preferred stock, $.01 par value, 10,000,000 shares authorized; 1,972,500 and 0 shares issued and outstanding as of December 31, 2011 (actual) and on a pro forma as adjusted basis, respectively
                 20                 
 
Class A common stock, $.01 par value, 20,000,000 shares authorized; 569,166 and 4,190,416 shares issued and outstanding as of December 31, 2011 (actual) and on a pro forma as adjusted basis, respectively
                 6              4 2   
 
Class B common stock, $.01 par value, 5,000,000 shares authorized; 900,000 shares issued and outstanding as of December 31, 2011 (actual) and on a pro forma as adjusted basis
                 9              9    
 
Additional paid-in capital (1)
                 4,001             20,451   
Accumulated deficit
                 (1,362 )            (1,362 )  
 
Total stockholders’ equity
                 2,674             19,140   
 
Total capitalization
              $ 2,674          $ 19,140   
 


(1)
  Includes $264 accrued as dividends on the Series A preferred stock as of December 31, 2011.

25



UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following unaudited pro forma combined balance sheet presents our financial position as of December 31, 2011, assuming that the acquisition of certain assets and assumption of operating leases of Cinema Centers had been completed as of December 31, 2011.

The unaudited pro forma combined statements of operations includes the results of operations of the Successor from inception date (July 29, 2010) to June 30, 2011, the twelve month results of operations (July 1, 2010 to June 30, 2011) of the Predecessor (the Rialto and Cranford) (acquired as of December 31, 2010) and Bloomfield 8 (acquired as of February 17, 2011), and the twelve month results of operations (August 1, 2010 to July 31, 2011) of Cinema Centers as if the acquisition had been consummated on July 1, 2010. Also presented is the interim unaudited pro forma combined statement of operations, which includes our results of operations for six months ended December 31, 2011 and results of operations for Cinema Centers for the six months ended January 31, 2012, as if the acquisition had been consummated on July 1, 2011.

These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations.

The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the acquisition and factually supportable. Our unaudited pro forma combined financial information and explanatory notes present how our combined financial statements may have appeared had the businesses actually been combined as of the dates noted above. The unaudited pro forma combined financial information shows the impact on the combined balance sheets and the combined income statements under acquisition accounting with Digiplex treated as the acquirer. Under this method of accounting, the assets purchased and liabilities assumed of the acquirees are recorded by Digiplex at their estimated fair values as of the acquisition date.

It is anticipated that the acquisition of certain assets and assumption of operating leases of Cinema Centers will provide financial benefits such as, among other factors, possible expense efficiencies; however, we cannot assure you that such benefits will actually be achieved. These benefits have not been reflected in the unaudited pro forma financial information. As required, the unaudited pro forma combined financial information includes adjustments for events that are directly attributable to the transaction, expected to have a continuing impact and are factually supportable; as such, any planned adjustments affecting the balance sheet, statement of operations, or shares of Class A or Class B common stock outstanding subsequent to the assumed acquisition completion dates are not included. The unaudited pro forma combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined businesses had they actually been combined on the dates noted above. However, management believes that the assumptions used provide a reasonable basis for presenting the combined pro forma information, that the pro forma adjustments give appropriate effect to the assumptions and are properly applied in the unaudited pro forma combined financial information.

As explained in more detail in the accompanying notes to the unaudited pro forma combined financial information, the allocation of the purchase price for the Cinema Centers acquisition that is reflected in our pro forma combined financial information is subject to adjustment. The actual purchase price allocation will be recorded based upon final estimated fair values of the assets acquired and operating leases assumed, which are likely to vary from the purchase price allocations adopted in the pro forma combined financial statements. In addition, there may be further refinements of the purchase price allocation for the Cinema Centers acquisition as additional information becomes available. The unaudited pro forma combined financial information is derived from and should be read in conjunction with the financial statements and related notes included in this prospectus.

26



Unaudited Pro Forma Combined Balance Sheets
December 31, 2011

        Successor
   
(Dollars in thousands)
        Digiplex
December 31,
2011

    Cinema Supply
January 31,
2012
    Pro Forma
Adjustment
    Pro Forma
Footnotes
    Pro Forma
Combined
Assets:
                                                                                  
Cash and cash equivalents
              $ 650           $ 78           $ 13,857             (1 )         $ 3,507   
 
                                               ( 1 1 ,000 )            (2 )                 
 
                                               ( 78 )             (2 )                  
Accounts receivable
                 149              10              ( 1 0 )            (2 )            149    
Inventories
                 19              50                                          69   
Deferred tax assets
                              319              (319 )            (2 )               
Prepaid expenses and other
                 293              93              (93 )            (2 )            293    
Total current assets
                 1,111             550              2,357                            4,018   
Property and equipment — net
                 2,328             13,200             ( 200 )             (2 )            15,328   
Intangible assets — net
                 503                           700             (2 )            1, 203   
Goodwill
                 896                           595             (2 )            1, 491   
Other assets
                 3              25              ( 25 )             (2 )            3    
Total assets
              $ 4,841          $ 13,775          $ 3,427                         $ 22,043   
Liabilities:
                                                                                  
Accounts payable and accrued expenses
              $ 640           $ 2,327          $ ( 2,327 )             (2 )         $ 640    
Payable to vendor for digital systems
                 1,066                                                      1,066   
Earnout from theatre acquisition
                 124                                                       124    
Dividends payable
                 265                                                       265    
Notes payable, current portion
                              1,402             (1, 402 )             (2 )            1,000   
 
                                               1,000             (2 )                   
Capital lease obligations, current portion
                              58              ( 58 )             (2 )               
Total current liabilities
                 2,095             3,787             ( 2,787 )                            3 ,095   
Notes payable, net of current portion
                              5,459             ( 5,459 )             (2 )               
Deferred taxes
                 32              903              (903 )            (2 )            32    
Deferred rent expense
                 40              953              ( 953 )             (2 )            40    
Capital lease obligations, net of current portion
                              125              ( 125 )             (2 )               
Total liabilities
                 2,167             11,227             (1 0,227 )                            3 ,167   
Stockholders’ equity:
                                                                                      
Series A preferred stock
                 20                           (20 )            (5 )               
Class A common stock
                 6                           10              (5 )            4 2   
 
                                               23             (1 )               
 
                                               3              (2 )                   
Class B common stock
                 9                                                       9    
Common stock
                              4              ( 4 )             (2 )               
Additional paid-in capital (1)
                 4,001             108              16,077             (1 )            20,187   
 
                                               (2,243 )             (1 )                 
 
                                               (108 )            (2 )                 
 
                                               10              (5 )               
 
                                               2,342             (2 )                   
Retained (deficit) earnings
                 (1,362 )            2,436             (2, 436 )             (2 )            (1,362 )  
Total stockholders’ equity
                 2,674             2,548             13,654                            18,876   
Total liabilities and stockholders’ equity
              $ 4,841          $ 13,775          $ 3,427                         $ 22,043   
 


(1)
  Does not include $264 accrued as dividends on the Series A preferred stock as of December 31, 2011.

27



Unaudited Pro Forma Combined Statements of Operations
Period from Inception (July 29, 2010) to June 30, 2011

        Successor
    Predecessor
   
(Dollars in thousands
except per share data)
        Digiplex
from
inception
date
(July 29,
2010) to
June 30,
2011

    Rialto/
Cranford
(from
July 1,
2010 to
December 31,
2010)
    Bloomfield
(from
July 1,
2010 to
February 17,
2011)
    Cinema
Supply
(from
August 1,
2010 to
July 31,
2011)
    Adjustment
    Footnotes
    Pro forma
Combined
Revenues
              $ 1,572          $ 1,150          $ 569           $ 14,602             (228 )            (7 )         $ 17,665   
Costs and expenses:
                                                                                                                
Film rent expense
                 598              506              241              5,753             (48 )            (7 )            7,050   
Cost of concessions
                 66              51              39              633              (6 )            (7 )            783   
Salaries and wages
                 235              137              39              1,613             (161 )            (7 )            1,863   
Facility lease expense
                 223              119              57              1,420             (94 )            (7 )            1,725   
Utilities and other
                 258              216              84              2,415                                         2,973   
General and administrative
                 900              170              80              779              293             (7 ) (8)            2, 222   
Depreciation and amortization
                 165              70              2              1,479             6 38             (3 )            2, 354   
Total costs and expenses
                 2,445             1,269             542              14,092             6 22                            18,970   
Operating income (loss)
                 (873 )            (119 )            27              510              ( 850 )                            (1, 305 )   
Other income (expense):
                                                                                                                      
Bargain purchase gain from theatre acquisition
                 98                                                                                 98    
Interest expense
                              11                           501              (11 )            (4 )            25   
 
                                                                             ( 501 )             (7 )                   
 
                                                                             25              (2 )                   
Other income (expense)
                 (1 )                                      16              (16 )            (7 )            (1 )  
Income (loss) before income taxes
                 (776 )            (130 )            27              25              ( 3 79 )                            ( 1,2 33 )   
Income tax expense (benefit)
                 14                                        12              (12 )            (6 )            14    
Net income (loss)
                 (790 )            (130 )            27              13              ( 3 67 )                            ( 1,2 47 )   
Preferred stock dividends
                 (112 )                                                   112              (5 )               
Net income (loss) attributable to common stockholders
              $ (902 )         $ (130 )         $ 27           $ 13           $ (2 55 )                         $ ( 1,2 47 )   
Net income (loss) per Class A and Class B common share — basic and diluted
              $ (0.84 )                                                                                    $ (0. 2 5 )   
Weighted average number of Class A and Class B common shares outstanding: basic and diluted
                                                                             2,3 00,000             (1 )                 
 
                 1,073,207                                                          1,282,209             (5 )             4,990,416   
 
                                                                             335,000             (2 )                   
 
Other Operating Data:
                                                                                                                      
Theatre level cash flow (9)
              $ 192              121              109              2,768             81                          $ 3,271   
Adjusted EBITDA (10)
              $ (373 )            (49 )            29              1,989             (2 12 )                         $ 1,384   
 

28



Interim Unaudited Pro Forma Combined Statements of Operations
Six Months Ended December 31, 2011

        Successor
   
(Dollars in thousands
except per share data)
        Digiplex
(for the six
months ended
December 31,
2011)

    Cinema Supply
(for the six
months ended
January 31,
2012)
    Pro Forma
Adjustment
    Pro Forma
Footnotes
    Pro Forma
Combined
Revenues
              $ 1,899          $ 6,742          $ (66 )            (7 )         $ 8,575   
Costs and Expenses:
                                                                                      
Film rent expense
                 598              2,605             (3 )            (7 )            3,200   
Cost of concessions
                 68              294              (22 )            (7 )            340   
Salaries and wages
                 288              685              (3 )            (7 )            970   
Facility lease expense
                 248              746              (2 )            (7 )            992   
Utilities and other
                 329              1,231             (13 )            (7 )            1, 547   
General and administrative
                 673              474              92             (7 ) (8)            1, 239   
Depreciation and amortization
                 262              652              3 60             (3 )            1, 274   
Total costs and expenses
                 2,466             6,687             4 09                            9,562   
Operating income (loss)
                 (567 )            55              ( 475 )                            ( 987 )   
Other expense
                                                                                      
Interest expense
                              227              ( 227 )             (7 )            25    
 
                                               25              (2 )                   
Other expense
                              69              (69 )            (7 )               
L oss before income taxes
                 (567 )            (241 )            ( 204 )                            ( 1,012 )   
Income tax expense (benefit)
                 20              (172 )            (172 )            (6 )            20    
Net loss
                 (587 )            (69 )            ( 3 76 )                            ( 1,0 32 )   
Preferred stock dividends
                 (153 )                         153              (5 )               
Net loss attributable to common stockholders
              $ (740 )         $ (69 )         $ ( 223 )                         $ ( 1,0 32 )   
Net loss per Class A and Class B Common Share — Basic and Diluted
              $ (0.50 )                                                  $ (0. 20 )   
Weighted average number of Class A and Class B common shares
                                               2,3 00,000             (1 )                 
outstanding: Basic and Diluted
                 1,469,166                          986,250             (5 )            5,090,416   
 
                                               335,000             (2 )                   
 
Other operating data:
                                                                                      
Theatre level cash flow (9)
              $ 368           $ 1,181          $ (23 )                        $ 1,526   
Adjusted EBITDA (10)
              $ (263 )         $ 707           $ (115 )                         $ 329   
 

29



Notes to Pro Forma Combined Financial Statements

(1)
  To record $ 16.1 million of gross proceeds from this offering, less estimated underwriting commissions and costs of the offering totaling $ 2.2 million, and the issuance of 2.3 million shares of Class A common stock at $7.00 per share.

(2)
  To record the Cinema Centers assets acquired for a purchase price of $14 .3 million, based on estimated fair value. The purchase price consists of: a cash payment of $11 million; 335,000 shares of Class A common stock valued at $ 2.3 million; and a note payable to the seller for $1 million, due on October 31, 2012 and bearing interest at 6% per annum. Interest expense for the note term totals $25. The operating leases of Cinema Centers for their theatre facilities are expected to be assumed at market rates in the acquisitions. No other liabilities, debt or capital lease obligations would be assumed under the asset purchase agreements nor is it anticipated that any significant liabilities would be created upon the acquisitions. Estimated fair value allocation of the purchase price (which is subject to change), and adjustment to reflect the removal of assets and liabilities not being acquired, is as follows:

(Dollars in thousands):
        Cinema Centers
    Total
   
Assets:
        ( 1 )
Historical
Basis
    ( 2 )
Adjustment
for
Components
not being
acquired
    ( 3 )
Purchase
Accounting
Adjustment
    ( 1 )-( 2 )-
( 3 )
( 4 )
Estimated
Fair
Value
    (2)+(3)
Adjustments
(to page 27)
Cash and cash equivalents
              $ 78           $ (78 )         $           $           $ ( 78 )   
Accounts receivable
                 10              (10 )                                      ( 1 0 )  
Inventories
                 50                                        50                 
Deferred tax assets
                 319              (319 )                                      (319 )  
Prepaid expenses and
other
                 93              (93 )                                      (93 )  
Total current assets
                 550                                            50                   
Property and equipment-net
                 13,200                          (200 )            13,000             ( 200 )   
Intangible assets-net (a)
                                           700              700              700   
Goodwill
                                           595             595             595   
Other assets
                 25              (25 )                                      ( 25 )   
Total assets
              $ 13,775                                        $ 14, 345                  
Liabilities:
                                                                                       
Accounts payable and accrued expenses
              $ 2,327          $ (2,327 )         $           $           $ ( 2,327 )   
Notes payable, current portion
                 1,402             (1,402 )                                      (1, 402 )   
Capital lease obligations, current portion
                 58              (58 )                                      ( 58 )   
Total current liabilities
                 3,787             (3,787 )                                               
Notes payable, net of current portion
                 5,459             (5,459 )                                      ( 5,459 )   
Deferred taxes
                 903              (903 )                                      (903 )  
Deferred rent expense
                 953              (953 )                                      ( 953 )   
Capital lease obligations, net of current portion
                 125              (125 )                                      ( 125 )   
Total liabilities
              $ 11,227                                                       $ (17,313 )  
Stockholders’ equity:
                                                                                       
Common Stock
                 4              (4 )                                      ( 4 )   
Additional paid-in capital
                 108              (108 )                                      (108 )  
Retained (deficit) earnings
                 2,436             (2,436 )                                      (2, 436 )   
Total stockholders’ equity
                 2,548                                                             
Total liabilities and
stockholder’s equity
              $ 13,775                                        $                   
 


(a)
  Intangible assets consist of trade name and covenants not to compete.

30



(3)
  To record estimated depreciation and amortization on the acquired assets, as follows (dollars in thousands):

Inception date (July 29, 2010) to June 30, 2011
        Historical
Amount
    Adjustments
    Pro Forma
as Adjusted
Digiplex (Successor)
              $ 165           $ 165(a)          $ 330    
Rialto/Cranford (Predecessor)
                 70              (70 )(b)               
Bloomfield
                 2              (2 )(b)               
Cinema Centers
                 1,479             545(c)             2,024   
Total
              $ 1,716          $ 6 38          $ 2, 354   
 

Six Months Ended December 31, 2011
        Historical
Amount
    Adjustments
    Pro Forma
as Adjusted
Digiplex (Successor)
              $ 262                        $ 262    
Cinema Centers
                 652              360(c)             1,012   
Total
              $ 914          $ 3 60          $ 1, 274   
 


(a)
  To adjust depreciation and amortization on Digiplex-owned assets as if they had been in operation since July 1, 2010.

(b)
  To remove prior depreciation on these theaters, as they are already owned by Digiplex and included in the Digiplex adjustment in (a).

(c)
  To adjust depreciation on the newly acquired theatres as follows:

        Cinema Centers
   
Inception date
(July 29, 2010) to June 30, 2011
        Estimated
Fair Value
    Estimated
Useful Life
(years)
    Depreciation
Trade Name
              $ 500              5           $ 100    
Covenants not to compete
                 200              3              67    
Property and equipment
                 13,000             5–8              1,857   
Total
              $ 13,700                         $ 2,024   
Historical Amounts
                                               1,479   
Adjustment
                                            $ 545    
 

        Cinema Centers
   
Six Months Ended December 31, 2011
        Estimated
Fair Value
    Estimated
Useful Life
(years)
    Depreciation
Trade Name
              $ 500              5           $ 50    
Covenants not to compete
                 200              3              33    
Property and equipment
                 13,000             5–8              929    
Total
              $ 13,700                            1,012   
Historical Amounts
                                               652    
Adjustment
                                            $ 360    
 
(4)
  To remove historical interest expense of acquired theatres, as there was no assumption of debt on the acquisition dates.

(5)
  To reflect the conversion of all Series A preferred stock into Class A common stock and adjust the outstanding number of shares of Class A common stock as though such shares had been outstanding for the entire period. Excludes 132,382 shares of Series A preferred stock that are issuable as dividends to the holders of our Series A preferred stock through December 31, 2011, which will be converted into 66,191 shares of Class A common stock upon consummation of this offering.

(6)
  To reflect income tax expense, although there were pretax losses, mainly because of the existence of a full deferred tax asset valuation allowance. This circumstance generally results in a zero net tax

31




  provision since the income tax expense or benefit that would otherwise be recognized is offset by the change to the valuation allowance.

(7)
  To remove the components of Cinema Centers operations that will not be acquired by us, as follows: (dollars in thousands)

        Cinema Centers
(August 1, 2010 to July 31, 2011)
   
        ( 1 )
Historical
    ( 2 )
Components
to be
acquired
    ( 3 )
( 1 )-( 2 )
Adjustment
Revenues
              $ 14,602          $ 14,374          $ (228 )  
Costs and Expenses:
                                                       
Film rent expense
                 5,753             5,705             (48 )  
Cost of concession
                 633              627              (6 )  
Salaries and wages
                 1,613             1,452             (161 )  
Facility lease expense
                 1,420             1,326             (94 )  
Interest expense
                 501                           (501 )  
Other
                 16                           (16 )  
 

        Cinema Centers
(six months ended
January 31, 2012)
   
        ( 1 )
Historical
    ( 2 )
Components
to be
acquired
    ( 3 )
( 1 )-( 2 )
Adjustment
Revenues
              $ 6,742          $ 6,676          $ (66 )  
Costs and Expenses:
                                                       
Film rent expense
                 2,605             2,602             (3 )  
Cost of concession
                 294              272              (22 )  
Salaries and wages
                 685              682              (3 )  
Facility lease expense
                 746              744              (2 )  
Interest expense
                 227                           (227 )  
Other
                 69                           (69 )  
 
  
  Cinema Centers ha s incurred a total of $ 779 of general and administrative expenses for the annual period presented above and a total $ 474 for the six months ended December 31, 2011. The Company will not be assuming these general and administrative expenses as part of the planned acquisition. The Company’s existing management team will be performing these tasks going forward; however, the Company expects to hire additional accounting personnel in connection the acquisitions, the cost of which is estimated to be approximately $70 on an annual basis. After taking in account these adjustments, our pro forma net loss and Adjusted EBITDA would have been $ 0.5 million and $ 2.1 million, respectively, for the annual periods shown above and $ 0.6 million and $ 0.8 million, respectively, the six months ended December 31, 2011.

(8)
  Represents bonuses payable to Mr. Mayo under his employment agreement, upon the attainment of the pro forma revenues contained herein. See page 70 for a discussion of Mr. Mayo’s employment agreement.

(9)
  TLCF is a non-GAAP financial measure. For additional information on TLCF, see page 33 and pages 43-46.

(10)
  Adjusted EBITDA is a non-GAAP financial measure. For additional information on Adjusted EBITDA, see below and pages 43-46.

32



A reconciliation of pro forma TLCF and Adjusted EBITDA to our pro forma net loss is calculated as follows (in thousands):

Adjusted EBITDA reconciliation (dollars in thousands):

(unaudited)
    
    
        Pro forma
(19 screens)
Fiscal 2011
Period

    Pro forma
( 73 screens)
Fiscal 2011
period
    Pro forma
( 73 screens)
Six Months
Ended
December 31,
2011
Net loss
              $ (975 )         $ ( 1,2 47 )          $ ( 1,0 32 )   
Add back:
                                                      
Depreciation and amortization
                 330              2, 354             1, 274   
Income tax expense
                 14              14              20    
EBITDA
                 (631 )            1, 1 21             2 62   
Add back:
                                                    
Interest expense
                              25              25   
Stock-based compensation and expenses (1)
                 186              186              33    
Other expense
                 1              1                 
Non-recurring organizational and M&A — related professional fees (2)
                 149              149              9    
Deduct:
                                                      
Bargain purchase gain from theatre acquisition (3)
                 (98 )            (98 )               
Adjusted EBITDA
              $ (393 )         $ 1,384          $ 329   
 

TLCF reconciliation:

(unaudited)
    
    
        Pro forma
(19 screens)
Fiscal 2011
Period

    Pro forma
( 73 screens)
Fiscal 2011
period
    Pro forma
( 73 screens)
Six months
Ended
December 31,
2011
Net loss
              $ (975 )         $ ( 1,2 47 )          $ ( 1,0 32 )   
Add back:
                                                      
General and administrative (4)
                 1,150             2, 222             1, 239   
Depreciation and amortization
                 330              2, 354             1, 274   
Interest expense
                              25              25   
Income tax expense
                 14              14              20    
Other expense
                 1              1                 
Deduct:
                                                       
Bargain purchase gain from theatre acquisition (3)
                 (98 )            (98 )               
TLCF
              $ 422           $ 3,271          $ 1,526   
 


(1)
  Represents the fair value of shares of Class A common stock issued to employees and non-employees for services rendered. As these are non-cash charges, we believe that it is appropriate to show Adjusted EBITDA excluding this item.

(2)
  Primarily represents legal fees incurred in connection with start-up activities, and the creation of acquisition template documents that will be used by us for future transactions. While we intend to acquire additional theatres, we have laid the groundwork for our acquisition program and we expect to incur reduced legal fees in connection with future acquisitions. We therefore believe that it is appropriate to exclude these items from Adjusted EBITDA.

(3)
  Represents the excess of the fair value of identified tangible and intangible assets from our purchase price of the Bloomfield 8. As a non-recurring item and unrelated to the operation of the theatre, we believe that it is appropriate to show TLCF and Adjusted EBITDA excluding this item.

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(4)
  TLCF is intended to be a measure of theatre profitability. Therefore, our corporate general and administrative expenses have been excluded.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the historical consolidated financial statements and related notes included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our fiscal year ends on June 30 each year. References to “fiscal year 2011” are for the inception period (July 29, 2010) to June 30, 2011.

Overview

We operate three theatres located in Westfield, New Jersey (the Rialto), Cranford, New Jersey (the Cranford) and Bloomfield, Connecticut (the Bloomfield 8), consisting of 19 screens. Our three theatres had over 148,000 attendees for fiscal year 2011, over 297,000 attendees for the twelve months ended June 30, 2011 on a pro forma basis as though all three theatres were owned by Digiplex as of July 1, 2010, and over 163,000 attendees for the six months ended December 31, 2011. We acquired the Rialto and the Cranford on December 31, 2010 and the Bloomfield 8 on February 17, 2011.

In April 2011, we entered into an asset purchase agreement for our contemplated purchase of certain assets and assumption of theatre operating leases of Cinema Supply, consisting of a chain of five theatres with 54 screens located throughout central Pennsylvania. Cinema Centers consists of:

  an 11 screen theatre known as Cinema Center of Bloomsburg, located in Bloomsburg, Pennsylvania;

  a 12 screen theatre known as Cinema Center of Camp Hill, located in Camp Hill, Pennsylvania;

  a 10 screen theatre known as Cinema Center of Fairground Mall, located in Reading, Pennsylvania;

  a 12 screen theatre known as Cinema Center of Selinsgrove, located in Selinsgrove, Pennsylvania; and

  a 9 screen theatre known as Cinema Center of Williamsport, located in Williamsport, Pennsylvania.

Cinema Centers had approximately 1.4 million attendees for the year ended December 31, 201l. Six of the 54 screens constituting Cinema Centers have been converted to digital cinema platforms. We intend to convert the remaining 48 screens to digital platforms within approximately four months after consummation of this offering at an estimated aggregate cost of $3.1 million and expect to finance this conversion through capital leases or other secured financing from banks or vendors. W e intend to use $1 1 .0 million of the net proceeds from this offering to pay the cash portion of the Cinema Centers purchase price of approximately $14.3 million . The remainder of the Cinema Centers purchase price consists of a short-term note for $1.0 million and issuance of 335,000 shares of Class A common stock.

Our plan to expand our business is based on our business strategy, centered on our slogan “cinema reinvented,” and includes:

  Acquisitions of existing historically cash flow positive theatres in free zones. We intend to selectively pursue multi-screen theatre acquisition opportunities that meet our strategic and financial criteria. Our philosophy is to “buy and improve” existing facilities rather than “find and build” new theatres. We believe this approach provides more predictability, speed of execution and lower risk.

  Creation of an all-digital theatre circuit utilizing our senior management team’s extensive experience in digital cinema and related technologies, alternative content selection and movie selection. We have converted all of our existing theatres and will convert those we acquire to digital projection platforms with an appropriate mix of RealD™ 3D auditoriums in each theatre complex.

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  Offering our customers a program of popular movies and alternative content such as sports, concerts, opera, ballet and video games to increase seat utilization and concession sales during off peak and some peak periods.

  Deployment of state of the art integrated software systems for back office accounting and remote camera surveillance systems for theatre management which enable us to manage our business efficiently and to provide maximum scheduling flexibility while reducing operational costs.

  Active marketing of the Digiplex brand and our programs to consumers using primarily new media tools such as social media, website design and regular electronic communications to our targeted audience.

  Enhancing our alternative content programs with themed costuming for our theatre personnel, food packages, scripted introductions by theatre managers, and the use of selected staff members called “ambassadors” to employ various social media tools before, during and after each event to promote the event and the Digiplex brand.

Other than the funds resulting from this offering, there can be no assurance, however, that we will be able to secure financing necessary to implement our business strategy, including to acquire additional theatres or to renovate and digitalize the theatres we do acquire.

We manage our business under one reportable segment: theatre exhibition operations.

Components of Operating Results

Revenues

We generate revenues primarily from admissions and concession sales with additional revenues from screen advertising sales and other revenue streams, such as theatre rentals, private parties and vendor marketing promotions. Our advertising agreement with NCM has assisted us in expanding our offerings to domestic advertisers and will be broadening ancillary revenue sources, such as digital video monitor advertising and third party branding. Our alternative content agreements with NCM and others has assisted us in expanding our alternative content offerings, such as live and pre-recorded concert events, opera, ballet, sports programs, and other cultural events. In addition to NCM, we select, market and exhibit alternative content from a variety of other sources, including Emerging Pictures, Cinedigm, Screenvision, and others as they offer their programs to us. Our existing three theatres, and the five theatres we intend to acquire from Cinema Centers are located in “free zones,” or areas that permit us to acquire movies from any distributor. As such, we display all of the leading movies and can tailor our offerings to each of our markets.

Our revenues are affected by changes in attendance and concession revenues per patron. Attendance is primarily affected by the quality and quantity of films released by motion picture studios. Our revenues are seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, motion picture studios release the most marketable motion pictures during the summer and holiday seasons. The unexpected emergence or continuance of a “hit” film during other periods can alter the traditional pattern. The timing of movie releases can have a significant effect on our results of operations, and the results of one fiscal quarter are not necessarily indicative of the results for the next or any other fiscal quarter. The seasonality of motion picture exhibition, however, has become less pronounced as motion picture studios are releasing motion pictures somewhat more evenly throughout the year. Our operations may be impacted by the effects of rising costs of our concession items, wages, energy and other operating costs. We would generally expect to offset those increased costs with higher costs for admission and concessions.

Expenses

Film rent expenses are variable in nature and fluctuate with our admissions revenues. Film rent expense as a percentage of revenues is generally higher for periods in which more blockbuster films are released. Film rent expense can also vary based on the length of a film’s run and are generally negotiated on a film-by-film and theatre-by-theatre basis. Film rent expense is higher for mainstream movies produced by the Hollywood studios, and lower for art and independent product. Film rent expense is reduced by virtual print fees that we record from motion picture distributors.

35



Cost of concessions is variable in nature and fluctuates with our concession revenues. We purchase concession supplies to replace units sold. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume rates. Because we purchase certain concession items, such as fountain drinks and popcorn, in bulk and not pre-packaged for individual servings, we are able to improve our margins by negotiating volume discounts.

Salaries and wages include a fixed cost component (i.e., the minimum staffing costs to operate a theatre facility during non-peak periods) and a variable component in relation to revenues as theatre staffing is adjusted to respond to changes in attendance.

Facility lease expense is primarily a fixed cost at the theatre level as most of our facility operating leases require a fixed monthly minimum rent payment. Our leases are also subject to percentage rent in addition to their fixed monthly rent if a target annual revenue level is achieved.

Utilities and other expenses include certain costs that have both fixed and variable components such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.

For a summary of other industry trends as well as other risks and uncertainties relevant to us, see “Business — Industry Overview and Trends” and “Risk Factors.”

Significant Events and Fiscal 2012 Outlook

  New Jersey Theatre Acquisitions. On December 31, 2010, we acquired the Rialto and Cranford theatres in Westfield and Cranford, New Jersey having six and five screens, respectively, for a total purchase price of $1.8 million. We paid $1.2 million in cash and issued to the seller 250,000 shares of our Series A preferred stock, valued at $0.5 million, along with an earn-out. The fair value of the earn-out was recorded as additional purchase price, and as a liability with an estimated fair value of $0.1 million to be paid over 2 years. For additional information regarding the earn-out, see “Business — Acquisitions.” Total goodwill resulting from the acquisition of the Rialto and Cranford was $0.9 million.

  Connecticut Theatre Acquisition. On February 17, 2011, we acquired the Bloomfield 8, an 8-screen theatre in Bloomfield, Connecticut, for $0.1 million in cash. The fair value of the theatre was determined to be $0.2 million, and we recorded a bargain purchase gain of $0.1 million during fiscal year 2011.

  Digital Projector Installation. During fiscal year 2011, we installed 16 digital projectors and related equipment in our three theatres. The average cost that we incurred with respect to the installation was approximately $74,000, inclusive of equipment and labor. Our total cost of digital platform installations to December 31, 2011 was $1.2 million. With the three systems that had been previously installed, all 19 screens were digitally equipped as of June 30, 2011. The remaining balance of the cost of the 16 digital systems was approximately $1.1 million and was included in property and equipment, net and as a current liability as of June 30, 2011 and December 31, 2011. We plan to repay the cost of this digital equipment with a portion of the net proceeds from this offering.

  Advertising Agreement. During the fiscal year 2011, we entered into a five year advertising agreement with NCM that entitles us to payments on a per patron basis for advertising displayed by NCM on our screens. We started recording the revenues per patron under this agreement during the six months ended December 31, 2011, and we expect revenues from this agreement to be accretive to our theatres’ revenues.

  Alternative Content Program Launch. Along with the continued display of traditional feature movies, a cornerstone of our business strategy is to exhibit opera, ballet, concerts, sporting events, children’s programming and other forms of alternative content in our theatres. Using our 19 digital systems (12 of which are equipped to show 3D events), we can show live and pre-recorded 2D and 3D events at off-peak times to increase the utilization of our theatres.

  Acquisition Strategy. We plan to acquire existing movie theatres in free zones over the next 12 months and beyond. We generally seek to pay a multiple of 4.5 times to 5.5 times TLCF for theatres we acquire. TLCF is calculated as revenues minus theatre operating expenses (excluding depreciation and amortization). See pages 43-46 for additional information regarding TLCF. For example, the Cinema Centers theatres had

36




  historical TLCF for 2011 of approximately $2.9 million, yielding a multiple of 4.9 times TLCF based on our agreed upon purchase price of approximately $14. 3 million .

The following table sets forth the percentage of total revenues represented by statement of operations items included in our consolidated statements of operations for the periods indicated (dollars and attendance in thousands, except average ticket prices and average concession per patron):

Results of Operations

        Successor
Fiscal Year Ended
June 30, 2011
    Predecessor
Fiscal Year Ended
December 31, 2010
    Predecessor
Fiscal Year Ended
December 31, 2009
   
        $
    % of
Revenue
    $
    % of
Revenue
    $
    % of
Revenue
Revenues
                                                                                                 
Admissions
              $ 1,158             74           $ 1,529             71           $ 1,876             74    
Concessions
                 382              24              627              29              660              26    
Other
                 32              2                                                        
Total revenues
                 1,572             100              2,156             100              2,536             100    
Cost of operations:
                                                                                                 
Film rent expense (1)
                 598              51              841              55              1,032             55    
Cost of concessions (2)
                 66              17              94              15              143              22    
Salaries and wages (3)
                 235              15              273              13              234              9    
Facility lease expense (3)
                 223              14              238              11              111              4    
Utilities and other (3)
                 258              16              352              16              375              15    
General and administrative expenses (including share-based compensation and expenses of $186, $0 and $0, respectively) (3)
                 900              57              441              20              412              16    
Depreciation and amortization (3)
                 165              10              141              7              117              5    
Total costs and expenses(3)
                 2,445             155              2,380             110              2,424             96    
Operating income (loss)(3)
                 (873 )            (55 )            (224 )            (10 )            112              4    
Bargain purchase gain from theatre acquisition (3)
                 98              6                                                        
Interest
                                           5                           3                 
Other
                 1                                                                     
Income (loss) before income taxes (3)
                 (776 )            (49 )            (229 )            (10 )            109              4    
Income taxes (4)
                 14              (2 )                                                      
Net income (loss) (3)
              $ (790 )            (50 )         $ (229 )            (10 )         $ 109              4    
Other operating data:
                                                                                                 
Theatre Level Cash Flow (7)
              $ 192              12           $ 358              17           $ 641              25    
Adjusted EBITDA (8)
              $ (373 )            (24 )         $ (83 )            (4 )         $ 229              9    
Attendance
                 148              *              206              *              258              *    
Average ticket price (5)
              $ 7.82             *           $ 7.42             *           $ 7.27             *    
Average concession per patron(6)
              $ 2.58             *           $ 3.04             *           $ 2.56             *    
 


*
  Not meaningful

(1)
  Percentage of revenues calculated as a percentage of admissions revenues.

(2)
  Percentage of revenues calculated as a percentage of concessions revenues.

(3)
  Percentage of revenues calculated as a percentage of total revenues.

(4)
  Calculated as a percentage of pre-tax loss.

(5)
  Calculated as admissions revenue/attendance.

(6)
  Calculated as concessions revenue/attendance.

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(7)
  TLCF is a non-GAAP financial measure. TLCF is a common financial metric in the theatre industry, used to gauge profitability at the theatre level, before the effect of depreciation and amortization, general and administrative expenses, interest, taxes or other income and expense items. While TLCF is not intended to replace any presentation included in our consolidated financial statements under GAAP and should not be considered an alternative to cash flow as a measure of liquidity, we believe that this measure is useful in assessing our cash flow and working capital requirements. This calculation may differ in method of calculation from similarly titled measures used by other companies. This adjusted financial measure should be read in conjunction with the financial statements included in this prospectus. For additional information on TLCF, see pages 43-46.

(8)
  Adjusted EBITDA is a non-GAAP financial measure. We use adjusted EBITDA as a supplemental liquidity measure because we find it useful to understand and evaluate our results, excluding the impact of non-cash depreciation and amortization charges, stock based compensation expenses, and nonrecurring expenses and outlays, prior to our consideration of the impact of other potential sources and uses of cash, such as working capital items. This calculation may differ in method of calculation from similarly titled measures used by other companies. This adjusted financial measure should be read in conjunction with the financial statements included in this prospectus. For additional information on Adjusted EBITDA, see pages 43-46.

Fiscal Year 2011 (Successor) and Fiscal Years 2010 and 2009 (Predecessor)

Our fiscal year 2011 results include the Rialto and Cranford theatres for the six month period from the acquisition date of December 31, 2010 to June 30, 2011, and the Bloomfield 8 Theatre for the approximately four and a half month period from the acquisition date of February 17, 2011 to June 30, 2011. The fiscal year 2010 and 2009 results of the Predecessor include those of the Rialto and Cranford theatres for the respective 12 month periods, and do not include the results of the Bloomfield 8.

Admissions and Concessions. Our fiscal year 2011 revenues include our Rialto and Cranford theatres for the six month period from the acquisition date of December 31, 2010 to June 30, 2011, and the Bloomfield 8 theatre for the approximately four and a half month period from the acquisition date of February 17, 2011 to June 30, 2011. During that time, we adjusted admission and concession prices and our concession offerings, based on our review of the local market conditions. The decline in revenues from 2009 to 2010 was primarily due to a stronger product mix in 2009 that included such blockbuster titles as Avatar. We believe the year-over-year revenue decline was consistent with the industry average.

We believe the average ticket prices and the average concession purchases at our theatres as shown in the table above are close to the averages among movie theatres in our operating markets. During fiscal year 2011, approximately 148,000 patrons attended a movie or other event at our theatres. We believe each theatre’s revenues are positioned to grow in the next fiscal year and beyond from our product offerings, including the addition of alternative content, such as concerts, sporting events and children’s programming, when the theatres are not otherwise operating at peak levels.

Other Revenues. Other revenues in fiscal year 2011 consist of theatre rentals for parties, camps and other activities. Additionally, although we had no revenues from advertising during fiscal year 2011, we entered into an advertising agreement with NCM to receive ad revenues which commenced during the three months ended September 30, 2011. We expect advertising revenues to be a component of our operating results in future periods. The Predecessor had no other revenues in fiscal years 2010 and 2009.

Film Rent Expense. Beginning in 2011, we utilize Clearview’s film department as an external “booking” service to purchase (or “rent”) films at each location from the movie studios (excluding alternative content). We expect that as we grow we will be able to obtain content at levels comparable to our competitors, although we will be subject to the same pricing trends that all exhibitors will experience. While film rent expense is a variable cost that fluctuates with box office revenues, we generally expect film rent expense to range from 45% to 55% of admissions revenues, with art and independent titles at the lower end of the range and mainstream movie titles at the middle to high end of the range. During the fiscal year 2011, we recorded virtual print fees of $35 thousand which reduced our film rent expense.

Cost of Concessions. Beginning in 2011, we purchase concession items from two main national vendors, along with smaller vendors for specialty items. We have been able to negotiate favorable concessions pricing for many

38




items, typically only enjoyed by national theatre circuits, due to the reputation of our senior management team and our growth expectations. Cost of concessions is a variable expense that will fluctuate with concession revenues. We expect our cost of concessions to average between 15% to 20% of our concession revenues, with mainstream movies generating margins at the higher end of the range, and art and independent movies at the lower end. Changes in the cost of concessions percentage from year to year are due to the mix of products being sold and fluctuations in supply pricing.

Salaries and Wages. Our theatre employees are mostly part-time hourly employees, supervised by one or more full-time managers at each location. Our payroll expenses contain a fixed component but are also variable and will fluctuate, being generally higher during the peak summer and holiday periods, and also during alternative content events, and lower at other times. The change from 2009 to 2010 was due to higher average wages paid to theatre personnel. Salaries and wages were higher as a percentage of revenue due to reduced revenue in 2010 following a record year at the box office in 2009.

Facility Lease Expense. Each of our facilities is operated under operating leases that contain renewal options upon expiration. The leases contain provisions that increase rents in certain amounts and at certain times during the initial term, and the leases for our three theatres require additional rent to be paid upon the achievement of certain revenue targets. For fiscal year 2011, there was no additional rent expense recorded because the revenue targets had not been exceeded. Upon acquisition of each of our theatres, we entered into new leases with the landlords, with different lease rates and terms than had existed under prior ownership. The change from 2009 to 2010 was due to a revision in the Predecessor’s lease arrangement with the owner of the theatres.

Utilities and Other. Utilities and other expenses consist of utility charges, real estate taxes incurred pursuant to the operating leases for our theatres, and various other costs of operating the theatres. We expect these costs, which are largely fixed in nature, to remain relatively constant for the theatres, with growth in these expenses as we acquire more theatres.

General and Administrative Expenses. General and administrative expenses consisted primarily of salaries and wages for our corporate staff, legal, accounting and professional fees associated with our startup and acquisition of theatres, marketing, and information technology related expenses. We expect these costs to decrease as a percentage of revenue as many of the activities in fiscal year 2011, our first fiscal year, were related to laying the groundwork for anticipated growth. Included in general and administrative expenses is stock compensation expense of $0.2 million related to issuance of Class A common stock to employees, non-employees and non-employee directors for services rendered during fiscal year 2011. We expect to issue additional stock-based awards in the future under stock compensation award plans, which may consist of stock options or restricted stock, subject to vesting periods. As of June 30, 2011, we had 8 employees on our corporate staff, including our chief executive officer and other executive officers and staff to support our business development, technology, accounting, and marketing activities. The Successor’s general and administrative expenses are at higher levels than the Predecessor’s due to the Successor’s planned acquisitions of theatres at the Successor, and expanded content offerings following the conversion to digital presentation.

Depreciation and Amortization. We utilize straight line depreciation and amortization for property and equipment and intangible assets over the estimated useful life of each asset class. Our largest fixed asset is our digital projection equipment, which has a gross cost of $1.2 million and is being depreciated over a 10-year expected useful life. We expect digital projection equipment to be a large component of our asset base going forward following any acquisitions that we may consummate, along with other theatre equipment and leasehold improvements. The change from 2009 to 2010 was due to renovations to the Rialto theatre in 2009 and a resulting increased asset base. Fiscal year 2011 amounts are based on the fair values assigned to the assets acquired on the respective theatre acquisition dates.

Operating Loss. Our operating loss was primarily attributable to various startup costs, depreciation and amortization, general and administrative costs which will form the basis for future growth, and the lack of a full year of operation from our theatres.

Bargain Purchase Gain. We recorded a bargain purchase gain of $0.1 million in fiscal year 2011 resulting from difference between the cash paid for the Bloomfield 8 theatre and the fair value of the acquired assets.

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Income Taxes. We recorded income tax expense in fiscal year 2011, although there were pretax losses, mainly because of the existence of a full deferred tax asset valuation allowance. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change to the valuation allowance. However, we recorded an accrual of non-cash tax expense due to additional valuation allowance in connection with the tax amortization of our indefinite-lived intangible assets that was not available to offset existing deferred tax assets. The Predecessor had no income tax expense as it was a Subchapter S Corporation for tax purposes.

        Successor     Predecessor    
(Amounts in thousands,
except per patron data)
        Six Months Ended
December 31, 2011
(unaudited)

    Inception Period
(July 29, 2010) to
December 31, 2010 (7)
    Six Months Ended
December 31, 2010
(unaudited)
   
        $
    % of
Revenue
    $
    % of
Revenue
    $
    % of
Revenue
Revenues
                                                                                                  
Admissions
              $ 1,392             73           $ 22              88           $ 820              74    
Concessions
                 401              21              3              12              294              26    
Other
                 106              6                                                           
Total revenues
                 1,899             100              25              100              1,114             100    
Cost of operations:
                                                                                                 
Film rent expense (1)
                 598              43              9              41              430              52    
Cost of concessions (2)
                 68              17                                        62              21    
Salaries and wages (3)
                 288              15              2              8              132              12    
Facility lease expense (3)
                 248              13                                        119              11    
Utilities and other (3)
                 329              17              37              148              182              16    
General and administrative expenses (including share-based compensation expenses of $33, $60 and $0, respectively) (3)
                 673              35              155              620              222              20    
Depreciation and amortization (3)
                 262              14                                        70              6    
Total costs and expenses(3)
                 2,466             130              203              812              1,217             109    
Operating loss(3)
                 (567 )            (30 )            (178 )            (712 )            (103 )            (9 )  
Other
                                                                     2                 
Loss before income taxes (3)
                 (567 )            (30 )            (178 )            (712 )            (105 )            (9 )  
Income taxes (4)
                 20              4                                                       
Net loss (3)
              $ (587 )            (31 )         $ (178 )            (712 )         $ (105 )            (9 )  
Other operating data:
                                                                                                 
Theatre Level Cash Flow (8)
              $ 368              19           $ (23 )            (92 )         $ 189              17    
Adjusted EBITDA (9)
              $ (263 )            (14 )         $ (97 )            (388 )         $ (33 )            (3 )  
Attendance
                 163              *              3              *              102              *    
Average ticket price (5)
              $ 8.54             *           $ 7.33             *           $ 8.04             *    
Average concession per patron (6)
              $ 2.46             *           $ 1.00             *           $ 2.88             *    
 


*
  Not meaningful

(1)
  Percentage of revenues calculated as a percentage of admissions revenues.

(2)
  Percentage of revenues calculated as a percentage of concessions revenues.

(3)
  Percentage of revenues calculated as a percentage of total revenues.

(4)
  Calculated as a percentage of pre-tax loss.

(5)
  Calculated as admissions revenue/attendance.

(6)
  Calculated as concessions revenue/attendance.

(7)
  The Successor’s revenues and theatre operating expenses for the six months ended December 31, 2010 represent only one day of operating and are immaterial for discussion purposes.

(8)
  TLCF is a non-GAAP financial measure. For additional information on TLCF, see pages 43-46.

40



(9)
  Adjusted EBITDA is a non-GAAP financial measure. For additional information on Adjusted EBITDA, see pages 43-46.

Six Months Ended December 31, 2011 (Successor) and Six Months Ended December 31, 2010 (Predecessor)

For the six months ended December 31, 2011, the Successor’s results included the Rialto, Cranford and Bloomfield 8 theatres. For the six months ended December 31, 2010, the Predecessor’s results included only the Rialto and Cranford theatres.

Admissions and Concessions. For the six months ended December 31, 2011, our revenues included our theatres’ operations for the entire period. The Successor had only one day of revenues for the six months ended December 31, 2010.

During the six months ended December 31, 2011, approximately 163,000 patrons, attended a movie or other event at our theatres.

Other Revenues. Other revenues for the six months ended December 31, 2011 consist of $74 thousand of theatre rentals to various groups including parties, camps and for other activities, and $32 thousand of revenues under our agreement with NCM. We expect these revenues to be an ongoing component of our operating results in future periods.

Film Rent Expense. During the six months ended December 31, 2011, we recorded virtual print fees of $132 thousand, which reduced our film rent expense. Excluding this reduction, film rent expense would have been 52% of admissions revenue, which we believe is close to the industry average of 50% to 55%. The movies displayed during the peak summer and holiday months were mainly from the major movie studios, which require higher payments of film rent as a percentage of revenue versus art and independent product which is more prevalent during the off-peak winter months.

Cost of Concessions. At 17% of our concessions revenue, we believe our cost of concessions is close to the industry average of 15% to 20%. Our concession costs as a percentage of concessions revenue can fluctuate based on the mixture of concession products sold, and changes in our supply pricing.

Facility Lease Expense. Facility lease expense represents the lease of our three theatre facilities for the six months ended December 31, 2011. We are subject to additional lease payments based on the achievement of certain revenue targets. There was $6 thousand of additional rent expense recorded during the six months ended December 31, 2011, in connection with the additional rent provisions in one of the leases.

Utilities and Other. Included in utilities and other expense are administrative costs related to our agreement for virtual print fees, which amounted to $13 thousand for the six months ended December 31, 2011. Other significant expenses included are repairs and maintenance of $50 thousand, real estate tax of $58 thousand, theatre supplies and cleaning of $52 thousand, utilities of $86 thousand, credit card processing fees of $23 thousand, and insurance of $17 thousand directly related to theatre operations.

General and Administrative Expenses. Included in general and administrative expenses is stock compensation expense of $33 thousand and $60 thousand for the Successor’s 2011 and 2010 periods, respectively, related to issuance of Class A common stock to employees, non-employees and non-employee directors for services rendered. As of December 31, 2011 and 2010, we had 9 and 4 employees, respectively on our corporate staff. As a percentage of revenue, the Successor’s general and administrative expenses were at higher levels than we expect in the future, because the Company is staffed to execute on its growth plans. We expect general and administrative expenses to be below 10% of revenue on an annual basis, once the Cinema Centers acquisition is complete.

Operating Loss. The operating loss was primarily attributable to various startup costs, depreciation and amortization and general and administrative costs which will form the basis for future growth, and the lack of a full year of operation from our theatres.

Income Taxes. We recorded income tax expense for the six months ended December 31, 2011, although there were pretax losses, mainly because of the existence of a full deferred tax asset valuation allowance. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would

41




otherwise be recognized is offset by the change to the valuation allowance. However, we recorded an accrual of non-cash tax expense due to additional valuation allowance in connection with the tax amortization of our indefinite-lived intangible assets that was not available to offset existing deferred tax assets. The Predecessor had no income tax expense as it was a Subchapter S Corporation for tax purposes.

Liquidity and Capital Resources

We expect our primary uses of cash to be from continued theatre acquisitions, operating expenses, capital expenditures (for digital projection equipment and otherwise), general corporate purposes related to corporate operations, and possible debt service on any debt or payments with respect to capital leases that we may incur in the future. We expect our principal sources of liquidity to be from cash generated from operations, cash on hand, and anticipated proceeds from equity or debt issuances.

W e plan to use $1 1 .0 million of the net proceeds of this offering to pay the cash portion of the Cinema Centers acquisition, and $1.1 million to repay our obligation to Barco for prior installations of digital projection systems in our existing theatres. The remainder of the Cinema Centers approximate $14.3 million purchase price consists of a $1.0 million short-term note due on October 31, 2012 and bearing interest at 6% per annum, and issuance of 335,000 shares of Class A common stock valued at $2.3 million. We intend to repay the $1.0 million note from a combination of cash on hand before and after this offering, and cash flow from operations. Upon acquisition of the Cinema Centers locations, we will convert their remaining 48 screens to digital projection at an estimated cost of approximately $3.1 million. We intend to finance this conversion through capital lease or other secured financing from banks or vendors.

Operating Activities

Net cash flows provided by operating activities totaled approximately $1.0 million, $48 thousand and $0.2 million for fiscal year 2011 (Successor) and fiscal years 2010 and 2009 (Predecessor), respectively. During fiscal year 2011, an increase in accounts payable and accrued expenses contributed to our cash flow from operating activities, primarily related to the digital projection equipment we purchased and other payables we incurred in our first fiscal year including legal and professional fees. The Predecessor operating activities for 2010 and 2009 were largely due to the net income or loss for the year less the impact of depreciation. Net cash flows used in operating activities totaled approximately $0.5 million, $0.3 million and $0.1 million for the six months ended December 31, 2011 (Successor) inception period (July 29, 2010) to December 31, 2010 and 2010 (Predecessor), respectively. In the 2011 interim period, a net decrease in accounts payable and accrued expenses resulted from the payment of a portion of our fiscal year 2011 payables, and increases in accounts receivable and prepaid expenses resulted from our new advertising and virtual print fee agreements. Operating activities for the 2010 period (Successor) reflect the expenses we incurred during our first fiscal period since inception, as we had no theatre operations at that time. Our revenues are generated principally through admissions and concessions sales from feature films with proceeds received in cash or via credit cards at the point of sale and revenue recognized at the point of sale. Our operating expenses are primarily related to film and concession costs, rent, and payroll. Film rent expense is ordinarily paid to distributors within 30 days following receipt of admissions revenues (though it can be faster during holiday and summer periods), and the cost of our concessions are generally paid to vendors approximately 30 to 45 days from purchase. Included in our liabilities at June 30, 2011 and December 31, 2011 is $1.1 million related to our installation of 16 digital projection systems in fiscal year 2011. We expect to continue to have significant capital expenditures for digital projection equipment and other theatre upgrades as we acquire and improve theatres.

Investing Activities

Our capital requirements for the Successor have arisen principally in connection with acquisitions of theatres, upgrading our theatre facilities post-acquisition and replacing equipment. Cash used in investing activities totaled $3.2 million, $0.01 million and $0.7 million during fiscal year 2011 (Successor) and fiscal years 2010 and 2009 (predecessor), respectively. The fiscal year 2011 amounts resulted from the acquisition of the Rialto and Cranford theatres (the cash portion of the purchase price was $1.2 million), the acquisition of the Bloomfield theatre for $0.1 million in cash, and capital expenditures at our theatres of $1.9 million, including in connection with the

42




installation of digital projection equipment. The fiscal year 2009 amounts were primarily due to renovations to the Rialto theatre. Cash used in investing activities was $0.3 million during the six months ended December 31, 2011 (Successor) as we completed our upgrades to our three locations. The cash used in the period from inception date (July 29,2010) to December 31, 2010 was primarily for the acquisition of our New Jersey theatres. We do not anticipate further significant capital outlays for our three existing locations for the next 12 months. We expect to incur up to $3.1 million of capital outlays for the Cinema Centers theatres in connection with the conversion of those theatres to digital projection systems. We may also incur significant capital outlays in connection with any other acquisition that we may consummate in the next 12 months, including digital projection equipment and other theatre upgrades.

We intend to continue to grow our theatre circuit through selective expansion and acquisition opportunities. We have executed an asset purchase agreement to acquire the Cinema Centers theatres, consisting of five theatres having 54 screens. All of the Cinema Center theatres are located in central Pennsylvania, and the total purchase price is $14. 3 million. On June 30, 2011, we amended the Cinema Centers asset purchase agreement to provide for an extension of the closing date until December 31, 2011, and an option to extend the closing date to March 31, 2012 if we deposit $0.1 million into escrow . In April 2012, we entered into a short-term note agreement providing for the $0.1 million to be paid by April 30, 2012, unless this offering is completed by then, in which case the $0.1 million will have been satisfied from the $11.0 million cash portion of the purchase price . We intend to fund the cash portion of the purchase price of Cinema Centers acquisition from the net proceeds of this offering.

Depending on the size of this offering, and the availability of equity and debt financing following this offering, we have a pipeline of additional theatres that we may seek to acquire, and we have been in discussions with other potential sellers. However, other than the Cinema Centers asset purchase agreement, we do not have any executed agreements to acquire any other theatres where such acquisitions are deemed probable. We are limited to our available sources of financing to complete any such acquisitions.

Financing Activities

Our financing activities for fiscal year 2011 and the six months ended December 31, 2011 consisted of the sale of Class A common and Series A preferred stock to investors, including certain of our executive officers and board members, less the direct costs associated with these transactions. For fiscal year 2011, cash provided by financing activities included the sale of 1,522,500 shares of Series A preferred stock for $3.0 million, and 1,469,166 shares of Class A and Class B common stock for $0.4 million. We incurred $0.02 million of costs directly attributable to these equity issuances. During the six months ended December 31, 2011, we issued 200,000 shares of Series A Preferred Stock for $0.4 million. In fiscal year 2009, cash flows from financing activities for the Predecessor were approximately $0.3 million, as the predecessor’s owner invested capital and used a line of credit to fund theater renovations.

Non-GAAP Financial Measures

Theatre Level Cash Flow and Adjusted EBITDA

TLCF was $0.2 million, $0.4 million and $0.6 million for fiscal year 2011 (Successor) and fiscal years 2010 and 2009 (Predecessor), respectively. TLCF was $0.4 million and $0.2 million for the six months ended December 31, 2011 (Successor) and 2010 (Predecessor), respectively. Adjusted EBITDA was ($0.4) million, ($0.08) million and $0.2 million for fiscal years 2011 (Successor), 2010 and 2009 (Predecessor) respectively and was ($0.2) million and ($0.03) million for the six months ended December 31 , 2011 (Successor) and 2010 (Predecessor), respectively.

TLCF is a common financial metric in the theatre industry, used to gauge profitability at the theatre level, before the effect of depreciation and amortization, general and administrative expenses, interest, taxes or other income and expense items. We use Adjusted EBITDA as a supplemental liquidity measure because we find it useful to understand and evaluate our results excluding the impact of non-cash depreciation and amortization charges, stock based compensation expenses, and nonrecurring expenses and outlays, prior to our consideration of the impacts of other potential sources and uses of cash, such as working capital items. We believe that TLCF and Adjusted EBITDA are useful to investors for these purposes as well.

TLCF and Adjusted EBITDA should not be considered alternatives to, or more meaningful than, GAAP measures such as net cash provided by operating activities. Because these measures exclude depreciation and

43




amortization and they do not reflect any cash requirements for the replacement of the assets being depreciated and amortized, which assets will often have to be replaced in the future. Further, because these metrics do not reflect the impact of income taxes, cash dividends, capital expenditures and other cash commitments from time to time as described in more detail elsewhere in this prospectus, they do not represent how much discretionary cash we have available for other purposes. Nonetheless, TLCF and Adjusted EBITDA are key measures used by us. We also evaluate TLCF and Adjusted EBITDA because it is clear that movements in these measures impact our ability to attract financing. TLCF and Adjusted EBITDA, as calculated, may not be comparable to similarly titled measures reported by other companies.

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A reconciliation of TLCF and Adjusted EBITDA to GAAP net loss is calculated as follows (in thousands):

Adjusted EBITDA reconciliation:

(unaudited)
        Successor
Fiscal Year
2011

    Predecessor
Fiscal Year
2010
    Predecessor
Fiscal Year
2009
Net income (loss)
              $ (790 )         $ (229 )         $ 109    
Add back:
                                                      
Depreciation and amortization
                 165              141              117    
Interest
                              5              3    
Income taxes
                 14                              
EBITDA
                 (611 )            (83 )            229    
Add back:
                                                    
Stock-based compensation and expenses (1)
                 186                              
Other expense
                 1                              
Non-recurring organizational and M&A — related professional fees (2)
                 149                              
Deduct:
                                                      
Bargain purchase gain from theatre acquisition (3)
                 (98 )                            
Adjusted EBITDA
              $ (373 )         $ (83 )         $ 229    
 

TLCF reconciliation:

(unaudited)
        Successor
Fiscal Year
2011

    Predecessor
Fiscal Year
2010
    Predecessor
Fiscal Year
2009
Net income (loss)
              $ (790 )         $ (229 )         $ 109    
Add back:
                                                      
General and administrative (4)
                 900              441              412    
Depreciation and amortization
                 165              141              117    
Interest
                              5              3    
Income taxes
                 14                              
Other expense
                 1                              
Deduct:
                                                      
Bargain purchase gain from theatre acquisition (3)
                 (98 )                            
TLCF
              $ 192           $ 358           $ 641    
 

45



Adjusted EBITDA reconciliation:

(unaudited)
        Successor Six
Months Ended
December 31, 2011

    Successor
Inception Period
(July 29, 2010)
to December 31,
2010
    Predecessor Six
Months Ended
December 31, 2010
Net loss
              $ (587 )         $ (178 )         $ (105 )  
Add back:
                                                    
Depreciation and amortization
                 262                           70    
Interest
                                           2    
Income taxes
                 20                              
EBITDA
                 (305 )            (178 )            (33 )  
Add back:
                                                    
Stock-based compensation and expenses (1)
                 33              60                 
Other expense
                                              
Non-recurring organizational and M&A — related professional fees (2)
                 9              21                 
Deduct:
                                                    
Bargain purchase gain from theatre acquisition (3)
                                              
Adjusted EBITDA
              $ (263 )         $ (97 )         $ (33 )  
 

TLCF reconciliation:

(unaudited)
        Successor Six
Months Ended
December 31, 2011

    Successor Six
Months Ended
December 31, 2010
    Predecessor Six
Months Ended
December 31, 2010
Net loss
              $ (587 )         $ (178 )         $ (105 )  
Add back:
                                                    
General and administrative (4)
                 673              155              222    
Depreciation and amortization
                 262                           70    
Interest
                                           2    
Income taxes
                 20                              
Other expense
                                              
Deduct:
                                                    
Bargain purchase gain from theatre acquisition (3)
                                              
TLCF
              $ 368           $ (23 )         $ 189    
 


(1)
  Represents the fair value of shares of Class A common stock issued to employees and non-employees for services rendered. As these are non-cash charges, we believe that it is appropriate to show Adjusted EBITDA excluding this item.

(2)
  Primarily represents legal fees incurred in connection with start-up activities, and the creation of acquisition template documents that will be used by us for future transactions. While we intend to acquire additional theatres, we have laid the groundwork for our acquisition program and we expect to incur reduced legal fees in connection with future acquisitions. We therefore believe that it is appropriate to exclude these items from Adjusted EBITDA.

(3)
  Represents the excess of the fair value of identified tangible and intangible assets from our purchase price of the Bloomfield 8. As a non-recurring item and unrelated to the operation of the theatre, we believe that it is appropriate to show TLCF and Adjusted EBITDA excluding this item.

(4)
  TLCF is intended to be a measure of theatre profitability. Therefore, our corporate general and administrative expenses have been excluded.

46



Contractual Cash Obligations and Commitments

We have entered into long-term contractual lease obligations and commitments in the normal course of business. Other than the operating leases that are detailed below, we do not utilize variable interest entities or any other form of off-balance sheet financing. As of December 31, 2011, our contractual cash obligations over the periods presented below, are as follows (in thousands):

        Payments Due By Period
   
        Total
    Current
    13–36 months
    37–60 months
    After
60 months
Contractual Cash Obligations:
                                                                                  
Purchase commitments (1)
              $ 1,066          $ 1,066          $           $           $    
Operating leases (2)
                 5,150             519              1,07 5             1,12 3             2,433   
Total
              $ 6,216          $ 1,585          $ 1,07 5          $ 1,12 3          $ 2,433   
 


(1)
  Includes estimated capital expenditures to which we were committed as of December 31, 2011, primarily the cost of digital projection equipment.

(2)
  We enter into operating leases in the ordinary course of business. Such lease agreements provide us with the option to renew the leases at defined or then fair value rental rates for various periods. Our future operating lease obligations would change if we exercised these renewal options or if we enter into additional operating lease agreements. Our operating lease obligations are further described in the footnotes to our consolidated financial statements.

We believe that the amount of cash and cash equivalents on hand, the net proceeds from this offering and cash flow expected from operations will be adequate for us to execute our business strategy and meet anticipated requirements for lease obligations, capital expenditures, and working capital for the next 12 months.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating our reported consolidated financial results, include the following:

Revenue and Film Rent Expense Recognition

Revenues are recognized when admissions and concession sales are received at the box office. Other revenues primarily consist of screen advertising, theatre rentals and parties. Sales are made either in cash or in the form of credit cards, which settle in cash within three days. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen. Theatre rentals and party revenue are recognized at the time of the event. We record proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognize admissions and concession revenue when a holder redeems the card or certificate. We recognize unredeemed gift cards and other advanced sale-type certificates as revenue only after such a period of time indicates, based on historical experience, that the likelihood of redemption is remote, and based on applicable laws and regulations. In evaluating the likelihood of redemption, we consider the period outstanding, the level and frequency of activity, and the period of inactivity.

Film rent expenses are accrued based on the applicable admissions and either mutually agreed upon firm terms or a sliding scale formula, which are generally established prior to the opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the film run, subject to the film licensing arrangement. Under a firm terms formula, we pay the distributor a mutually agreed upon specified percentage of box office receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or rates that decline over the term of the run. Under a sliding scale formula, we pay a percentage of box office revenues using

47




a pre-determined matrix that is based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Estimates are based on the expected success of a film. The success of a film can typically be determined a few weeks after a film is released when initial box office performance of the film is known. Accordingly, final settlements typically approximate estimates since box office receipts are known at the time the estimate is made and the expected success of a film can typically be estimated early in the film’s run. If actual settlements are different than those estimates, film rental costs are adjusted at that time.

Under our Exhibitor-Buyer Master License Agreement, we earn virtual print fees from the movie studios when a new digital title is shown on our screens. We may receive virtual print fees for up to the total costs of our digital systems, less a base amount of $9 thousand per system, but including any financing costs we may incur, over a maximum period of ten years from the date of our installations. We are eligible to receive these payments through May 2021, or until the amount of cumulative virtual print fees is equal to our costs. virtual print fees are treated as a reduction of film rent expense. Below is a summary of the costs we incurred relating to the purchase of our digital projection systems to date less the base amount, the virtual print fees we have earned, and the administrative fees incurred (which add to the amounts we can receive for virtual print fees).

(in thousands)
                      
Balance, June 30, 2011
              $ 998    
Virtual print fees earned
                 (70 )  
Administrative fees
                 7    
Balance, September 30, 2011
                 935    
Virtual print fees earned
                 (62 )  
Administrative fees
                 6    
Balance, December 31, 2011
              $ 879    
 

Depreciation and Amortization

Theatre assets and equipment are depreciated using the straight-line method over their estimated useful lives. In estimating the useful lives of our theatre assets and equipment, we have relied upon our experience with such assets. We periodically evaluate these estimates and assumptions and adjust them as necessary. Adjustments to the expected lives of assets are accounted for on a prospective basis through depreciation expense. Leasehold improvements for which we pay and to which we have title are amortized over the shorter of the lease term or the estimated useful life.

Impairment of Long-Lived Assets

We review long-lived assets for impairment indicators whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. We assess many factors including the following to determine whether to impair long-lived assets:

  actual theatre level cash flows;

  future years budgeted theatre level cash flows;

  theatre property and equipment carrying values;

  amortizing intangible asset carrying values;

  competitive theatres in the marketplace;

  the impact of recent ticket price changes;

  available lease renewal options; and

  other factors considered relevant in our assessment of impairment of individual theatre assets.

Long-lived assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated

48




undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period, which includes the probability of renewal periods for leased properties.

Impairment of Goodwill and Finite-Lived Intangible Assets

We evaluate goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of the goodwill may not be fully recoverable. We evaluate goodwill for impairment for each theatre as a reporting unit, based on an estimate of its relative fair value.

Finite-lived intangible assets are tested for impairment whenever events or changes in circumstances indicate the carrying value may not be fully recoverable.

Income Taxes

We use an asset and liability approach to financial accounting and reporting for income taxes.

Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”), which requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. This consensus eliminates the use of the residual method of allocation and requires allocation using the relative selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. We adopted ASU 2009-13 and its adoption did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 requires some new disclosures and clarifies some existing disclosure requirements about fair value measurements codified within ASC 820, “Fair Value Measurements and Disclosures.” ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. We adopted the requirements for disclosures about inputs and valuation techniques used to measure fair value. Additionally, these amended standards require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3) and is effective for fiscal years beginning after December 15, 2010. We have adopted this guidance effective July 1, 2011 and its adoption did not have a material effect on the consolidated financial statements.

In May 2011, the FASB issued ASU 2011-4, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in US GAAP and IFRS”, to substantially converge the fair value measurement and disclosure guidance in GAAP and International Financial Reporting Standards. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. We will adopt this standard July 1, 2012, and we do not expect the adoption of this standard to have a material impact on our consolidated financial statements and disclosures.

In June 2011, the FASB issued ASU 2011-5, “Presentation of Comprehensive Income”, which eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. Instead, an entity will be required to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. The standard is effective for fiscal years beginning after December 15, 2011. We will adopt this standard as of July 1, 2012, and we do not expect it to have a material impact on our consolidated financial statements and disclosures.

In September 2011, the FAS issued ASU 2011-8, “Intangibles — Goodwill and other”. This guidance allows an entity an option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing t