You should read the following discussion together with the historical consolidated financial statements and related notes included elsewhere in this document. 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 2012" are for the year ended June 30, 2012, and references to "fiscal year 2011" are for the inception period (July 29, 2010) to June 30, 2011.

At June 30, 2012 we operated eight theatres located in New Jersey, Connecticut and Pennsylvania, consisting of 73 screens. At June 30, 2011, we operated three theatres located in New Jersey and Connecticut, consisting of 19 screens. Our eight theatres had over 570,000 attendees for fiscal year 2012 (for the period of time we operated the theatres including a partial year at five locations), and over 139,000 attendees for fiscal year 2011 (for the period of time we operated the theatres including a partial year at three locations). On a pro forma basis as though all eight locations were owned for each fiscal year, attendance was 1.70 million and 1.45 million patrons for fiscal year 2012 and 2011, respectively.

Our theatres operated as of June 30, 2012 are:

• a 6 screen theatre known the Rialto, located in Westfield, New Jersey;

• a 5 screen theatre known as the Cranford theatre, located in Cranford, New Jersey;

• an 8 screen theatre known as the Bloomfield 8, located in Bloomfield, Connecticut;

• 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.

We acquired the Rialto and the Cranford from one seller on December 31, 2010, the Bloomfield 8 on February 17, 2011, and all of the five Pennsylvania locations, containing 54 screens ("Cinema Centers"), on April 20, 2012.

We completed the Cinema Centers acquisition on April 20, 2012 and used $11.1 million of the net proceeds of our initial public offering ("IPO") consummated on the same day to pay the cash portion of the total Cinema Centers purchase price of approximately $13.9 million. The remainder of the Cinema Centers purchase price consisted of a note for $1.0 million (paid in September 2012) (the "Note") and 335,000 shares of our Class A common stock with a fair value of $1.8 million. Cinema Centers had approximately 1.40 million attendees for the twelve months ended June 30, 2012 (including pre-acquisition periods). Six of the 54 screens constituting Cinema Centers were converted to digital cinema platforms pre-acquisition and the remaining 48 screens were converted in June 2012 at a cost of approximately $3.3 million. We expect to finance this conversion through secured financing from a lender.

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 will convert the theatres we acquire to digital projection platforms (if not already converted) with an appropriate mix of RealD™ 3D auditoriums in each theatre complex.

• 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 our capital raised to date, 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.

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, parties and fees received from game machines and the usage of automated teller machines at some of our locations. Our advertising agreement with National CineMedia, LLC ("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 Digital Cinema Corp., Screenvision, and others as they offer their programs to us. Our existing eight theatres 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 ("VPFs") that we record from motion picture distributors under an exhibitor-buyer agreement that entitles us to payments for the display of digital movies.

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.

• 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 (which was converted into Class A Common Stock at the time of our IPO), valued at $0.5 million, along with an earn-out. The fair value of the earn-out liability was recorded at an estimated fair value of $0.1 million to be paid over 2 years. During the year ended June 30, 2012, we reduced the earn-out liability by $.04 million based on the actual revenues of the New Jersey theatres for the first year of the two year measurement period, and recorded a payable to the seller for $.02 million for an amount due under the earnout. Total goodwill resulting from the acquisition of the Rialto and Cranford theatres 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.

• Completion of Initial Public Offering and Exercise of Overallotment. On April 20, 2012, we completed our IPO of 2,200,000 shares of Class A common stock at a price of $6.10 per share, for net proceeds of $11,400 after deducting underwriting commissions and offering expenses. On May 7, 2012, we sold 323,900 shares of Class A common stock upon the exercise of the underwriters' overallotment option, for net proceeds of $1,800 after deducting underwriting discounts and commissions.

• Pennsylvania Theatre Acquisition. On April 20, 2012, we acquired certain assets of Cinema Centers, a chain of five theatres with 54 screens located in central Pennsylvania. The purchase price for Cinema Centers was $13.9 million, consisting of $11.1 million in cash paid at closing, the Note for $1.0 million (paid in September 2012) and 335,000 shares of Class A common stock with a fair value of $1.8 million. We also assumed the operating lease of each theatre location. No debt or other liabilities were assumed.

• Digital Projector Installation. At June 30, 2012, all of our 73 screens were equipped with digital projectors and related hardware and software. Nine of the 73 systems had been installed before our acquisition of the theatres, and the remaining 64 systems were installed under our ownership, at a total cost of approximately $4.5 million.

• Advertising Agreement. During 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 in August 2011. All of our locations are covered by the NCM agreement.

• 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 25 digital systems (18 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. Going forward we expect at least 40% of any new screens to be 3D-enabled.

• 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 Theatre Level Cash Flow ("TLCF") for theatres we acquire. TLCF is calculated as revenues minus theatre operating expenses (excluding depreciation and amortization). For example, the Cinema Centers theatres had historical TLCF for 2011 of approximately $2.9 million, yielding a multiple of 4.8 times TLCF based on our purchase price of approximately $13.9 million.

On December 31, 2010, the Company acquired certain assets of the Rialto Theatre of Westfield (the "Rialto") and Cranford Theatre (the "Cranford"), (collectively the "Predecessor"), located in New Jersey. On February 17, 2011, the Company acquired certain assets of the Bloomfield 8 theatre located in Connecticut. On April 20, 2012, the Company acquired certain assets of five movie theatres located in Pennsylvania ("Cinema Centers"). Accordingly, the operating results of these businesses are included in the Company's results of operations from the respective acquisition dates.

As a result of the application of acquisition accounting and valuation of assets and liabilities at fair value as of the date of acquisition, the consolidated financial statements of the Successor are not comparable with the Predecessor.

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):

                                                                                   Successor                                                 Predecessor

                                                          Year Ended                     Inception date (July 29, 2010)                       Year Ended
(Amounts in thousands, except per patron data)           June 30, 2012                          to June 30, 2011                          December 31, 2010
Revenues:                                             $                 %                   $                          %                  $                 %
Admissions                                       $      4,738               71     $             1,158                     74       $       1,529               71
Concessions                                             1,646               25                     382                     24                 627               29
Other                                                     287                4                      32                      2                   -                -
Total revenues                                          6,671              100                   1,572                    100               2,156              100

Cost of operations:
Film rent expense (1)                                   2,387               50                     598                     52                 841               55
Cost of concessions (2)                                   294               18                      66                     17                  94               15
Salaries and wages (3)                                    849               13                     235                     15                 273               13

Facility lease expense (3)                                821               12                     223                     14                 238               11
Utilities and other (3)                                 1,152               17                     258                     16                 352               16
General and administrative (3)                          1,945               29                     900                     57                 441               20
Change in fair value of earnout (3)                       (20 )             (0 )                     -                      -                   -                -
Depreciation and amortization (3)                       1,147               17                     165                     10                 141                7
Total costs and expenses (3)                            8,575              129                   2,445                    156               2,380              110
Operating loss (3)                                     (1,904 )            (29 )                  (873 )                  (56 )              (224 )            (10 )
Interest expense                                          (12 )             (0 )                     -                      -                  (5 )              -
Bargain purchase gain from theatre
acquisition (3)                                             -                -                      98                      6                   -                -
Other expense (3)                                          (9 )              -                      (1 )                    -                   -                -
Loss before income taxes (3)                           (1,925 )            (29 )                  (776 )                  (49 )              (229 )            (11 )
Income taxes (4)                                           42               (2 )                    14                     (2 )                 -                -
Net loss (3)                                     $     (1,967 )            (29 )   $              (790 )                  (50 )     $        (229 )            (11 )

Other operating data:
Theatre Level Cash Flow (7)                      $      1,168     $         18     $               192         $           12       $         358     $         17
Adjusted EBITDA (8)                              $       (493 )   $         (7 )   $              (373 )       $          (24 )     $         (83 )   $         (4 )
Attendance                                            570,337                *                 139,347                      *             206,000                *
Average ticket price (5)                         $       8.31                *     $              8.31                      *       $        7.42                *
Average concession per patron (6)                $       2.89                *     $              2.74                      *       $        3.04                *

* 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) 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 Successor. See page X for TLCF reconciliation.

(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 Successor. See page X for Adjusted EBITDA reconciliation.

Fiscal Year ended June 30, 2012 and Inception date (July 29, 2010) to June 30, 2011 (Successor)

Our fiscal year 2012 results include the Rialto, Cranford and Bloomfield 8 theatres for the entire year and the Cinema Center theatres for the approximately ten week period from the acquisition date of April 20, 2012 to June 30, 2012. 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.

Admissions and Concessions. Our admissions and concessions revenues increased by 315%, due to our increased screen count in 2012 as compared to 2011, and our operation of our first three theatres for a full year in fiscal 2012. In addition, we experienced revenue increases (along with the industry as a whole) driven by favorable product offerings in 2012 versus 2011. In addition, our emphasis on alternative content programming has resulted in incremental admissions and concessions revenue. Excluding the Cinema Centers locations that were not converted to digital until the end of Fiscal 2012, alternative content revenue comprised 8% of our box office revenue during the fiscal year ended June 30, 2012, compared to no such revenue during the 2011 period.

Other Revenues. Other revenues in both 2012 and 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 in August 2011. We expect advertising revenues to be a component of our operating results in future periods. Advertising revenue was $106 for fiscal year 2012. Also, in fiscal 2012 we added revenue from game machines and automated teller machines with the Cinema Centers locations. The remainder of the increase was due to our increased screen base throughout fiscal 2012, and increased rental activity in the months following our acquisition of the theatres.

Film Rent Expense. 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. Film rent expense as a percentage of box office revenues was 50% in 2012 as compared to 52% of box revenues in 2011. Included as a reduction of film rent expense in the 2012 period is $273 of VPFs that we receive from a third party vendor, associated with digital titles that we play from the studios, as compared to $35 in 2011. Excluding VPFs, film rent expense would have been 56% and 55% of admissions revenues in the 2012 and 2011 periods, respectively.

Cost of Concessions. At 18% and 17 % of our concessions revenue for 2012 and 2011, respectively, 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.

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 increase from the 2011 period is due to our operation of a larger number of theatres in 2012 versus 2011. As a percentage of revenue, the decrease is due to our adjustment of the mix of theatre staff shortly following our acquisition of the locations.

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 certain theatres require percentage rent to be paid upon the achievement of certain revenue targets. We incurred $25 in percentage rent expense as a result of these lease provisions during fiscal 2012, and $0 in fiscal 2011. The remainder of the increase from the 2011 period is due to our operation of more theatres in the 2012 period.

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. The increase in these expenses is due to the operation of more screens throughout fiscal 2012. During 2012, we also incurred expenses for digital projection equipment maintenance that we did not have in the 2011 period. Though many of these costs are largely fixed except for inflationary-type increases, we will experience 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. The increase . . .