-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PUiPcD1glQHEk1NuHXQRIw+4cOt+NVMWh7+p8yqOZAZ/436ryEL9JVhO6dFTNrAY S3bH5tCY5rQY4nL5xyhCIQ== 0001104659-05-039161.txt : 20050812 0001104659-05-039161.hdr.sgml : 20050812 20050812165455 ACCESSION NUMBER: 0001104659-05-039161 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050812 DATE AS OF CHANGE: 20050812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALLANTYNE OF OMAHA INC CENTRAL INDEX KEY: 0000946454 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 470587703 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13906 FILM NUMBER: 051022378 BUSINESS ADDRESS: STREET 1: 4350 MCKINLEY ST CITY: OMAHA STATE: NE ZIP: 68112 BUSINESS PHONE: 4024534444 MAIL ADDRESS: STREET 1: 4350 MCKINLEY ST CITY: OMAHA STATE: NE ZIP: 68112 10-Q 1 a05-13257_110q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

		For the quarterly period ended June 30, 2005

		OR

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

		For the transition period from to

Commission File Number: 1-13906

BALLANTYNE OF OMAHA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		47-0587703
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification Number)

4350 McKinley Street, Omaha, Nebraska		68112
(Address of Principal Executive Offices)		Zip Code

(402) 453-4444

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 preceding 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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class		Outstanding as of August 12, 2005
Common Stock, $.01, par value		13,345,733 shares

TABLE OF CONTENTS

	PART I. Financial Information

Item 1.	Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

	PART II. Other Information

Item 1.	Legal Proceedings

Item 4.	Submission of Matters to a Vote of Security Holders

Item 6.	Exhibits

	Signatures

Part I. Financial Information

Item 1. Financial Statements

Ballantyne of Omaha, Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2005 and December 31, 2004

	June 30, 2005			December 31, 2004
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	16,603,484		$	14,031,984
Accounts receivable (less allowance for doubtful accounts of $409,777 in 2005 and $485,829 in 2004)	6,025,878			6,159,764
Inventories, net	12,197,722			12,173,966
Deferred income taxes	1,368,730			1,320,591
Other current assets	260,471			293,676
Total current assets	36,456,285			33,979,981
Property, plant and equipment, net	5,651,241			5,676,595
Goodwill, net	2,467,219			2,467,219
Intangible assets, net	3,354			23,488
Other assets	19,258			23,757
Total assets	$	44,597,357		$	42,171,040

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	26,831		$	25,935
Accounts payable	3,194,903			2,949,423
Warranty reserves	596,043			668,268
Accrued group health insurance claims	219,116			234,598
Customer deposits	368,315			564,321
Accrued bonus	605,075			911,520
Other accrued expenses	1,426,801			1,480,237
Income tax payable	274,739			245,986
Total current liabilities	6,711,823			7,080,288
Long-term debt, excluding current installments	28,725			42,370
Deferred income taxes	294,349			256,008
Other accrued expenses, net of current portion	298,912			268,936
Total liabilities	7,333,809			7,647,602
Stockholders’ equity:
Preferred stock, par value $.01 per share; Authorized 1,000,000 shares, none outstanding	—			—
Common stock, par value $.01 per share; Authorized 25,000,000 shares; issued 15,419,913 shares in 2005 and 15,090,863 shares in 2004	154,199			150,908
Additional paid-in capital	32,983,532			32,249,888
Retained earnings	19,441,271			17,438,096
	52,579,002			49,838,892
Less 2,097,805 common shares in treasury, at cost	(15,315,454		)	(15,315,454		)
Total stockholders’ equity	37,263,548			34,523,438
Total liabilities and stockholders’ equity	$	44,597,357		$	42,171,040

See accompanying notes to consolidated financial statements.

Ballantyne of Omaha, Inc. and Subsidiaries

Consolidated Statements of Operations

Three and Six Months Ended June 30, 2005 and 2004

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net revenues	$	13,041,594		$	11,657,967		$	25,553,463		$	22,955,379
Cost of revenues	9,354,602			8,420,804			18,471,880			16,560,482
Gross profit	3,686,992			3,237,163			7,081,583			6,394,897
Selling and administrative expenses:
Selling	616,497			627,385			1,355,909			1,371,432
Administrative	1,423,124			1,313,536			2,617,536			2,343,934
Total selling and administrative expenses	2,039,621			1,940,921			3,973,445			3,715,366
Income from operations	1,647,371			1,296,242			3,108,138			2,679,531
Interest income	95,382			25,528			167,534			37,964
Interest expense	(8,824		)	(8,280		)	(17,480		)	(19,357		)
Other income (expense)	(9,387		)	20,469			(38,906		)	(20,282		)
Income before income taxes	1,724,542			1,333,959			3,219,286			2,677,856
Income tax expense	(663,281		)	(488,644		)	(1,216,111		)	(977,546		)
Net income	$	1,061,261		$	845,315		$	2,003,175		$	1,700,310

Basic net income per share	$	0.08		$	0.07		$	0.15		$	0.13
Diluted net income per share	$	0.08		$	0.06		$	0.14		$	0.13
Weighted average shares outstanding:
Basic	13,218,957			12,812,270			13,135,310			12,767,265
Diluted	13,886,873			13,560,628			13,865,167			13,543,569

See accompanying notes to consolidated financial statements.

Ballantyne of Omaha, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2005 and 2004

(Unaudited)

	2005			2004
Cash flows from operating activities:
Net income	$	2,003,175		$	1,700,310
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	(39,301		)	2,000
Depreciation of plant and equipment	563,471			543,539
Other amortization	20,134			20,373
Gain on disposal of fixed assets	(10,000		)	(800		)
Changes in assets and liabilities:
Accounts receivable	173,187			1,202,391
Inventories	(23,756		)	(862,309		)
Income taxes	18,955			(282,732		)
Other current assets	33,205			395,848
Other assets	4,499			25
Accounts payable	245,480			(638,280		)
Warranty reserves	(72,225		)	(34,695		)
Accrued group health insurance claims	(15,482		)	(61,571		)
Customer deposits	(196,006		)	2,241,549
Other accrued expenses	(329,905		)	407,160

Net cash provided by operating activities	2,375,431			4,632,808

Cash flows from investing activities:
Capital expenditures	(538,117		)	(519,088		)
Proceeds from sale of assets	10,000			800

Net cash used in investing activities	(528,117		)	(518,288		)

Cash flows from financing activities:
Payments on long-term debt	(12,749		)	(11,924		)
Proceeds from exercise of stock options	736,935			68,730

Net cash provided by financing activities	724,186			56,806

Net increase in cash and cash equivalents	2,571,500			4,171,326
Cash and cash equivalents at beginning of period	14,031,984			8,761,568
Cash and cash equivalents at end of period	$	16,603,484		$	12,932,894

See accompanying notes to consolidated financial statements.

Ballantyne of Omaha, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three and Six Months Ended June 30, 2005 and 2004

(Unaudited)

1. Company

Ballantyne of Omaha, Inc., a Delaware corporation (“Ballantyne” or the “Company”), and its wholly-owned subsidiaries Strong Westrex, Inc. and Design & Manufacturing, Inc., design, develop, manufacture and distribute commercial motion picture equipment and lighting systems and distribute restaurant products. The Company’s products are distributed to movie exhibition companies, sports arenas, auditoriums, amusement parks and special venues. Refer to the Business Segment Section (Note 11) for further information.

2. Summary of Significant Accounting Policies

The principal accounting policies upon which the accompanying consolidated financial statements are based are summarized as follows:

a. Basis of Presentation and Principles of Consolidation

The consolidated financial statements included herein are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America for annual reporting purposes or those made in the Company’s annual Form 10-K filing. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for fiscal 2004.

In the opinion of management, the unaudited consolidated financial statements of the Company reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods. The results for interim periods are not necessarily indicative of trends or results expected for a full year.

b. Use of Estimates

The preparation of 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

c. Allowance for Doubtful Accounts

Accounts receivable are presented net of an allowance for doubtful accounts of $409,777 and $485,829 at June 30, 2005 and December 31, 2004, respectively. This allowance is developed based on several factors including overall customer credit quality, historical write-off experience and a specific analysis that projects the ultimate collectibility of the account. As such, these factors may change over time causing the reserve level to adjust accordingly.

d. Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and include appropriate elements of material, labor and manufacturing overhead.

e. Goodwill and Intangible Assets

The Company capitalizes and includes in intangible assets the excess of cost over the fair value of net identifiable assets of operations acquired through purchase transactions (“goodwill”) in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires goodwill no longer be amortized to earnings, but instead be reviewed at least annually for impairment. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s estimated fair value. All recorded goodwill is attributed to the Company’s theatre segment.

Other intangible assets are stated at cost and amortized on a straight-line basis over the expected periods to be benefited (25 to 36 months).

f. Property, Plant and Equipment

Significant expenditures for the replacement or expansion of property, plant and equipment are capitalized. Depreciation of property, plant and equipment is provided over the estimated useful lives of the respective assets using the straight-line method. For financial reporting purposes, assets are depreciated over the estimated useful lives of 20 years for buildings and improvements, 3 to 10 years for machinery and equipment, 7 years for furniture and fixtures and 3 years for computers and accessories. The Company generally uses accelerated methods of depreciation for income tax purposes.

g. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

h. Revenue Recognition

The Company recognizes revenue from product sales upon shipment to the customer when collectibility is reasonably assured. Revenues related to services are recognized as earned over the terms of the contracts or delivery of the service to the customer.

The Company enters into transactions that represent multiple element arrangements, which may include a combination of services and asset sales. Under EITF 00-21, Revenue Arrangements with Multiple Deliverables, multiple element arrangements are assessed to determine whether they can be separated into more than one unit of accounting. A multiple element arrangement is separated into more than one unit of accounting if all of the following criteria are met.

• The delivered item(s) has value on a standalone basis;

• There is objective and reliable evidence of the fair value of the undelivered item(s);

• If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company.

If these criteria are not met, then revenue is deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative fair value. There may be cases, however, in which there is objective and reliable evidence of fair value of the undelivered item(s) but no such evidence for the delivered item(s). In those cases, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less the aggregate fair value of the undelivered item.

i. Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash and cash equivalents, accounts and notes receivable, debt, accounts and notes payable and accrued expenses reported in the consolidated balance sheets equal or approximate their fair values.

j. Cash and Cash Equivalents

All highly liquid financial instruments with maturities of three months or less from date of purchase are classified as cash equivalents in the consolidated balance sheets and statements of cash flows.

k. Income Per Common Share

The Company computes and presents net income per share in accordance with SFAS No. 128, Earnings Per Share. Net income per share—basic has been computed on the basis of the weighted average number of shares of common stock outstanding. Net income per share—diluted has been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to potential common shares from dilutive stock options.

The following table provides a reconciliation between basic and diluted income per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Basic income per share:
Income applicable to common stock	$	1,061,261	$	845,315	$	2,003,175	$	1,700,310
Weighted average common shares outstanding	13,218,957		12,812,270		13,135,310		12,767,265
Basic income per share	$	0.08	$	0.07	$	0.15	$	0.13

Diluted income per share:
Income applicable to common stock	$	1,061,261	$	845,315	$	2,003,175	$	1,700,310
Weighted average common shares outstanding	13,218,957		12,812,270		13,135,310		12,767,265
Assuming conversion of options outstanding	667,916		748,358		729,857		776,304
Weighted average common shares outstanding, as adjusted	13,886,873		13,560,628		13,865,167		13,543,569
Diluted income per share	$	0.08	$	0.06	$	0.14	$	0.13

At June 30, 2005, options to purchase 268,800 shares of common stock at a weighted average price of $8.43 per share were outstanding, but were not included in the computation of net income per share—diluted for the three and six months ended June 30, 2005 as the options’ exercise price was greater than the average market price of the common shares. These options expire between January 2007 and May 2010. At June 30, 2004, options to purchase 269,425 shares of common stock at a weighted average price of $8.86 per share were outstanding, but were not included in the computation of net income per share—diluted for the three and six months ended June 30, 2004 as the options’ exercise price was greater than the average market price of the common shares.

l. Stock Based Compensation

As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, and amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, the Company elected to account for its stock based compensation plans under the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Consequently, when both the number of shares and the exercise price is known at the grant date, no compensation expense is recognized for stock options issued to employees and directors unless the exercise price of the option is less than the quoted value of the Company’s common stock at the date of grant. Had compensation cost for the Company’s stock compensation plans been determined consistent with SFAS No. 123 as amended by SFAS No. 148, the Company’s net income and basic and diluted income per share would have changed to the pro forma amounts indicated below:

	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005			2004
Net income:
As reported	$	1,061,261	$	845,315		$	2,003,175		$	1,700,310
Stock-based compensation income (expense), determined under fair value based method, net of tax	594		(12,545		)	(37,001		)	(38,693		)
Proforma net income	$	1,061,855	$	832,770		$	1,966,174		$	1,661,617
Income per share—basic
As reported	$	0.08	$	0.07		$	0.15		$	0.13
Proforma net income per share	$	0.08	$	0.06		$	0.15		$	0.13
Income per share—diluted
As reported	$	0.08	$	0.06		$	0.14		$	0.13
Proforma net income per share	$	0.08	$	0.06		$	0.14		$	0.12

The average fair value of each option granted in 2005 and 2004 was $1.86 and $2.04, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option-Pricing model made with the following weighted average assumptions:

	2005		2004
Risk-free interest rate	3.82	%	4.01	%
Dividend yield	0	%	0	%
Expected volatility	37.6	%	52.4	%
Expected life in years	5		10

m. Impairment of Long-Lived Assets

The Company reviews long-lived assets, exclusive of goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

The Company’s most significant long-lived assets subject to these periodic assessments of recoverability are property, plant and equipment, which have a net book value of $5.7 million at June 30, 2005. Because the recoverability of property, plant and equipment is based on estimates of future undiscounted cash flows, these estimates may vary due to a number of factors, some of which may be outside of management’s control. To the extent that the Company is unable to achieve management’s forecasts of future income, it may become necessary to record impairment losses for any excess of the net book value of property, plant and equipment over its fair value.

n. Warranty Reserves

The Company generally grants a warranty to its customers for a one-year period following the sale of all new equipment, and on selected repaired equipment for a one-year period following the repair. The warranty period is extended under certain circumstances and for certain products. The Company accrues for these costs at the time of sale or repair, when events dictate that additional accruals are necessary.

The following table summarizes warranty activity for the periods indicated below:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Balance at beginning of period	$	676,480		$	730,700		$	668,268		$	732,033
Charged to expense	16,482			58,569			85,727			146,170
Amounts written off, net of recoveries	(96,919		)	(91,931		)	(157,952		)	(180,865		)

Balance at end of period	$	596,043		$	697,338		$	596,043		$	697,338

o. Comprehensive Income

The Company’s comprehensive income consists solely of net income. All other items were not material to the consolidated financial statements.

p. Litigation

Ballantyne is a party to various legal actions that have arisen in the normal course of business. These actions involve normal business issues such as products liability.

Ballantyne is also a defendant in an asbestos liability case seeking monetary damages, entitled Bercu v. BICC Cables Corporation, et al., filed June 27, 2003 in the Supreme Court of the State of New York. There are numerous defendants including Ballantyne. At this time, the case has not progressed to a stage where either the likely outcome or the amount of damages, if any, for which Ballantyne may be liable can be determined. An adverse resolution of this matter could have a material effect on the financial position of Ballantyne. On May 18, 2005, the plaintiffs in another asbestos liability case, entitled Julia Crow, Individually and as Special Administrator of the Estate of Thomas Smith, deceased v. A.W. Chesterston, Inc., et al in Madison County, Illinois dismissed the suit without prejudice. There was no settlement reached and it is possible that the plaintiffs may re-file the suit but their intentions are unknown at this time.

q. Environmental

The Company is subject to various federal, state and local laws and regulations pertaining to environmental protection and the discharge of material into the environment. During 2001, Ballantyne was informed by a neighboring company of likely contaminated soil on certain parcels of land adjacent to Ballantyne’s main manufacturing facility in Omaha, Nebraska. The Environmental Protection Agency and the Nebraska Health and Human Services System subsequently determined that certain parcels of Ballantyne property had various levels of contaminated soil relating to a former pesticide company which previously owned the property and that burned down in the 1960’s. During October 2004, Ballantyne agreed to enter into an Administrative Order on Consent (“AOC”) to resolve the matter. The AOC holds Ballantyne and two other parties jointly and severally responsible for the cleanup. In this regard, the three parties have also entered into a Site Allocation Agreement by which they will divide past, current and future costs of the EPA, the costs of remediation and the cost of long term maintenance. In connection with the AOC, the Company has paid its share of the costs. At June 30, 2005, the Company has provided for management’s estimate of any future exposure relating to this matter which is not material to the consolidated financial statements.

r. Concentrations

s. Recently Issued Accounting Pronouncements

In May 2004, the FASB issued Staff Position No. 106-2 (“FSP No. 106-2”), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 (“the Act”). FSP No. 106-2 provides guidance on accounting for the effects of a subsidy available under the Act to companies that sponsor retiree medical programs with drug benefits that are actuarially equivalent to those available under Medicare. In addition to the direct benefit to a company from qualifying for and receiving the subsidy, the effects would include expected changes in retiree participation rates and changes in estimated health care costs that result from the Act. FSP No. 106-2 was effective for Ballantyne during the interim period ending September 30, 2004. The effects of the Act are not reflected in the Company’s financial position, results of operations and cash flows due to the significant uncertainties surrounding the accounting for effects of the Act and proposed regulations issued by the Department of Health and Human Services identifying sponsors of retiree prescription drug health plans potentially eligible for a tax-free subsidy.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. This statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires companies to recognize in the income statement the grant date fair value of stock options and other equity-based compensation issued to employees, but expresses no preference for a type of valuation model. The Statement was effective for interim periods beginning after June 15, 2005. On April 14, 2005, the SEC announced the adoption of a new rule amending the compliance dates for this statement. The Statement will now be effective for the Company’s first quarter beginning January 1, 2006. The Company is currently determining the impact of the Statement on its financial position, results of operations and cash flows.

3. Intangible Assets

Intangible assets consist of the following:

	At June 30, 2005
	Cost		Accumulated Amortization			Net Book Value
Nonamortizable intangible assets:
Goodwill	$	3,720,743	$	(1,253,524	)	$	2,467,219
Amortizable intangible assets:
Customer relationships	113,913		(110,748		)	3,165
Trademarks	1,000		(1,000		)	—
Non-competition agreement	6,882		(6,693		)	189
	$	3,842,538	$	(1,371,965	)	$	2,470,573

	At December 31, 2004
	Cost		Accumulated Amortization			Net Book Value
Nonamortizable intangible assets:
Goodwill	$	3,720,743	$	(1,253,524	)	$	2,467,219
Amortizable intangible assets:
Customer relationships	113,913		(91,763		)	22,150
Trademarks	1,000		(1,000		)	—
Non-competition agreement	6,882		(5,544		)	1,338
	$	3,842,538	$	(1,351,831	)	$	2,490,707

Amortization expense relating to amortizable intangible assets for the three and six months ended June 30, 2005 amounted to $10,068 and $20,134, respectively, as compared to $10,187 and $20,373 for the three and six months ended June 30, 2004, respectively. Amortization expense is expected to be $3,354 for the remainder of fiscal 2005, at which time the assets will be fully amortized.

4. Inventories

Inventories consist of the following:

	June 30, 2005		December 31, 2004

Raw materials and components	$	8,751,736	$	8,995,922
Work in process	1,503,224		1,276,297
Finished goods	1,942,762		1,901,747
	$	12,197,722	$	12,173,966

The inventory balances are net of reserves for slow moving or obsolete inventory of approximately $1,301,000 and $1,086,000 as of June 30, 2005 and December 31, 2004, respectively.

5. Property, Plant and Equipment

Property, plant and equipment include the following:

	June 30, 2005		December 31, 2004

Land	$	343,500	$	343,500
Buildings and improvements	4,693,137		4,687,859
Machinery and equipment	9,414,743		9,125,868
Office furniture and fixtures	2,063,610		1,932,367
Construction in process	15,419		28,922
	16,530,409		16,118,516
Less accumulated depreciation	10,879,168		10,441,921
Net property, plant and equipment	$	5,651,241	$	5,676,595

Depreciation expense amounted to $282,066 and $563,471 for the three and six months ended June 30, 2005, respectively, as compared to $263,197 and $543,539 for the three and six months ended June 30, 2004, respectively.

6. Debt

The Company is a party to a revolving credit facility with First National Bank of Omaha expiring on August 29, 2005. The credit facility provides for borrowings up to the lesser of $4.0 million or amounts determined by an asset based lending formula, as defined. Borrowings available under the credit facility amount to $4.0 million at June 30, 2005. No amounts are currently outstanding. The Company pays interest on outstanding amounts equal to the Prime Rate plus 0.25% (6.5% at June 30, 2005) and pays a fee of 0.125% on the unused portion. The credit facility contains certain restrictive covenants primarily related to maintaining certain earnings, as defined, and restrictions on acquisitions and dividends. All of the Company’s personal property and stock in its subsidiaries secure this credit facility.

Long-term debt at June 30, 2005 consist of installment payments relating to the purchase of certain intangible assets. Future maturities of long-term debt for the remainder of fiscal 2005 and for each of the remaining years are as follows: 2005 - $13,185; 2006 - $27,762; and 2007 - $14,609.

7. Supplemental Cash Flow Information

Supplemental disclosures to the consolidated statements of cash flows are as follows:

	Six Months Ended June 30,
	2005		2004
Interest paid	$	5,101	$	18,093
Income taxes paid	$	1,197,156	$	1,260,279

8. Stockholder Rights Plan

On May 26, 2000, the Board of Directors of the Company adopted a Stockholder Rights Plan (the “Rights Plan”). Under terms of the Rights Plan, which expires June 9, 2010, the Company declared a distribution of one right for each outstanding share of common stock. The rights become exercisable only if a person or group (other than certain exempt persons, as defined) acquires 15 percent or more of Ballantyne’s common stock or announces a tender offer for 15 percent or more of Ballantyne’s common stock. Under certain circumstances, the Rights Plan allows stockholders, other than the acquiring person or group, to purchase the Company’s common stock at an exercise price of half the market price.

9. Self-Insurance

The Company is self-insured up to certain stop loss limits for group health insurance. Accruals for claims incurred but not paid as of June 30, 2005 and December 31, 2004 are included in accrued group health insurance claims in the accompanying consolidated balance sheets. The Company’s policy is to accrue the employee health benefit accruals based on historical information along with certain assumptions about future events.

10. Postretirement Health Care

Ballantyne sponsors a postretirement health care plan (the “Plan”) for certain current and former executives and their spouses. Ballantyne’s policy is to fund the cost of the Plan as expenses are incurred. The costs of the postretirement benefits are accrued over the employees’ service lives.

In accordance with SFAS No. 132, Disclosures About Pensions and Other Postretirement Benefits, the following table sets forth the components of the net period benefit cost for the three and six months ended June 30, 2005 and 2004:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004

Service cost	$	3,051	$	2,485	$	6,102	$	4,970
Interest cost	6,196		5,559		12,392		11,118
Amortization of prior-service cost	6,718		6,718		13,436		—
Amortization of loss	934		—		1,868		13,436
Net periodic benefit cost	$	16,899	$	14,762	$	33,798	$	29,524

The Company expects to pay $5,962 under the plan in 2005. As of June 30, 2005, benefits of $1,199 have been paid.

In December 2003, the United States enacted into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act established a prescription drug benefit under Medicare, known as “Medicare Part D” and a federal subsidy to sponsors of retired healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The effects of the Act are not reflected in the tables above due to the significant uncertainties surrounding the accounting for effects of the Act and proposed federal regulations issued by the Department of Health and Human Services identifying sponsors of retiree prescription drug health plans potentially eligible for a tax-free subsidy.

11. Business Segment Information

The presentation of segment information reflects the manner in which management organizes segments for making operating decisions and assessing performance.

As of June 30, 2005, the Company’s operations are conducted principally through three business segments: Theatre, Lighting and Restaurant. Theatre operations include the design, manufacture, assembly and sale of motion picture projectors, xenon lamphouses and power supplies, sound systems, film handling equipment and the sale of xenon lamps and lenses. The lighting segment operations include the design, manufacture, assembly and sale of follow spotlights, stationary searchlights and computer operated lighting systems for the motion picture production, television, live entertainment, theme parks and architectural industries. The restaurant segment primarily includes the manufacture and sale of replacement parts and the sale of seasonings and marinades. The Company has phased out its restaurant equipment product line. The Company allocates resources to business segments and evaluates the performance of these segments based upon reported segment gross profit. However, certain key operations of a particular segment are tracked on the basis of operating profit. There are no significant intersegment sales. All intersegment transfers are recorded at historical cost.

Summary by Business Segments

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net revenue
Theatre	$	12,106,621		$	10,705,323		$	23,577,824		$	21,089,455
Lighting	707,681			580,387			1,537,045			1,185,589
Restaurant	227,292			372,257			438,594			680,335
Total net revenue	$	13,041,594		$	11,657,967		$	25,553,463		$	22,955,379

Gross profit
Theatre	$	3,327,103		$	2,971,689		$	6,387,373		$	5,932,596
Lighting	235,376			191,969			490,370			307,613
Restaurant	124,513			73,505			203,840			154,688
Total gross profit	3,686,992			3,237,163			7,081,583			6,394,897
Selling and administrative expenses	(2,039,621		)	(1,940,921		)	(3,973,445		)	(3,715,366		)
Operating income	1,647,371			1,296,242			3,108,138			2,679,531
Other income (expense)	(9,387		)	20,469			(38,906		)	(20,282		)
Net interest income	86,558			17,248			150,054			18,607
Income before income taxes	$	1,724,542		$	1,333,959		$	3,219,286		$	2,677,856

Expenditures on capital equipment
Theatre	$	432,833		$	83,399		$	511,130		$	470,669
Lighting	22,264			43,820			26,987			48,419
Restaurant	—			—			—			—
Total	$	455,097		$	127,219		$	538,117		$	519,088

Depreciation and amortization
Theatre	$	275,903		$	251,878		$	551,662		$	524,072
Lighting	16,231			21,506			31,943			39,840
Restaurant	—			—			—			—
Total	$	292,134		$	273,384		$	583,605		$	563,912

Gain on disposal of long-lived assets
Theatre	$	10,000		$	—		$	10,000		$	800
Lighting	—			—			—			—
Restaurant	—			—			—			—
Total	$	10,000		$	—		$	10,000		$	800

	At June 30, 2005		At December 31, 2004
Identifiable assets
Theatre	$	40,847,072	$	39,129,877
Lighting	3,129,708		2,764,847
Restaurant	620,577		276,316
Total	$	44,597,357	$	42,171,040

Summary by Geographical Area

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Net revenue
United States	$	9,629,762	$	8,281,346	$	18,230,323	$	16,223,692
Canada	95,983		193,970		360,329		368,643
Asia	1,302,670		1,411,004		3,268,484		3,046,134
Mexico and South America	1,319,530		974,248		2,747,464		1,819,684
Europe	674,737		658,686		897,887		1,358,372
Other	18,912		138,713		48,976		138,854
Total	$	13,041,594	$	11,657,967	$	25,553,463	$	22,955,379

	At June 30, 2005		At December 31, 2004
Identifiable assets
United States	$	43,231,538	$	40,513,053
Asia	1,365,819		1,657,987
Total	$	44,597,357	$	42,171,040

Net revenues by business segment are to unaffiliated customers. Net sales by geographical area are based on destination of sales. Identifiable assets by geographical area are based on location of facilities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Management’s discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, including but not limited to: quarterly fluctuations in results; customer demand for the Company’s products; the development of new technology for alternate means of motion picture presentation; domestic and international economic conditions; the achievement of lower costs and expenses; the continued availability of financing in the amounts and on the terms required to support the Company’s future business; credit concerns in the theatre exhibition industry; and other risks detailed from time to time in the Company’s other Securities and Exchange Commission filings. Actual results may differ materially from management’s expectations. The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect the Company’s business and financial performance. Moreover, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s 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. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Investors should also be aware that while the Company does communicate with securities analysts from time to time, it is against its policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecast or projections issued by others. Therefore, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

Overview

The Company designs, develops, manufactures and distributes commercial motion picture equipment and lighting systems and also distributes restaurant products. The Company business was founded in 1932. The Company has three reportable core operating segments: theatre, lighting and restaurant. Approximately 92% of fiscal year 2005 sales have resulted so far from theatre products, 6% from lighting products and 2% from restaurant products.

Critical Accounting Policies and Estimates

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of the Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

The Company’s accounting policies are discussed in note 2 to the consolidated financial statements in this report. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated financial statements.

Revenue Recognition

The Company recognizes revenue from product sales upon shipment to the customer when collectibility is reasonably assured. Revenue related to services are recognized as earned over the terms of the contracts or delivery of the service to the customer. The Company enters into transactions that represent multiple element arrangements, which may include a combination of services and asset sales. Under EITF 00-21, Revenue Arrangements with Multiple Deliverables, multiple element arrangements are assessed to determine whether they can be separated into more than one unit of accounting. A multiple element arrangement is separated into more than one unit of accounting if all of the following criteria are met.

• The delivered item(s) has value on a standalone basis;

• There is objective and reliable evidence of the fair value of the undelivered item(s);

The Company permits product returns from customers under certain circumstances and also allows returns under the Company’s warranty policy. Allowances for product returns are estimated and recorded at the time revenue is recognized. The return allowance is recorded as a reduction to revenues for the estimated sales value of the projected returns and as a reduction in cost of products for the corresponding cost amount. See note 2 to the consolidated financial statements for a full description of the Company’s revenue recognition policy.

Allowance for Doubtful Accounts

The Company makes judgments about the credit worthiness of both current and prospective customers based on ongoing credit evaluations performed by the Company’s credit department. These evaluations include, but are not limited to, reviewing customers’ prior payment history, analyzing credit applications, monitoring the aging of receivables from current customers and reviewing financial statements, if applicable. The allowance for doubtful accounts is developed based on several factors including overall customer credit quality, historical write-off experience and a specific account analysis that project the ultimate collectibility of the accounts. As such, these factors may change over time causing the reserve level to adjust accordingly. When it is determined that a customer is unlikely to pay, a charge is recorded to bad debt expense in the consolidated statements of operations and the allowance for doubtful accounts is increased. When it becomes certain the customer cannot pay, the receivable is written off by removing the accounts receivable amount and reducing the allowance for doubtful accounts accordingly.

At June 30, 2005, there were approximately $6.4 million in gross outstanding accounts receivable and $0.4 million recorded in the allowance for doubtful accounts to cover potential future customer non-payments. At December 31, 2004, there were approximately $6.6 million in gross outstanding accounts receivable and $0.5 million recorded in the allowance for doubtful accounts. If economic conditions deteriorate significantly or if one of the Company’s large customers were to declare bankruptcy, a larger allowance for doubtful accounts might be necessary.

Inventory Valuation

Inventories are stated at the lower of cost (first-in, first-out) or market and include appropriate elements of material, labor and overhead. The Company’s policy is to evaluate all inventory quantities for amounts on-hand that are potentially in excess of estimated usage requirements, and to write down any excess quantities to estimated net realizable value. Inherent in the estimates of net realizable values are management’s estimates related to the Company’s future manufacturing schedules, customer demand and the development of digital technology, which could make the Company’s theatre products obsolete, among other items. Management has managed these risks in the past and believes that it can manage them in the future, however, operating margins may suffer if they are

unable to effectively manage these risks. At June 30, 2005, the Company had recorded gross inventory of approximately $13.5 million and $1.3 million of inventory reserves. This compared to $13.3 million and $1.1 million, respectively, at December 31, 2004.

Warranty

The Company’s products must meet certain product quality and performance criteria. In addition to known claims or warranty issues, the Company estimates future claims on recent sales. The Company relies on historical product claims data to estimate the cost of product warranties at the time revenue is recognized. In determining the accrual for the estimated cost of warranty claims, the Company considers experience with: 1) costs for replacement parts; 2) costs of scrapping defective products; 3) the number of product units subject to warranty claims and 4) other direct costs associated with warranty claims. If the cost to repair a product or the number of products subject to warranty claims is greater than originally estimated, the Company’s accrued cost for warranty claims would increase.

Long-lived Assets

The Company reviews long-lived assets, exclusive of goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Goodwill

In accordance with SFAS No. 142, the Company evaluates its goodwill for impairment on an annual basis based on values at the end of the fourth quarter or whenever indicators of impairment exist. The Company has evaluated its goodwill for impairment and has determined that the fair value of the reporting units exceeded their carrying value, so no impairment of goodwill was recognized. Goodwill of approximately $2.5 million is included in the consolidated balance sheets at June 30, 2005 and December 31, 2004. Management’s assumptions about future cash flows for the reporting units require significant judgment and actual cash flows in the future may differ significantly from those forecasted today.

Deferred Income Taxes

Income taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate at each interim period based on the facts and circumstances known at the time, while the actual effective rate is calculated at year-end. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Self-insurance Reserves

The Company is partially self-insured for worker’s compensation and certain employee health benefits. The related liabilities are included in the accompanying consolidated financial statements. The Company’s policy is to accrue the liabilities based on historical information along with certain assumptions about future events.

Stock-Based Compensation

The Company accounts for its stock option plans using Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, which results in no charge to earnings when options are issued at fair market value. SFAS No. 123, Accounting for Stock-Based Compensation, issued subsequent to APB Opinion No. 25 and amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, defines a fair value based method of accounting for employee stock options

but allows companies to continue to measure compensation cost for employee stock options using the intrinsic value based method described in APB Opinion No. 25.

In accordance with SFAS No. 148, the Company has been disclosing in the notes to the consolidated financial statements the impact on net income and net income per share had the fair value based method been adopted. If the fair value method had been adopted, net income for the six months ended June 30, 2005 and 2004 would have been $37,001 and $38,693 lower than reported, respectively.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. This statement is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) requires companies to recognize in the income statement the grant date fair value of stock options and other equity-based compensation issued to employees, but expresses no preference for a type of valuation model. SFAS No. 123(R) was effective for interim periods beginning after June 15, 2005. On April 14, 2005, the SEC announced the adoption of a new rule amending the compliance date. SFAS No. 123(R) will now be effective for the Company’s first quarter beginning January 1, 2006. The Company is currently determining the impact of SFAS No. 123(R) on its financial position, results of operations and cash flows.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and effects on results of operations and financial condition.

Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004

Revenues

Net revenues in 2005 increased 11.9% to $13.0 million from $11.7 million in 2004. As discussed in further detail below, the increase resulted primarily from higher revenues from theatre products.

	Three Months Ended June 30,
	2005		2004

Theatre	$	12,106,621	$	10,705,323
Lighting	707,681		580,387
Restaurant	227,292		372,257
Total net revenue	$	13,041,594	$	11,657,967

Theatre Segment

Sales of theatre products increased 13.1% from $10.7 million in 2004 to $12.1 million in 2005. In particular, sales of projection equipment increased to $8.1 million in 2005 from $7.2 million in 2004 due primarily to higher demand from domestic exhibitors. This trend is expected to continue in the third and fourth quarters. Sales to foreign exhibitors were essentially flat during the quarter compared to 2004 as the increases during the first quarter were not sustainable.

Sales of theatre replacement parts declined 10.4% from approximately $2.0 million in 2004 to approximately $1.8 million in 2005. While sales are expected to increase as the year progresses, management is unsure whether these sales will rise above year-ago levels during these upcoming quarters.

Sales of xenon lamps to the theatre industry rose 27.0% to $1.3 million from $1.0 million a year ago primarily as a result of the continuing improvement of the theatre industry in general, increased marketing of the product line and picking up more business from the larger theatre exhibitors. The Company has also increased exposure by selling these lamps via an internet website.

Sales of lenses to theatre customers rose 77.4% to $0.9 million in 2005 from $0.5 million in 2004, as the Company is marketing the product more effectively and receiving more timely shipments from its sole supplier of this product. Prior to 2005, the supplier was involved in a bankruptcy reorganization and was unable to deliver certain types of lenses when needed. Certain of the Company’s customers subsequently found alternative vendors and sales were affected. The supplier is now out of bankruptcy and the Company is working towards regaining market share.

Lighting Segment

Sales of lighting products increased 21.9 % to $0.7 million in 2005 from $0.6 million a year ago primarily due to sales of replacement parts which rose to $0.2 million from $0.1 million a year ago. Spotlight sales were flat at $0.3 million for both 2005 and 2004 periods as the increased demand experienced in the first quarter was not sustainable in the second quarter. The Company is developing or marketing new spotlight products that are less expensive, smaller and more user-friendly to respond to the changing nature of the spotlight industry. The Company is also modifying how its core spotlight products, the Super Trouper® and Gladiator®, are marketed as it believes these industry leading products still have a long market life ahead.

Sales of Skytrackers were flat for both periods at approximately $0.1 million, respectively.

Sales of all other lighting products, including but not limited to, xenon lamps, Nocturns® and Britelights®, were also flat at approximately $0.1 million for 2005 and 2004, respectively.

Restaurant Segment

Restaurant sales fell to $0.2 million in 2005 from $0.4 million in 2004, a result of the Company’s decision to phase out its unprofitable equipment product line comprised of smokers, ventilation hoods and pressure fryers during 2004. The only sales pertaining to the discontinued equipment product line consist of divesting the remaining inventory on hand. The Company continues to supply parts to its installed customer base and also continues to distribute its “Flavor Crisp®” marinade and breading products as well as support its “Chicken-On-The-Run” and “BBQ-On-The-Run” programs.

Export Revenues

Sales outside the United States (mainly theatre sales) were flat at approximately $3.4 million in both 2005 and 2004 periods, as the Company could not sustain the growth that it experienced during the first quarter in Latin and South America. However, sales into Europe improved compared to the first quarter. Export sales are sensitive to worldwide economic and political conditions that can lead to volatility. Additionally, certain areas of the world are more cost conscious than the U.S. market and there are instances where the Company’s products are priced higher than local manufacturers making it more difficult to generate sufficient profit to justify selling into these regions. Additionally, foreign exchange rates and excise taxes sometimes make it difficult to market the Company’s products overseas at reasonable selling prices.

Gross Profit

Consolidated gross profit increased to $3.7 million in 2005 from $3.2 million in 2004 and as a percent of revenue increased to 28.3% in 2005 from 27.8% in 2004.

Gross profit in the theatre segment increased to $3.3 million in 2005 from $3.0 million in 2004 but as a percent of sales decreased slightly to 27.5% from 27.8% a year ago. The results reflect projection equipment and lamp sales representing a higher percentage of sales in 2005 and which generally carry a lower margin than certain other products within the segment, namely replacement parts. In addition, the Company is experiencing the effects of rising raw material and component parts prices for certain of its products and is also experiencing some customer pricing issues to stay competitive. The Company is currently working on strategies to cover these cost increases and regain pricing competitiveness. Finally, some of the efficiencies in the manufacturing process experienced earlier in the year have diminished due to lower production volume. Production is expected to increase in the third and fourth quarters due to higher sales and the Company expects the manufacturing efficiencies to turnaround at such time.

Gross profit in the lighting segment amounted to $0.2 million for both 2005 and 2004, as certain pricing pressures offset efficiency gains.

Restaurant margins were also flat at approximately $0.1 million for both the 2005 and 2004 periods but as a percent of revenue rose to 54.8% from 19.7% a year ago. Restaurant margins have been somewhat volatile due to the sell off of the discontinued equipment product line. Now that the majority of this equipment is sold, margins should become more stable.

Selling and Administrative Expenses

Selling and administrative expenses amounted to approximately $2.0 million in 2005 compared to $1.9 million in 2004 but as a percent of revenue declined to 15.6% from 16.6% in 2004. These expenses rose due to additional consulting costs pertaining to compliance with the Sarbanes/Oxley Act of 2002 and other consulting projects, as well as higher employee bonus expenses. The favorable change as a percentage of revenue pertains to covering certain fixed costs with higher revenues during 2005, lower bad debt expenses

and managing selling expenses in an effective manner.

Other Financial Items

During 2005, the Company recorded interest income of approximately $95,400 compared to $25,500 in 2004 as the Company earned interest from higher cash levels and invested in higher yield commercial paper. Interest expense increased to approximately $8,800 in 2005 from approximately $8,300 in 2004 resulting from interest for the Company’s post-retirement benefit plan.

The Company recorded income tax expense in 2005 of $0.7 million compared to $0.5 million in 2004 primarily a result of higher taxable income. The Company’s effective tax rate rose to 38.5% in 2005 compared to 36.6% in 2004 due to higher state income taxes.

For the reasons outlined herein, the Company earned net income in 2005 of $1.1 million compared to $0.9 million in 2004. This translated into net income per share basic and diluted of $0.08 in 2005 compared to $0.07 and $0.06, respectively, in 2004.

Six Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004

Revenues

Net revenues in 2005 increased 11.3% to $25.6 million from $23.0 million in 2004. As discussed in further detail below, the increase resulted primarily from higher revenues from theatre products.

	Six Months Ended June 30,
	2005		2004

Theatre	$	23,577,824	$	21,089,455
Lighting	1,537,045		1,185,589
Restaurant	438,594		680,335
Total net revenues	$	25,553,463	$	22,955,379

Theatre Segment

Sales of theatre products increased 11.8% from $21.1 million in 2004 to $23.6 million in 2005. In particular, sales of projection equipment increased to $16.2 million in 2005 from $14.4 million in 2004, due to a combination of improved demand domestically coupled with higher sales in Asia, Mexico and South America during the first quarter. The Company’s top ten theatre customers accounted for approximately 51% of total theatre revenues during 2005 compared to 50% in 2004.

Sales of theatre replacement parts declined 6.8% from approximately $3.8 million in 2004 to approximately $3.6 million in 2005. While management expects part sales to improve in the third and fourth quarters, they are unsure whether sales will rise above year-ago levels.

Sales of xenon lamps to the theatre industry rose 27.6% to $2.3 million from $1.8 million a year ago primarily as a result of the continuing improvement of the theatre industry in general, increased marketing of the product line and increased sales to the larger theatre exhibitors. The Company has also increased exposure by selling these lamps via an internet website.

Sales of lenses to theatre customers rose 38.6% to $1.5 million in 2005 from $1.1 million in 2004, as the Company is marketing the product more effectively and with the Company’s sole supplier of the product line being more financially solid and thus able to deliver product when needed. This supplier has struggled in the past couple of years in providing timely shipments due to a bankruptcy reorganization which affected sales in that certain of the Company’s customers found alternative sources. The Company is working towards regaining this business.

Lighting Segment

Sales of lighting products increased 29.6% to $1.5 million from $1.2 million a year ago primarily a result of sales of follow spotlights which rose to $0.7 million from $0.4 million a year ago due in part to a turnaround in industry conditions during the first quarter. The Company is developing or marketing new spotlight products that are less expensive, smaller and more user-friendly to respond to the changing nature of the spotlight industry. The Company is also modifying how its core spotlight products, the Super Trouper® and Gladiator®, are marketed as it believes these industry leading products still have a long market life ahead.

Sales of Skytracker® products declined to $0.3 million in 2005 from $0.4 million in 2004 primarily as a result of a special sale of lights for the Staples Center in Los Angeles during the first quarter of 2004 which did not reoccur in 2005.

Sales of all other lighting products, including but not limited to, replacement parts, xenon lamps, Nocturns® and Britelights®, increased to $0.5 million in 2005 from $0.4 million in 2004. The increase primarily results from increased sales of xenon lamps and replacement parts to the lighting industry.

Restaurant Segment

Restaurant sales fell to $0.4 million in 2005 from $0.7 million in 2004, a result of the Company’s decision to phase out its unprofitable equipment product line comprised of smokers, ventilation hoods and pressure fryers during 2004. The only sales pertaining to the equipment product line consist of divesting the remaining inventory on hand. The Company continues to supply parts to its installed customer base and also continues to distribute its “Flavor Crisp®” marinade and breading products as well as support its “Chicken-On-The-Run” and “BBQ-On-The-Run” programs.

Export Revenues

Sales outside the United States (mainly theatre sales) rose to $7.3 million in 2005 from $6.7 million in 2004, as the Company experienced stronger demand in Asia, Mexico and South America in the first quarter of the year. The Company is becoming more of a presence in Latin and South America through its sales office in Miami. Sales into Europe continued a trend of coming in below expectations but did show a slight improvement during the second quarter. Export sales are sensitive to worldwide economic and political conditions that can lead to volatility. Additionally, certain areas of the world are more cost conscious than the U.S. market and there are instances where the Company’s products are priced higher than local manufacturers making it more difficult to generate sufficient profit to justify selling into these regions. Additionally, foreign exchange rates and excise taxes sometimes make it difficult to market the Company’s products overseas at reasonable selling prices.

Gross Profit

Consolidated gross profit increased to $7.1 million in 2005 from $6.4 million in 2004 but as a percent of revenue decreased slightly to 27.7% in 2005 from 27.9% in 2004.

Gross profit in the theatre segment increased to $6.4 million in 2005 from $5.9 million in 2004 but as a percent of sales decreased to 27.1% from 28.1% a year ago. The results reflect projection equipment and lamp sales representing a higher percentage of sales in 2005 and which generally carry a lower margin than other products within the segment, namely replacement parts. The Company is also experiencing the effects of rising raw material and component parts prices for certain of its products and is experiencing some customer pricing issues to stay competitive. Finally, some of the efficiencies in the manufacturing process experienced in the first quarter diminished in the second quarter due to lower production volume. However, production is expected to increase in the third and fourth quarters due to higher sales and the Company expects the manufacturing efficiencies to turnaround at such time.

Gross profit in the lighting segment rose to $0.5 million in 2005 from $0.3 million in 2004 and as percent of revenue rose to 31.9% from 25.9% in 2004 due to lower manufacturing costs and also higher margin replacement parts accounting for a larger percent of revenues. These items were offset to a degree by some pricing pressures.

Restaurant margins were flat at approximately $0.2 million for both the 2005 and 2004 periods, however, as a percent of revenue rose to 46.5% compared to 22.7% in 2004. Restaurant margins have been somewhat volatile due to the sell off of the discontinued equipment product line. Now that the majority of this equipment is sold, margins should become more stable.

Selling and Administrative Expenses

Selling and administrative expenses amounted to $4.0 million in 2005 compared to $3.7 million in 2004 but as a percent of revenue declined to 15.5% from 16.2% in 2004. These expenses rose due to additional consulting costs pertaining to compliance with the Sarbanes/Oxley Act of 2002 and other consulting projects, as well as higher employee bonus expenses. The favorable change as a percentage of revenue pertains to covering certain fixed costs with higher revenues during 2005, lower bad debt expenses and managing selling expenses in an effective manner.

Other Financial Items

During 2005, the Company recorded interest income of approximately $167,500 compared to $38,000 in 2004 as the Company earned interest from higher cash levels and invested in higher yield commercial paper. Interest expense declined to approximately $17,500 in 2005 from approximately $19,400 in 2004 primarily resulting from the fee on the Company’s unused portion of its credit facility being renegotiated to 0.125% from 0.375% during 2004.

The Company recorded income tax expense in 2005 of $1.2 million compared to $1.0 million in 2004 reflecting higher taxable income. The Company’s effective tax rate amounted to 37.8% compared to 36.5% primarily a result of higher state income taxes.

For the reasons outlined herein, the Company earned net income in 2005 of $2.0 million compared to $1.7 million in 2004. This translated into net income per share basic and diluted of $0.15 and $0.14 in 2005, respectively, compared to $0.13 in 2004.

Liquidity and Capital Resources

The Company is a party to a revolving credit facility with First National Bank of Omaha expiring August 29, 2005. The credit facility provides for borrowings up to the lesser of $4.0 million or amounts determined by an asset based lending formula, as defined. Borrowings available under the credit facility amounted to $4.0 million at June 30, 2005. No amounts are currently outstanding. The Company pays interest on outstanding amounts equal to the Prime Rate plus 0.25% (6.5% at June 30, 2005) and pays a fee of 0.125% on the unused portion. The credit facility contains certain restrictive covenants mainly related to maintaining certain earnings, as defined, and restrictions on acquisitions and dividends. All of the Company’s personal property and stock in its subsidiaries secure this credit facility.

Net cash provided by operating activities declined to $2.4 million in 2005 from $4.6 million in 2004. The decrease primarily resulted from the Company receiving a deposit of $1.9 million during the first quarter of 2004 relating to a job which was not completed and recognized as revenue until the fourth quarter of 2004. Other items reducing cash flow were the timing of paying $0.9 million of bonuses in the first quarter of 2005 which were accrued for at December 31, 2004. Items contributing to operating cash flow primarily consisted of reducing inventory levels, and higher accounts payable and income tax accruals. The Company reduced inventory levels through higher sales and efforts to increase inventory turns. The increases pertaining to income tax and accounts payable are essentially related to the timing of payments and are expected to even out as the year progresses.

Net cash used in investing activities amounted to $0.5 million in both 2005 and 2004, as both periods included purchasing large machining centers to meet current and future demands.

Net cash provided by financing activities amounted to $724,200 compared to cash used in financing activities of $56,800 in 2004. The Company received proceeds of $737,000 from its stock plans in 2005 and made $12,800 of debt payments. In large part, the proceeds received from the stock plans resulted from plans set up under SEC Rule 10b5-1 for certain executives to exercise and sell certain stock options prior to the options expiring in September of 2005. During 2004, the Company received proceeds of $68,700 from its stock plans and made debt payments of $11,900.

Transactions with Related and Certain Other Parties

There were no significant transactions with related and certain other parties during 2005.

Internal Controls Over Financial Reporting

Current SEC rules implementing Section 404 of the Sarbanes-Oxley Act of 2002 will require the Company’s annual report on Form 10-K for fiscal 2006 to include a report on management’s assessment of the effectiveness of the Company’s internal controls over financial reporting and a statement that the Company’s independent registered public accounting firm has issued an attestation report on management’s assessment of the Company’s internal controls over financial reporting and a report on the effectiveness of the Company’s internal controls over financial reporting. While the Company has not yet identified any material weaknesses in internal controls over financial reporting, there are no assurances that the Company will not discover deficiencies in its internal controls as it implements new documentation and testing procedures to comply with the new Section 404 reporting requirement. If the Company discovers deficiencies or is unable to complete the work necessary to properly evaluate its internal controls over financial reporting, there is a risk that management and/or the Company’s independent registered public accounting firm may not be able to conclude that the Company’s internal controls over financial reporting are effective.

Concentrations

The Company’s top ten customers accounted for approximately 47% of consolidated net revenues for the six months ended June 30, 2005. These customers were primarily from the theatre segment. Trade accounts receivable from these customers represented approximately 57% of net consolidated receivables at June 30, 2005. In addition, receivables from Vari SA DE CV represented over 10% of consolidated receivables at June 30, 2005. While the Company believes its relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from the Company’s significant customers could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which the Company sells its products.

Financial instruments that potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different geographic regions. To minimize credit concentration risk, the Company performs ongoing credit evaluations of its customers’ financial condition or uses letters of credit.

Increased competition also results in continued exposure to the Company. If the Company loses market share or encounters more competition relating to the development of new technology for alternate means of motion picture presentation such as digital technology, the Company may be unable to lower its cost structure quickly enough to offset the lost revenue. To counter these risks, the Company has initiated a cost reduction program, continues to streamline its manufacturing processes and is formulating a strategy to respond to the digital marketplace. The Company also is focusing on a growth and diversification strategy to find alternative product lines to become less dependent on the theatre exhibition industry. However, no assurances can be given that this strategy will succeed or that the Company will be able to obtain adequate financing to take advantage of potential opportunities.

The principal raw materials and components used in the Company’s manufacturing processes include aluminum, reflectors, electronic subassemblies and sheet metal. The Company utilizes a single contract manufacturer for each of its intermittent movement components, reflectors, certain aluminum castings, lenses and xenon lamps. Although the Company has not to-date experienced a significant difficulty in obtaining these components, no assurance can be given that shortages will not arise in the future. The loss of any one or more of such contract manufacturers could have a short-term adverse effect on the Company until alternative manufacturing arrangements were secured. The Company is not dependent upon any one contract manufacturer or supplier for the balance of its raw materials and components. The Company believes that there are adequate alternative sources of such raw materials and components of sufficient quantity and quality.

Hedging and Trading Activities

The Company does not engage in any hedging activities, including currency-hedging activities, in connection with its foreign operations and sales. To date, all of the Company’s international sales have been denominated in U.S. dollars, exclusive of Strong Westrex, Inc. sales, which are denominated in Hong Kong dollars. In addition, the Company does not have any trading activities that include non-exchange traded contracts at fair value.

Off Balance Sheet Arrangements and Contractual Obligations

The Company’s off balance sheet arrangements consist principally of leasing various assets under operating leases. The future estimated payments under these arrangements are summarized below along with the Company’s other contractual obligations:

	Payments Due by Period
	Remaining in
Contractual Obligations	Total			2005		Thereafter

Long-term debt	$	59,600		14,900		44,700
Operating leases	167,623			68,815		98,808
Less sublease receipts	(80,029		)	(43,652	)	(36,377	)
Net contractual cash obligations	$	147,194		40,063		107,131

There are no other contractual obligations other than inventory and property, plant and equipment purchases in the ordinary course of business.

Seasonality

Generally, the Company’s business exhibits a moderate level of seasonality as sales of theatre products typically increase during the third and fourth quarters. The Company believes that such increased sales reflect seasonal increases in the construction of new motion picture screens in anticipation of the holiday movie season.

Environmental and Legal

See Note 2 to the consolidated financial statements, and Item 3 of this report, for a full description of all environmental and legal matters.

Inflation

The Company believes that the relatively moderate rates of inflation in recent years have not had a significant impact on its net revenues or profitability. The Company did experience higher than normal prices on certain metals and aluminum products during the year coupled with higher freight costs as freight companies passed on a portion of higher gas and oil costs. Historically, the Company has been able to offset any inflationary effects by either increasing prices or improving cost efficiencies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company markets its products throughout the United States and the world. As a result, the Company could be adversely affected by such factors as changes in foreign currency rates and weak economic conditions. In particular, the Company was impacted by the downturn in the North American theatre exhibition industry in fiscal years 2000 to 2002 in the form of lost revenues and bad debts. Additionally, as a majority of sales are currently denominated in U.S. dollars, a strengthening of the dollar can and sometimes has made the Company’s products less competitive in foreign markets. As stated above, the majority of the Company’s foreign sales are denominated in U.S. dollars except for its subsidiary in Hong Kong. The Company purchases the majority of its lenses from a German manufacturer. The strengthening of the Euro compared to the U.S. dollar made these purchases more expensive during 2004. Based on forecasted purchases during 2005, an average 10% devaluation of the dollar compared to the Euro would cost the Company approximately $98,000 per annum.

The Company has also evaluated its exposure to fluctuations in interest rates. If the Company would borrow up to the maximum amount available under its variable interest rate credit facility, a one percent increase in the interest rate would increase interest expense by $40,000 per annum. No amounts are currently outstanding under the credit facility. Interest rate risks from the Company’s other interest-related accounts such as its postretirement obligations are deemed to not be significant.

The Company has not historically and is not currently using derivative instruments to manage the above risks.

Item 4. Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective at ensuring that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (as amended) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.

PART II Other Information

Item 1. Legal Proceedings

A review of the Company’s current litigation is disclosed in Note 2 to the consolidated financial statements. Except as discussed in Note 2, the other legal proceedings to which the Company is a party are ordinary routine litigation matters incidental to the business.

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders on May 25, 2005. There were issued and outstanding and entitled to vote at the Annual Meeting 13,096,108 shares of common stock. There were present in person or by proxy, holders of record of shares of common stock representing 12,783,897 shares. The following matters were voted upon:

Proposal No. 1 - Election of Directors:

The election of the nominees for the Board of Directors who will serve for a three-year term was voted on by the Stockholders. The nominees, both of whom were elected, were Alvin Abramson and Marc E. LeBaron. The Inspector of Election certified the following vote tabulations:

	For	Withheld
Alvin Abramson	12,059,009	724,888
Marc E. LeBaron	12,113,948	669,949

Directors who did not stand for election at this meeting and whose term of office continued after the meeting are as follows:

John P. Wilmers
William F. Welsh II
Mark D. Hasebroock

Proposal No. 2 - A Company Proposal to Adopt the 2005 Employee Stock Purchase Plan:

The Inspector of Election certified the following vote tabulations:

For		Against		Abstain		Broker Non-Vote
5,465,185		727,875		40,247		6,550,590

The proposal passed with 87.7% of the voted shares being voted “For” the proposal.

Proposal No. 3 - A Company Proposal to Adopt the 2005 Outside Directors Stock Option Plan:

The Inspector of Election certified the following vote tabulations:

For		Against		Abstain		Broker Non-Vote
4,393,881		1,797,492		41,934		6,550,590

The proposal passed with 70.5% of the voted shares being voted “For” the proposal.

Proposal No. 4 - A Company Proposal to Adopt the 2005 Restricted Stock Plan:

The Inspector of Election certified the following vote tabulations:

For		Against		Abstain		Broker Non-Vote
4,903,690		1,284,116		45,501		6,550,590

The proposal passed with 78.7% of the voted shares being voted “For” the proposal.

Item 6. Exhibits

See the Exhibit Index on page 27.

SIGNATURES

Pursuant to 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.

BALLANTYNE OF OMAHA, INC.


By:	/s/ JOHN P. WILMERS	By:	/s/ BRAD J. FRENCH
	John P. Wilmers, President, Chief Executive Officer, and Director		Brad J. French, Secretary/Treasurer and Chief Financial Officer
Date:	August 12, 2005	Date:	August 12, 2005

EXHIBIT INDEX

4.3		Authorized Digital Cinema Reseller Master Agreement dated May 23, 2005, between the Company and NEC Solutions (America), Inc.•

10.1		2005 Restricted Stock Plan. (1)

10.2		2005 Outside Directors Stock Option Plan. (2)

10.3		2005 Employee Stock Purchase Plan. (3)

31.1		Rule 13a-14(a) Certification of Chief Executive Officer.•

31.2		Rule 13a-14(a) Certification of Chief Financial Officer.•

32.1		18 U.S.C. Section 1350 Certification of Chief Executive Officer.•

32.2		18 U.S.C. Section 1350 Certification of Chief Financial Officer.•

•		Filed herewith

(1)		Incorporated by reference to Appendix D to the Schedule 14A Definitive Proxy Statement for the Company’s 2005 Annual Meeting of Stockholders filed April 26, 2005.

(2)		Incorporated by reference to Appendix C to the Schedule 14A Definitive Proxy Statement for the Company’s 2005 Annual Meeting of Stockholders filed April 26, 2005.

(3)		Incorporated by reference to Appendix B to the Schedule 14A Definitive Proxy Statement for the Company’s 2005 Annual Meeting of Stockholders filed April 26, 2005.

EX-4.3 2 a05-13257_1ex4d3.htm EX-4.3

Exhibit 4.3

AUTHORIZED DIGITAL CINEMA RESELLER MASTER AGREEMENT

This DIGITAL CINEMA RESELLER Agreement (“Agreement”) is made as of May 23, 2005 (“Effective Date”), by and between NEC Solutions (America), Inc., a Delaware corporation having a place of business at 4111 West Alameda Avenue, Suite 412 Burbank, California 91505(hereinafter called “NEC”), and Ballantyne of Omaha, Inc., a Delaware corporation, having its principal place of business at 4350 McKinley Street, Omaha, Nebraska 68112 (“hereinafter referred to as RESELLER”). For purposes of this Agreement, RESELLER refers to RESELLER, its employees, contractors, and agents.

BACKGROUND

NEC markets digital cinema products, and cinema advertising products, related NEC Software (hereinafter referred to as “NEC Products” or “Products”), Services and CineCast Software. NEC Products and Services to be included under this Agreement shall be specified in Addendum A. NEC desires to obtain the services of RESELLER and RESELLER desires to provide services to NEC in accordance with the terms, conditions, and covenants set forth in this Agreement. Accordingly, in consideration of the mutual covenants and undertakings set forth herein, the parties hereby agree as follows:

AGREEMENT

1. APPOINTMENT AND ACCEPTANCE

1.1 NEC hereby appoints RESELLER as an authorized, non-exclusive RESELLER of NEC Products, Services, and CineCast Software in the Territory.

1.2 Territory is the United States of America, Canada, Central and South America, and the Caribbean Islands.

1.3 RESELLER’s appointment is made solely for the purpose of resale of the PRODUCTS to end-user customers. Prices and additional Terms and Conditions for applicable PRODUCTS are set forth in the Addendum(a).

1.4 Other specified products may be added as PRODUCTS by NEC during the Term of this Agreement or any renewal hereof. Those PRODUCTS may be subject to additional terms and requirements as determined by NEC. NEC is not obligated to add any additional products and NEC reserves the right at any time to change, modify, or discontinue any model or type of PRODUCTS.

1.5 NEC will have the right, from time to time, at its sole discretion, to increase or decrease the number of authorized NEC resellers in the vicinity of RESELLER’s authorized location(s) or elsewhere without advance notice to RESELLER.

1.6 RESELLER accepts its appointment hereunder.

2. RESPONSIBILITIES OF RESELLER

2.1 RESELLER will represent to all of its present and future customers that NEC is the digital cinema solutions provider of RESELLER’s choice for digital cinema products, cinema advertising products and services. RESELLER will use best efforts to market and sell NEC Products, Services and CineCast Software.

Digital Cinema Reseller Agreement

May 2005

2.2 RESELLER shall employ and maintain adequately trained and competent office and sales personnel in numbers sufficient to carry out and perform properly and fully all of RESELLER’s obligations and responsibilities under this Agreement.

2.3 RESELLER shall furnish NEC, at intervals prescribed by NEC, with sales call reports, sales forecasts, and such other information pertinent to RESELLER’s performance hereunder as NEC may request.

2.4 RESELLER shall keep NEC informed as to competitive and economic conditions within the market channels which may affect the marketing or sales of NEC Products or Services.

2.5 RESELLER shall make best efforts to attend meetings and trade shows required by NEC.

2.6 In the event that RESELLER becomes aware of any actual or potential claim against NEC by any person or entity, RESELLER shall notify NEC immediately.

2.7 RESELLER and its staff at all times shall conduct themselves in a manner consistent with the high image, reputation, and credibility of NEC and shall engage in no activities which reflect adversely on NEC.

2.8 RESELLER shall comply with all applicable federal, state, and local laws and regulations in performing its responsibilities hereunder.

3. COMPETITIVE PRODUCTS

3.1 Unless authorized by NEC in writing, RESELLER shall not at any time during the term of this Agreement, act as a reseller or otherwise sell or promote any other digital cinema projectors.

4. TAXES

4.1 Prices are exclusive of all sales, use and like taxes. RESELLER will pay all taxes associated with the sale and licensing of all NEC PRODUCTS purchased or licensed under this Agreement exclusive of taxes based on NEC’s income. Any taxes will be in addition to the prices of the PRODUCTS and if required to be collected or paid by NEC, will be reimbursed by RESELLER to NEC. If claiming a sales tax exemption, RESELLER must provide that information to NEC at the time it submits this Agreement and provide NEC with valid tax exemption certificates for those states where deliveries are to be made at the time RESELLER’s purchase order is submitted.

5. PURCHASE ORDERS, SHIPMENTS, CANCELLATIONS & CHANGES

5.1 Each of RESELLER’s orders is subject to NEC’s acceptance or rejection. In addition to any specific rights of rejection set forth in this Agreement, NEC will have the right, for any reason whatsoever, to reject any order, in whole or in part.

5.2 To receive PRODUCTS, RESELLER must deliver to NEC a hard copy purchase order or follow the procedure set forth in Section 5.2(a). All RESELLER purchase orders must reference the assigned customer number. NEC reserves the right to reject any order which is not NEC credit-approved or does not conform with the provisions of this Agreement. All orders accepted for delivery will be governed exclusively by the terms and conditions of this Agreement. Unless NEC expressly agrees in writing, no additional or different terms and conditions appearing on the face or reverse side of any order issued by RESELLER will become part of that order. Acknowledgment of RESELLER’s purchase order by NEC will not constitute acceptance of any additional or different terms and conditions.

a. In the event that RESELLER elects the following procedure, then in lieu of submitting a hard copy purchase order, RESELLER may order PRODUCTS by submitting a purchase order via facsimile machine or other electronic means

acceptable to NEC. By executing this Agreement, RESELLER authorizes NEC to accept orders communicated to NEC by facsimile machine or other electronic means acceptable to NEC. All those orders described in this Section 5.2 will be binding upon RESELLER and are subject to acceptance by NEC.

b. The authorization to accept orders as described in Section 5.2(a) will remain in effect until NEC’s Sales Order Administration Department receives written notification by certified mail terminating that procedure. Unless NEC agrees otherwise in writing, no termination of this procedure will affect or cancel any order which has been accepted or shipped by NEC.

5.3 Unless otherwise stated in the applicable Product Addendum(a) attached hereto, for standard PRODUCT, RESELLER may cancel a shipment or request changes in a scheduled shipment date at no charge up to five (5) business days prior to shipment. In the event RESELLER cancels a shipment within five (5) business days of shipment, a change order of five percent (5%) of the shipment’s price will be levied. No cancellation or change may be made after shipment.

5.4 Shipments are subject to availability. NEC will use reasonable efforts to meet any scheduled shipment date, but reserves the right to schedule and/or reschedule any order, at its discretion. NEC will not be liable for delay in meeting a scheduled shipment date for any reason. If PRODUCTS are in short supply, NEC will allocate them equitably, at NEC’s discretion, among resellers and all other sales channels. NEC will have the right to make partial shipments with respect to RESELLER’s orders, which shipments will be invoiced separately and paid for when due, without regard to subsequent shipments. Delay in shipment or delivery of any particular installment will not relieve RESELLER of its obligation to accept the remaining installments. NEC WILL NOT BE LIABLE TO RESELLER FOR ANY DAMAGES, WHETHER INCIDENTAL, CONSEQUENTIAL, OR OTHERWISE FOR FAILURE TO FILL ORDERS, DELAYS IN SHIPMENT OR DELIVERY, OR ANY ERROR IN THE FILLING OF ORDERS, REGARDLESS OF THE CAUSE.

5.5 All PRODUCTS shall be delivered to RESELLER F.O.B. Origin. Transportation costs, insurance coverage and all other expenses applicable to shipment from NEC to RESELLER’s identified delivery place will be the responsibility of RESELLER. Upon transfer to the common carrier, title to all PRODUCTS shall pass to RESELLER (except that Title to all Licensed Programs remains in NEC or its licensor) and all risk of loss or damage to the PRODUCTS shall be borne by RESELLER.

6. PRICE AND PAYMENT TERMS

6.1 Prices for the PRODUCTS purchased/licensed under this Agreement will be as specified in the applicable NEC price list prevailing at the time NEC receives a purchase order. In the event of a price increase, RESELLER may cancel any unshipped orders by written notice to NEC within ten (10) days of receipt of notice of the price increase.

6.2 Subject to credit approval by NEC, payment is due within thirty (30) days from the date of invoice.

7. RELATIONSHIP OF THE PARTIES

7.1 RESELLER acknowledges that it has its own independently established business which is separate and apart from NEC’s business. RESELLER shall, at all times, be considered an independent contractor with respect to its relationship with NEC. Nothing contained in this Agreement shall be deemed to create the relationship of employer and employee, master and servant, franchiser and franchisee, partnership or joint venture between the parties.

7.2 Any commitment made by RESELLER or its selling locations to its end-user customers with respect to quantities, delivery, modification, interfacing capability, suitability of software or hardware, or suitability of the PRODUCTS in specific applications will be RESELLER’s sole responsibility, unless prior written approval is obtained from an officer of NEC. RESELLER has no authority to modify any warranty or end user license agreement contained in this Agreement or the Product Addendum(a) or make any other commitment on behalf of NEC, and RESELLER will indemnify, defend and hold NEC harmless from any liability, suit or proceeding for any modified warranty or other commitment made by RESELLER or its selling locations.

8. CREDIT AND FINANCIAL REQUIREMENTS

8.1 RESELLER represents and warrants to NEC that RESELLER is in a good and substantial financial condition and is able to pay all bills when due. RESELLER will, from time to time, furnish any financial statements or additional information as may be requested by NEC to enable NEC to determine RESELLER’s financial condition.

8.2 RESELLER, at all times, will comply with the terms, conditions and policies established by the Credit Department of NEC, including, but not limited to, those set forth in the NEC Credit Application, applicable Guaranties and Security Agreement(s). If NEC extends credit to RESELLER, those agreements are incorporated by reference.

8.3 NEC, at its option, may extend credit to RESELLER or may require, at any time, that sales be made on an advance-payment basis if, in NEC’s sole judgment, RESELLER does not qualify for credit. If credit is extended, NEC will have the right to establish credit limits for RESELLER and to change those credit limits or any other financial requirements, from time to time, at NEC’s sole discretion.

8.4 Sales will be made on the payment terms in effect at the time that an order is accepted, and RESELLER will pay all invoices when due. RESELLER will refrain from making deductions of any kind from any payments due NEC unless a credit memorandum has been issued by NEC to RESELLER. No payment by RESELLER to NEC of any lesser amount than that due to NEC will be deemed to be other than a payment on account, and no endorsement or statement on any check or in any letter accompanying any check or other payment will be deemed an accord and satisfaction. NEC may accept any payment without prejudice to NEC’s right to recover any remaining balance or to pursue any other remedy provided in this Agreement, in any Security Agreement(s) executed by the parties, or by applicable law.

8.5 If RESELLER becomes delinquent in payment obligations or other credit or financial requirements established by NEC, or, if in the sole judgment of NEC, RESELLER’s credit becomes impaired, NEC will have any or all of the following rights and remedies in addition to any other rights and remedies provided in this Agreement, in any Security Agreement(s) executed by the parties, or by applicable law:

a. NEC may refuse to accept any new orders, may cancel or delay shipment of any orders accepted previously, or may stop any shipments in transit whereupon, the parties agree that title to those PRODUCTS will revert to NEC. RESELLER will pay NEC the difference between the amounts originally owed for those PRODUCTS and the amount for which NEC is able to sell those PRODUCTS.

b. If NEC previously has extended credit to RESELLER, and NEC elects to make further sales to RESELLER, NEC may refuse to extend further credit and may require payment on an advance-payment basis.

c. NEC may declare all outstanding amounts immediately due and payable, notwithstanding any credit terms previously in effect.

8.6 NEC WILL NOT BE LIABLE TO RESELLER FOR LOSSES OR DAMAGES OF ANY KIND AS A RESULT OF THE EXERCISE BY NEC OF ITS RIGHTS AND REMEDIES HEREUNDER.

8.7 INTEREST WILL ACCRUE ON ALL DELINQUENT AMOUNTS AT THE RATE OF ONE AND ONE-HALF PERCENT (1½%) PER MONTH (EIGHTEEN PERCENT [18%] PER ANNUM) FROM THE DUE DATE OF INVOICE. However, if the maximum rate of interest permitted by applicable law or regulations is less than that provided for herein, then the interest will be reduced to the maximum allowable rate.

8.8 In the event that it becomes necessary for NEC to institute litigation to collect sums owed by RESELLER, NEC will be entitled to an award of reasonable attorneys’ fees and costs incurred by NEC in connection with the litigation, if a judgment in NEC’s favor is entered in the litigation.

9. RESELLER’S BUSINESS EXPENSES

9.1 RESELLER shall bear the entire responsibility for any and all expenses incurred in connection with its business (including, but not limited to, leasehold expenses, salaries, telephone, and traveling expenses), and NEC shall not be obligated to pay any such expenses or to reimburse RESELLER unless otherwise agreed to in writing between the parties.

10. LIMITED WARRANTY

10.1 NEC extends a limited warranty solely to end-user customers for NEC Products as set forth in the Limited Warranty Statement accompanying each NEC Product. Limited warranties as they pertain to NEC’s Software are contained in the applicable End User License Agreement or maintenance agreements. The CineCast Software is provided AS IS, AS AVAILABLE and WITH ALL FAULTS.

10.2 RESELLER will make no warranty representation on NEC’s behalf beyond those contained in the applicable Limited Warranty Statement. The warranty shall commence when the PRODUCTS are resold and/or licensed to the end-user by RESELLER, subject to the terms and conditions of the Limited Warranty Statement. NEC makes no warranty to RESELLER with respect to the PRODUCTS. In the event any PRODUCT fails to operate, according to NEC’s specifications, prior to being resold to an end-user, RESELLER’s exclusive remedy and NEC’s sole responsibility shall be (1) to repair the PRODUCT or (2), the return and replacement of the PRODUCT in accordance with NEC’s then prevailing policy.

10.3 The above warranty is contingent upon the proper use of the PRODUCTS and will not apply to PRODUCTS on which the original identification marks have been removed or altered. In addition, this warranty shall not apply to defects or failure due to: (i) accident, neglect or misuse; (ii) failure or defect of electrical power, external electrical circuitry, air-conditioning or humidity control; (iii) the use of items not provided by NEC; (iv) unusual stress; (v) any party other than NEC or an authorized NEC representative modifying, adjusting, repairing, servicing or installing the PRODUCT.

10.4 EXCEPT FOR THE EXPRESS WARRANTY CONTAINED IN THE LIMITED WARRANTY STATEMENT ACCOMPANYING THE PRODUCT, NEC DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. NO REPRESENTATION OR OTHER AFFIRMATION OF FACT, INCLUDING, BUT NOT LIMITED TO, STATEMENTS REGARDING CAPACITY, SUITABILITY FOR USE OR PERFORMANCE OF PRODUCTS, WHETHER MADE BY NEC’S EMPLOYEES OR OTHERWISE, WHICH IS NOT CONTAINED IN THIS AGREEMENT, SHALL NOT BE DEEMED TO BE A WARRANTY BY NEC FOR ANY PURPOSE, OR GIVE RISE TO ANY LIABILITY OF NEC WHATSOEVER. THE WARRANTIES AND CORRESPONDING REMEDIES AS STATED IN THIS SECTION ARE EXCLUSIVE AND IN LIEU OF ALL OTHERS WRITTEN OR ORAL.

11. CONFIDENTIAL INFORMATION

11.1 In the performance of this Agreement, each party may have access to confidential, proprietary or trade secret information owned or provided by the other party relating to products, marketing plans, business plans, financial information, specifications, flow charts and other data (“Confidential Information”). All Confidential Information supplied by one party to another pursuant to this Agreement shall remain the exclusive property of the disclosing party. The receiving party shall use such Confidential Information only for the purposes of this Agreement and shall not copy, disclose, convey or transfer any of the Confidential Information or any part thereof to any third party. Neither party shall have any obligation with respect to Confidential Information which: (i) is or becomes generally known to the public by any means other than a breach of the obligations of a

receiving party; (ii) was previously known to the receiving party; or (iii) is independently developed by the receiving party.

12. TRADEMARKS

12.1 RESELLER shall not use any NEC owned or licensed trademark or trade name in a way that implies RESELLER is an agency or branch of NEC. RESELLER will immediately change or discontinue any use as requested by NEC.

12.2 RESELLER shall not register or use any NEC owned or licensed trademark or trade name, in whole or in part, as a domain name on the Internet without prior written approval of NEC.

12.3 RESELLER has no right, title or interest in any NEC trademark or trade name and is not authorized to use any NEC trademark or trade name other than the designated trademarks. Any rights in any NEC trademark or trade name acquired through RESELLER’S use belong solely to NEC. Upon termination of this Agreement, RESELLER will discontinue any representations that it is an Authorized RESELLER.

13. CHANGES

13.1 NEC reserves the right at any time to change, modify, or discontinue any model or type of Products or Services but will provide at least thirty days notice to RESELLER.

14. DURATION OF AGREEMENT/TERMINATION

14.1 This Agreement shall become effective as of the Effective Date and shall remain in full force and effect for an initial term of three years and, unless terminated sooner as hereinafter provided, shall automatically renew for additional twelve (12) month successive term(s). NEITHER PARTY SHALL BE OBLIGATED TO EXTEND THE DURATION OF THIS AGREEMENT UPON THE EXPIRATION OF THE INITIAL TERM OR ANY SUCCEEDING TERM.

14.2 Either RESELLER or NEC may terminate this Agreement without cause at any time during the initial term or any succeeding term. If the termination is without cause, ninety (90) days advance written notice must be provided by the terminating party to the other party. Each party acknowledges that such period is adequate to allow it to take all actions required to adjust its business operations in anticipation of termination.

14.3 Either party may terminate this Agreement if the other party commits a breach of any obligation hereunder which is not remedied within thirty (30) days of receipt of written notice specifying that breach. Cause includes but is not limited to the following: termination by either party if the other party assigns or attempts to assign this Agreement, except as permitted hereunder, liquidates or terminates its business, is adjudicated as bankrupt, makes an assignment for the benefit of creditors, invokes the provisions of any law for the relief of debtors, or files or has filed against it any similar proceeding.

14.4 Upon expiration or termination of this Agreement, RESELLER shall cease holding itself out in any fashion as a RESELLER for NEC, and shall return to NEC, all sales literature, price lists, customer lists, and any other documents, materials, or tangible items pertaining to NEC’s business.

14.5 Termination of this Agreement or Addendum(a) will not affect any of RESELLER’s pre-termination obligations, including, but not limited to, any outstanding payment obligations hereunder. Any termination of this Agreement or Addendum(a) will be without prejudice to the enforcement of any undischarged obligations owing NEC existing at the time of termination.

14.6 Upon any termination of this Agreement, any orders outstanding and unshipped as of the termination date will be deemed canceled, and NEC will have no obligation to fill same. Notwithstanding the foregoing, NEC shall be obligated to fill all orders accepted prior to receipt of the notice of cancellation provided that that this Agreement is not terminated by NEC for cause. If this Agreement is terminated by either party with advance notice, NEC will have the right to reject

all or part of any orders received from RESELLER during the period after notice but prior to the effective date of termination (hereinafter called “the final period”) if availability of the PRODUCTS is insufficient at that time to meet the needs of NEC and its customers fully. In any event, NEC may limit shipments during the final period to an amount not exceeding RESELLER’s average monthly purchases from NEC during the three (3) months prior to the month in which notice of termination is provided. Notwithstanding any credit terms made available to RESELLER prior to that time, any of the PRODUCTS shipped by NEC to RESELLER during the final period must be paid for by certified or cashier’s check prior to shipment.

14.7 Within ten (10) days following the effective date of any termination of this Agreement, RESELLER will submit to NEC, if requested by NEC, a list of all PRODUCTS sold by NEC to RESELLER and remaining in RESELLER’s inventory as of that effective date. NEC will have the option to repurchase any or all of those PRODUCTS, but will not be required to do so. If NEC desires to exercise its option hereunder, it will notify RESELLER within thirty (30) days after receipt of the PRODUCT list from RESELLER. Upon receipt of notice, RESELLER, at its expense, will cause those PRODUCTS selected by NEC for repurchase to be delivered to those location(s) in the U.S.A. as NEC may designate. NEC will have the right to inspect all returned merchandise before establishing final disposition, and will be entitled to reject and return to RESELLER, freight collect, any PRODUCTS which, in NEC’s sole judgment, are in unacceptable condition. RESELLER will be credited for any accepted PRODUCTS at prices agreed upon between the parties, but in no event will the credit be greater than the respective prices paid by RESELLER for those PRODUCTS, less the costs of any necessary repair, refurbishing or repackaging.

14.8 THIS AGREEMENT IS EXECUTED BY BOTH NEC AND RESELLER WITH THE KNOWLEDGE THAT IT MAY BE TERMINATED OR NOT RENEWED. NEITHER RESELLER NOR NEC SHALL BE LIABLE TO THE OTHER FOR COMPENSATION, REIMBURSEMENT FOR EXPENSES, LOST PROFITS, INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES OF ANY OTHER KIND OR CHARACTER, BECAUSE OF ANY EXERCISE OF ITS RIGHT TO TERMINATE THIS AGREEMENT AS PROVIDED HEREUNDER, OR BECAUSE OF ANY ELECTION TO REFRAIN FROM EXTENDING THE DURATION OF THIS AGREEMENT UPON THE EXPIRATION OF THE INITIAL TERM OR ANY SUCCEEDING TERM.

15. OPTIONAL PROGRAMS

15.1 NEC may, from time to time, but with no obligation to do so, offer various programs (“Programs”) as defined in those Program Guides, to its Resellers, such as, but not limited to, Soft Dollar Programs, Promotions and Rebates. If RESELLER elects to participate in any type of Program(s) offered by NEC to its Resellers, then RESELLER agrees to comply with and be governed by the terms and conditions of those Program(s), including any policies and procedures applicable thereto. In all cases where participating in those Program(s) may require RESELLER to enter into separate agreements with third parties, or where those Programs are administered by third parties, RESELLER agrees that NEC will have no liability arising out of or in connection with that Program.

16. RESERVED.

17. GOVERNMENT EXPORT RESTRICTION

17.1 RESELLER agrees that the PRODUCTS purchased hereunder will not be exported directly or indirectly, separately or as part of a system without first obtaining a license from the U.S. Department of Commerce or any other appropriate agency of the U.S. Government, as required. RESELLER also acknowledges that the PRODUCT may contain crypotographic material that may be subject to US export laws and/or subject to other countries’ import and export laws. The RESELLER will be solely responsible for complying with any export or import restrictions.

18. GOVERNMENT PROCUREMENT

18.1 No United States Government procurement terms and conditions will be deemed included hereunder or binding on either party, unless specifically accepted in writing and signed by both parties.

19. INDEMNITY AND LIMITATION OF LIABILITY

19.1 RESELLER agrees to and does hereby fully indemnify, defend and hold harmless NEC, its parent, subsidiaries and affiliates and the officers, directors, and employees, (hereinafter referred to in this paragraph as “the Indemnified Parties”), at RESELLER’s own expense, from and against any claim, suit, cause of action, proceeding or liability (including without limitation, reasonable attorneys’ fees and court costs), brought against any of the Indemnified Parties by a third party directly or indirectly based upon or related to any breach by RESELLER of this Agreement or any other omissions or acts of RESELLER, its employees or agents, which are outside the scope of RESELLER’s authority hereunder. NEC shall notify RESELLER in writing of such claim and provide RESELLER reasonable assistance (at RESELLER’s expense) for the defense of the same. RESELLER shall pay all damages or settlements resulting from the claim, but RESELLER shall not be responsible for any settlement made without RESELLER’s prior written consent. NEC reserves the right to participate in any such litigation with counsel of its own choosing, at NEC’s own expense.

19.2 NEC will defend RESELLER against a claim that a digital cinema hardware product or a cinema advertising hardware product (“Hardware Product”) supplied hereunder infringes a U.S. patent or copyright and NEC will pay any resulting cost, damages, and reasonable attorneys’ fees finally awarded, if RESELLER promptly notifies NEC in writing of the claim, NEC is given sole control of the defense and all related settlement negotiations, and RESELLER provides NEC complete information concerning the claim.

19.3 If any Hardware Product becomes or in NEC’s opinion is likely to become the subject of such a claim, RESELLER will permit NEC, at its option and expense, either to procure the right for RESELLER to continue using the Hardware Product or to replace or modify the same so that it becomes non-infringing; and if neither of the foregoing alternatives is available on terms that are commercially reasonable in NEC’s sole judgment, RESELLER will return the Hardware Product on written request by NEC. NEC agrees to grant RESELLER a credit for returned Hardware Product as depreciated. The depreciation will be an equal amount per year over the life of the Hardware Product as established by NEC. The parties acknowledge and agree that NEC’s obligation under this Section 17 is conditioned on RESELLER’s agreement to the foregoing.

19.4 NEC will have no obligation to RESELLER under this Section 17 if any patent or copyright infringement or claim thereof is based upon: (i) use of any Hardware Product in connection or in combination with equipment, software or devices not supplied by NEC; or (ii) RESELLER’s use of a Hardware Product other than it is intended; or (iii) the unauthorized modification of the Hardware Product by RESELLER; or (iv) NEC’s compliance with RESELLER’s designs, specifications or instructions. RESELLER will indemnify, defend and hold harmless NEC from any loss, cost or expense suffered or incurred in connection with any suit, claim or proceeding brought against NEC which arises from any claim related to or arising from subsections (i) – (iv) of this Section 17.4.

19.5 The parties acknowledge and agree that the foregoing states NEC’s entire liability for patent and copyright infringements by Hardware Products furnished under this Agreement.

19.6 NOTWITHSTANDING ANY PROVISION TO THE CONTRARY, THE MAXIMUM LIABILITY OF NEC TO RESELLER, ITS CUSTOMERS OR ANY PERSON WHATSOEVER ARISING OUT OF THIS AGREEMENT OF OR IN CONNECTION WITH ANY SALE, LICENSE, USE OR OTHER EMPLOYMENT OF THE NEC PRODUCTS OR SERVICES, WHETHER SUCH LIABILITY ARISES FROM ANY CLAIM BASED UPON CONTRACT, WARRANTY, TORT, OR OTHERWISE, SHALL IN NO CASE EXCEED THE ACTUAL AMOUNTS PAID BY RESELLER TO NEC WITHIN THE PREVIOUS TWELVE MONTHS OF NEC’S ACKNOWLEDGMENT OF THE CLAIM. IN NO EVENT SHALL NEC BE LIABLE TO RESELLER FOR ANY SPECIAL, INDIRECT, RELIANCE, INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR FOR ANY DAMAGES RESULTING FROM

LOSS OF USE, DATA OR PROFITS, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.

20. FORUM FOR DISPUTES AND WAIVER OF JURY TRIAL

20.1 If, during the term of this Agreement, or at any time after its termination, either NEC or RESELLER commences a suit, action, or other legal proceedings against the other, its officers, agents, employees, and/or ex-employees, arising out of or in connection with this Agreement, the breach thereof, or to its termination, whether or not other parties are also named therein, the forum for the same, including but not limited to, the forum of the trial, shall take place in accordance with this Section. Any such action shall be brought exclusively in the appropriate state or federal courts located in the County of Santa Clara, State of California.

20.2 In the event that either NEC or RESELLER brings suit against the other party for any matter arising out of or in connection with this Agreement and the party which is sued is ultimately adjudicated to not have liability, then the party bringing suit agrees to pay the other party’s reasonable attorneys’ fees and litigation costs.

20.3 THE PARTIES MUTUALLY ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY RELATING IN ANY MANNER TO THIS AGREEMENT, ANY BREACH OF THIS AGREEMENT OR ITS TERMINATION MAY INVOLVE DIFFICULT OR COMPLEX ISSUES WHICH MAY BETTER BE UNDERSTOOD BY A JUDGE RATHER THAN A JURY. ACCORDINGLY, THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL IN CONNECTION WITH ANY SUCH LITIGATION AND CONSENT TO A TRIAL BEFORE A JUDGE SITTING WITHOUT A JURY.

21. APPLICABLE LAW

21.1 This Agreement shall be governed and construed in all respects in accordance with the laws of the State of California, without giving effect to conflict of laws provisions.

22. MISCELLANEOUS

22.1 Assignment. RESELLER is appointed as one of NEC’s RESELLERS because of NEC’s confidence in RESELLER, which confidence is personal in nature. RESELLER may not assign, transfer, or sell all or any of its rights under this Agreement (or delegate all or any of its obligations hereunder) without the prior written consent of NEC. NEC may assign this Agreement only to a parent, subsidiary, or affiliated firm, or to another entity in connection with the sale or other transfer of all or substantially all of its business assets. Subject to these restrictions, the provisions of this Agreement shall be binding upon and inure to the benefit of the parties, their successors, and permitted assigns.

22.2 Notices. Unless otherwise agreed to by the parties, all notices required under this Agreement shall be made personally or by certified mail, return receipt requested, and all notices shall be addressed to the attention of the party executing the Agreement or its successor; provided, however, that notices of PRODUCT, price and/or discount changes shall be made by regular first-class mail.

Notices will be addressed to the attention of:

If to NEC:		If to RESELLER:

NEC Solutions (America), Inc.		Ballantyne of Omaha, Inc.
Contracts Administration		John Wilmers
10850 Gold Center Drive, Suite 200		4350 McKinley St.
Rancho Cordova, CA 95760		Omaha, NE 68112

With a copy to:
NEC Solutions (America), Inc.

Digital Cinema Division
4111 West Alameda Avenue, Suite 412
Burbank, CA 91505

22.3 Waiver. Either party’s failure to enforce any provision of this Agreement will not be deemed a waiver of that provision or of the right to enforce it in the future.

22.4 Force Majeure. Neither party shall be liable for its failure to perform hereunder due to “Force Majeure” conditions which shall be defined as contingencies beyond a party’s reasonable control, including, but not limited to, weather conditions, strikes, riots, wars, fire, acts of God, or acts in compliance with any law, order proclamation, regulation, ordinance, demand or requirement of any governmental agency. A party whose performance is prevented, restricted or interfered with by reason of a Force Majeure condition shall be excused from such performance to the extent of such Force Majeure condition so long as such party provides the other party with prompt written notice describing the Force Majeure condition and immediately continues performance whenever and to the extent such causes are removed.

22.5 Headings and Interpretation. The paragraph headings contained herein are for reference only and shall not be considered as substantive parts of this Agreement. The use of a singular or plural form shall include the other form, and the use of a masculine, feminine or neuter gender shall include the other genders.

22.6 Severability. In the event that any of the provisions of this Agreement or the application of any such provisions to the parties hereto with respect to their obligations hereunder shall be held by a tribunal of competent jurisdiction to be unlawful or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected, impaired, or invalidated in any manner.

22.7 Entire Agreement. This Agreement supersedes any and all other agreements, either oral or written, between the parties hereto with respect to the subject matter hereof, and contains all of the covenants and agreements between the parties with respect to said subject matter. Each party to this Agreement acknowledges that no oral or written representations, inducements, promises or agreements have been made which are not embodied herein. Except as otherwise provided in this Agreement, this Agreement may not be amended, modified or supplemented, except by a written instrument signed by both parties hereto.

22.8 Counterparts. If this Agreement has been executed in multiple counterparts, each of which shall be deemed enforceable, without production of the others.

22.9 Authority. If RESELLER is a sole proprietorship, the person executing this Agreement represents that he or she is the sole proprietor thereof. If RESELLER is a partnership or corporation, the person executing this Agreement represents that he or she is either a general partner or a duly authorized corporate officer, as the case may be, and that he or she has full authority to enter into this Agreement on behalf of such partnership or corporation.

22.10 Audit. RESELLER will maintain (and provide to NEC upon request with reasonable advance notice) relevant business and accounting records to support purchases made under this Agreement for a period of time as required by local law, but not for less than three (3) years following completion or termination of this Agreement. All accounting records will be maintained in accordance with generally accepted accounting principles.

22.11 Survival. Any provision contained in this Agreement that, by its nature, is intended to survive the expiration or termination of this Agreement shall so survive, including, but not limited to, Sections 9, and 17-20.

22.12 Order of Precedence. In the event of conflict between any of the provisions of this Agreement, the Order of Precedence shall be as follows:

a) Addendum “A”- Products

b) Master Reseller Agreement;

c) Special Addenda (when applicable).

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date first set forth above.

ACCEPTED BY:	NEC SOLUTIONS (AMERICA), INC.

Ballantyne of Omaha, Inc.	/s/ Kurt W. Schwenk
RESELLER’s Full Legal Name	Authorized Signature
/s/ John Wilmers	Kurt W. Schwenk
Authorized Signature	Print Name
John Wilmers	General Manager DCD
Print Name	Title
President & CEO	May 25, 2005
Title	Date
May 23, 2005
Date

EX-31.1 3 a05-13257_1ex31d1.htm EX-31.1

Exhibit 31.1

CERTIFICATION

I, John P. Wilmers, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2005 of Ballantyne of Omaha, Inc.;

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 statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present 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(s) 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-15(f) and 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 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 controls 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 controls over financial reporting.

	By:	/s/ JOHN P. WILMERS
		John P. Wilmers
		President, Chief Executive Officer

August 12, 2005

EX-31.2 4 a05-13257_1ex31d2.htm EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brad French, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2005 of Ballantyne of Omaha, Inc.;

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

	By:	/s/ BRAD J. FRENCH
		Brad J. French
		Chief Financial Officer

August 12, 2005

EX-32.1 5 a05-13257_1ex32d1.htm EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, John P. Wilmers, Chief Executive Officer of Ballantyne of Omaha, Inc. (the “Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (the “Report”).

The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to his knowledge that:

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

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

IN WITNESS WHEREOF, the undersigned has executed this certification as of the 12^th day of August 2005.

	/s/ John P. Wilmers
John P. Wilmers
Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Ballantyne of Omaha, Inc. and will be retained by Ballantyne of Omaha, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 6 a05-13257_1ex32d2.htm EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, Brad J. French, Chief Financial Officer of Ballantyne of Omaha, Inc. (the “Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (the “Report”).

The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to his knowledge that:

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

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

IN WITNESS WHEREOF, the undersigned has executed this certification as of the 12^th day of August 2005.

	/s/ Brad J. French
Brad J. French
Chief Financial Officer

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