10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

______________________________________

Commission File Number: 333-178648

Digital Cinema Destinations Corp.

(Exact Name of Registrant as Specified in its Charter)

_____________________________________

Delaware	27-31646577
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

250 East Broad Street, Westfield, New Jersey 07090

(Address of Principal Executive Offices, Zip Code)

(908-396-1360)

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x  No o

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 o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting Company)	Smaller reporting Company x

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of February 13, 2014, 7,083,528 shares of Class A Common Stock, $0.01 par value, and 849,000 shares of Class B Common Stock, $0.01 par value, were outstanding

 DIGITAL CINEMA DESTINATIONS CORP.

CONTENTS TO FORM 10-Q

PART I --	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at December 31, 2013 (Unaudited) and June 30, 2013	1
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six
	Months ended December 31, 2013 and 2012	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended December 31, 2013 and 2012	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Sales of Registered Securities	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
Signatures		40
Exhibit		41
Index		41

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31,			June 30,
	2013			2013
ASSETS	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	6,992		$	3,607
Accounts receivable		740			697
Inventories		148			191
Deferred financing costs, current portion		357			357
Prepaid expenses and other current assets		1,295			1,444
Total current assets		9,532			6,296
Property and equipment, net		29,666			29,171
Goodwill		3,502			3,156
Intangible assets, net		7,012			6,186
Security deposits		209			205
Deferred financing costs, long term portion, net		1,052			1,225
Other assets		107			9
TOTAL ASSETS	$	51,080		$	46,248
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,985		$	2,478
Accrued expenses and other current liabilities		3,658			3,964
Notes payable, current portion		1,716			1,373
Capital lease, current portion		162			121
Earn out from theater acquisitions		350			296
Deferred revenue		767			305
Total current liabilities		8,638			8,537
NONCURRENT LIABILITIES
Notes payable, long term portion		8,048			8,615
Capital lease, net of current portion		470			239
Unfavorable leasehold liability, long term portion		141			159
Deferred rent expense		617			407
Deferred tax liability		207			199
TOTAL LIABILITIES		18,121			18,156
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 10,000,000 shares authorized as of December 31, 2013 and June 30, 2013, 6 shares of Series B Preferred Stock issued and outstanding as of December 31, 2013 and June 30, 2013 , respectively		-			-
Class A Common stock, $.01 par value: 20,000,000 shares authorized; and 7,035,058 and 5,511,938 shares issued and outstanding as of December 31, 2013 and June 30, 2013, respectively		70			55
Class B Common stock, $.01 par value, 900,000 shares authorized; 849,000 and 865,000 shares issued and outstanding as of December 31, 2013 and June 30, 2013, respectively		9			9
Additional paid-in capital		32,959			25,816
Accumulated deficit		(9,121	)		(7,049	)
TOTAL STOCKHOLDERS' EQUITY OF DIGITAL CINEMA DESTINATIONS CORP.		23,197			18,831
Noncontrolling interest		9,042			9,261
Total equity		32,959			28,092
TOTAL LIABILITIES AND EQUITY	$	51,080		$	46,248

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

1

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
REVENUES
Admissions	$	7,590		$	4,752		$	15,347		$	7,761
Concessions		3,166			1,929			6,504			3,128
Other		440			189			814			327
Total revenues		11,196			6,870			22,665			11,216
COSTS AND EXPENSES
Cost of operations:
Film rent expense		3,936			2,401			7,714			3,813
Cost of concessions		581			317			1,183			482
Salaries and wages		1,297			710			2,747			1,224
Facility lease expense		1,450			811			2,920			1,334
Utilities and other		2,099			1,157			4,484			1,923
General and administrative		1,348			1,208			2,666			1,946
Change in fair value of earnout		(5	)		-			54			-
Depreciation and amortization		1,373			1,098			2,708			1,947
Total costs and expenses		12,079			7,702			24,476			12,669
OPERATING LOSS		(883	)		(832	)		(1,811	)		(1,453	)
OTHER EXPENSE
Interest expense		(348	)		(272	)		(699	)		(294	)
Non-cash interest expense		(76	)		(75	)		(152	)		(78	)
Other expense		(40	)		(8	)		(47	)		(8	)
LOSS BEFORE INCOME TAXES		(1,347	)		(1,187	)		(2,709	)		(1,833	)
Income tax expense		9			47			18			64
NET LOSS	$	(1,356	)	$	(1,234	)	$	(2,727	)	$	(1,897	)
Net loss attributable to non-controlling interest		331			93			655			93
Net loss attributable to Digital Cinema Destinations Corp.	$	(1,025	)	$	(1,141	)	$	(2,072	)	$	(1,804	)
Preferred stock dividends		(5	)		(5	)		(10	)		(6	)
Net loss attributable to common stockholders	$	(1,030	)	$	(1,146	)	$	(2,082	)	$	(1,810	)
Net loss per Class A and Class B common share- basic and diluted attributable to common stockholders	$	(0.14	)	$	(0.21	)	$	(0.30	)	$	(0.33	)
Weighted average common shares outstanding:		7,565,123			5,511,765			7,014,926			5,465,356

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

2

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Six Months Ended
	December 31,
	2013			2012
Cash flows from operating activities
Net loss	$	(2,727	)	$	(1,897	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,708			1,947
Deferred tax expense		8			50
Change in fair value of earnout liability		54			-
Stock-based compensation		361			69
Amortization of deferred financing costs included in interest expense		173			17
Amortization of unfavorable lease liability		(18	)		(14	)
Paid-in-kind interest added to notes payable		152			78
Earnings from investment in Diginext		(53	)		-
Changes in operating assets and liabilities:
Accounts receivable		(43	)		(441	)
Inventories		51			(15	)
Prepaid expenses and other current assets		162			(100	)
Other assets and security deposits		(4	)		(57	)
Accounts payable and accrued expenses		(1,293	)		1,734
Payable to vendor for digital systems		-			(3,334	)
Deferred revenue		462			482
Deferred rent expense		210			90
Net cash provided by (used in) operating activities		203			(1,391	)
Investing activities:
Purchases of property and equipment		(538	)		(415	)
Capital contribution from Start Media, LLC to joint venture		435			8,000
Investment in Diginext		(45	)		(5	)
Theater acquisitions		(1,229	)		(14,122	)
Cash acquired in acquisitions		8			40
Net cash used in investing activities		(1,369	)		(6,502	)
Financing activities:
Repayment of notes payable		(554	)		(1,006	)
Proceeds from notes payable		-			10,000
Payment under capital lease obligations		(48	)		(4	)
Payment of financing costs		-			(369	)
Proceeds from issuance of Class A common stock		5,704
Proceeds from issuance of preferred stock		-			450
Dividends paid on preferred stock		(10	)		(6	)
Costs associated with issuance of stock		(541	)		(80	)
Net cash provided by financing activities		4,551			8,985
Net change in cash and cash equivalents		3,385			1,092
Cash and cash equivalents, beginning of year		3,607			2,037
Cash and cash equivalents, end of period	$	6,992		$	3,129

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

1.           THE COMPANY AND BASIS OF PRESENTATION

Digital Cinema Destinations Corp. (“Digiplex”) and together with its subsidiaries (the “Company”) was incorporated in the State of Delaware on July 29, 2010. Digiplex is the parent of wholly owned subsidiaries, DC Westfield Cinema LLC, DC Cranford Cinema LLC, DC Bloomfield Cinema LLC, DC Cinema Centers LLC, and DC Lisbon Cinema LLC, and intends to acquire additional businesses operating in the theater exhibition industry sector.

In September 2012, the Company and Nehst Media Enterprises (“Nehst”) formed a joint venture called Diginext. Under the joint venture agreement, Digiplex and Nehst each have a 50% ownership interest. Nehst will supply Diginext with periodic movie content and the Company has the option to display such content at its locations on an exclusive basis, or may choose to allow non-Digiplex venues to also display the content. The Company pays film rent to Diginext as it would any other movie distributor, and any profits of Diginext, from theatrical revenues as well as net revenues from other ancillary sources will be shared equally by the owners. The Company and Nehst have each made capital contributions of $50 since inception, and the Company is using the equity method to account for its share of earnings from the joint venture. For the six months ended December 31, 2013, Digiplex’s share of net income was $53.  The balance of the Company’s equity investment at December 31, 2013 is $107 and included in other assets.

On December 10, 2012, Digiplex, together with Start Media, LLC (“Start Media”), entered into a joint venture, Start Media/Digiplex, LLC (“JV”), a Delaware limited liability company, to acquire, refit and operate movie theaters.

On July 19, 2013, JV acquired a six screen movie theater in Torrington, Connecticut (“Torrington”). Torrington is operated by Digiplex under a management agreement with JV. See Note 3 and Note 4.

The Company has determined that JV is a variable interest entity (“VIE”), and that the Company is the primary beneficiary of JV’s operations. Therefore, the Company is presenting JV’s financial statements on a consolidated basis with a non-controlling interest.

On December 19, 2013, the Company acquired an eight screen movie theater in Mechanicsburg, Pa. (“Mechanicsburg”). The operating results of the Mechanicsburg acquisition are included in the Company’s consolidated results from the date of acquisition. See Note 3.

As of December 31, 2013, the Company operated 20 theaters having 192 screens (the “Theaters”).  Although the Company has announced the signing of asset purchase agreements and/or leases for additional locations, all are subject to further diligence, financing and other closing conditions.  Therefore, there can be no assurance that the Company will complete these planned transactions.

The accompanying unaudited condensed consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on 10-K for the fiscal year ended June 30, 2013 filed with the Securities and Exchange Commission (“ SEC”) on September 18, 2013 (the “Form 10-K”).  In the opinion of management, all adjustments, consisting of a normal recurring nature, considered necessary for a fair presentation have been included in the unauditedcondensed consolidated financial statements.  The operating results for the interim period presented herein are not necessarily indicative of the results expected for the full year ending June 30, 2014.

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DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

The Company has incurred net losses since inception. The Company also has contractual obligations related to its debt as of December 31, 2013 and beyond. The Company expects to generate net losses for the foreseeable future. Based on the Company’s cash position at December 31, 2013, expected cash flows from operations, and the Company’s October 2013 issuance of Class A common stock for net proceeds of $5,200, management believes that the Company has the ability to meet its obligations through December 31, 2014. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on the Company’s financial position, results of operations or liquidity.

2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed consolidated financial statements of the Company include the accounts of Digiplex and its wholly-owned subsidiaries, and the JV, which is a VIE. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, those related to film rent expense settlements, depreciation and amortization, impairments, income taxes and assumptions used in connection with acquisition accounting. Actual results could differ from those estimates.

Revenue Recognition

Revenues are generated principally through admissions on feature film displays and concessions sales, with proceeds received in cash or credit card at the Company’s point of sale terminals at the Theaters. Revenue is recognized at the point of sale. Credit card sales are normally settled in cash within approximately three business days from the point of sale, and any credit card chargebacks have been insignificant. Other revenue consists of theater rentals for parties, camps, civic groups and other activities, advertising revenue under our advertising contract and our portion of game income, ATM fees and internet ticketing fees. Rental revenue is recognized at the time of the rental. Advertising revenue is recorded based on an expected per-patron amount and the number of patrons over the contract period as the advertising is being delivered on screen. Other revenue items are recognized as earned in the period. In addition to traditional feature films, the Company also displays concerts, sporting events, children’s programming and other non-traditional content on its screens (such content referred to herein as “alternative content”). Revenue from alternative content programming also consists of admissions and concession sales. The Company also sells theater admissions in advance of the applicable event, and sells gift cards for patrons’ future use. The Company defers the revenue from such sales until considered redeemed. The Company estimates the gift card breakage rate based on historical redemption patterns. Unredeemed gift cards are recognized as revenue only after such a period of time indicates, based on historical attendance, the likelihood of redemption is remote, and based on applicable laws and regulations, in evaluating the likelihood of redemption, the period outstanding, the level and frequency of activity, and the period of inactivity is evaluated.

5

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

Rewards Club Program

In August 2013, the Digiplex Rewards Club was implemented, whereby members earn credits for each dollar spent at one of the Company's theaters and earn concession or ticket awards based on the number of credits accumulated. Because the Company believes that the value of the awards granted is insignificant in relation to the value of the transactions necessary to earn the award, the Company records the estimated  cost of providing awards at the time the awards are earned. The Company’s costs of these awards are not significant for the six months ended December 31, 2013. The awards issued under the Digiplex Rewards Club expire 90 days after issuance.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2013 and June 30, 2013, the Company held substantially all of its cash in bank accounts with major financial institutions, and had cash on hand at the Theaters in the normal course of business.

Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company reports accounts receivable net of any allowance for doubtful accounts to represent management’s estimate of the amount that ultimately will be realized in cash. The Company reviews collectability of accounts receivable based on the aging of the accounts and historical collection trends. When the Company ultimately concludes a receivable is uncollectible, the balance is written off. The Company has determined that an allowance for doubtful accounts is not necessary at December 31, 2013 and June 30, 2013.

Inventories

Inventories consist of food and beverage concession products and related supplies. The Company states inventories on the basis of the first-in, first-out method, stated at the lower of cost or market.

Property and Equipment

Property and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are expensed currently.

The Company records depreciation and amortization using the straight-line method, over the following estimated useful lives:

Furniture and fixtures	5 years
Leasehold improvements	Lesser of lease term or estimated asset life
Building and improvements	17 years
Digital systems and related equipment	10 years
Equipment and computer software	3 - 5 years

Goodwill

The carrying amount of goodwill at December 31, 2013 and June 30, 2013 was $3,502 and $3,156, respectively. The Company evaluates goodwill for impairment annually or more frequently as specific events or circumstances dictate. Under ASC Subtopic 350-20, Intangibles — Goodwill and Other —

6

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

Goodwill, the Company has identified its reporting units to be the regions in which the Company conducts its theater operations.

The Company determines fair value by using an enterprise valuation methodology weighing the income approach and market approach by applying multiples to cash flow estimates less any net indebtedness, which the Company believes is an appropriate method to determine fair value. There is considerable management judgment with respect to future cash flow estimates and appropriate multiples and discount rates to be used in determining fair value and such management estimates fall under Level 3 within the fair value measurement hierarchy.

The changes in carrying amounts of goodwill are as follows:

	Total
Balance as of June 30, 2013	$	3,156
Goodwill resulting from the Mechanicsburg acquisition		346
Balance as of December 31, 2013	$	3,502

Concentration of Credit Risk

Financial instruments that could potentially subject the Company to concentration of credit risk, if held, would be included in accounts receivable. Collateral is not required on trade accounts receivables. It is anticipated that in the event of default, normal collection procedures would be followed.

Fair Value of Measurements

The fair value measurement disclosures are grouped into three levels based on valuation factors:

• Level 1 – quoted prices in active markets for identical investments

• Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.

The following tables summarize the levels of fair value measurements of the Company’s financial liabilities as of December 31, 2013 and June 30, 2013:

7

 DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

As of December 31, 2013:
	Level 1		Level 2		Level 3		Total
Earnout from theater acquisitions		-		-		350		350
	$	-	$	-	$	350	$	350
As of June 30, 2013:
	Level 1		Level 2		Level 3		Total
Earnout from theater acquisitions		-		-		296		296
	$	-	$	-	$	296	$	296

Earnout from acquisitions is a liability to the seller of the Lisbon theater and is based upon meeting certain financial performance targets. Estimates of the fair values of the earnout was estimated by a forecast of theater level cash flow, as defined by the asset purchase agreement. That measure is based on significant inputs that are not observable in the market, which are considered Level 3 inputs.

The following summarized changes in the earnout during the six months ended December 31, 2013:

	Total
Balance as of June 30, 2013	$	296
Change in fair value of earnout liability for Lisbon acquisition		54
Balance as of December 31,  2013	$	350

Key assumptions underlying the initial Lisbon earnout estimate include a discount rate of 12.5 percent and that Lisbon will achieve its forecasted financial performance target in the one year earnout period ended September 28, 2013.  As of December 31, 2013, the Company increased the Lisbon earnout from $296 to $350 based on actual results compared to the threshold in the asset purchase agreement and the final payment.  A fair value change of ($5) and $54 for the three and six months ended December 31, 2013 was recognized. The earnout of $350 was paid to the seller in February 2014.

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and accrued expenses, and note payable approximate their fair values, due to their short term nature. 

Deferred Rent Expense

The Company recognizes rent expense on a straight-line basis, after considering the effect of rent escalation provisions resulting in a level monthly rent expense for each lease over its term.

Deferred Financing Costs

Deferred financing costs primarily consist of unamortized debt issuance costs for the note payable, unamortized financing costs related to the formation of JV, and the fair value of warrants issued to Start Media, which are amortized on a straight-line basis over the respective terms. The straight-line basis is not materially different from the effective interest method.

8

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

Film Rent Expense

The Company estimates film rent expense and related film rent payable based on management’s best estimate of the ultimate settlement of the film costs with the film distributors. Generally, less than one-quarter of film rent expense is estimated at period-end, with the majority being agreed to under firm terms. The length of time until these costs are known with certainty depends on the ultimate duration of the film’s theatrical run, but is typically “settled” within one to two months of a particular film’s opening release. Upon settlement with the film distributors, film rent expense and the related film rent payable is adjusted to the final film settlement.

The film rent expense on the unaudited condensed consolidated statement of operations of the Company for the three months ended December 31, 2013 and 2012 was reduced by virtual print fees (“VPFs”) of $291 and $259, respectively under a master license agreement exhibitor-buyer arrangement with a third party vendor. VPFs for the six months ended December 31, 2013 and 2012 were $582 and $504, respectively. VPFs represent a reduction in film rent paid to film distributors. Pursuant to this master license agreement, the Company will purchase and own digital projection equipment and the third party vendor, through its agreements with film distributors, will collect and remit VPFs to the Company, net of a 10% administrative fee. VPFs are generated based on initial display of titles on the digital projection equipment.

 Stock-Based Compensation

The Company recognizes stock-based compensation expense to employees based on the fair value of the award at the grant date with expense recognized over the service period, or vesting period, using the straight-line recognition method of awards subject to graded vesting.

The Company uses the Black-Scholes valuation model to determine the fair value of warrants. The fair value of the restricted stock awards is determined by the stock fair market value on the award date. The Company recognizes an estimate for forfeitures of unvested awards. These estimates are adjusted as actual forfeitures differ from the estimate.

The Company also issues common stock to non-employees in exchange for services. The Company measures and records stock-based compensation at fair value at the earlier of the date the performance commitment is reached or when the performance is complete. The expense recognized is based on the closing stock price of the Company’s stock issued.

Reclassification

Certain reclassifications have been made to the fiscal period ended December 31, 2012 financial statements to conform to the current fiscal period ended December 31, 2013 presentation.

Segments

As of December 31, 2013, the Company managed its business under one reportable segment: theater exhibition operations. All Company operations are located in the United States.

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DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

3.            ACQUISITIONS

On December 19, 2013, the Company acquired an eight screen movie theater in Mechanicsburg, Pennsylvania. The provisional purchase price totals $2,756 (assets acquired of $3,076, less an assumed capital lease payable of $320), consisting of $1,258 in cash, and 300,390 shares of the Company’s Class A common stock valued at $1,498, (based on the trading price of $5.54 on the closing date, less a ten percent discount for trading restrictions placed on the stock). On the acquisition date, the Company paid $1,008 in cash and issued 251,850 shares of the Company's Class A common stock. Upon the completion of the Churchville acquisition which the Company has contracted to purchase and is owned by an affiliate of the same seller, the Company will pay the remaining $250 of cash and issue the remaining 48,540 shares of Class A common stock for the Mechanicsburg location. If the Churchville acquisition does not close by March 14, 2014, the Company will not be required to pay and issue these amounts and the purchase price will be adjusted accordingly.  The purchase price was provisionally allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The provisional allocation of the provisional purchase price is based on management’s judgment after evaluating several factors, using assumptions for the income and royalty rate approaches and the discounted earnings approach, and projections determined by Company management. The Company is in the process of finalizing the fair values of the assets acquired and liabilities assumed, including evaluation of the operating lease. The Company incurred approximately $20 in acquisition costs which was expensed and included in general and administrative expenses in the unaudited condensed consolidated statement of operations for the six months ended December 31, 2013.

The provisional allocation of the purchase price for the Mechanicsburg theater was as follows:

	Mechanicsburg
	Theater
ASSETS
Cash	$	4
Inventory		4
Property and equipment		1,313
Favorable leasehold interest		937
Covenants not to compete		472
Goodwill		346
Total assets acquired		3,076
LIABILITIES AND OTHER
Consideration to be paid for theater acquisition		492
Capital lease liability assumed		320
Issuance of Class A common stock		1,256
Total purchase price paid in cash	$	1,008

On July 19, 2013, JV acquired a six screen movie theater in Torrington, Connecticut. The purchase price totals $612 (assets acquired of $790, less an assumed promissory note of $178), consisting of $221 in cash, and 73,770 shares of the Company’s Class A common stock valued at $391, (based on the trading price of $5.89 on the closing date, less a ten percent discount for trading restrictions placed on the stock). Accordingly, the purchase price was allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The allocation of the purchase price is based

10

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

on  management’s judgment after evaluating several factors, using assumptions for the income and royalty rate approaches and the discounted earnings approach, and projections determined by Company management. The Company incurred approximately $4 in acquisition costs which was expensed and included in general and administrative expenses in the unaudited condensed consolidated statement of operations for the six months ended December 31, 2013.  The Company finalized the Torrington purchase price allocation as of December 31, 2013.

The allocation of the purchase price for the Torrington theater was as follows:

	Torrington
	Theater
ASSETS
Cash	$	4
Prepaid expenses		13
Inventory		4
Property and equipment		385
Favorable leasehold interest		299
Covenants not to compete		85
Total assets acquired		790
LIABILITIES AND OTHER
Notes payable assumed		178
Issuance of Class A common stock		391
Total purchase price paid in cash	$	221

The results of operations of Mechanicsburg and Torrington are included in the unaudited condensed consolidated statement of operations from their respective acquisition dates. The following are the unaudited pro forma results of operations of the Company for the three and six months ended December 31, 2013 and 2012, respectively, as if the acquisitions were completed on July 1, 2012.

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.

	Three Months ended December 31,						Six Months ended December 31,
	2013			2012			2013			2012
Revenues	$	11,607		$	7,668		$	23,800		$	12,812
Net loss		(1,398	)	$	(1,304	)		(2,810	)	$	(1,978	)

11

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

4.           START MEDIA/ DIGIPLEX JOINT VENTURE

As of June 30, 2013, Digiplex contributed 887,623 shares of Class A Common Stock to the JV, and Start Media contributed $10,000 in cash. In July 2013, Start Media contributed $300 in cash and Digiplex contributed 73,770 shares of the Company’s Class A common stock valued at $391, to fund the Torrington acquisition, and both Start Media’s and Digiplex’s interest in the JV was adjusted accordingly.  In November 2013, Start Media and Digiplex contributed $135 and $100 in cash, respectively.  JV is managed by a four person board of managers, two of whom Digiplex designates and two of whom are designated by Start Media. Majority vote is required for JV actions. At December 31, 2013, Digiplex and Start Media owned 34% and 66% of the equity of JV, respectively.

JV has a first right of refusal to acquire any theaters which the Company wishes to acquire, except for any theaters within a ten mile radius of existing Digiplex owned theaters. If JV does not exercise its right of first refusal, the Company has the right to make the acquisition independently. The right of first refusal does not apply to or restrict the Company’s ability to manage theaters owned by unaffiliated third-parties.

Digiplex has entered into agreements with JV (the “Management Agreements") to manage the theaters it acquires and receives 5% of the total revenue of the JV theaters’ operations annually as management fees.

Management fees earned by Digiplex for the three months ended December 31, 2013 and 2012 were $275 and $52, respectively. Management fees earned by Digiplex for the six months ended December 31, 2013 and 2012 were $560 and $52, respectively.   JV records these fees as general and administrative expenses, and Digiplex records an offset to general and administrative expenses. These fees are eliminated in consolidation.

Under the Management Agreements, Digiplex has full day-to-day authority to operate the theaters owned by JV including: staffing, banking, content selection, vendor selection and all purchasing decisions. Digiplex is required to submit an annual operating budget to JV for each fiscal year ending June 30 for approval by the JV board of managers. In the event of any disagreements regarding the budget, there are dispute resolution procedures contained in the operating agreement (“JV Operating Agreement”).

Digiplex’s and Start Media’s respective percentage ownerships in JV will depend upon their respective aggregate capital contributions, in each case denominated in units of membership interests. Start Media has committed to contribute up to $20,000 to JV, inclusive of approximately $10,435 of capital contributions, for theater acquisitions and budgeted expenses. Start Media will receive additional membership units in consideration for capital contributions in excess of its initial contribution as additional capital is required, based on the fair market value of JV determined under a formula set forth in the JV Operating Agreement (the “Formula”). Digiplex has a right, but not the obligation, to contribute additional capital to JV, which under certain circumstances may be made by the issuance and delivery of shares of Digiplex’s Class A common stock to sellers of theaters acquired by JV, and thereby acquire additional membership units based on the Formula, provided that our percentage interest does not exceed 50% as the result of our acquisition of additional units.While Start Media has the right to participate in future theater acquisitions, it is not obligated to do so.

Distributions of JV cash flow from operations will be made to the members at such time as determined by the JV board of managers. Start Media is entitled to a 6% preferred return on its capital contributions made to date, after which Digiplex receives a 6% preferred return on its capital contributions. Thereafter, distributions of cash flow from operations will be made pro rata in accordance with the respective membership units of the members. In the case of liquidating distributions, Start Media will receive a 6% preferred return on and the return of its capital contributions prior to the Company’s receipt of a 6%

12

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

preferred return on and the return of the Company’s capital contributions, with further distributions pro rata to the respective membership units of the members.

Digiplex and Start Media have agreed not to transfer their membership interests, except for certain permitted transfers for a three-year period and any subsequent transfers of membership interests are subject to the right of JV and the other member to acquire the interests on such terms as a third party is willing to do so. In the event the Company experiences a change in control, as defined in the JV Operating Agreement, Start Media has a right to require the Company to acquire its membership interest in JV.

Digiplex is considered the primary beneficiary of the JV because it controls the operation of each JV owned theater on a day to day basis in all material respects, including: the selection of content, all staffing decisions, all cash management and paying vendors, financial reporting, obtaining all necessary permits, insurances, and to plan and perform capital improvements, to the extent such expenditures do not exceed certain levels as specified in the Management Agreements. Digiplex is also the guarantor of six of the ten leases entered into with third party landlords in the JV-owned theaters, and is using its brand name to promote the theaters. Because JV is a VIE, and Digiplex is deemed the primary beneficiary, the Company has consolidated the operations of JV.

Net loss attributable to the non-controlling interest on the statement of operations represents the portion of net loss attributable to the economic and legal interest in JV held by Start Media.

5.           ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	December 31,		June 30,
	2013		2013
VPFs	$	560	$	470
Advertising		149		180
Other		31		47
Total	$	740	$	697

6.           PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	December 31,		June 30,
	2013		2013
Insurance	$	126	$	215
Projector and other equipment maintenance		238		246
Real estate taxes		71		82
Note receivable (1)		74		89
Due from former theater owners (1)		293		299
Due from Start Media		225		290
Other theater operating		114		84
Other expenses		154		139
Total	$	1,295	$	1,444

(1) The note receivable of $74 and $55 of the due from theater owner was from the former owner of the Lisbon theater, and was paid in February 2014 in connection with the finalization of the Lisbon earnout.   

13

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

7.           PROPERTY AND EQUIPMENT

Property and equipment, net was comprised of the following:

	December 31,			June 30,
	2013			2013
Furniture and fixtures	$	5,556		$	4,931
Leasehold improvements		13,427			12,820
Building and improvements		4,636			4,627
Digital systems and related equipment		6,619			6,071
Equipment and computer software		4,423			3,976
		34,661			32,425
Less: accumulated depreciation and amortization		(4,995	)		(3,254	)
Total property and equipment, net	$	29,666		$	29,171

8.           INTANGIBLE ASSETS

Intangible assets, net consisted of the following as of December 31, 2013:

	Gross						Useful
	Carrying		Accumulated		Net		Life
	Amount		Amortization		Amount		(years)
Trade names	$	3,016	$	1,768	$	1,248		3-5
Covenants not to compete		2,463		798		1,665		3
Favorable leasehold interest		4,607		508		4,099	Remaining lease term
	$	10,086	$	3,074	$	7,012

Intangible assets, net consisted of the following as of June 30, 2013:

	Gross						Useful
	Carrying		Accumulated		Net		Life
	Amount		Amortization		Amount		(years)
Trade names	$	3,016	$	1,302	$	1,714		3-5
Covenants not to compete		1,906		493		1,413		3
Favorable leasehold interest		3,371		312		3,059	Remaining lease term
	$	8,293	$	2,107	$	6,186

The weighted average remaining useful life of the Company’s trade names, covenants not to compete, and favorable leasehold interests is 3.07 years, 2.28 years and 15.92 years, respectively, as of  December 31, 2013.  

14

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

Expected amortization of intangible assets over the next five fiscal years is as follows:

June 30,	Total
2014 (remaining six months)	$	1,127
2015		1,996
2016		923
2017		492
2018		393
2019		393

9.           LEASES

The Company accounts for all of its facility leases as operating leases. Minimum lease payments under all non-cancelable operating leases with terms in excess of one year as of December 31, 2013, are summarized for the following fiscal years:

June 30,	Total
2014 (remaining six months)	$	3,076
2015		6,278
2016		6,162
2017		5,525
2018		5,015
2019		4,742
Thereafter		23,937
Total	$	54,735

Certain of the Company’s Theater leases require the payment of percentage rent if certain revenue targets are exceeded. For the three months ended December 31, 2013 and 2012, the Company recorded $22 and $73, respectively, of percentage rent expense in the unaudited condensed consolidated statements of operations. The Company recorded $45 and $88 for the six months ended December 31, 2013 and 2012 respectively.

CAPITAL LEASES

The Company leases certain theater equipment under capital leases that expire to fiscal year 2018, with imputed interest rates of 5.0% to 8.0% per annum. Repayment of the capital lease obligation is based on a percentage of revenue generated from the usage of the underlying theater equipment. The assets are being amortized over the shorter of their lease terms or their estimated useful lives. The applicable amortization is included in depreciation and amortization expense in the accompanying unaudited condensed consolidated statement of operations.  Amortization of assets under capital leases during the three months ended December 31, 2013 and 2012 was $28 and $5 respectively. Amortization of assets under capital leases during the six months ended December 31, 2013 and 2012 was $49 and $5 respectively.

The following is a summary of property held under capital leases included in property and equipment:

15

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

	December 31,			June 30,
	2013			2013
Equipment	$	729		$	409
Less: accumulated amortization		(103	)		(54	)
Net	$	626		$	355

 Future maturities of capital lease payments as of December 31, 2013 for each of the lease lives and in the aggregate are:

December 31,	Total
2014	$	200
2015		176
2016		176
2017		168
2018		-
Total minimum payments		720
Less:  amount representing interest		(88	)
Present value of minimum payments		632
Less:  current portion		(162	)
	$	470

10.           COMMITMENTS AND CONTINGENCIES

The Company believes that it is in substantial compliance with all relevant laws and regulations, and is not aware of any current, pending or threatened litigation that could materially impact the Company.

The Company has entered into employment contracts, to which we refer to as the “employment contracts”, with four of its current executive officers. Under the employment contracts, each executive officer is entitled to severance payments in connection with the termination of the executive officer’s employment by the Company “without cause”, by the executive officer for “good reason”, or as a result of a “change in control” of the Company (as such terms are defined in the employment contracts). Pursuant to the employment contracts, the maximum amount of payments and benefits in the aggregate, if such executives were terminated (in the event of a change of control) would be approximately $1,240.

A. Dale Mayo, the Company’s Chief Executive Officer (“CEO”), is entitled to additional compensation based on the amount of revenues the Company generates, as specified in his employment contract. For the three months ended December 31, 2013 and 2012, the Company recorded $65 and $60 of compensation expense under this arrangement.  For the six months ended December 31, 2913 and 2012, the Company recorded $140 and $120 under this arrangement.

All of the Company’s operations as of December 31, 2013, are located in Pennsylvania, New Jersey, Connecticut, California, Arizona and Ohio, with the customer base being public attendance. The Company’s main suppliers are the major movie studios, primarily located in the greater Los Angeles area. Any events impacting the regions the Company operates in, or impacting the movie studios, who supply movies to the Company, could significantly impact the Company’s financial condition and results of operations.

16

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

11.           STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Capital Stock

As of December 31, 2013, the Company’s authorized capital stock consisted of:

• 20 million shares of Class A common stock, par value $0.01 per share;

• 900,000 shares of Class B common stock, par value $0.01 per share;

• 10 million shares preferred stock, par value $0.01 per share;

Of the authorized shares of Class A common stock, 7,083,598 shares were issued and outstanding as of December 31, 2013. Of the authorized shares of Class B common stock, 849,000 shares were issued and outstanding as of December 31, 2013, all of which are held by the Company’s CEO. In August 2013, 16,000 shares of Class B common stock previously outstanding automatically converted into 16,000 shares of Class A common stock on transfer by the holder (as bona fide gifts) and cannot be reissued. Of the authorized shares of preferred stock, 6 shares of Series B Preferred Stock were issued and outstanding as of December 31, 2013.  The material terms and provisions of the Company’s capital stock are described below.

Common Stock

The Class A and the Class B common stock of the Company are identical in all respects, except for voting rights and except that each share of Class B common stock is convertible at the option of the holder into one share of Class A common stock. Each holder of Class A common stock will be entitled to one vote for each outstanding share of Class A common stock owned by that stockholder on every matter submitted to the stockholders for their vote. Each holder of Class B common stock will be entitled to ten votes for each outstanding share of Class B common stock owned by that stockholder on every matter submitted to the stockholders for their vote. Except as required by law, the Class A and the Class B common stock will vote together on all matters. Upon any transfer of Class B common stock by the Company’s CEO, such transferred shares will be converted to Class A shares and the converted Class B shares shall be retired and are not available for reissuance. Subject to the dividend rights of holders of any outstanding preferred stock, holders of common stock are entitled to any dividend declared by the board of directors out of funds legally available for this purpose, and, subject to the liquidation preferences of any outstanding preferred stock, holders of common stock are entitled to receive, on a pro rata basis, all the Company’s remaining assets available for distribution to the stockholders in the event of the Company’s liquidation, dissolution or winding up. No dividend can be declared on the Class A or Class B common stock unless at the same time an equal dividend is paid on each share of Class B or Class A common stock, as the case may be. Dividends paid in shares of common stock must be paid, with respect to a particular class of common stock, in shares of that class. Holders of common stock do not have any preemptive right to become subscribers or purchasers of additional shares of any class of the Company’s capital stock. The outstanding shares of common stock are, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock may be adversely affected by the rights of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.

In October 2013, the Company sold 1,141,000 shares of Class A common stock to several investors for $5.00 per share and received net proceeds of $5,200.  Such issuance took place pursuant to a May 2013 shelf registration statement the Company had filed with the SEC.

17

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

During the six months ended December 31, 2013, the Company issued 25,000 shares of Class A common stock to vendors for services rendered in the ordinary course of business.

Preferred Stock

The Company’s certificate of incorporation allows the Company to issue, without stockholder approval, preferred stock having rights senior to those of the common stock. The Company’s board of directors is

authorized, without further stockholder approval, to issue up to 10,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, and to fix the number of shares constituting any series and the designations of these series. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could also have the effect of decreasing the market price of the Class A common stock.

Dividends

No dividends were declared on the Company’s common stock during the period and management does not anticipate doing so. The Company pays a quarterly dividend on its Series B preferred stock in an amount equal to 4.5% per annum.

Stock-Based Compensation and Expenses

During the six months ended December 31, 2013, the Company issued restricted stock awards totaling 137,000 shares of its Class A common stock to employees, which vests over a period of three years and a non-employee that vested when performance was complete.

The total stock-based compensation was $122 and $26 for the three months ended December 31, 2013 and 2012, respectively, and is included in general and administrative expense in the unaudited condensed consolidated statement of operations. Total stock- based compensation was $361 and $69 for the six months ended December 31, 2013 and 2012, respectively.

The following summarizes the activity of the unvested share awards for the three months ended December 31, 2013:

Unvested balance at June 30, 2013	88,869
Issuance of awards	137,000
Vesting of awards	(15,500	)
Unvested balance at December 31, 2013	210,369

The weighted average remaining vesting period as of December 31, 2013 is 1.41.  As of December 31, 2013, there was $1,041 of remaining expense associated with unvested share awards.

12.           NOTES PAYABLE

On September 28, 2012, the Company entered into a loan agreement with Northlight Trust I for $10,000 due September 28, 2017, at an interest rate equal to 30 day LIBOR plus 10.50% per annum, with a 2.5% floor (the “Northlight loan”). The Company expects the 2.5% floor to be applicable due to the current LIBOR rates. During the first 18 months from the closing date, all interest in excess of 10.00% per annum that would otherwise be paid in cash during the 18-month period may, at the Company’s option, may be

18

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

paid in kind (“PIK interest”), and thereafter all interest due is payable in cash. PIK interest, if any, will be added to the principal balance of the loan. The Company primarily used the net proceeds from the Northlight loan to acquire certain assets and assume certain liabilities of Lisbon, pay the obligation to a vendor for digital systems, pay fees and expenses associated with the Northlight loan and the Lisbon acquisition, and to provide working capital. Interest and principal payments under the terms of the Northlight loan commenced on October 31, 2012. The Northlight loan is collateralized by, among other things, the Company’s membership interest in each of the Company’s operating subsidiaries and all of the operating subsidiaries’ assets, including the theater leases, and requires meeting certain financial covenant ratios. As of December 31, 2013, the Company was in compliance with all financial covenants. For the three months ended December 31, 2013 and 2012, $13 and $17 of amortization of deferred financing costs for the Northlight loan were included in interest expense on the unaudited condensed consolidated statementof operations.  For the six months ended December 31, 2013 and 2012, $33 and $17 of amortization of deferred financing costs for the Northlight loan were included in interest expense on the unaudited condensed consolidated statementof operations.

The principal payments due as of December 31, 2013 over the remainder of the term of the Northlight loan are summarized as follows, in years:

December 31,	Total
2014	$	1,671
2015		1,671
2016		1,671
2017 (includes PIK interest accrued to date of $381)		4,590
Total		9,603
Less: current portion		(1,671	)
	$	7,932

The Northlight loan is mandatorily prepayable from 25% of the Company’s Excess Cash Flow (earnings before interest, taxes, depreciation, as adjusted, as further defined in the Northlight loan agreement) beginning on September 30, 2013 and annually thereafter.  No payment was due in connection with the September 30, 2013 calculation.

 In connection with the acquisition of Torrington, the Company assumed a promissory note for certain digital projection equipment, with an outstanding balance as of December 31, 2013 of $161. The note is payable monthly, is due March 2017 and has an interest rate of 7%.

The principal payments due as of December 31, 2013 over the remainder of the term of the Torrington promissory note are summarized as follows, in fiscal years:

19

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

December 31,	Total
2014	$	45
2015		49
2016		52
2017		15
Total		161
Less: current portion		(45	)
	$	116

13.           INCOME TAXES

The Company recorded income tax expense of approximately $9 and $47 for the three months ended December 31, 2013 and 2012, respectively and approximately $18 and $64 for the six months ended Decermber 31, 2013 and 2012, respectively. The Company's tax provision for all periods had an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation allowance at the beginning of each period. 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, tax expense recorded for the six months ended December 31, 2013 and 2012 included the accrual of non-cash tax expense of approximately $12 and $15, respectively of changes in the valuation allowance in connection with the tax amortization of our indefinite-lived intangible assets that was not available to offset existing deferred tax assets (termed a “naked credit”). The Company expects the naked credit to result in approximately $25 of additional non-cash income tax expense over the remainder of the year ending June 30, 2014.

The Company calculates income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions that could change during the year. For the six months ended December 31, 2013 and 2012, the differences between the effective tax rate of (0.9)% and (3.3)%, respectively, and the U.S. federal statutory rate of 35% principally resulted from state and local taxes, graduated federal tax rate reductions, non-deductible expenses and changes to the valuation allowance.

14.           RELATED PARTY TRANSACTIONS

The total rent expense under operating leases with a landlord that owns the Rialto and Cranford premises and owns shares of the Company’s Class A common stock was $100 and $130 for the three months ended December 31, 2013 and 2012, respectively, and $199 and $220 for the six months ended December 31, 2013 and 2012, respectively.

15.           NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and, if dilutive, common stock equivalents outstanding during the period.

The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A and Class B common stock are identical, except with respect to voting. Each share of Class B common stock is convertible into one share of Class A common stock at any time, at the option of the holder of the Class B common stock.

20

DIGITAL CINEMA DESTINATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share data)

The following table sets forth the computation of basic net loss per share of Class A and Class B common stock of the Company (in millions, except share and per share data):

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Numerator for basic and diluted loss per share
Net loss attributable to Digital Cinema Destinations Corp.	$	(1,025	)	$	(1,141	)	$	(2,072	)	$	(1,804	)
Preferred dividends		(5	)		(5	)		(10	)		(6	)
Net loss attributable to common stockholders	$	(1,030	)	$	(1,146	)	$	(2,082	)	$	(1,810	)
Denominator
Weighted average shares of common stock outstanding (1)		7,565,123			5,511,765			7,014,926			5,465,356
Basic and diluted net loss per share of common stock	$	(0.14	)	$	(0.21	)	$	(0.30	)	$	(0.33	)

(1)The Company has incurred net losses and, therefore, the impact of dilutive potential common stock equivalents totaling 820,402 and 613,173 shares for the three and six months ended December 31, 2013 and 2012, respectively has been excluded from the loss per share calculations.

16.           SUPPLEMENTAL CASH FLOW DISCLOSURE

	Six Months Ended
	December 31,
	2013		2012
Fair value of earnout recorded at acquisition	$	-	$	550
Cash paid for interest		381		296
Amount offset on note repayment		-		168
Common stock issued for Ultrastar theaters		-		4,714
Issuance of warrants to Start Media		-		954
Common stock issued for acquisition of Torrington theater		391		-
Common stock issued for acquisition of Mechanicsburg theater		1,256		-
Consideration to be paid for Mechanicsburg acquisition		492		-
Conversion of Class B common stock into Class A		1		-

17.           SUBSEQUENT EVENT

In February 2014, JV and an Ultrastar entity signed an asset purchase agreement to sell JV's 7-screen Mission Valley theater in San Diego, CA that it originally purchased from UltraStar in December 2012 for 361,599 shares of the Company's Class A common stock and $37,500 in cash.  JV had been operating the theater under a lease in which the landlord had an early termination option.  Primarily for that reason, 342,000 of the share consideration paid in the 2012 transaction was being held under a long-term escrow arrangement, and those shares will now be transferred to JV as part of the purchase price for the theater, along with consideration for cash and inventory, which will result in a gain on the sale.  Since there was no agreement or plan of disposition regarding the theater as of December 31, 2013, and various uncertainties then existed as to whether any transaction would occur, the Company has concluded that the theater should not be classified as having been held for sale as of that date.  The intended closing date of the sale is February 14, 2014.

21

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “continue” and other similar expressions are intended to identify forward-looking statements. We have based these forward looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC, particularly those contained in the Section entitled “Risk Factors” in our Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Our fiscal year ends on June 30 each year.

Overview

(in thousands, except share data dollars)

At December 31, 2013, we operated 20 theaters located in New Jersey, Connecticut, Pennsylvania, California, Arizona and Ohio, consisting of 192 screens. Our theaters had over 993,000 and 618,000 attendees for the three months ended December 31, 2013 and 2012, respectively (for the portions of the periods we operated them).

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Our theaters operated as of December 31, 2013 are:

Date Acquired	City/ State	Number of Screens	Approximate Number of Seats
12/31/10	Cranford, NJ	5	642
12/31/10	Westfield, NJ	6	956
02/18/11	Bloomfield, CT	8	1,119
04/20/12	Bloomsburg, PA	11	1,883
04/20/12	Camp Hill, PA	12	2,403
04/20/12	Reading, PA	10	2,035
04/20/12	Selinsgrove, PA	12	2,048
04/20/12	Williamsport, PA	9	1,721
09/29/12	Lisbon, CT	12	2,107
12/14/12	Surprise, AZ (1) (2)	14	2,696
12/18/12	Apple Valley, CA (1)	14	2,568
12/18/12	San Diego, CA (1)	7	1,404
12/18/12	Bonsall, CA (1)	6	867
12/18/12	Poway, CA (1)	10	2,217
12/19/12	Oceanside, CA (1)	13	1,659
12/20/12	Temecula, CA (1)	10	1,775
01/01/13	Sparta, NJ (1)	3	264
02/01/13	Solon, OH (1)	16	2,826
07/19/13	Torrington, CT (1)	6	1,021
12/19/13	Mechanicsburg, PA	8	1,182
	Total	192	33,393

(1) Owned by JV.

(2) Includes one IMAX screen with approximately 212 seats.

On December 10, 2012, we entered into a joint venture (“JV”) with Start Media, LLC (“Start Media”), to acquire, refit and operate movie theaters. On December 21, 2012, wholly owned subsidiaries of JV completed the acquisition of seven movie theaters (six of which are located in southern California and one of which is near Phoenix, Arizona) (collectively, the “Ultrastar Acquisitions”) with an aggregate of 74 fully digital screens from seven sellers affiliated with one another (collectively the “Ultrastar Sellers”). These seven theaters have annual attendance of over 2.0 million patrons.

As of December 31, 2013, JV operated 10 theaters with 99 screens, including the Ultrastar Acquisitions, theaters in Sparta, NJ and Solon, OH that were leased in January and February 2013, respectively and a theater in Torrington, CT acquired in July 2013.  All of the JV locations are operated by us pursuant to management agreements (the “Management Agreements”) whereby we have full day to day responsibility for all aspects of theater operations, and we receive a fee equal to 5% of the gross revenues of thesetheaters.

On December 19, 2013, Digiplex acquired an eight screen movie theater in Mechanicsburg, Pennsylvania.  The theater was equipped with digital projection systems before Digiplex began operating the theater.

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At December 31, 2013, Digiplex and Start Media owned 34% and 66% of the equity of JV, respectively. 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 theaters in free zoneseither directly by Digiplex or through our JV. We intend to selectively pursue multi-screen theater acquisition opportunities that meet our strategic and financial criteria. Our philosophy is to “buy and improve” existing facilities rather than “find and build” new theaters. We believe this approach provides more predictability, speed of execution and lower risk.

• Creation of an all-digital theater circuit utilizing our senior management team’s extensive experience in digital cinema and related technologies, alternative programming and movie selection. We will convert the theaters we acquire to digital projection platforms (if not already converted) with an appropriate mix of RealD™ 3D auditoriums in each theater complex. Seven of our locations also offer D-Box™ motion seating available for certain movies.

• 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 camera surveillance systems for theater 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 joint venture, DigiNext, to release specialty movie content, and other 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 theater personnel, food packages, scripted introductions by theater 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.

• Creation of strategic relationships to acquire exclusive distribution rights to content which (i) can play at both our own theaters, and at additional non-competing theaters, and (ii) can be the source of additional revenues from non-theatrical revenue streams (such as DVD sales, digital downloads, cable TV, etc.).

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 theaters or to renovate and digitalize the theaters we do acquire.

We manage our business under one reportable segment: theater 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 theater rentals and private parties. 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 Corp., Screenvision, DigiNext, and others as they offer their programs to us. Our 20 theaters 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.

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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 theater-by-theater 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 theater facility during non-peak periods) and a variable component in relation to revenues as theater staffing is adjusted to respond to changes in attendance.

Facility lease expense is primarily a fixed cost at the theater 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.

Significant Events and Outlook

JV agreement and JV Acquisitions. As noted in Overview, in December 2012 we entered into a joint venture relationship with Start Media and the JV acquired 7 theaters from the Ultrastar Sellers in California and Arizona. The total purchase price for the Ultrastar Acquisitions was $13,131; with $8,108 in cash, of which $8,000 was provided by Start Media, 887,623 shares of Class A common stock with a fair value of $4,714 provided by us, and the assumption of a capital equipment lease. Both the cash and stock elements constitute our respective initial capital contributions to the JV. Certain operating leases for the theater facilities, and certain capital leases and service contracts related to theater equipment were assumed. No other liabilities were assumed from the Ultrastar Sellers. On January 1 and February 1, 2013, JV entered into operating leases for a three screen theater in Sparta, NJ and a 16 screen theater in Solon, Ohio, respectively, and in July 2013 JV acquired one theater in Torrington, Connecticut having six screens. We expect to acquire other theaters through the JV, although this cannot be assured.

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Management Agreements. We have entered into agreements (the “Management Agreements”) to manage the theaters JV acquires, and we receive 5% of the total revenue of the theaters in each year as management fees in consideration for these management services. Under the Management Agreements, we have full day-to-day authority to operate the theaters owned by JV including: staffing, banking, content selection, vendor selection and all purchasing decisions. We are required to submit an annual operating budget to JV for each fiscal year ending June 30 for approval by the JV board of managers (which is comprised of four seats, two of which are controlled by us, and two by Start Media). In the event of any disagreements regarding the budget, there are dispute resolution procedures contained in the JV operating agreement.

Northlight Term Loan. On September 28, 2012, we entered into a loan agreement for $10,000 with Northlight Trust I (“Northlight”). The Northlight loan was used to fund our acquisition of the Lisbon theater for $6,014, pay for previously installed digital systems of $3,334, pay fees associated with the Northlight loan and the Lisbon acquisition, and to provide working capital.

Shelf Registration. In May 2013, we filed a registration statement (the maximum amount is subject to adjustment), which has been declared effective by the Securities and Exchange Commission, and permits the sale of a broad range of securities for maximum aggregate offerings of approximately $10,500. Any proceeds can be used for a variety of items, including acquisitions, debt repayment and general corporate purposes. In October 2013, we sold 1.1 million shares of our Class A Common Stock to several investors under the registration statement and received net proceeds of approximately $5,200.

Digital Projector Installation. At December 31, 2013, all of our 192 screens were equipped with digital projectors and related hardware and software. 128 of the 192 systems had been installed before our acquisition of the theaters, and the remaining 64 systems were installed under our ownership, at a total cost of approximately $6,600. We earn VPFs, described under Components of Operating Results, on 99 systems and do not earn VPFs on 93 digital systems, as these systems are owned by an unrelated digital cinema integrator. However, we have full use of these systems under a master license agreement, and we have the option to purchase these systems at fair market value after the systems have been in use for a ten-year period.

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, and sporting events, children’s programming and other forms of alternative content in our theaters. Using our 192 digital systems (76 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 theaters. Going forward we expect at least 40% of any new screens to be 3D-enabled.

Acquisition Strategy. We plan to acquire existing movie theaters in free zones over the next 12 months and beyond. We generally seek to pay a multiple of 4.5 times to 6.0 times Theater Level Cash Flow (“TLCF”) for theaters we acquire. TLCF is calculated as revenues minus theater operating expenses (excluding depreciation and amortization and other non-cash items).

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

Results of Operations

	Three months ended December 31,
(Amounts in thousands, except per patron data)	2013					2012
Revenues:	$			%		$			%
Admissions	$	7,590		68		$	4,752		69
Concessions		3,166		28			1,929		28
Other		440		4			189		3
Total revenues		11,196		100			6,870		100
Cost of operations:
Film rent expense (1)		3,936		52			2,401		51
Cost of concessions (2)		581		18			317		16
Salaries and wages (3)		1,297		12			710		10
Facility lease expense (3)		1,450		13			811		12
Utilities and other (3)		2,099		19			1,157		17
General and administrative (3)		1,348		12			1,208		18
Change in fair value of earnout (3)		(5	)	-			-		-
Depreciation and amortization (3)		1,373		12			1,098		16
Total costs and expenses (3)		12,079		108			7,702		112
Operating loss (3)		(883	)	(8	)		(832	)	(12	)
Interest expense		(424	)	(4	)		(347	)	(5	)
Other		(40	)	-			(8	)	-
Loss before income taxes (3)		(1,347	)	(12	)		(1,187	)	(17	)
Income taxes (4)		9		(1	)		47		(4	)
Net loss (3)	$	(1,356	)	(12	)	$	(1,234	)	(18	)
Net loss attributable to non-controlling interest (10)		331		24			93		8
Net loss attributable to Digital Cinema Destinations Corp. (10)	$	(1,025	)	76		$	(1,141	)	92
Preferred stock dividends		(5	)	-			(5	)	-
Net loss attributable to common stockholders (10)	$	(1,030	)	76		$	(1,146	)	93
Other operating data:
Consolidated Theatre Level Cash Flow (5)	$	1,943		17		$	1,553		23
Management fees (9)	$	275		2		$	52		1
Adjusted EBITDA of Digital Cinema Destinations Corp (6)	$	950		8		$	644		9
Attendance		993,147		*			618,958		*
Average ticket price (7)	$	7.93		*		$	7.71		*
Average concession per patron (8)	$	3.31		*		$	3.13		*

__________

* Not meaningful

(1) Film rent expense percentage calculated as a percentage of admissions revenues.

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

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

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

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(5) TLCF is a non-GAAP financial measure. TLCF is a common financial metric in the theater industry, used to gauge profitability at the theater level, before the effect of depreciation and amortization, general and administrative expenses, deferred rent, 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. See page 30-32 for TLCF reconciliation.

(6)	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, other non-cash items, 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. See page 30-31 for Adjusted EBITDA reconciliation.
(7)	Calculated as admissions revenue/ paid attendance of 956,867 in 2013 and 616,520 in 2012, respectively. Paid attendance excludes certain theater rental activity, such as parties and film festivals.
(8)	Calculated as concessions revenue/ paid attendance of 956,867 in 2013 and 616,520 in 2012, respectively. Paid attendance excludes certain theater rental activity, such as parties and film festivals.
(9)	Management Fees earned by Digiplex to operate the theaters of the JV.
(10)	Percentage calculated as a percentage of net loss.

Three Months Ended December 31, 2013 and 2012

At December 31, 2013, we operated 20 theaters located in New Jersey, Connecticut and Pennsylvania, California, Arizona and Ohio consisting of 192 screens. At December 31, 2012, we operated 16 theaters located in New Jersey, Connecticut and Pennsylvania, California and Arizona consisting of 159 screens. Our theaters had over 993,000 and 618,000 attendees for the three months ended December 31, 2013 and 2012, respectively (for the portions of the periods we operated them). According to Box Office Mojo, the overall North American box office results for the three months ended December 31, 2013 had decreased by approximately 0.4% from the comparable 2012 period.

Admissions and Concessions. Our admissions and concessions revenues increased by 61%, due to our increased screen count in the three months ended December 31, 2013 as compared to 2012.  In addition, our emphasis on alternative content programming has resulted in incremental admissions and concessions revenue. Our average ticket and concession price increases was due to our entry into new markets with higher prices generally, our continued focus on alternative programming which generally has higher admission pricing, and new concession menu offerings.

Other Revenues. Other revenues consist of advertising revenues, theater rentals for parties, festivals, camps, ATM and game machine fees and other activities. Advertising revenue was $260 for the three months ended December 31, 2013 period compared to $126 in the 2012 period.

Film Rent Expense. Film rent expense is a variable cost that fluctuates with box office revenues. We generally expect film rent expense (excluding VPF’s) to range from 50% to 60% 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 52% in the three months ended December 31, 2013 as compared to the 2012 period of 51%. The increase was due primarily to product mix.  Included as a reduction of film rent expense in the 2013 period on the systems we own is $292 of VPFs that we receive from a third party vendor, associated with digital titles that we play from the studios, as compared to $259 in 2012. Excluding VPFs, film rent expense would have been 56% of admissions revenues in both the 2013 and 2012 periods.

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Cost of Concessions. At 18% and 16% of our concessions revenue for the three months ended December 31, 2013 and 2012, 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. In the current fiscal period, the cost of product promotions, giveaways, and concession supplies has increased over the prior period.

Salaries and Wages. Our theater 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 2012 period is due to our operation of a larger number of theaters during the three months ended December 31, 2013 versus 2012.

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 certain theaters require percentage rent to be paid upon the achievement of certain revenue targets.  As a percentage of revenue, the increase is due to higher facility lease expenses at our more recently acquired theaters, particularly in California.

Utilities and Other. Utilities and other expenses consist of utility charges, real estate taxes incurred pursuant to the operating leases for our theaters, and various other costs of operating the theaters. We expect these costs, which are largely fixed in nature, to remain relatively constant for the theaters, with growth in these expenses as we acquire more theaters. The increase in these expenses is due to the operation of more screens during the three months ended December 31, 2013 as compared to 2012. As a percentage of revenue, the increase is due to higher utility charges at our more recently acquired theaters, particularly in California.

General and Administrative Expenses. General and administrative expenses consisted primarily of salaries and wages for our corporate staff, legal, accounting and professional fees associated including those associated with our acquisition of theaters, marketing, and information technology related expenses. The increase in these expenses is due to additional personnel hired to manage our actual and planned growth, along with professional fees for auditing, legal, marketing and information technology. We expect these costs to decrease as a percentage of revenue as we grow and realize increased economies of scale, as was evidenced by the decline from 18 percent of revenue last year, to 12 percent this year. Included in general and administrative expenses is stock compensation expense of $122 and $26  in the 2013 and 2012 periods, respectively, related to issuance of Class A common stock to employees and non-employees for services rendered. We expect to grant additional stock-based awards in the future under our 2012 stock option and incentive plan that was adopted in conjunction with our IPO as amended in February 2014.  Awards may consist of stock options or restricted stock, with or without vesting periods. As of December 31, 2013 and 2012, we had 20 employees (two of which are part-time and 13 employees, respectively, on our corporate staff, including our chief executive officer and other officers and staff to support our business development, technology, accounting, and marketing activities.

Change in Fair Value of Earnout.  As of December 31, 2013, the Company increased the Lisbon earnout from $296 at June 30, 2013 to $350 based on actual results compared to the threshold in the asset purchase agreement and the final payment in February 2014.  During the three months ended December 31, 2013, the Company recognized a fair value change of ($5).  During the three months ended December 31, 2012, there were no fair value changes to the earnout.

Depreciation and Amortization. The increase from 2012 is due to our increased asset base, resulting from our acquisitions and subsequent investments in our theaters, including the addition of assets such as digital projection equipment, and other capital improvements we made. We record depreciation and amortization for property and equipment and intangible assets over the estimated useful life of each asset class on a straight line basis. Our largest fixed asset is our digital projection equipment, which had a gross cost of approximately $6,600 as of December 31, 2013 and is being depreciated over a 10-year estimated 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 theater equipment and leasehold improvements.

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Interest Expense. Interest expense is due mainly to the Northlight loan and capital leases for the three months ended December 31, 2013.

Operating Loss. The increased operating loss was primarily attributable to the higher general and administrative and depreciation and amortization costs, associated with the increased asset base and larger corporate infrastructure which will support our future growth.

Impact of Inflation.  We believe that our results of operations are not materially impacted by the recent moderate changes in the inflation rate.  Inflation and changing prices did not have a material effect on our business, financial condition or results of operations in the nine month periods ended December 31, 2013 and 2012, respectively.

Income Taxes.  For the three months ended December 31, 2013 and 2012, we had tax expense of $9 and $47, respectively. 

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	Six months ended December 31,
(Amounts in thousands, except per patron data)	2013					2012
Revenues:	$			%		$			$	%
Admissions	$	15,347		137		$	7,761			113
Concessions		6,504		58			3,128			46
Other		814		7			327			5
Total revenues		22,665		202			11,216			163
Cost of operations:
Film rent expense (1)		7,714		50			3,813			49
Cost of concessions (2)		1,183		18			482			15
Salaries and wages (3)		2,747		12			1,224			11
Facility lease expense (3)		2,920		13			1,334			12
Utilities and other (3)		4,484		20			1,923			17
General and administrative (3)		2,666		12			1,946			17
Change in fair value of earnout (3)		54		-			-			-
Depreciation and amortization (3)		2,708		12			1,947			17
Total costs and expenses (3)		24,476		108			12,669			113
Operating loss (3)		(1,811	)	(8	)		(1,453	)		(13	)
Interest expense (3)		(851	)	(4	)		(372	)		(3	)
Other (3)		(47	)	-			(8	)		-
Loss before income taxes (3)		(2,709	)	(12	)		(1,833	)		(16	)
Income taxes (4)		18		(1	)		64			(3	)
Net loss (3)	$	(2,727	)	(12	)	$	(1,897	)		(17	)
Net loss attributable to non-controlling interest (10)		655		24			93			5
Net loss attributable to Digital Cinema Destinations Corp. (10)	$	(2,072	)	76		$	(1,804	)		95
Preferred stock dividends		(10	)	0			(6	)		0
Net loss attributable to common stockholders (10)	$	(2,082	)	76		$	(1,810	)		95
Other operating data:
Consolidated Theatre Level Cash Flow (5)	$	3,773		17		$	2,554			23
Management fees (9)	$	560		2		$	52			0
Adjusted EBITDA of Digital Cinema Destinations Corp (6)	$	1,958		9		$	997			9
Attendance		2,070,497		*			1,035,090			*
Average ticket price (7)	$	7.76		*		$	7.52			*
Average concession per patron (8)	$	3.29		*		$	3.03			*

__________

* Not meaningful

(1) Film rent expense percentage calculated as a percentage of admissions revenues.

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

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

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

(5) TLCF is a non-GAAP financial measure. TLCF is a common financial metric in the theater industry, used to gauge profitability at the theater level, before the effect of depreciation and amortization, general and administrative expenses, deferred rent, 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. See page 30-32 for TLCF reconciliation.

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(6)	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, other non-cash items, 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. See page 30-31 for Adjusted EBITDA reconciliation.
(7)	Calculated as admissions revenue/ paid attendance of 1,978,568 in 2013 and 1,038,652 in 2012, respectively. Paid attendance excludes certain theater rental activity, such as parties and film festivals.
(8)	Calculated as concessions revenue/ paid attendance of 1,978,568 in 2013 and 1,038,652 in 2012, respectively. Paid attendance excludes certain theater rental activity, such as parties and film festivals.
(9)	Management Fees earned by Digiplex to operate the theaters of the JV.
(10)	Percentage calculated as a percentage of net loss.

Six Months Ended December 31, 2013 and 2012

At December 31, 2013, we operated 20 theaters located in New Jersey, Connecticut and Pennsylvania, California, Arizona and Ohio consisting of 192 screens. At December 31, 2012, we operated 16 theaters located in New Jersey, Connecticut and Pennsylvania, California and Arizona consisting of 159 screens. Our theaters had over 2,070,000 and 1,035,000 attendees for the six months ended December 31, 2013 and 2012, respectively (for the portions of the periods we operated them). According to Box Office Mojo, the overall North American box office results for the six months ended December 31, 2013 had increased by approximately 4.2% from the comparable 2012 period.

Admissions and Concessions. Our admissions and concessions revenues increased by 101%, due to our increased screen count in the six months ended December 31, 2013 as compared to 2012.  In addition, our emphasis on alternative content programming has resulted in incremental admissions and concessions revenue. Our average ticket and concession price increases was due to our entry into new markets with higher prices generally, our continued focus on alternative programming which generally has higher admission pricing, and new concession menu offerings.

Other Revenues. Other revenues consist of advertising revenues, theater rentals for parties, festivals, camps, ATM and game machine fees and other activities. Advertising revenue was $492 for the six months ended December 31, 2013 period compared to $232 in the 2012 period.

Film Rent Expense. Film rent expense is a variable cost that fluctuates with box office revenues. We generally expect film rent expense (excluding VPF’s) to range from 50% to 60% 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 51% in the six months ended December 31, 2013 as compared to the 2012 period of 50%.  Included as a reduction of film rent expense in the 2013 period on the systems we own is $582 of VPFs that we receive from a third party vendor, associated with digital titles that we play from the studios, as compared to $504 in 2012. Excluding VPFs, film rent expense would have been 54% and 56% of admissions revenues in 2013 and 2012 periods, respectively.

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Cost of Concessions. At 18% and 15% of our concessions revenue for the six months ended December 31, 2013 and 2012, 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. In the current fiscal period, the cost of product promotions, giveaways, and concession supplies has increased over the prior period.

Salaries and Wages. Our theater 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 2012 period is due to our operation of a larger number of theaters during the six months ended December 31, 2013 versus 2012.

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 certain theaters require percentage rent to be paid upon the achievement of certain revenue targets. The increase from the 2012 period is due to our operation of more theaters in the 2013 period.   As a percentage of revenue, the increase is due to higher facility lease expenses at our more recently acquired theaters, particularly in California.

Utilities and Other. Utilities and other expenses consist of utility charges, real estate taxes incurred pursuant to the operating leases for our theaters, and various other costs of operating the theaters. We expect these costs, which are largely fixed in nature, to remain relatively constant for the theaters, with growth in these expenses as we acquire more theaters. The increase in these expenses is due to the operation of more screens during the six months ended December 31, 2013 as compared to 2012. As a percentage of revenue, the increase is due to higher utility charges at our more recently acquired theaters, particularly in California.

General and Administrative Expenses. General and administrative expenses consisted primarily of salaries and wages for our corporate staff, legal, accounting and professional fees associated including those associated with our acquisition of theaters, marketing, and information technology related expenses. The increase in these expenses is due to additional personnel hired to manage our actual and planned growth, along with professional fees for auditing, legal, marketing and information technology. We expect these costs to decrease as a percentage of revenue as we grow and realize increased economies of scale, as was evidenced by the decline from 17 percent of revenue last year, to 12 percent this year. Included in general and administrative expenses is stock compensation expense of $361 and $69 in the 2013 and 2012 periods, respectively, related to issuance of Class A common stock to employees and non-employees for services rendered. We expect to grant additional stock-based awards in the future under our 2012 stock option and incentive plan that was adopted in conjunction with our IPO as amended February 2014.  Awards may consist of stock options or restricted stock, with or without vesting periods. As of December 31, 2013 and 2012, we had 20 employees (two of which are part-time) and 13 employees, respectively, on our corporate staff, including our chief executive officer and other officers and staff to support our business development, technology, accounting, and marketing activities.

Change in Fair Value of Earnout.  As of December 31, 2013, the Company increased the Lisbon earnout from $296 at June 30, 2103 to $350 based on actual results compared to the threshold in the asset purchase agreement and the final payment in February 2014.  During the six months ended December 31, 2013, the Company recognized a fair value change of $54.  During the six months ended December 31, 2012, there were no fair value changes to the earnout.

Depreciation and Amortization. The increase from 2012 is due to our increased asset base, resulting from our acquisitions and subsequent investments in our theaters, including the addition of assets such as digital projection equipment, and other capital improvements we made. We record depreciation and amortization for property and equipment and intangible assets over the estimated useful life of each asset class on a straight line basis. Our largest fixed asset is our digital projection equipment, which had a gross cost of approximately $6,600 as of December 31, 2013 and is being depreciated over a 10-year estimated 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 theater equipment and leasehold improvements.

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Interest Expense. Interest expense is due to the Northlight loan and capital leases for the six months ended December 31, 2013.

Operating Loss. The increased operating loss was primarily attributable to the higher general and administrative and depreciation and amortization costs, associated with the increased asset base and larger corporate infrastructure which will support our future growth.

Impact of Inflation.  We believe that our results of operations are not materially impacted by the recent moderate changes in the inflation rate.  Inflation and changing prices did not have a material effect on our business, financial condition or results of operations in the six month periods ended December 31, 2013 and 2012, respectively.

Income Taxes.  For the six months ended December 31, 2013 and 2012, we had tax expense of $18 and $64, respectively. 

Liquidity and Capital Resources

On September 20, 2012, we sold 6 shares of Series B preferred stock and raised $450.

On September 28, 2012, we entered into a loan agreement for $10,000 with Northlight.  The Northlight loan was used to fund our acquisition of the Lisbon theater for $6,014, pay for previously installed digital systems of $3,334, pay fees associated with the Northlight loan and the Lisbon acquisition, and to provide working capital.

On December 10, 2012, we, together with Start Media, entered into a joint venture to acquire, refit and operate movie theaters.  Start Media has committed to contribute up to $20,000 to JV, including approximately $10,435 contributed through December 31, 2013.  In December 2012, JV acquired seven movie theaters (nine of which are located in southern California and one of which is near Phoenix, Arizona) with an aggregate of 74 fully digital screens, for an aggregate purchase price of $13,131, consisting of $8,108 in cash, of which $8,000 was funded by Start Media, plus 887,623 shares of our Class A common stock with a fair value of $4,714 issued, and the assumption of a capital lease for theater equipment. In January and May 2013, Start Media contributed an additional $1,306 and $694 in cash, respectively, to fund anticipated capital expenditures for the JV theaters. In July 2013, Start Media contributed $300 to fund the cash portion of the purchase price of the Torrington theater.In November 2013, Start Media and Digiplex contributed an additional $135 and $100, respectively to JV as capital contributions.

On May 1, 2013, we filed a shelf registration statement on Form S-3 with the SEC, which was later declared effective.  The shelf registration statement, with maximum aggregate offerings of approximately $10,500, allows for the future issuance of Class A common stock, preferred stock, debt securities, warrants, or units.  We may use any proceeds from the shelf offering for various reasons including general corporate purposes, debt repayment, capital expenditures, or future theater acquisitions. In October 2013 we sold 1.1 million shares of Class A Common Stock to several investors for $5.00 per share and received net proceeds of approximately $5,200.

We expect our primary uses of cash to be for additional theater acquisitions, operating expenses, capital expenditures (for digital projection equipment and otherwise), corporate operations, possible debt service and/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.

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Summary of Cash Flows

(000's)	Six Months ended December 31,
Consolidated Statement of Cash Flows Data:	2013			2012
Net cash provided by (used in):
Operating activities	$	203		$	(1,391	)
Investing activities		(1,369	)		(6,502	)
Financing activities		4,551			8,985
Net increase in cash and cash equivalents	$	3,385		$	1,092

Operating Activities

Net cash flows provided by (used in) operating activities totaled approximately $203 and ($1,391) for the six months ended December 31, 2013 and 2012, respectively. While our net loss was impacted by general and administrative costs which grew in 2013 due to the addition of theaters and the growth of our corporate infrastructure, a payment to our primary vendor of digital systems of $3,334 in the 2012 period was the primary cause of the difference in operating cash from 2013 to 2012.

Investing Activities

Our capital requirements have arisen principally in connection with our acquisitions of theaters, upgrading our theater facilities post-acquisition and replacing equipment. Cash used in investing activities totaled ($1,369) and ($6,502) for the three months ended December 31, 2013 and 2012, respectively. The decrease from 2012 is due to the cash purchase price for the Lisbon and Ultrastar theaters acquired in 2012.   In the 2013 period, the amount represents the cash purchase price of the Torrington and Mechanicsburg theaters. We may also incur significant capital outlays in connection with other acquisitions that we may consummate in the next 12 months, including digital projection equipment and other theater upgrades.  We intend to continue to grow our theater circuit either directly by us or through our JV through selective expansion and acquisitions.

Financing Activities

Net cash provided by financing activities totaled $4,551 and $8,985 for the six months ended December 31, 2013 and 2012, respectively.  The 2013 decrease to net cash provided by financing activities was due mainly to the proceeds of the Northlight loan of $10,000, proceeds from issuance of preferred stock of $450, offset in part by the payment of a note to the seller of Cinema Centers for $832 and payment of financing costs related to the Northlight loan in 2012. In October 2013 we sold 1.1 million shares of Class A Common Stock to several investors for $5.00 per share and received net proceeds of approximately $5,200.  We expect to issue equity and debt instruments in the future in connection with our business plan.

Non-GAAP Financial Measures

Theater Level Cash Flow and Adjusted EBITDA

TLCF is a common financial metric in the theater industry, used to gauge profitability at the theater 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.

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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 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 report, 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.

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

TLCF reconciliation:

(unaudited)							%									%
	Three months ended December 31,						Increase/			Six months ended December 31,						Increase/
(000's)	2013			2012			(Decrease)			2013			2012			(Decrease)
Net loss	$	(1,356	)	$	(1,234	)		10	%	$	(2,727	)	$	(1,897	)		44	%
Addback:
General and administrative (1)		1,348			1,208			12	%		2,666			1,946			37	%
Depreciation and amortization		1,373			1,098			25	%		2,708			1,947			39	%
Income tax expense		9			47			-81	%		18			64			-72	%
Interest expense		424			347			22	%		851			372			129	%
Other expense		40			8			400	%		47			8			488	%
Deferred rent expense (5)		105			79			33	%		210			114			84	%
Consolidated TLCF	$	1,943		$	1,553			25	%	$	3,773		$	2,554			48	%

 Adjusted EBITDA reconciliation:

(unaudited)							%									%
	Three months ended December 31,						Increase/			Six months ended December 31,						Increase/
(000's)	2013			2012			(Decrease)			2013			2012			(Decrease)
Net loss	$	(1,356	)	$	(1,234	)		10	%	$	(2,727	)	$	(1,897	)	44	%
Add back:
Depreciation and amortization		1,373			1,098			25	%		2,708			1,947		39	%
Interest expense		424			347			22	%		851			372		129	%
Income tax expense		9			47			-81	%		18			64		-72	%
Other expense		40			8			400	%		47			8		488	%
Deferred rent expense (5)		105			79			33	%		210			114		84	%
Stock-based compensation (2)		122			26			369	%		361			69		423	%
Non-recurring organizational and M&A-related professional fees (3)		53			315			-83	%		110			362		-70	%
Management fees (4)		275			52			429	%		560			52		977	%
Start Media's share of adjusted EBITDA		(95	)		(94	)		1	%		(180	)		(94	)	91	%
Adjusted EBITDA of Digital Cinema Destinations Corp.	$	950		$	644			48	%	$	1,958		$	997		96	%

_________

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

(2)    Represents the fair value of shares of Class A common stock and restricted stock awards 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. The increase from the prior year is due to additional share grants to employees, issuances to non-employees in the normal course of business and the Company’s growth.

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(3)	Primarily represents professional fees incurred in connection with specific acquisitions. Since the amounts will vary depending on the size and quantity of any acquisition, and are not part of ongoing operations of our theaters, we believe that it is appropriate to exclude these items from Adjusted EBITDA.
(4)	To add back management fees to Digiplex from JV.
(5)	Represents non-cash deferred rent expense which is included in facility lease expense in the consolidated statements of operations. As these are non-cash charges, we believe it is appropriate to show TLCF and Adjusted EBITDA excluding this item.

 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, theater 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. Theater 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 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 VPFs 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 for approximately ten years, or until the amount of cumulative VPFs is equal to our costs. VPFs are treated as a reduction of film rent expense in our statements of operations. 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 VPFs we have earned, and the administrative fees incurred (which add to the amounts we can receive for virtual print fees). We have incurred financing costs in connection with the acquisition of these systems, which is shown below.

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(in thousands)
Balance at June 30, 2013	$	4,382
Digital systems costs		560
Financing costs		479
VPFs earned		(582	)
Exhibitor contribution		(54	)
Administrative costs		58
Balance, December 31, 2013	$	4,843

Depreciation and Amortization

Theater property and equipment are depreciated using the straight-line method over their estimated useful lives. In estimating the useful lives, 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 theater level cash flows;

•  future years budgeted theater level cash flows;

•  theater property and equipment carrying values;

•  amortizing intangible asset carrying values;

•  competitive theaters 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 theater assets.

Long-lived assets are evaluated for impairment on an individual theater basis, which we believe is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theater’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.

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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 theater 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.

Off-Balance Sheet Arrangements

Other than the operating leases described herein, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 

Quantitative and Qualitative Disclosures about Market Risk

We do not hold instruments that are sensitive to changes in interest rates, foreign currency exchange rates or commodity prices. Therefore, we believe that we are not materially exposed to market risks resulting from fluctuations from such rates or prices.

Subsequent Event

In February 2014, JV and an Ultrastar entity signed an asset purchase agreement to sell JV's 7-screen Mission Valley theater in San Diego, CA that it originally purchased from UltraStar in December 2012 for 361,599 share's of the Company's Class A common stock and $37,500 in cash.  JV had been operating the theater under a lease in which the landlord had an early termination option.  Primarily for that reason, 342,000 of the share consideration paid in the 2012 transaction was being held under a long-term escrow arrangement, and those shares will now be transferred to JV as part of the purchase price for the theater, along with consideration for cash and inventory, which will result in a gain on the sale.  Since there was no agreement or plan of disposition regarding the theater as of December 31, 2013, and various uncertainties then existed as to whether any transaction would occur, we have concluded that the theater should not be classified as having been held for sale as of that date.  The intended closing date of the sale is February 14, 2014.

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the Company is a “Smaller Reporting Company,” this item is inapplicable.

Item 4.    CONTROLS AND PROCEDURES

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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There have been no significant changes in the Company’s internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in various legal proceedings in the ordinary course of business. We do not believe that any settlement or judgment regarding current or potential future legal proceedings will have a material effect on our financial position.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits are listed in the Exhibit Index on page 36 herein.

SIGNATURES

In accordance with the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DIGITAL CINEMA DESTINATIONS CORP. (Registrant)
Date:  February 14, 2014	By:	/s/ Brian D. Pflug
	Name:	Brian D. Pflug
	Title:	Chief Financial Officer and Principal Accounting Officer

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EXHIBIT INDEX

Exhibit Number	Description of Document
31.1	Officer’s Certificate Pursuant to 15 U.S.C. 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Officer’s Certificate Pursuant to 15 U.S.C. 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Label
101.PRE	XBRL Taxonomy Extension Presentation

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EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

and Securities and Exchange Commission Release 34-46427

I, A. Dale Mayo, certify that:

1. I have reviewed this report on Form 10-Q of Digital Cinema Destinations Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading, with respect to the periods covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15d-15 (f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  February 14, 2014	/s/ A. Dale Mayo
	A. Dale Mayo Chief Executive Officer and Chairman

EX-31.2

 Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

and Securities and Exchange Commission Release 34-46427

I, Brian D. Pflug, certify that:

1. I have reviewed this report on Form 10-Q of Digital Cinema Destinations Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading, with respect to the periods covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) )) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15d-15 (f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  February 14, 2014	/s/ Brian D. Pflug
	Brian D. Pflug Chief Financial Officer

EX-32.1

Exhibit 32.1

Certifications Pursuant to

18 U.S.C. Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Digital Cinema Destinations Corp. (the “Company”) on Form 10-Q for the period ending September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we A. Dale Mayo, Chief Executive Officer and Chairman of the Company, and Brian D. Pflug, Chief Financial Officer and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  February 14, 2014	By: /s/ A. Dale Mayo
	A. Dale Mayo Chief Executive Officer and Chairman

By: /s/ Brian D. Pflug

Brian D. Pflug

Chief Financial Officer and Principal Accounting Officer

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Jun. 30, 2013
Notes to Financial Statements
Goodwill	$ 3,502		$ 3,502		$ 3,156
Change in fair value	(5)		54
Virtual print fees reduction to Film rent expenses	$ 291	$ 259	$ 582	$ 504
Earn out estimate key assumption: discount rate			12.50%

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11. STOCKHOLDERS EQUITY AND SHARE BASED COMPENSATION (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Dec. 31, 2013
Stockholders Equity And Share Based Compensation Details
Unvested balance at June 30, 2013	88,869
Issuance of awards	$ 137,000
Vesting of awards	$ (15,500)
Unvested balance at September 30, 2013	210,369

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8. INTANGIBLE ASSETS (Details Narrative)	Dec. 31, 2013
Trade Names [Member]
Weighted average life of intangible assets	3 years 25 days
Covenants Not To Compete [Member]
Weighted average life of intangible assets	2 years 3 months 11 days
Favorable Leasehold Interest [Member]
Weighted average life of intangible assets	15 years 11 months 1 day

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11. STOCKHOLDERS EQUITY AND SHARE BASED COMPENSATION (Details Narrative) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Jun. 30, 2013
Preferred stock, authorized shares	10,000,000		10,000,000		10,000,000
Preferred stock, par value	$ 0.01		$ 0.01		$ 0.01
Preferred stock, issued shares	0		0		0
Preferred stock, outstanding shares	0		0		0
Stock-based compensation	$ 122	$ 26	$ 361	$ 69
Weighted average remaining vesting period			1 year 4 months 28 days
Remaining expense associated with unvested share awards	$ 1,041		$ 1,041
Class A [Member]
Common stock shares authorized	20,000,000		20,000,000
Common stock shares par value	$ 0.01		$ 0.01
Common stock shares issued	7,083,598		7,083,598
Common stock shares outstanding	7,083,598		7,083,598
Issued restricted stock awards to employee and non-employee			25,000
Class A [Member] | Minimum [Member]
Restricted stock awards vesting period			3 years
Class A [Member] | Maximum [Member]
Restricted stock awards vesting period			3 years
Class B [Member]
Common stock shares authorized	900,000		900,000
Common stock shares par value	$ 0.01		$ 0.01
Common stock shares issued	849,000		849,000
Common stock shares outstanding	849,000		849,000
Series B preferred [Member]
Preferred stock, issued shares	6		6		0
Preferred stock, outstanding shares	6		6		0

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8. INTANGIBLE ASSETS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Jun. 30, 2013
Gross Carrying Amount	$ 10,086	$ 8,293
Accumulated Amortization	3,074	2,107
Net Amount	7,012	6,186
Trade Names [Member]
Gross Carrying Amount	3,016	3,016
Accumulated Amortization	1,768	1,302
Net Amount	1,248	1,714
Trade Names [Member] | Minimum [Member]
Useful Life (years)	3 years	3 years
Trade Names [Member] | Maximum [Member]
Useful Life (years)	5 years	5 years
Covenants Not To Compete [Member]
Gross Carrying Amount	2,463	1,906
Accumulated Amortization	798	493
Net Amount	1,665	1,413
Useful Life (years)	3 years	3 years
Favorable Leasehold Interest [Member]
Gross Carrying Amount	4,607	3,371
Accumulated Amortization	508	312
Net Amount	$ 4,099	$ 3,059
Useful Life (years)	Remaining lease term	Remaining lease term

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15. NET LOSS PER SHARE (Tables)

6 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

	Three Months Ended		Six Months Ended
	December 31,		December 31,
	2013	2012	2013	2012
Numerator for basic and diluted loss per share
Net loss attributable to Digital Cinema Destinations Corp.	$            (1,025)	$            (1,141)	$            (2,072)	$            (1,804)
Preferred dividends	(5)	(5)	(10)	(6)
Net loss attributable to common stockholders	$            (1,030)	$            (1,146)	$            (2,082)	$            (1,810)
Denominator
Weighted average shares of common stock outstanding (1)	7,565,123	5,511,765	7,014,976	5,465,356
Basic and diluted net loss per share of common stock	$              (0.14)	$              (0.21)	$              (0.30)	$              (0.33)

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12. NOTES PAYABLE (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Notes Payable Details Narrative
Amortization of deferred financing costs	$ 13	$ 17	$ 33	$ 17

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3. ACQUISITIONS (Tables)

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Mechanicsburg theater acquisition

	Mechanicsburg
	Theater
ASSETS
Cash	$                                 4
Inventory	4
Property and equipment	1,313
Favorable leasehold interest	937
Covenants not to compete	472
Goodwill	346
Total assets acquired	3,076
LIABILITIES AND OTHER
Consideration to be paid for theater acquisition	492
Capital lease liability assumed	320
Issuance of Class A common stock	1256
Total purchase price paid in cash	$                          1,008

Schedule of Acquisitions of Theaters

	Torrington
	Theater
ASSETS
Cash	$                                 4
Prepaid expenses	13
Inventory	4
Property and equipment	385
Favorable leasehold interest	299
Covenants not to compete	85
Total assets acquired	790
LIABILITIES AND OTHER
Notes payable assumed	178
Issuance of Class A common stock	391
Total purchase price paid in cash	$                             221

Results of operations

	Three Months ended December 31,						Six Months ended December 31,
	2013			2012			2013			2012
Revenues	$	11,607		$	7,668		$	23,800		$	12,812
Net loss		(1,398	)	$	(1,304	)		(2,810	)	$	(1,978	)

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9. LEASES (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Jun. 30, 2013
Leases Details 1
Equipment	$ 729	$ 409
Less: accumulated amortization	(103)	(54)
Net	$ 626	$ 355

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4. JOINT VENTURE (Details Narrative) (Digiplex [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Digiplex [Member]
Percent of ownership interest in Joint Venture			34.00%
Management fees earned	$ 275	$ 52	$ 560	$ 52

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Jun. 30, 2013
Earn-out from theater acquisitions	$ 350	$ 296
Financial assets fair value disclosure	350	296
Level 1 [Member]
Earn-out from theater acquisitions	0	0
Financial assets fair value disclosure	0	0
Level 2 [Member]
Earn-out from theater acquisitions	0	0
Financial assets fair value disclosure	0	0
Level 3 [Member]
Earn-out from theater acquisitions	350	296
Financial assets fair value disclosure	$ 350	$ 296

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9. LEASES (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Leases [Abstract]
Rent expense	$ 22	$ 73	$ 45	$ 88
Amortization of assets under capital leases	$ 28	$ 5	$ 49	$ 5

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15. NET LOSS PER SHARE (Details Narrative)	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Earnings Per Share [Abstract]
Anti-dilutive shares not included in the weighted shares	820,402	613,173	820,402	613,173

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8. INTANGIBLE ASSETS (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Intangible Assets Details 1
2014 (remaining six months)	$ 1,127
2015	1,996
2016	923
2017	492
2018	393
2019	$ 393

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4. START MEDIA/ DIGIPLEX JOINT VENTURE

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

4. START MEDIA/ DIGIPLEX JOINT VENTURE

As of June 30, 2013, Digiplex contributed 887,623 shares of Class A Common Stock to the JV, and Start Media contributed $10,000 in cash. In July 2013, Start Media contributed $300 in cash and Digiplex contributed 73,770 shares of the Company’s Class A common stock valued at $391, to fund the Torrington acquisition, and both Start Media’s and Digiplex’s interest in the JV was adjusted accordingly. In November 2013, Start Media and Digiplex contributed $135 and $100 in cash, respectively.  JV is managed by a four person board of managers, two of whom Digiplex designates and two of whom are designated by Start Media. Majority vote is required for JV actions. At December 31, 2013, Digiplex and Start Media owned 34% and 66% of the equity of JV, respectively.

JV has a first right of refusal to acquire any theaters which the Company wishes to acquire, except for any theaters within a ten mile radius of existing Digiplex owned theaters. If JV does not exercise its right of first refusal, the Company has the right to make the acquisition independently. The right of first refusal does not apply to or restrict the Company’s ability to manage theaters owned by unaffiliated third-parties.

Digiplex has entered into agreements with JV (the “Management Agreements") to manage the theaters it acquires and receives 5% of the total revenue of the JV theaters’ operations annually as management fees.

Management fees earned by Digiplex for the three months ended December 31, 2013 and 2012 were $275 and $52, respectively. Management fees earned by Digiplex for the six months ended December 31, 2013 and 2012 were $560 and $52, respectively.   JV records these fees as general and administrative expenses, and Digiplex records an offset to general and administrative expenses. These fees are eliminated in consolidation.

Under the Management Agreements, Digiplex has full day-to-day authority to operate the theaters owned by JV including: staffing, banking, content selection, vendor selection and all purchasing decisions. Digiplex is required to submit an annual operating budget to JV for each fiscal year ending June 30 for approval by the JV board of managers. In the event of any disagreements regarding the budget, there are dispute resolution procedures contained in the operating agreement (“JV Operating Agreement”).

Digiplex’s and Start Media’s respective percentage ownerships in JV will depend upon their respective aggregate capital contributions, in each case denominated in units of membership interests. Start Media has committed to contribute up to $20,000 to JV, inclusive of approximately $10,435 of capital contributions, for theater acquisitions and budgeted expenses. Start Media will receive additional membership units in consideration for capital contributions in excess of its initial contribution as additional capital is required, based on the fair market value of JV determined under a formula set forth in the JV Operating Agreement (the “Formula”). Digiplex has a right, but not the obligation, to contribute additional capital to JV, which under certain circumstances may be made by the issuance and delivery of shares of Digiplex’s Class A common stock to sellers of theaters acquired by JV, and thereby acquire additional membership units based on the Formula, provided that our percentage interest does not exceed 50% as the result of our acquisition of additional units. While Start Media has the right to participate in future theater acquisitions, it is not obligated to do so.

Distributions of JV cash flow from operations will be made to the members at such time as determined by the JV board of managers. Start Media is entitled to a 6% preferred return on its capital contributions made to date, after which Digiplex receives a 6% preferred return on its capital contributions. Thereafter, distributions of cash flow from operations will be made pro rata in accordance with the respective membership units of the members. In the case of liquidating distributions, Start Media will receive a 6% preferred return on and the return of its capital contributions prior to the Company’s receipt of a 6%

preferred return on and the return of the Company’s capital contributions, with further distributions pro rata to the respective membership units of the members.

Digiplex and Start Media have agreed not to transfer their membership interests, except for certain permitted transfers for a three-year period and any subsequent transfers of membership interests are subject to the right of JV and the other member to acquire the interests on such terms as a third party is willing to do so. In the event the Company experiences a change in control, as defined in the JV Operating Agreement, Start Media has a right to require the Company to acquire its membership interest in JV.

Digiplex is considered the primary beneficiary of the JV because it controls the operation of each JV owned theater on a day to day basis in all material respects, including: the selection of content, all staffing decisions, all cash management and paying vendors, financial reporting, obtaining all necessary permits, insurances, and to plan and perform capital improvements, to the extent such expenditures do not exceed certain levels as specified in the Management Agreements. Digiplex is also the guarantor of six of the ten leases entered into with third party landlords in the JV-owned theaters, and is using its brand name to promote the theaters. Because JV is a VIE, and Digiplex is deemed the primary beneficiary, the Company has consolidated the operations of JV.

Net loss attributable to the non-controlling interest on the statement of operations represents the portion of net loss attributable to the economic and legal interest in JV held by Start Media.

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16. SUPPLEMENTAL CASH FLOW DISCLOSURE (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Supplemental Cash Flow Disclosure Details
Fair value of earnout recorded at acquisition	$ 0	$ 550
Cash paid for interest	381	296
Amount offset on Note repayment	0	168
Common stock issued for Ultrastar theaters	0	4,714
Issuance of warrants to Start Media	0	954
Common stock issued for acquisition of Torrington theater	391	0
Common stock issued for acquisition of Mechanicsburg theater	1,256	0
Consideration to be paid for Mechanicsburg acquisition	492	0
Conversion of Class B common stock into Class A	$ 1	$ 0

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5. ACCOUNTS RECEIVABLE (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Jun. 30, 2013
Notes to Financial Statements
VPFs	$ 560	$ 470
Advertising	149	180
Other	31	47
Total	$ 740	$ 697

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8. INTANGIBLE ASSETS (Tables)

6 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible assets

Intangible assets, net consisted of the following as of December 31, 2013:

	Gross			Useful
	Carrying	Accumulated	Net	Life
	Amount	Amortization	Amount	(years)
Trade names	$                    3,016	$                1,768	$           1,248	3-5
Covenants not to compete	2,463	798	1,665	3
Favorable leasehold interest	4,607	508	4,099	Remaining lease term
	$                  10,086	$                3,074	$           7,012

Intangible assets, net consisted of the following as of June 30, 2013:

	Gross			Useful
	Carrying	Accumulated	Net	Life
	Amount	Amortization	Amount	(years)
Trade names	$                    3,016	$                1,302	$           1,714	3-5
Covenants not to compete	1,906	493	1,413	3
Favorable leasehold interest	3,371	312	3,059	Remaining lease term
	$                    8,293	$                2,107	$           6,186

Amortization of intangible assets

June 30,	Total
2014 (remaining six months)	$                    1,127
2015	1,996
2016	923
2017	492
2018	393
2019	393

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7. PROPERTY AND EQUIPMENT (Tables)

6 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Property and equipment

	December 31,	June 30,
	2013	2013
Furniture and fixtures	$                    5,556	$                4,931
Leasehold improvements	13,427	12,820
Building and improvements	4,636	4,627
Digital systems and related equipment	6,619	6,071
Equipment and computer software	4,423	3,976
	34,661	32,425
Less: accumulated depreciation and amortization	(4,995)	(3,254)
Total property and equipment, net	$                  29,666	$              29,171

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12. NOTES PAYABLE (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Northlight loan
2014	$ 1,671
2015	1,671
2016	1,671
2017	4,590
Total	9,603
Less: current portion	(1,671)
Total	7,932
Torrington promissory note
2014	45
2015	49
2016	52
2017	15
Total	161
Less: current portion	(45)
Total	$ 116

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6. PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Jun. 30, 2013
Notes to Financial Statements
Insurance	$ 126		$ 215
Projector and other equipment maintenance	238		246
Real estate taxes	71		82
Note receivable	74	[1]	89	[1]
Due from former theater owners	293	[1]	299	[1]
Due from Start Media	225		290
Other theater operating	114		84
Other expenses	154		139
Total	$ 1,295		$ 1,444

[1] The note receivable of $74 and $55 of the due from theater owner was from the former owner of the Lisbon theater, and was paid in February 2014 in connection with the finalization of the Lisbon earnout.

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9. LEASES (Tables)

6 Months Ended

Dec. 31, 2013

Leases [Abstract]

Schedule of Operating Leases Minimum rentals payable

June 30,	Total
2014 (remaining six months)	$             3,076
2015	6,278
2016	6,162
2017	5,525
2018	5,015
2019	4,742
Thereafter	23,937
Total	$           54,735

Summary of property held under capital leases

	December 31,	June 30,
	2013	2013
Equipment	$                       729	$                   409
Less: accumulated amortization	(103)	(54)
Net	$                       626	$                   355

Future maturities of capital lease payments

December 31,	Total
2014	$                       200
2015	176
2016	176
2017	168
2018	-
Total minimum payments	720
Less:  amount representing interest	(88)
Present value of minimum payments	632
Less:  current portion	(162)
	$                       470

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11. STOCKHOLDERS EQUITY AND SHARE BASED COMPENSATION (Tables)

6 Months Ended

Dec. 31, 2013

Equity [Abstract]

Summary of the activity of unvested share awards

Unvested balance at June 30, 2013	88,869
Issuance of awards	137,000
Vesting of awards	(15,500)
Unvested balance at December 31, 2013	210,369

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3. ACQUISITIONS

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

3. ACQUISITIONS

On December 19, 2013, the Company acquired an eight screen movie theater in Mechanicsburg, Pennsylvania. The provisional purchase price totals $2,756 (assets acquired of $3,076, less an assumed capital lease payable of $320), consisting of $1,258 in cash, and 300,390 shares of the Company’s Class A common stock valued at $1,498, (based on the trading price of $5.54 on the closing date, less a ten percent discount for trading restrictions placed on the stock). On the acquisition date, the Company paid $1,008 in cash and issued 251,850 shares of the Company's Class A common stock. Upon the completion of the Churchville acquisition which the Company has contracted to purchase and is owned by an affiliate of the same seller, the Company will pay the remaining $250 of cash and issue the remaining 48,540 shares of Class A common stock for the Mechanicsburg location. If the Churchville acquisition does not close by March 14, 2014, the Company will not be required to pay and issue these amounts and the purchase price will be adjusted accordingly. The purchase price was provisionally allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The provisional allocation of the provisional purchase price is based on management’s judgment after evaluating several factors, using assumptions for the income and royalty rate approaches and the discounted earnings approach, and projections determined by Company management. The Company is in the process of finalizing the fair values of the assets acquired and liabilities assumed, including evaluation of the operating lease. The Company incurred approximately $20 in acquisition costs which was expensed and included in general and administrative expenses in the unaudited condensed consolidated statement of operations for the six months ended December 31, 2013.

The provisional allocation of the purchase price for the Mechanicsburg theater was as follows:

	Mechanicsburg
	Theater
ASSETS
Cash	$                                 4
Inventory	4
Property and equipment	1,313
Favorable leasehold interest	937
Covenants not to compete	472
Goodwill	346
Total assets acquired	3,076
LIABILITIES AND OTHER
Consideration to be paid for theater acquisition	492
Capital lease liability assumed	320
Issuance of Class A common stock	1256
Total purchase price paid in cash	$                          1,008

On July 19, 2013, JV acquired a six screen movie theater in Torrington, Connecticut. The purchase price totals $612 (assets acquired of $790, less an assumed promissory note of $178), consisting of $221 in cash, and 73,770 shares of the Company’s Class A common stock valued at $391, (based on the trading price of $5.89 on the closing date, less a ten percent discount for trading restrictions placed on the stock). Accordingly, the purchase price was allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The allocation of the purchase price is based

on management’s judgment after evaluating several factors, using assumptions for the income and royalty rate approaches and the discounted earnings approach, and projections determined by Company management. The Company incurred approximately $4 in acquisition costs which was expensed and included in general and administrative expenses in the unaudited condensed consolidated statement of operations for the six months ended December 31, 2013. The Company finalized the Torrington purchase price allocation as of December 31, 2013.

The allocation of the purchase price for the Torrington theater was as follows:

	Torrington
	Theater
ASSETS
Cash	$                                 4
Prepaid expenses	13
Inventory	4
Property and equipment	385
Favorable leasehold interest	299
Covenants not to compete	85
Total assets acquired	790
LIABILITIES AND OTHER
Notes payable assumed	178
Issuance of Class A common stock	391
Total purchase price paid in cash	$                             221

The results of operations of Mechanicsburg and Torrington are included in the unaudited condensed consolidated statement of operations from their respective acquisition dates. The following are the unaudited pro forma results of operations of the Company for the three and six months ended December 31, 2013 and 2012, respectively, as if the acquisitions were completed on July 1, 2012.

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.

	Three Months ended December 31,						Six Months ended December 31,
	2013			2012			2013			2012
Revenues	$	11,607		$	7,668		$	23,800		$	12,812
Net loss		(1,398	)	$	(1,304	)		(2,810	)	$	(1,978	)

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12. NOTES PAYABLE (Tables)

6 Months Ended

Dec. 31, 2013

Notes Payable Tables

Schedule of principal payments due

The principal payments due as of December 31, 2013 over the remainder of the term of the Northlight loan are summarized as follows, in years:

December 31,	Total
2014	$             1,671
2015	1,671
2016	1,671
2017 (includes PIK interest accrued to date of $381)	4,590
Total	9,603
Less: current portion	(1,671)
	$             7,932

The principal payments due as of December 31, 2013 over the remainder of the term of the Torrington promissory note are summarized as follows, in fiscal years:

December 31,	Total
2014	$                  45
2015	49
2016	52
2017	15
Total	161
Less: current portion	(45)
	$                116

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3. ACQUISITIONS (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
LIABILITIES AND OTHER
Issuance of Class A common stock	$ 391	$ 0
Total purchase price paid in cash	1,229	14,122
Torrington Theater
ASSETS
Cash	4
Prepaid expenses	13
Inventory	4
Property and equipment	455
Favorable leasehold interest	229
Covenants not to compete	85
Total assets acquired	790
LIABILITIES AND OTHER
Notes payable assumed	178
Issuance of Class A common stock	391
Total purchase price paid in cash	221
Mechanicsburg Theater
ASSETS
Cash	4
Inventory	4
Property and equipment	1,313
Favorable leasehold interest	937
Covenants not to compete	472
Goodwill	346
Total assets acquired	3,076
LIABILITIES AND OTHER
Consideration to be paid for theater acquisition	492
Capital Lease Obligation assumed	320
Issuance of Class A common stock	1,256
Total purchase price paid in cash	$ 1,008

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10. COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Commitments And Contingencies Details Narrative
Compensation Expense	$ 65	$ 60	$ 140	$ 120

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Jun. 30, 2013
ASSETS
Cash and cash equivalents	$ 6,992	$ 3,607
Accounts receivable	740	697
Inventories	148	191
Deferred financing costs, current portion	357	357
Prepaid expenses and other current assets	1,295	1,444
Total current assets	9,532	6,296
Property and equipment, net	29,666	29,171
Goodwill	3,502	3,156
Intangible assets, net	7,012	6,186
Security deposit	209	205
Deferred financing costs, long term portion, net	1,052	1,225
Other assets	107	9
TOTAL ASSETS	51,080	46,248
LIABILITIES AND EQUITY
Accounts payable	1,985	2,478
Accrued expenses and other current liabilities	3,658	3,964
Notes payable, current portion	1,716	1,373
Capital lease, current portion	162	121
Earn out from theater acquisitions	350	296
Deferred revenue	767	305
Total current liabilities	8,638	8,537
Notes payable, long term portion	8,048	8,615
Capital lease, net of current portion	470	239
Unfavorable leasehold liability, long term portion	141	159
Deferred rent expense	617	407
Deferred tax liability	207	199
TOTAL LIABILITIES	18,121	18,156
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 10,000,000 shares authorized as of December 31, 2013 and June 30, 2013, 6 shares of Series B Preferred Stock issued and outstanding as of December 31, 2013 and June 30, 2013 , respectively	0	0
Class A Common stock, $.01 par value: 20,000,000 shares authorized; and 7,035,058 and 5,511,938 shares issued and outstanding as of December 31, 2013 and June 30, 2013, respectively	70	55
Class B Common stock, $.01 par value, 900,000 shares authorized; 849,000 and 865,000 shares issued and outstanding as of December 31, 2013 and June 30, 2013, respectively	9	9
Additional paid-in capital	32,959	25,816
Accumulated deficit	(9,121)	(7,049)
TOTAL STOCKHOLDERS' EQUITY OF DIGITAL CINEMA DESTINATIONS CORP.	23,197	18,831
Noncontrolling interest	9,042	9,261
Total equity	32,959	28,092
TOTAL LIABILITIES AND EQUITY	$ 51,080	$ 46,248

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7. PROPERTY AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Jun. 30, 2013
Gross Value of property plant and equipment	$ 34,661	$ 32,425
Less: accumulated depreciation and amortization	(4,995)	(3,254)
Total property and equipment, net	29,666	29,171
Furniture and Fixtures [Member]
Gross Value of property plant and equipment	5,556	4,931
Leasehold Improvements [Member]
Gross Value of property plant and equipment	13,427	12,820
Building and Improvements [Member]
Gross Value of property plant and equipment	4,636	4,627
Digital systems and related equipment
Gross Value of property plant and equipment	6,619	6,071
Equipment and computer software
Gross Value of property plant and equipment	4,423
Equipment and Computer Software [Member]
Gross Value of property plant and equipment		$ 3,976

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1. THE COMPANY AND BASIS OF PRESENTATION

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

1. THE COMPANY AND BASIS OF PRESENTATION

Digital Cinema Destinations Corp. (“Digiplex”) and together with its subsidiaries (the “Company”) was incorporated in the State of Delaware on July 29, 2010. Digiplex is the parent of wholly owned subsidiaries, DC Westfield Cinema LLC, DC Cranford Cinema LLC, DC Bloomfield Cinema LLC, DC Cinema Centers LLC, and DC Lisbon Cinema LLC, and intends to acquire additional businesses operating in the theater exhibition industry sector.

In September 2012, the Company and Nehst Media Enterprises (“Nehst”) formed a joint venture called Diginext. Under the joint venture agreement, Digiplex and Nehst each have a 50% ownership interest. Nehst will supply Diginext with periodic movie content and the Company has the option to display such content at its locations on an exclusive basis, or may choose to allow non-Digiplex venues to also display the content. The Company pays film rent to Diginext as it would any other movie distributor, and any profits of Diginext, from theatrical revenues as well as net revenues from other ancillary sources will be shared equally by the owners. The Company and Nehst have each made capital contributions of $50 since inception, and the Company is using the equity method to account for its share of earnings from the joint venture. For the six months ended December 31, 2013, Digiplex’s share of net income was $53. The balance of the Company’s equity investment at December 31, 2013 is $107 and included in other assets.

On December 10, 2012, Digiplex, together with Start Media, LLC (“Start Media”), entered into a joint venture, Start Media/Digiplex, LLC (“JV”), a Delaware limited liability company, to acquire, refit and operate movie theaters.

On July 19, 2013, JV acquired a six screen movie theater in Torrington, Connecticut (“Torrington”). Torrington is operated by Digiplex under a management agreement with JV. See Note 3 and Note 4.

The Company has determined that JV is a variable interest entity (“VIE”), and that the Company is the primary beneficiary of JV’s operations. Therefore, the Company is presenting JV’s financial statements on a consolidated basis with a non-controlling interest.

On December 19, 2013, the Company acquired an eight screen movie theater in Mechanicsburg, Pa. (“Mechanicsburg”). The operating results of the Mechanicsburg acquisition are included in the Company’s consolidated results from the date of acquisition. See Note 3.

As of December 31, 2013, the Company operated 20 theaters having 192 screens (the “Theaters”).  Although the Company has announced the signing of asset purchase agreements and/or leases for additional locations, all are subject to further diligence, financing and other closing conditions.  Therefore, there can be no assurance that the Company will complete these planned transactions.

The accompanying unaudited condensed consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on 10-K for the fiscal year ended June 30, 2013 filed with the Securities and Exchange Commission (“ SEC”) on September 18, 2013 (the “Form 10-K”).  In the opinion of management, all adjustments, consisting of a normal recurring nature, considered necessary for a fair presentation have been included in the unaudited condensed consolidated financial statements.  The operating results for the interim period presented herein are not necessarily indicative of the results expected for the full year ending June 30, 2014.

The Company has incurred net losses since inception. The Company also has contractual obligations related to its debt as of December 31, 2013 and beyond. The Company expects to generate net losses for the foreseeable future. Based on the Company’s cash position at December 31, 2013, expected cash flows from operations, and the Company’s October 2013 issuance of Class A common stock for net proceeds of $5,200, management believes that the Company has the ability to meet its obligations through December 31, 2014. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have an adverse effect on the Company’s financial position, results of operations or liquidity.

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14. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Related Party Transactions Details Narrative
Rent expense for operating leases	$ 100	$ 130	$ 199	$ 220

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	6 Months Ended
	Dec. 31, 2013
Furniture and Fixtures [Member]
Estimated useful life of proprerty plant and equipment	5 years
Leasehold Improvements [Member]
Estimated useful life of proprerty plant and equipment	Lesser of lease term or estimated asset life
Building and Improvements [Member]
Estimated useful life of proprerty plant and equipment	17 years (end of initial lease term)
Digital Systems and Related Equipment [Member]
Estimated useful life of proprerty plant and equipment	10 years
Equipment and Computer Software [Member] | Minimum [Member]
Estimated useful life of proprerty plant and equipment	3 years
Equipment and Computer Software [Member] | Maximum [Member]
Estimated useful life of proprerty plant and equipment	5 years

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17. SUBSEQUENT EVENTS

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

17. SUBSEQUENT EVENTS

In February 2014, JV and an Ultrastar entity signed an asset purchase agreement to sell JV's 7-screen Mission Valley theater in San Diego, CA that it originally purchased from UltraStar in December 2012 for 361,599 shares of the Company's Class A common stock and $37,500 in cash. JV had been operating the theater under a lease in which the landlord had an early termination option. Primarily for that reason, 342,000 of the share consideration paid in the 2012 transaction was being held under a long-term escrow arrangement, and those shares will now be transferred to JV as part of the purchase price for the theater, along with consideration for cash and inventory, which will result in a gain on the sale. Since there was no agreement or plan of disposition regarding the theater as of December 31, 2013, and various uncertainties then existed as to whether any transaction would occur, the Company has concluded that the theater should not be classified as having been held for sale as of that date. The intended closing date of the sale is February 14, 2014.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2013
Summary Of Significant Accounting Policies Tables
Balance as of June 30, 2013	$ 3,156
Goodwill resulting from the Mechanicsburg acquisition	346
Balance as of December 31, 2013	$ 3,502

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Dec. 31, 2013

Summary Of Significant Accounting Policies Tables

Property and Equipment

Furniture and fixtures	5 years
Leasehold improvements	Lesser of lease term or estimated asset life
Building and improvements	17 years
Digital systems and related equipment	10 years
Equipment and computer software	3 - 5 years

Goodwill

	Total
Balance as of June 30, 2013	$3,156
Goodwill resulting from the Mechanicsburg acquisition	346
Balance as of December 31, 2013	$3,502

Fair value measurement

As of December 31, 2013:
	Level 1	Level 2	Level 3	Total
Earnout from theater acquisitions	-	-	350	350
	$                         -	$                      -	$              350	$         350
As of June 30, 2013:
	Level 1	Level 2	Level 3	Total
Earnout from theater acquisitions	-	-	296	296
	$                         -	$                      -	$              296	$         296

Schedule of changes in earn out

	Total
Balance as of June 30, 2013	$              296
Change in fair value of earnout liability for Lisbon acquisition	54
Balance as of December 31,  2013	$              350

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed consolidated financial statements of the Company include the accounts of Digiplex and its wholly-owned subsidiaries, and the JV, which is a VIE. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, those related to film rent expense settlements, depreciation and amortization, impairments, income taxes and assumptions used in connection with acquisition accounting. Actual results could differ from those estimates.

Revenue Recognition

Revenues are generated principally through admissions on feature film displays and concessions sales, with proceeds received in cash or credit card at the Company’s point of sale terminals at the Theaters. Revenue is recognized at the point of sale. Credit card sales are normally settled in cash within approximately three business days from the point of sale, and any credit card chargebacks have been insignificant. Other revenue consists of theater rentals for parties, camps, civic groups and other activities, advertising revenue under our advertising contract and our portion of game income, ATM fees and internet ticketing fees. Rental revenue is recognized at the time of the rental. Advertising revenue is recorded based on an expected per-patron amount and the number of patrons over the contract period as the advertising is being delivered on screen. Other revenue items are recognized as earned in the period. In addition to traditional feature films, the Company also displays concerts, sporting events, children’s programming and other non-traditional content on its screens (such content referred to herein as “alternative content”). Revenue from alternative content programming also consists of admissions and concession sales. The Company also sells theater admissions in advance of the applicable event, and sells gift cards for patrons’ future use. The Company defers the revenue from such sales until considered redeemed. The Company estimates the gift card breakage rate based on historical redemption patterns. Unredeemed gift cards are recognized as revenue only after such a period of time indicates, based on historical attendance, the likelihood of redemption is remote, and based on applicable laws and regulations, in evaluating the likelihood of redemption, the period outstanding, the level and frequency of activity, and the period of inactivity is evaluated.

Rewards Club Program

In August 2013, the Digiplex Rewards Club was implemented, whereby members earn credits for each dollar spent at one of the Company's theaters and earn concession or ticket awards based on the number of credits accumulated. Because the Company believes that the value of the awards granted is insignificant in relation to the value of the transactions necessary to earn the award, the Company records the estimated cost of providing awards at the time the awards are earned. The Company’s costs of these awards are not significant for the six months ended December 31, 2013. The awards issued under the Digiplex Rewards Club expire 90 days after issuance.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2013 and June 30, 2013, the Company held substantially all of its cash in bank accounts with major financial institutions, and had cash on hand at the Theaters in the normal course of business.

Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company reports accounts receivable net of any allowance for doubtful accounts to represent management’s estimate of the amount that ultimately will be realized in cash. The Company reviews collectability of accounts receivable based on the aging of the accounts and historical collection trends. When the Company ultimately concludes a receivable is uncollectible, the balance is written off. The Company has determined that an allowance for doubtful accounts is not necessary at December 31, 2013 and June 30, 2013.

Inventories

Inventories consist of food and beverage concession products and related supplies. The Company states inventories on the basis of the first-in, first-out method, stated at the lower of cost or market.

Property and Equipment

Property and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are expensed currently.

The Company records depreciation and amortization using the straight-line method, over the following estimated useful lives:

Furniture and fixtures	5 years
Leasehold improvements	Lesser of lease term or estimated asset life
Building and improvements	17 years
Digital systems and related equipment	10 years
Equipment and computer software	3 - 5 years

Goodwill

The carrying amount of goodwill at December 31, 2013 and June 30, 2013 was $3,502 and $3,156, respectively. The Company evaluates goodwill for impairment annually or more frequently as specific events or circumstances dictate. Under ASC Subtopic 350-20, Intangibles — Goodwill and Other — 

Goodwill, the Company has identified its reporting units to be the regions in which the Company conducts its theater operations.

The Company determines fair value by using an enterprise valuation methodology weighing the income approach and market approach by applying multiples to cash flow estimates less any net indebtedness, which the Company believes is an appropriate method to determine fair value. There is considerable management judgment with respect to future cash flow estimates and appropriate multiples and discount rates to be used in determining fair value and such management estimates fall under Level 3 within the fair value measurement hierarchy.

The changes in carrying amounts of goodwill are as follows:

	Total
Balance as of June 30, 2013	$3,156
Goodwill resulting from the Mechanicsburg acquisition	346
Balance as of December 31, 2013	$3,502

Concentration of Credit Risk

Financial instruments that could potentially subject the Company to concentration of credit risk, if held, would be included in accounts receivable. Collateral is not required on trade accounts receivables. It is anticipated that in the event of default, normal collection procedures would be followed.

Fair Value of Measurements

The fair value measurement disclosures are grouped into three levels based on valuation factors:

• Level 1 – quoted prices in active markets for identical investments

• Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.

The following tables summarize the levels of fair value measurements of the Company’s financial liabilities as of December 31, 2013 and June 30, 2013:

As of December 31, 2013:
	Level 1	Level 2	Level 3	Total
Earnout from theater acquisitions	-	-	350	350
	$                         -	$                      -	$              350	$         350
As of June 30, 2013:
	Level 1	Level 2	Level 3	Total
Earnout from theater acquisitions	-	-	296	296
	$                         -	$                      -	$              296	$         296

Earnout from acquisitions is a liability to the seller of the Lisbon theater and is based upon meeting certain financial performance targets. Estimates of the fair values of the earnout was estimated by a forecast of

theater level cash flow, as defined by the asset purchase agreement. That measure is based on significant inputs that are not observable in the market, which are considered Level 3 inputs.

The following summarized changes in the earnout during the six months ended December 31, 2013:

	Total
Balance as of June 30, 2013	$              296
Change in fair value of earnout liability for Lisbon acquisition	54
Balance as of December 31,  2013	$              350

Key assumptions underlying the initial Lisbon earnout estimate include a discount rate of 12.5 percent and that Lisbon will achieve its forecasted financial performance target in the one year earnout period ended September 28, 2013.  As of December 31, 2013, the Company increased the Lisbon earnout from $296 to $350 based on actual results compared to the threshold in the asset purchase agreement and the final payment. A fair value change of ($5) and $54 for the three and six months ended December 31, 2013 was recognized. The earnout of $350 was paid to the seller in February 2014.

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and accrued expenses, and note payable approximate their fair values, due to their short term nature. 

Deferred Rent Expense

The Company recognizes rent expense on a straight-line basis, after considering the effect of rent escalation provisions resulting in a level monthly rent expense for each lease over its term.

Deferred Financing Costs

Deferred financing costs primarily consist of unamortized debt issuance costs for the note payable, unamortized financing costs related to the formation of JV, and the fair value of warrants issued to Start Media, which are amortized on a straight-line basis over the respective terms. The straight-line basis is not materially different from the effective interest method.

Film Rent Expense

The Company estimates film rent expense and related film rent payable based on management’s best estimate of the ultimate settlement of the film costs with the film distributors. Generally, less than one-quarter of film rent expense is estimated at period-end, with the majority being agreed to under firm terms. The length of time until these costs are known with certainty depends on the ultimate duration of the film’s theatrical run, but is typically “settled” within one to two months of a particular film’s opening release. Upon settlement with the film distributors, film rent expense and the related film rent payable is adjusted to the final film settlement.

The film rent expense on the unaudited condensed consolidated statement of operations of the Company for the three months ended December 31, 2013 and 2012 was reduced by virtual print fees (“VPFs”) of $291 and $259, respectively under a master license agreement exhibitor-buyer arrangement with a third party vendor. VPFs for the six months ended December 31, 2013 and 2012 were $582 and $504, respectively. VPFs represent a reduction in film rent paid to film distributors. Pursuant to this master license agreement, the Company will purchase and own digital projection equipment and the third party vendor, through its agreements with film distributors, will collect and remit VPFs to the Company, net of a 10% administrative fee. VPFs are generated based on initial display of titles on the digital projection equipment.

 Stock-Based Compensation

The Company recognizes stock-based compensation expense to employees based on the fair value of the award at the grant date with expense recognized over the service period, or vesting period, using the straight-line recognition method of awards subject to graded vesting.

The Company uses the Black-Scholes valuation model to determine the fair value of warrants. The fair value of the restricted stock awards is determined by the stock fair market value on the award date. The Company recognizes an estimate for forfeitures of unvested awards. These estimates are adjusted as actual forfeitures differ from the estimate.

The Company also issues common stock to non-employees in exchange for services. The Company measures and records stock-based compensation at fair value at the earlier of the date the performance commitment is reached or when the performance is complete. The expense recognized is based on the closing stock price of the Company’s stock issued.

Reclassification

Certain reclassifications have been made to the fiscal period ended December 31, 2012 financial statements to conform to the current fiscal period ended December 31, 2013 presentation.

Segments

As of December 31, 2013, the Company managed its business under one reportable segment: theater exhibition operations. All Company operations are located in the United States.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Stockholders' Equity:
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Commont Stock, par value Class A	$ 0.01	$ 0.01
Common stock, authorized shares Class A	20,000,000	20,000,000
Common stock, issued shares Class A	7,035,058	5,511,938
Common stock, outstanding shares Class A	7,035,058	5,511,938
Commont Stock, par value Class B	$ 0.01	$ 0.01
Common stock, authorized shares Class B	900,000	900,000
Common stock, issued shares Class B	849,000	865,000
Common stock, outstanding shares Class B	849,000	865,000

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12. NOTES PAYABLE

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

12. NOTES PAYABLE

On September 28, 2012, the Company entered into a loan agreement with Northlight Trust I for $10,000 due September 28, 2017, at an interest rate equal to 30 day LIBOR plus 10.50% per annum, with a 2.5% floor (the “Northlight loan”). The Company expects the 2.5% floor to be applicable due to the current LIBOR rates. During the first 18 months from the closing date, all interest in excess of 10.00% per annum that would otherwise be paid in cash during the 18-month period may, at the Company’s option, may be paid in kind (“PIK interest”), and thereafter all interest due is payable in cash. PIK interest, if any, will be added to the principal balance of the loan. The Company primarily used the net proceeds from the Northlight loan to acquire certain assets and assume certain liabilities of Lisbon, pay the obligation to a vendor for digital systems, pay fees and expenses associated with the Northlight loan and the Lisbon acquisition, and to provide working capital. Interest and principal payments under the terms of the Northlight loan commenced on October 31, 2012. The Northlight loan is collateralized by, among other things, the Company’s membership interest in each of the Company’s operating subsidiaries and all of the operating subsidiaries’ assets, including the theater leases, and requires meeting certain financial covenant ratios. As of December 31, 2013, the Company was in compliance with all financial covenants. For the three months ended December 31, 2013 and 2012, $13 and $17 of amortization of deferred financing costs for the Northlight loan were included in interest expense on the unaudited condensed consolidated statement of operations. For the six months ended December 31, 2013 and 2012, $33 and $17 of amortization of deferred financing costs for the Northlight loan were included in interest expense on the unaudited condensed consolidated statement of operations.

The principal payments due as of December 31, 2013 over the remainder of the term of the Northlight loan are summarized as follows, in years:

December 31,	Total
2014	$             1,671
2015	1,671
2016	1,671
2017 (includes PIK interest accrued to date of $381)	4,590
Total	9,603
Less: current portion	(1,671)
	$             7,932

The Northlight loan is mandatorily prepayable from 25% of the Company’s Excess Cash Flow (earnings before interest, taxes, depreciation, as adjusted, as further defined in the Northlight loan agreement) beginning on September 30, 2013 and annually thereafter. No payment was due in connection with the September 30, 2013 calculation.

 In connection with the acquisition of Torrington, the Company assumed a promissory note for certain digital projection equipment, with an outstanding balance as of December 31, 2013 of $161. The note is payable monthly, is due March 2017 and has an interest rate of 7%.

The principal payments due as of December 31, 2013 over the remainder of the term of the Torrington promissory note are summarized as follows, in fiscal years:

December 31,	Total
2014	$                  45
2015	49
2016	52
2017	15
Total	161
Less: current portion	(45)
	$                116

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Document and Entity Information	6 Months Ended
	Dec. 31, 2013	Feb. 13, 2014
Document And Entity Information
Entity Registrant Name	Digital Cinema Destinations Corp.
Entity Central Index Key	0001510326
Document Type	10-Q
Document Period End Date	Dec. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		7,083,528
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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13. INCOME TAXES

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

13. INCOME TAXES

The Company recorded income tax expense of approximately $9 and $47 for the three months ended December 31, 2013 and 2012, respectively and approximately $18 and $64 for the six months ended Decermber 31, 2013 and 2012, respectively. The Company's tax provision for all periods had an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation allowance at the beginning of each period. 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, tax expense recorded for the six months ended December 31, 2013 and 2012 included the accrual of non-cash tax expense of approximately $12 and $15, respectively of changes in the valuation allowance in connection with the tax amortization of our indefinite-lived intangible assets that was not available to offset existing deferred tax assets (termed a “naked credit”). The Company expects the naked credit to result in approximately $25 of additional non-cash income tax expense over the remainder of the year ending June 30, 2014.

The Company calculates income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions that could change during the year. For the six months ended December 31, 2013 and 2012, the differences between the effective tax rate of (0.9)% and (3.3)%, respectively, and the U.S. federal statutory rate of 35% principally resulted from state and local taxes, graduated federal tax rate reductions, non-deductible expenses and changes to the valuation allowance.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
REVENUES
Admissions	$ 7,590	$ 4,752	$ 15,347	$ 7,761
Concessions	3,166	1,929	6,504	3,128
Other	440	189	814	327
Total revenues	11,196	6,870	22,665	11,216
Cost of operations:
Film rent expense	3,936	2,401	7,714	3,813
Cost of concessions	581	317	1,183	482
Salaries and wages	1,297	710	2,747	1,224
Facility lease expense	1,450	811	2,920	1,334
Utilities and other	2,099	1,157	4,484	1,923
General and administrative	1,348	1,208	2,666	1,946
Change in fair value of earnout	(5)	0	54	0
Depreciation and amortization	1,373	1,098	2,708	1,947
Total costs and expenses	12,079	7,702	24,476	12,669
OPERATING LOSS	(883)	(832)	(1,811)	(1,453)
OTHER EXPENSE
Interest expense	(348)	(272)	(699)	(294)
Non-cash interest expense	(76)	(75)	(152)	(78)
Other expense	(40)	(8)	(47)	(8)
LOSS BEFORE INCOME TAXES	(1,347)	(1,187)	(2,709)	(1,833)
Income tax expense	9	47	18	64
NET LOSS	(1,356)	(1,234)	(2,727)	(1,897)
Net loss attributable to non-controlling interest	331	93	655	93
Net loss attributable to Digital Cinema Destinations Corp.	(1,025)	(1,141)	(2,072)	(1,804)
Preferred stock dividends	(5)	(5)	(10)	(6)
Net loss attributable to common stockholders	$ (1,030)	$ (1,146)	$ (2,082)	$ (1,810)
Net loss per Class A and Class B common share- basic and diluted attributable to common stockholders	$ (0.14)	$ (0.21)	$ (0.30)	$ (0.33)
Weighted average common shares outstanding:	7,565,123	5,511,765	7,014,926	5,465,356

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7. PROPERTY AND EQUIPMENT

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

7. PROPERTY AND EQUIPMENT

Property and equipment, net was comprised of the following:

	December 31,	June 30,
	2013	2013
Furniture and fixtures	$                    5,556	$                4,931
Leasehold improvements	13,427	12,820
Building and improvements	4,636	4,627
Digital systems and related equipment	6,619	6,071
Equipment and computer software	4,423	3,976
	34,661	32,425
Less: accumulated depreciation and amortization	(4,995)	(3,254)
Total property and equipment, net	$                  29,666	$              29,171

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6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	December 31,	June 30,
	2013	2013
Insurance	$                       126	$                   215
Projector and other equipment maintenance	238	246
Real estate taxes	71	82
Note receivable (1)	74	89
Due from former theater owners (1)	293	299
Due from Start Media	225	290
Other theater operating	114	84
Other expenses	154	139
Total	$                    1,295	$                1,444

  (1) The note receivable of $74 and $55 of the due from theater owner was from the former owner of the Lisbon theater, and was paid in February 2014 in connection with the finalization of the Lisbon earnout.   

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Principles of Consolidation

The unaudited condensed consolidated financial statements of the Company include the accounts of Digiplex and its wholly-owned subsidiaries, and the JV, which is a VIE. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, those related to film rent expense settlements, depreciation and amortization, impairments, income taxes and assumptions used in connection with acquisition accounting. Actual results could differ from those estimates.

Revenue Recognition

Revenues are generated principally through admissions on feature film displays and concessions sales, with proceeds received in cash or credit card at the Company’s point of sale terminals at the Theaters. Revenue is recognized at the point of sale. Credit card sales are normally settled in cash within approximately three business days from the point of sale, and any credit card chargebacks have been insignificant. Other revenue consists of theater rentals for parties, camps, civic groups and other activities, advertising revenue under our advertising contract and our portion of game income, ATM fees and internet ticketing fees. Rental revenue is recognized at the time of the rental. Advertising revenue is recorded based on an expected per-patron amount and the number of patrons over the contract period as the advertising is being delivered on screen. Other revenue items are recognized as earned in the period. In addition to traditional feature films, the Company also displays concerts, sporting events, children’s programming and other non-traditional content on its screens (such content referred to herein as “alternative content”). Revenue from alternative content programming also consists of admissions and concession sales. The Company also sells theater admissions in advance of the applicable event, and sells gift cards for patrons’ future use. The Company defers the revenue from such sales until considered redeemed. The Company estimates the gift card breakage rate based on historical redemption patterns. Unredeemed gift cards are recognized as revenue only after such a period of time indicates, based on historical attendance, the likelihood of redemption is remote, and based on applicable laws and regulations, in evaluating the likelihood of redemption, the period outstanding, the level and frequency of activity, and the period of inactivity is evaluated.

Rewards Club Program

In August 2013, the Digiplex Rewards Club was implemented, whereby members earn credits for each dollar spent at one of the Company's theaters and earn concession or ticket awards based on the number of credits accumulated. Because the Company believes that the value of the awards granted is insignificant in relation to the value of the transactions necessary to earn the award, the Company records the estimated cost of providing awards at the time the awards are earned. The Company’s costs of these awards are not significant for the six months ended December 31, 2013. The awards issued under the Digiplex Rewards Club expire 90 days after issuance.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2013 and June 30, 2013, the Company held substantially all of its cash in bank accounts with major financial institutions, and had cash on hand at the Theaters in the normal course of business.

Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company reports accounts receivable net of any allowance for doubtful accounts to represent management’s estimate of the amount that ultimately will be realized in cash. The Company reviews collectability of accounts receivable based on the aging of the accounts and historical collection trends. When the Company ultimately concludes a receivable is uncollectible, the balance is written off. The Company has determined that an allowance for doubtful accounts is not necessary at December 31, 2013 and June 30, 2013.

Inventories

Inventories consist of food and beverage concession products and related supplies. The Company states inventories on the basis of the first-in, first-out method, stated at the lower of cost or market.

Property and Equipment

Property and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are expensed currently.

The Company records depreciation and amortization using the straight-line method, over the following estimated useful lives:

Furniture and fixtures	5 years
Leasehold improvements	Lesser of lease term or estimated asset life
Building and improvements	17 years
Digital systems and related equipment	10 years
Equipment and computer software	3 - 5 years

Goodwill

The carrying amount of goodwill at December 31, 2013 and June 30, 2013 was $3,502 and $3,156, respectively. The Company evaluates goodwill for impairment annually or more frequently as specific events or circumstances dictate. Under ASC Subtopic 350-20, Intangibles — Goodwill and Other — 

Goodwill, the Company has identified its reporting units to be the regions in which the Company conducts its theater operations.

The Company determines fair value by using an enterprise valuation methodology weighing the income approach and market approach by applying multiples to cash flow estimates less any net indebtedness, which the Company believes is an appropriate method to determine fair value. There is considerable management judgment with respect to future cash flow estimates and appropriate multiples and discount rates to be used in determining fair value and such management estimates fall under Level 3 within the fair value measurement hierarchy.

The changes in carrying amounts of goodwill are as follows:

	Total
Balance as of June 30, 2013	$3,156
Goodwill resulting from the Mechanicsburg acquisition	346
Balance as of December 31, 2013	$3,502

Concentration of Credit Risk

Financial instruments that could potentially subject the Company to concentration of credit risk, if held, would be included in accounts receivable. Collateral is not required on trade accounts receivables. It is anticipated that in the event of default, normal collection procedures would be followed.

Fair Value of Measurements

The fair value measurement disclosures are grouped into three levels based on valuation factors:

• Level 1 – quoted prices in active markets for identical investments

• Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.

The following tables summarize the levels of fair value measurements of the Company’s financial liabilities as of December 31, 2013 and June 30, 2013:

As of December 31, 2013:
	Level 1	Level 2	Level 3	Total
Earnout from theater acquisitions	-	-	350	350
	$                         -	$                      -	$              350	$         350
As of June 30, 2013:
	Level 1	Level 2	Level 3	Total
Earnout from theater acquisitions	-	-	296	296
	$                         -	$                      -	$              296	$         296

Earnout from acquisitions is a liability to the seller of the Lisbon theater and is based upon meeting certain financial performance targets. Estimates of the fair values of the earnout was estimated by a forecast of

theater level cash flow, as defined by the asset purchase agreement. That measure is based on significant inputs that are not observable in the market, which are considered Level 3 inputs.

The following summarized changes in the earnout during the six months ended December 31, 2013:

	Total
Balance as of June 30, 2013	$              296
Change in fair value of earnout liability for Lisbon acquisition	54
Balance as of December 31,  2013	$              350

Key assumptions underlying the initial Lisbon earnout estimate include a discount rate of 12.5 percent and that Lisbon will achieve its forecasted financial performance target in the one year earnout period ended September 28, 2013.  As of December 31, 2013, the Company increased the Lisbon earnout from $296 to $350 based on actual results compared to the threshold in the asset purchase agreement and the final payment. A fair value change of ($5) and $54 for the three and six months ended December 31, 2013 was recognized. The earnout of $350 was paid to the seller in February 2014.

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and accrued expenses, and note payable approximate their fair values, due to their short term nature. 

Deferred Rent Expense

The Company recognizes rent expense on a straight-line basis, after considering the effect of rent escalation provisions resulting in a level monthly rent expense for each lease over its term.

Deferred Financing Costs

Deferred financing costs primarily consist of unamortized debt issuance costs for the note payable, unamortized financing costs related to the formation of JV, and the fair value of warrants issued to Start Media, which are amortized on a straight-line basis over the respective terms. The straight-line basis is not materially different from the effective interest method.

Film Rent Expense

The Company estimates film rent expense and related film rent payable based on management’s best estimate of the ultimate settlement of the film costs with the film distributors. Generally, less than one-quarter of film rent expense is estimated at period-end, with the majority being agreed to under firm terms. The length of time until these costs are known with certainty depends on the ultimate duration of the film’s theatrical run, but is typically “settled” within one to two months of a particular film’s opening release. Upon settlement with the film distributors, film rent expense and the related film rent payable is adjusted to the final film settlement.

The film rent expense on the unaudited condensed consolidated statement of operations of the Company for the three months ended December 31, 2013 and 2012 was reduced by virtual print fees (“VPFs”) of $291 and $259, respectively under a master license agreement exhibitor-buyer arrangement with a third party vendor. VPFs for the six months ended December 31, 2013 and 2012 were $582 and $504, respectively. VPFs represent a reduction in film rent paid to film distributors. Pursuant to this master license agreement, the Company will purchase and own digital projection equipment and the third party vendor, through its agreements with film distributors, will collect and remit VPFs to the Company, net of a 10% administrative fee. VPFs are generated based on initial display of titles on the digital projection equipment.

Stock-Based Compensation

The Company recognizes stock-based compensation expense to employees based on the fair value of the award at the grant date with expense recognized over the service period, or vesting period, using the straight-line recognition method of awards subject to graded vesting.

The Company uses the Black-Scholes valuation model to determine the fair value of warrants. The fair value of the restricted stock awards is determined by the stock fair market value on the award date. The Company recognizes an estimate for forfeitures of unvested awards. These estimates are adjusted as actual forfeitures differ from the estimate.

The Company also issues common stock to non-employees in exchange for services. The Company measures and records stock-based compensation at fair value at the earlier of the date the performance commitment is reached or when the performance is complete. The expense recognized is based on the closing stock price of the Company’s stock issued.

Reclassification

Certain reclassifications have been made to the fiscal period ended December 31, 2012 financial statements to conform to the current fiscal period ended December 31, 2013 presentation.

Segments

As of December 31, 2013, the Company managed its business under one reportable segment: theater exhibition operations. All Company operations are located in the United States.

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14. RELATED PARTY TRANSACTIONS

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

14. RELATED PARTY TRANSACTIONS

The total rent expense under operating leases with a landlord that owns the Rialto and Cranford premises and owns shares of the Company’s Class A common stock was $100 and $130 for the three months ended December 31, 2013 and 2012, respectively, and $199 and $220 for the six months ended December 31, 2013 and 2012, respectively.

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10. COMMITMENTS AND CONTINGENCIES

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

10. COMMITMENTS AND CONTINGENCIES

The Company believes that it is in substantial compliance with all relevant laws and regulations, and is not aware of any current, pending or threatened litigation that could materially impact the Company.

The Company has entered into employment contracts, to which we refer to as the “employment contracts”, with four of its current executive officers. Under the employment contracts, each executive officer is entitled to severance payments in connection with the termination of the executive officer’s employment by the Company “without cause”, by the executive officer for “good reason”, or as a result of a “change in control” of the Company (as such terms are defined in the employment contracts). Pursuant to the employment contracts, the maximum amount of payments and benefits in the aggregate, if such executives were terminated (in the event of a change of control) would be approximately $1,240.

A. Dale Mayo, the Company’s Chief Executive Officer (“CEO”), is entitled to additional compensation based on the amount of revenues the Company generates, as specified in his employment contract. For the three months ended December 31, 2013 and 2012, the Company recorded $65 and $60 of compensation expense under this arrangement. For the six months ended December 31, 2913 and 2012, the Company recorded $140 and $120 under this arrangement.

All of the Company’s operations as of December 31, 2013, are located in Pennsylvania, New Jersey, Connecticut, California, Arizona and Ohio, with the customer base being public attendance. The Company’s main suppliers are the major movie studios, primarily located in the greater Los Angeles area. Any events impacting the regions the Company operates in, or impacting the movie studios, who supply movies to the Company, could significantly impact the Company’s financial condition and results of operations.

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15. NET LOSS PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Numerator for basic and diluted loss per share
Net loss attributable to Digital Cinema Destinations Corp.	$ (1,025)	$ (1,141)	$ (2,072)	$ (1,804)
Preferred dividends	(5)	(5)	(10)	(6)
Net loss attributable to common shareholders	$ (1,030)	$ (1,146)	$ (2,082)	$ (1,810)
Denominator
Weighted average shares of common stock outstanding	7,565,123	5,511,765	7,014,926	5,465,356
Basic and diluted net loss per share of common stock	$ (0.14)	$ (0.21)	$ (0.30)	$ (0.33)

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8. INTANGIBLE ASSETS

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

8. INTANGIBLE ASSETS

Intangible assets, net consisted of the following as of December 31, 2013:

	Gross			Useful
	Carrying	Accumulated	Net	Life
	Amount	Amortization	Amount	(years)
Trade names	$                    3,016	$                1,768	$           1,248	3-5
Covenants not to compete	2,463	798	1,665	3
Favorable leasehold interest	4,607	508	4,099	Remaining lease term
	$                  10,086	$                3,074	$           7,012

Intangible assets, net consisted of the following as of June 30, 2013:

	Gross			Useful
	Carrying	Accumulated	Net	Life
	Amount	Amortization	Amount	(years)
Trade names	$                    3,016	$                1,302	$           1,714	3-5
Covenants not to compete	1,906	493	1,413	3
Favorable leasehold interest	3,371	312	3,059	Remaining lease term
	$                    8,293	$                2,107	$           6,186

The weighted average remaining useful life of the Company’s trade names, covenants not to compete, and favorable leasehold interests is 3.07 years, 2.28 years and 15.92 years, respectively, as of  December 31, 2013.   

Expected amortization of intangible assets over the next five fiscal years is as follows:

June 30,	Total
2014 (remaining six months)	$                    1,127
2015	1,996
2016	923
2017	492
2018	393
2019	393

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9. LEASES

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

9. LEASES

The Company accounts for all of its facility leases as operating leases. Minimum lease payments under all non-cancelable operating leases with terms in excess of one year as of December 31, 2013, are summarized for the following fiscal years:

June 30,	Total
2014 (remaining six months)	$             3,076
2015	6,278
2016	6,162
2017	5,525
2018	5,015
2019	4,742
Thereafter	23,937
Total	$           54,735

Certain of the Company’s Theater leases require the payment of percentage rent if certain revenue targets are exceeded. For the three months ended December 31, 2013 and 2012, the Company recorded $22 and $73, respectively, of percentage rent expense in the unaudited condensed consolidated statements of operations. The Company recorded $45 and $88 for the six months ended December 31, 2013 and 2012 respectively.

CAPITAL LEASES

The Company leases certain theater equipment under capital leases that expire to fiscal year 2018, with imputed interest rates of 5.0% to 8.0% per annum. Repayment of the capital lease obligation is based on a percentage of revenue generated from the usage of the underlying theater equipment. The assets are being amortized over the shorter of their lease terms or their estimated useful lives. The applicable amortization is included in depreciation and amortization expense in the accompanying unaudited condensed consolidated statement of operations. Amortization of assets under capital leases during the three months ended December 31, 2013 and 2012 was $28 and $5 respectively. Amortization of assets under capital leases during the six months ended December 31, 2013 and 2012 was $49 and $5 respectively.

The following is a summary of property held under capital leases included in property and equipment:

	December 31,	June 30,
	2013	2013
Equipment	$                       729	$                   409
Less: accumulated amortization	(103)	(54)
Net	$                       626	$                   355

 Future maturities of capital lease payments as of December 31, 2013 for each of the lease lives and in the aggregate are:

December 31,	Total
2014	$                       200
2015	176
2016	176
2017	168
2018	-
Total minimum payments	720
Less:  amount representing interest	(88)
Present value of minimum payments	632
Less:  current portion	(162)
	$                       470

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11. STOCKHOLDERS EQUITY AND SHARE BASED COMPENSATION

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

11. STOCKHOLDERS EQUITY AND SHARE BASED COMPENSATION

Capital Stock

As of December 31, 2013, the Company’s authorized capital stock consisted of:

• 20 million shares of Class A common stock, par value $0.01 per share;

• 900,000 shares of Class B common stock, par value $0.01 per share;

• 10 million shares preferred stock, par value $0.01 per share;

Of the authorized shares of Class A common stock, 7,083,598 shares were issued and outstanding as of December 31, 2013. Of the authorized shares of Class B common stock, 849,000 shares were issued and outstanding as of December 31, 2013, all of which are held by the Company’s CEO. In August 2013, 16,000 shares of Class B common stock previously outstanding automatically converted into 16,000 shares of Class A common stock on transfer by the holder (as bona fide gifts) and cannot be reissued. Of the authorized shares of preferred stock, 6 shares of Series B Preferred Stock were issued and outstanding as of December 31, 2013.  The material terms and provisions of the Company’s capital stock are described below.

Common Stock

The Class A and the Class B common stock of the Company are identical in all respects, except for voting rights and except that each share of Class B common stock is convertible at the option of the holder into one share of Class A common stock. Each holder of Class A common stock will be entitled to one vote for each outstanding share of Class A common stock owned by that stockholder on every matter submitted to the stockholders for their vote. Each holder of Class B common stock will be entitled to ten votes for each outstanding share of Class B common stock owned by that stockholder on every matter submitted to the stockholders for their vote. Except as required by law, the Class A and the Class B common stock will vote together on all matters. Upon any transfer of Class B common stock by the Company’s CEO, such transferred shares will be converted to Class A shares and the converted Class B shares shall be retired and are not available for reissuance. Subject to the dividend rights of holders of any outstanding preferred stock, holders of common stock are entitled to any dividend declared by the board of directors out of funds legally available for this purpose, and, subject to the liquidation preferences of any outstanding preferred stock, holders of common stock are entitled to receive, on a pro rata basis, all the Company’s remaining assets available for distribution to the stockholders in the event of the Company’s liquidation, dissolution or winding up. No dividend can be declared on the Class A or Class B common stock unless at the same time an equal dividend is paid on each share of Class B or Class A common stock, as the case may be. Dividends paid in shares of common stock must be paid, with respect to a particular class of common stock, in shares of that class. Holders of common stock do not have any preemptive right to become subscribers or purchasers of additional shares of any class of the Company’s capital stock. The outstanding shares of common stock are, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock may be adversely affected by the rights of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.

In October 2013, the Company sold 1,141,000 shares of Class A common stock to several investors for $5.00 per share and received net proceeds of $5,200.  Such issuance took place pursuant to a May 2013 shelf registration statement the Company had filed with the SEC.

During the six months ended December 31, 2013, the Company issued 25,000 shares of Class A common stock to vendors for services rendered in the ordinary course of business.

Preferred Stock

The Company’s certificate of incorporation allows the Company to issue, without stockholder approval, preferred stock having rights senior to those of the common stock. The Company’s board of directors is

authorized, without further stockholder approval, to issue up to 10,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, and to fix the number of shares constituting any series and the designations of these series. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could also have the effect of decreasing the market price of the Class A common stock.

Dividends

No dividends were declared on the Company’s common stock during the period and management does not anticipate doing so. The Company pays a quarterly dividend on its Series B preferred stock in an amount equal to 4.5% per annum.

Stock-Based Compensation and Expenses

During the six months ended December 31, 2013, the Company issued restricted stock awards totaling 137,000 shares of its Class A common stock to employees, which vests over a period of three years and a non-employee that vested when performance was complete.

The total stock-based compensation was $122 and $26 for the three months ended December 31, 2013 and 2012, respectively, and is included in general and administrative expense in the unaudited condensed consolidated statement of operations. Total stock- based compensation was $361 and $69 for the six months ended December 31, 2013 and 2012, respectively.

The following summarizes the activity of the unvested share awards for the three months ended December 31, 2013:

Unvested balance at June 30, 2013	88,869
Issuance of awards	137,000
Vesting of awards	(15,500)
Unvested balance at December 31, 2013	210,369

The weighted average remaining vesting period as of December 31, 2013 is 1.41. As of December 31, 2013, there was $1,041 of remaining expense associated with unvested share awards.

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16. SUPPLEMENTAL CASH FLOW DISCLOSURE (Tables)

6 Months Ended

Dec. 31, 2013

Supplemental Cash Flow Elements [Abstract]

Schedule of Supplemental Cash Flow Disclosure

	Six Months Ended
	December 31,
	2013	2012
Fair value of earnout recorded at acquisition	$                    -	$                  550
Cash paid for interest	381	296
Amount offset on note repayment	-	168
Common stock issued for Ultrastar theaters	-	4,714
Issuance of warrants to Start Media	-	954
Common stock issued for acquisition of Torrington theater	391	-
Common stock issued for acquisition of Mechanicsburg theater	1,256	-
Consideration to be paid for Mechanicsburg acquisition	492	-
Conversion of Class B common stock into Class A	1	-

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9. LEASES (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Jun. 30, 2013
Leases [Abstract]
2014	$ 200
2015	176
2016	176
2017	168
2018	0
Total minimum payments	720
Less: amount representing interest	(88)
Present value of minimum payments	632
Less: current portion	(162)	(121)
Total	$ 470	$ 239

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16. SUPPLEMENTAL CASH FLOW DISCLOSURE

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

16. SUPPLEMENTAL CASH FLOW DISCLOSURE

	Six Months Ended
	December 31,
	2013	2012
Fair value of earnout recorded at acquisition	$                    -	$                  550
Cash paid for interest	381	296
Amount offset on note repayment	-	168
Common stock issued for Ultrastar theaters	-	4,714
Issuance of warrants to Start Media	-	954
Common stock issued for acquisition of Torrington theater	391	-
Common stock issued for acquisition of Mechanicsburg theater	1,256	-
Consideration to be paid for Mechanicsburg acquisition	492	-
Conversion of Class B common stock into Class A	1	-

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5. ACCOUNTS RECEIVABLE (Tables)

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Accounts receivable

	December 31,		June 30,
	2013		2013
VPFs	$	560	$	470
Advertising		149		180
Other		31		47
Total	$	740	$	697

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9. LEASES (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Leases Details
2014 (remaining six months)	$ 3,076
2015	6,278
2016	6,162
2017	5,525
2018	5,015
2019	4,742
Thereafter	23,937
Total	$ 54,735

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3. ACQUISITIONS (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Acquisitions Details 1
Revenues	$ 11,607	$ 7,668	$ 23,800	$ 12,812
Net loss	$ (1,398)	$ (1,304)	$ (2,810)	$ (1,978)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Cash flows from operating activities
Net loss	$ (2,727)	$ (1,897)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,708	1,947
Deferred tax expense	8	50
Change in fair value of earnout liability	54	0
Stock-based compensation	361	69
Amortization of deferred financing costs included in interest expense	173	17
Amortization of unfavorable lease liability	(18)	(14)
Paid-in-kind interest added to notes payable	152	78
Earnings from investment in Diginext	(53)	0
Changes in operating assets and liabilities:
Accounts receivable	(43)	(441)
Inventories	51	(15)
Prepaid expenses and other current assets	162	(100)
Other assets and security deposits	(4)	(57)
Accounts payable and accrued expenses	(1,293)	1,734
Payable to vender for digital systems	0	(3,334)
Deferred revenue	462	482
Deferred rent expense	210	90
Net cash provided by (used in) operating activities	203	(1,391)
Investing activities:
Purchases of property and equipment	(538)	(415)
Capital contribution of Start Media, LLC to joint venture	435	8,000
Investment in Diginext	(45)	(5)
Theatre acquisitions	(1,229)	(14,122)
Cash acquired in acquisition	8	40
Net cash used in investing activities	(1,369)	(6,502)
Financing activities:
Repayment of notes payable	(554)	(1,006)
Proceeds from notes payable	0	10,000
Payment under capital lease obligations	(48)	(4)
Payment of financing costs	0	(369)
Proceeds from issuance of Class A common stock	5,704	0
Proceeds from issuance of preferred stock	0	450
Dividends paid on preferred stock	(10)	(6)
Costs associated with issuance of stock	(541)	(80)
Net cash provided by financing activities	4,551	8,985
Net change in cash and cash equivalents	3,385	1,092
Cash and cash equivalents, beginning of year	3,607	2,037
Cash and cash equivalents, end of year	$ 6,992	$ 3,129

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5. ACCOUNTS RECEIVABLE

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

5. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	December 31,		June 30,
	2013		2013
VPFs	$	560	$	470
Advertising		149		180
Other		31		47
Total	$	740	$	697

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13. INCOME TAXES (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Income Taxes Details Narrative
Income tax expense	$ 9	$ 47	$ 18	$ 64
Accrual of non-cash tax expense			$ 12	$ 15
Effective tax rate			(0.90%)	(3.30%)
U.S. federal statutory rate			35.00%

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6. PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Prepaid expenses and other current assets

	December 31,	June 30,
	2013	2013
Insurance	$                       126	$                   215
Projector and other equipment maintenance	238	246
Real estate taxes	71	82
Note receivable (1)	74	89
Due from former theater owners (1)	293	299
Due from Start Media	225	290
Other theater operating	114	84
Other expenses	154	139
Total	$                    1,295	$                1,444

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2013
Summary Of Significant Accounting Policies Details 3
Balance as of June 30, 2013	$ 296
Change in fair value of earnout liability for Lisbon acquisition	54
Balance as of September 30, 2013	$ 350

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15. NET LOSS PER SHARE

6 Months Ended

Dec. 31, 2013

Notes to Financial Statements

15. NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and, if dilutive, common stock equivalents outstanding during the period.

The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A and Class B common stock are identical, except with respect to voting. Each share of Class B common stock is convertible into one share of Class A common stock at any time, at the option of the holder of the Class B common stock.

The following table sets forth the computation of basic net loss per share of Class A and Class B common stock of the Company (in millions, except share and per share data):

	Three Months Ended		Six Months Ended
	December 31,		December 31,
	2013	2012	2013	2012
Numerator for basic and diluted loss per share
Net loss attributable to Digital Cinema Destinations Corp.	$            (1,025)	$            (1,141)	$            (2,072)	$            (1,804)
Preferred dividends	(5)	(5)	(10)	(6)
Net loss attributable to common stockholders	$            (1,030)	$            (1,146)	$            (2,082)	$            (1,810)
Denominator
Weighted average shares of common stock outstanding (1)	7,565,123	5,511,765	7,014,976	5,465,356
Basic and diluted net loss per share of common stock	$              (0.14)	$              (0.21)	$              (0.30)	$              (0.33)

(1)The Company has incurred net losses and, therefore, the impact of dilutive potential common stock equivalents totaling 820,402 and 613,173 shares for the three and six months ended December 31, 2013 and 2012, respectively has been excluded from the loss per share calculations.